<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
/X/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MERCANTILE BANCORPORATION INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
A fee of $2,119,494 was paid with the preliminary proxy statement filed on
May 28, 1999.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
[LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Firstar Corporation and Mercantile Bancorporation
Inc. have agreed to combine Firstar and Mercantile. This proposed strategic
business combination will create the second largest banking franchise in the
Midwest and one of the leading financial services corporations in the nation,
while diversifying and improving the range of business lines through which we
will serve our customers. We bring together two highly complementary
institutions to create a strategically, operationally and financially strong
company that is positioned for further growth.
Our combined company will provide a full line of consumer banking,
commercial banking and trust and investment management services and products to
more than 5 million customers through nearly 1,200 branch locations in a compact
nine-state region of the Midwest, as well as in Tennessee, Arkansas, Arizona,
and Florida. Based on our March 31, 1999 financial data, the combined company
will have assets of more than $73 billion, deposits of $53 billion, assets under
management of $67 billion and a market capitalization of $32 billion.
In the merger, Mercantile will merge with and into Firstar, with Firstar as
the surviving corporation. Each share of Mercantile common stock that you hold
will entitle you to receive 2.091 shares of Firstar common stock. Each share of
Firstar common stock that you hold will remain outstanding as a share of common
stock of the combined company.
We can't complete the merger unless we obtain the necessary government
approvals and unless the shareholders of both our companies approve it. Each of
us will hold a special meeting of our shareholders to vote on this merger
proposal. YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
shareholder meeting, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you are a Mercantile shareholder, you also have
the option of delivering your proxy by telephone or by internet transmission. If
you date and send your proxy card without indicating how you want to vote, your
proxy will be counted as a vote FOR the merger. If you don't return your card or
otherwise vote, or if you don't instruct your broker how to vote any shares held
for you in your broker's name, the effect will be a vote against the merger.
The places, dates and times of the special meetings are as follows:
<TABLE>
<S> <C>
FOR FIRSTAR SHAREHOLDERS: FOR MERCANTILE SHAREHOLDERS:
Grand Ballroom of the Pfister Hotel Mercantile Bancorporation Inc.
424 E. Wisconsin Avenue 7th and Washington
Milwaukee, Wisconsin 53202 One Mercantile Center
Wednesday, July 28, 1999, 9:00 a.m., local time St. Louis, Missouri 63101
Wednesday, July 28, 1999, 9:00 a.m., local time
</TABLE>
This document gives you detailed information about the merger we are
proposing, and it includes our merger agreement as an appendix. You can also get
information about our companies from publicly available documents we have filed
with the Securities and Exchange Commission. We encourage you to read this
entire document carefully.
The common stocks of both Firstar and Mercantile are listed on the NYSE.
Firstar is listed under the symbol "FSR," and Mercantile is listed under the
symbol "MTL."
We enthusiastically support this combination of two of the premier
franchises in the financial services industry and join with the other members of
our Boards of Directors in recommending that you vote in favor of the merger.
<TABLE>
<S> <C>
/s/ JERRY A. GRUNDHOFER /s/ THOMAS H. JACOBSEN
Jerry A. Grundhofer Thomas H. Jacobsen
President and Chief Executive Officer Chairman, President and Chief Executive Officer
Firstar Corporation Mercantile Bancorporation Inc.
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THE SECURITIES TO BE ISSUED UNDER THIS DOCUMENT OR DETERMINED IF THIS
DOCUMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE SECURITIES WE ARE OFFERING THROUGH THIS DOCUMENT ARE NOT
SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK
SUBSIDIARY OF EITHER OF OUR COMPANIES, AND THEY ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY.
JOINT PROXY STATEMENT-PROSPECTUS DATED JUNE 21, 1999
AND FIRST MAILED TO SHAREHOLDERS ON JUNE 24, 1999
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Firstar and Mercantile from documents that are not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain documents related to
Firstar and Mercantile that are incorporated by reference in this document by
requesting them in writing or by telephone at the following address and
telephone number:
<TABLE>
<S> <C>
FIRSTAR MERCANTILE
Investor Relations Investor Relations, Tram 14-2
Firstar Corporation Mercantile Bancorporation Inc.
777 East Wisconsin Avenue 7th and Washington
Milwaukee, Wisconsin 53202 One Mercantile Center
Telephone (414) 765-4325 St. Louis, Missouri 63101
Telephone (314) 418-1359
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JULY 21, 1999 IN
ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETINGS.
See "Where You Can Find More Information" on page 92.
<PAGE>
[LOGO]
MERCANTILE BANCORPORATION INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 28, 1999
To the Shareholders of
Mercantile Bancorporation Inc.:
We will hold a special meeting of shareholders of Mercantile Bancorporation
Inc., a Missouri corporation, on Wednesday, July 28, 1999, 9:00 a.m., local
time, at Mercantile Bancorporation Inc., 7th and Washington, One Mercantile
Center, St. Louis, Missouri 63101, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of April 30, 1999, as amended as of June 17, 1999, by
and between Mercantile and Firstar Corporation, a Wisconsin corporation,
and the transactions contemplated thereby, including the merger of
Mercantile with and into Firstar upon the terms and subject to the
conditions set forth in the merger agreement, as more fully described in
the enclosed Joint Proxy Statement-Prospectus.
2. To transact any other business as may properly be brought before the
special meeting or any adjournments or postponements of the special
meeting.
We have fixed the close of business on June 17, 1999 as the record date for
determining those shareholders entitled to vote at the special meeting and any
adjournments or postponements of the special meeting. Accordingly, only
shareholders of record on that date are entitled to notice of, and to vote at,
the special meeting and any adjournments or postponements of the special
meeting.
/S/ THOMAS H. JACOBSEN
Thomas H. Jacobsen
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
June 21, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE
OR, IF YOU PREFER, SUBMIT YOUR PROXY BY TELEPHONE OR VIA INTERNET TRANSMISSION.
THE ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD OR VOTED BY TELEPHONE OR BY INTERNET.
FURTHER INFORMATION ABOUT TELEPHONE AND INTERNET SUBMISSION OF YOUR PROXY CAN BE
FOUND IN THIS JOINT PROXY STATEMENT-PROSPECTUS AND ON THE ENCLOSED PROXY CARD.
IF YOU PLAN TO ATTEND THE MEETING YOU SHOULD SUBMIT YOUR PROXY INDICATING YOUR
INTENT TO ATTEND PROMPTLY, AS SEATING AT THE MEETING WILL BE LIMITED.
THE BOARD OF DIRECTORS OF MERCANTILE UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
<PAGE>
TO FIND ANY ONE OF THE PRINCIPAL SECTIONS IDENTIFIED BELOW, SIMPLY BEND THE
DOCUMENT SLIGHTLY TO EXPOSE THE BLACK TABS AND OPEN THE DOCUMENT TO THE TAB
WHICH CORRESPONDS TO THE TITLE OF THE SECTION YOU WISH TO READ. FOR YOUR
CONVENIENCE, WE HAVE INCLUDED AN INDEX OF FREQUENTLY USED TERMS IN THIS DOCUMENT
IN AN INDEX OF DEFINED TERMS, WHICH IS PRINTED ON GOLD PAPER TOWARDS THE BACK OF
THIS DOCUMENT.
TABLE OF CONTENTS
SUMMARY
SPECIAL MEETINGS
THE MERGER
BUSINESS AND MANAGEMENT
REGULATION AND SUPERVISION
FIRSTAR CAPITAL STOCK
COMPARISON OF SHAREHOLDERS' RIGHTS
OTHER MATTERS
FINANCIAL INFORMATION
APPENDICES
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY.................................................................................................... 1
The Merger............................................................................................... 1
Our Reasons for the Merger............................................................................... 1
Exchange of Shares....................................................................................... 1
Our Recommendations to Shareholders...................................................................... 1
Opinions of Financial Advisors........................................................................... 2
Appraisal Rights......................................................................................... 2
Material Federal Income Tax Consequences................................................................. 2
Accounting Treatment..................................................................................... 2
Management and Operations after the Merger............................................................... 2
The Companies............................................................................................ 3
The Shareholders' Meetings............................................................................... 3
Record Date; Vote Required............................................................................... 3
Conditions to Completion of the Merger................................................................... 4
Regulatory Approvals..................................................................................... 4
Termination of the Merger Agreement; Expenses............................................................ 5
Waiver and Amendment..................................................................................... 5
Firstar and Mercantile Stock Option Agreements........................................................... 5
Interests of Directors and Officers in the Merger that Differ from Your Interests........................ 6
Mercantile Stock Options................................................................................. 6
Material Differences in the Rights of Shareholders....................................................... 6
Market Price Information................................................................................. 7
Unaudited Comparative Per Share Data..................................................................... 8
Unaudited Comparative Per Common Share Data of
Firstar and Mercantile................................................................................. 9
Selected Financial Data.................................................................................. 10
Selected Consolidated Historical Financial Data of Firstar............................................... 11
Selected Consolidated Historical Financial Data of Mercantile............................................ 12
Unaudited Selected Pro Forma Condensed Combined Financial Data of Firstar and Mercantile................. 13
FIRSTAR SPECIAL MEETING.................................................................................... 14
Matters to Be Considered................................................................................. 14
Proxies.................................................................................................. 14
Solicitation of Proxies.................................................................................. 14
Record Date and Voting Rights............................................................................ 15
Recommendation of Firstar Board.......................................................................... 16
MERCANTILE SPECIAL MEETING................................................................................. 17
Matters to Be Considered................................................................................. 17
Proxies.................................................................................................. 17
Solicitation of Proxies.................................................................................. 17
Record Date and Voting Rights............................................................................ 18
Recommendation of Mercantile Board....................................................................... 19
Voting via Telephone or Internet......................................................................... 19
THE MERGER................................................................................................. 20
Background of the Merger................................................................................. 20
Recommendation of the Firstar Board and Firstar's Reasons for the Merger................................. 22
Recommendation of the Mercantile Board and Mercantile's Reasons for the Merger........................... 23
Opinion of Firstar's Financial Advisor................................................................... 25
Opinion of Mercantile's Financial Advisor................................................................ 30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Merger............................................................................................... 38
Conversion of Stock; Treatment of Options................................................................ 38
Exchange of Certificates; Fractional Shares.............................................................. 40
Effective Time........................................................................................... 41
Representations and Warranties........................................................................... 41
Conduct of Business Pending the Merger................................................................... 42
Other Agreements......................................................................................... 44
Conditions to Completion of the Merger................................................................... 45
Regulatory Approvals Required for the Merger............................................................. 46
Material Federal Income Tax Consequences................................................................. 48
Accounting Treatment..................................................................................... 49
Termination of the Merger Agreement...................................................................... 50
Extension, Waiver and Amendment of the Merger Agreement.................................................. 50
Stock Exchange Listing................................................................................... 51
Dividends................................................................................................ 51
Interests of Certain Persons in the Merger............................................................... 51
Firstar and Mercantile Option Agreements................................................................. 54
Restrictions on Resales by Affiliates.................................................................... 59
MANAGEMENT AND OPERATIONS AFTER THE MERGER................................................................. 61
PRICE RANGE OF COMMON STOCK AND DIVIDENDS.................................................................. 62
INFORMATION ABOUT FIRSTAR.................................................................................. 64
Management and Additional Information.................................................................... 64
INFORMATION ABOUT MERCANTILE............................................................................... 65
Management and Additional Information.................................................................... 65
REGULATION AND SUPERVISION................................................................................. 66
Liability for Bank Subsidiaries.......................................................................... 66
Capital Requirements..................................................................................... 67
Dividend Restrictions.................................................................................... 68
Deposit Insurance Assessments............................................................................ 69
Depositor Preference Statute............................................................................. 69
Brokered Deposits........................................................................................ 69
Interstate Banking and Branching......................................................................... 69
Control Acquisitions..................................................................................... 70
Future Legislation....................................................................................... 70
FIRSTAR CAPITAL STOCK...................................................................................... 71
Firstar Common Stock..................................................................................... 71
Firstar Preferred Stock.................................................................................. 72
Firstar Rights Plan...................................................................................... 72
COMPARISON OF RIGHTS OF FIRSTAR SHAREHOLDERS AND MERCANTILE SHAREHOLDERS................................... 76
Authorized Capital Stock................................................................................. 76
Size of Board of Directors............................................................................... 76
Cumulative Voting for Directors.......................................................................... 76
Classes of Directors..................................................................................... 77
Qualifications of Directors.............................................................................. 77
Filling Vacancies on the Board........................................................................... 77
Removal of Directors..................................................................................... 77
Nomination of Directors for Election..................................................................... 78
Anti-Takeover Provisions--Business Combinations.......................................................... 78
Anti-Takeover Provisions--Control Share Acquisitions..................................................... 81
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Shareholder Rights Plan.................................................................................. 82
Shareholder Action Without a Meeting..................................................................... 82
Calling Special Meetings of Shareholders................................................................. 82
Submission of Shareholder Proposals...................................................................... 83
Notice of Shareholder Meetings........................................................................... 84
Shareholder Vote Required for Mergers.................................................................... 84
Dividends................................................................................................ 84
Dissenters' Appraisal Rights............................................................................. 85
Shareholders' Preemptive Rights.......................................................................... 85
Shareholder Class Voting Rights.......................................................................... 86
Consideration of Non-Shareholder Interests by Board of Directors......................................... 86
Indemnification.......................................................................................... 87
Assessability............................................................................................ 87
Amendments to Articles of Incorporation.................................................................. 88
Amendment of By-laws..................................................................................... 89
DISSENTERS' APPRAISAL RIGHTS............................................................................... 90
LEGAL MATTERS.............................................................................................. 90
EXPERTS.................................................................................................... 90
SHAREHOLDER PROPOSALS...................................................................................... 91
OTHER MATTERS.............................................................................................. 91
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 91
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 92
FORWARD-LOOKING STATEMENTS................................................................................. 95
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............................................... 96
</TABLE>
<TABLE>
<S> <C> <C>
Appendix A Agreement and Plan of Merger......................................... A-1
Appendix A-1 Amendment No. 1 to Agreement and Plan of Merger...................... A-1-1
Appendix B Firstar Stock Option Agreement....................................... B-1
Appendix C Mercantile Stock Option Agreement.................................... C-1
Appendix D Opinion of Credit Suisse First Boston Corporation to the Firstar
Board of Directors................................................... D-1
Appendix E Opinion of Donaldson, Lufkin & Jenrette Securities Corporation, Inc.
to the Mercantile Board of Directors................................. E-1
Appendix F Dissenter's Rights Provision under the Missouri Business and General
Corporation Law...................................................... F-1
</TABLE>
iii
<PAGE>
SUMMARY
THIS BRIEF SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. IT
DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. WE URGE YOU TO
CAREFULLY READ THE ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH THIS
DOCUMENT REFERS TO FULLY UNDERSTAND THE MERGER. SEE "WHERE YOU CAN FIND MORE
INFORMATION." EACH ITEM IN THIS SUMMARY INCLUDES A PAGE REFERENCE DIRECTING YOU
TO A MORE COMPLETE DESCRIPTION OF THAT ITEM.
THE MERGER (PAGE 20)
WE HAVE ATTACHED THE MERGER AGREEMENT TO THIS DOCUMENT AS APPENDIX A. PLEASE
READ THE MERGER AGREEMENT. IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
We propose a combination in which Mercantile will merge into Firstar, with
Firstar as the surviving corporation. The combined company will retain the
articles of incorporation and by-laws of Firstar, except that the number of
shares of common stock authorized for issuance in Firstar's articles of
incorporation will be increased from 800,000,000 to 2,000,000,000. The combined
company will continue to be incorporated in Wisconsin, its corporate
headquarters will be in Milwaukee, and it will retain the Firstar name. We
expect to complete the merger in the fourth quarter of 1999.
OUR REASONS FOR THE MERGER (PAGE 22)
We are proposing to merge our two companies because we believe that:
- the combined company will be positioned to grow and compete successfully
in a consolidating financial services industry and will be able to achieve
financial performance beyond what our two companies could achieve
separately
- we should be able to combine our two operations successfully and manage
them in a disciplined manner after the merger
- the combination will permit us to substantially enhance our presence in
our primary markets and in our core businesses, including those that
generate regular fee income.
We expect that the merger will enhance Firstar's earnings per share immediately
on completion and that we can further improve financial performance through
significant annual expense savings and through extending Firstar's business
model over a larger asset, deposit and customer base.
EXCHANGE OF SHARES (PAGE 38)
MERCANTILE SHAREHOLDERS. Each of your shares of Mercantile common stock
will automatically be converted into 2.091 shares of common stock of Firstar.
The total number of shares of Firstar common stock you will be entitled to
receive will therefore be equal to the number of shares of Mercantile common
stock you own multiplied by 2.091.
You will have to surrender your Mercantile common stock certificates to
receive new certificates representing common stock of the combined company. This
will not be necessary until you receive further written instructions after we
have completed the merger.
FIRSTAR SHAREHOLDERS. Each of your shares of Firstar common stock will
remain issued and outstanding as one share of common stock of the combined
company. You do not need to surrender your shares or exchange them for new ones.
OUR RECOMMENDATIONS TO SHAREHOLDERS (PAGE 22)
FIRSTAR SHAREHOLDERS. The Firstar board of directors believes that the
merger is fair to you and in your best interests, and unanimously recommends
that you vote "FOR" the proposal to approve the merger agreement.
MERCANTILE SHAREHOLDERS. The Mercantile board of directors believes that
the merger is fair to you and in your best interests, and unanimously recommends
that you vote "FOR" the proposal to approve the merger agreement.
1
<PAGE>
OPINIONS OF FINANCIAL ADVISORS (PAGE 25)
MERCANTILE SHAREHOLDERS. Donaldson, Lufkin & Jenrette Securities
Corporation has delivered a written opinion to the Mercantile board of directors
that, as of the date of this document, the exchange ratio is fair to the holders
of Mercantile common stock from a financial point of view. We have attached this
opinion to this document as Appendix E. You should read this opinion completely
to understand the assumptions made, matters considered and limitations of the
review undertaken by DLJ in providing its opinion.
FIRSTAR SHAREHOLDERS. Credit Suisse First Boston Corporation has delivered
a written opinion to the Firstar board of directors that, as of the date of this
document, the exchange ratio is fair to Firstar from a financial point of view.
We have attached this opinion to this document as Appendix D. You should read it
completely to understand the assumptions made, matters considered and
limitations of the review undertaken by CSFB in providing its opinion.
APPRAISAL RIGHTS (PAGE 90)
MERCANTILE SHAREHOLDERS. Under Missouri law, you can dissent from the
merger and have the fair value of your Mercantile common stock appraised by a
court and paid in cash by the combined company. To do this, you must follow
required procedures, including filing notices with Mercantile, and must NOT vote
in favor of the merger. If you hold shares of Mercantile common stock and you
dissent from the merger and follow the required procedures, your shares of
Mercantile common stock will not be converted into shares of common stock of the
combined company. Instead, your only right will be to receive the appraised
value of your shares in cash. We have attached the provisions of Missouri law
governing dissenters' rights to this document as Appendix F. See "Dissenters'
Appraisal Rights."
FIRSTAR SHAREHOLDERS. Under Wisconsin law, Firstar shareholders are not
entitled to appraisal rights in this merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 48)
MERCANTILE SHAREHOLDERS. We expect that, for U.S. federal income tax
purposes, the exchange of your shares of Mercantile common stock for shares of
Firstar common stock in the merger generally will not cause you to recognize any
gain or loss. You will, however, have to recognize income or gain in connection
with any cash received instead of fractional shares.
This tax treatment may not apply to every Mercantile shareholder.
Determining the actual tax consequences of the merger to you can be complicated.
They will depend on your specific situation and on variables not within our
control. You should consult your own tax advisor for a full understanding of the
merger's tax consequences.
FIRSTAR SHAREHOLDERS. The merger will not cause you to recognize any gain
or loss for purposes of the U.S. federal income tax.
ACCOUNTING TREATMENT (PAGE 49)
We expect the merger to qualify as a "pooling of interests." This means
that, for accounting and financial reporting purposes, we will treat our
companies as if they had always been one.
MANAGEMENT AND OPERATIONS AFTER THE MERGER (PAGE 61)
The number of directors of Firstar will be reduced prior to completion of
the merger to 18, with fourteen directors designated by Firstar and four
directors designated by Mercantile, including Thomas H. Jacobsen, Mercantile's
chairman, president and chief executive officer.
Following the merger, Jerry A. Grundhofer, Firstar's president and chief
executive officer, will continue in that position. Mr. Jacobsen will become
chairman of the board of Firstar and will co-chair the board's executive
committee with Mr. Grundhofer.
2
<PAGE>
THE COMPANIES (PAGE 64)
FIRSTAR CORPORATION
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(414) 765-4321
Firstar is a bank holding company organized under the laws of Wisconsin and
registered under the federal Bank Holding Company Act. Firstar has approximately
720 full-service banking offices in Ohio, Wisconsin, Kentucky, Illinois,
Indiana, Iowa, Minnesota, Tennessee and Arizona. Firstar offers a full
complement of banking, trust, investment, insurance and other financial
services. Firstar is the parent company of Firstar Finance, a consumer finance
company, and Firstar Investment Research & Management Company, LLC, an
investment advisory firm. Firstar was founded in 1853.
At March 31, 1999, Firstar's consolidated total assets were approximately
$38 billion, its consolidated total deposits were approximately $28 billion and
its consolidated total shareholders' equity was approximately $3.7 billion.
Based on total assets at March 31, 1999, Firstar was the 23(rd) largest bank
holding company in the United States.
MERCANTILE BANCORPORATION INC.
7TH AND WASHINGTON
ONE MERCANTILE CENTER
ST. LOUIS, MISSOURI 63101
(314) 418-2525
Mercantile is a bank holding company registered under the federal Bank
Holding Company Act and incorporated in Missouri. Mercantile operates banks in
nearly 500 locations in Missouri, Iowa, Kansas, Illinois, Arkansas and Kentucky.
Mercantile's non-banking subsidiaries include companies providing brokerage
services, asset-based lending, factoring, investment advisory services, leasing
services and credit life and other insurance products as agent.
At March 31, 1999, Mercantile's consolidated total assets were approximately
$36 billion, its total deposits were approximately $25 billion, and its
consolidated total shareholders' equity was approximately $3 billion. Based on
total assets at March 31, 1999, Mercantile was the 26(th) largest bank holding
company in the United States.
THE SHAREHOLDERS' MEETINGS (PAGE 14 AND 17)
FIRSTAR SHAREHOLDERS. The Firstar special meeting will be held on
Wednesday, July 28, 1999 at 9:00 a.m., local time, in the Grand Ballroom of the
Pfister Hotel, 424 E. Wisconsin Avenue, Milwaukee, Wisconsin 53202. At the
Firstar special meeting, you will be asked:
- to approve a merger agreement that provides for the merger of Mercantile
into Firstar and an amendment to the Firstar articles of incorporation,
effective only on completion of the merger, to increase the authorized
shares of Firstar common stock from 800,000,000 to 2,000,000,000; and
- to act on other matters that may properly be submitted to a vote at the
Firstar special meeting.
MERCANTILE SHAREHOLDERS. The Mercantile special meeting will be held on
Wednesday, July 28, 1999 at 9:00 a.m., local time, at Mercantile Bancorporation
Inc., 7th and Washington, One Mercantile Center, St. Louis, Missouri 63101. At
the Mercantile special meeting, you will be asked:
- to approve a merger agreement that provides for the merger of Mercantile
into Firstar; and
- to act on other matters that may properly be submitted to a vote at the
Mercantile special meeting.
RECORD DATE; VOTE REQUIRED (PAGES 15 AND 18)
FIRSTAR SHAREHOLDERS. You can vote at the Firstar special meeting if you
owned Firstar common stock at the close of business on June 17, 1999. On that
date, there were 664,140,168 shares of Firstar common stock outstanding and
entitled to vote. You can cast one vote for each share of Firstar common stock
that you owned on that date. In order to approve the merger agreement the
holders of a majority of Firstar's outstanding shares must vote in favor of
doing so.
3
<PAGE>
Firstar directors and executive officers hold 4.8% of the outstanding shares
of Firstar common stock entitled to vote at the Firstar special meeting, and
Mercantile directors and executive officers hold none of the outstanding shares
of Firstar common stock entitled to vote at the Firstar special meeting. We
expect the Firstar directors and officers to vote their shares for approval of
the merger agreement.
MERCANTILE SHAREHOLDERS. You can vote at the Mercantile special meeting if
you owned Mercantile common stock at the close of business on June 17, 1999. On
that date, there were 158,156,398 shares of Mercantile common stock outstanding
and entitled to vote. You can cast one vote for each share of Mercantile common
stock you owned on that date. In order to approve the merger agreement, the
holders of two-thirds of Mercantile's outstanding shares must vote in favor of
doing so.
Mercantile directors and executive officers hold approximately 8.0% of the
outstanding shares of Mercantile common stock entitled to vote at the Mercantile
special meeting, and Firstar directors and executive officers hold less than
0.1% of the outstanding shares of Mercantile common stock entitled to vote at
the Mercantile special meeting. We expect the Mercantile and Firstar directors
and officers to vote their shares for approval of the Merger Agreement.
CONDITIONS TO COMPLETION OF THE MERGER
(PAGE 45)
Our obligations to complete the merger depend on a number of conditions
being met. These include:
- approval of the merger agreement by Firstar and Mercantile shareholders
- approval by the NYSE of Firstar's application to list the shares of
Firstar common stock to be issued in the merger
- approval of the merger by the necessary federal and state regulatory
authorities
- the absence of any order, injunction, decree, law or regulation that would
prohibit the merger or make it illegal
- receipt by each of us of legal opinions that, for United States federal
income tax purposes, Firstar, Mercantile and Mercantile shareholders who
exchange all of their shares solely for shares of Firstar common stock
will not recognize any gain or loss as a result of the merger, except in
connection with the payment of cash instead of fractional shares. These
opinions will be subject to various limitations. We recommend that you
read the more detailed description of the merger's tax consequences
beginning on page 48.
- receipt by each of us of a letter from our independent accountants that
the merger will qualify for "pooling of interests" accounting treatment.
Where the law permits, either of us could choose to waive a condition to our
obligation to complete the merger although that condition has not been
satisfied. We cannot be certain when, or if, the conditions to the merger will
be satisfied or waived, or that the merger will be completed.
REGULATORY APPROVALS (PAGE 46)
We can't complete the merger unless it is approved by the Board of Governors
of the Federal Reserve System. Once the Federal Reserve Board approves the
merger, we have to wait from 15 to 30 days before we can complete it. During
that time, the Department of Justice can challenge the merger.
The merger is also subject to the approval of, or notice to, state and other
regulatory authorities. We have filed (or soon will file) all of the required
applications and notices with the Federal Reserve Board and these other
regulatory authorities.
As of the date of this document, we haven't yet received the required
approvals. While we don't know of any reason why we wouldn't be able to obtain
the necessary approvals in a timely manner, we can't be certain when or if we
will get them. We may need to sell a modest level of deposits and loans to get
regulatory approvals, but we do not believe that this will
4
<PAGE>
have any material negative effect on the combined company.
TERMINATION OF THE MERGER AGREEMENT; EXPENSES (PAGE 50)
We can mutually agree at any time to terminate the merger agreement without
completing the merger, even if our shareholders have approved it. Also, either
of us can decide, without the consent of the other, to terminate the merger
agreement in a number of other situations, including:
- the final denial of a required regulatory approval
- failure of the other party to obtain the shareholder vote needed to
approve the merger
- an uncorrected breach of the merger agreement by the other party, so long
as the party that is seeking to terminate the merger agreement hasn't
itself breached the agreement
- the failure to complete the merger by April 30, 2000.
Whether or not the merger is completed, we will each pay our own fees and
expenses, except that we will evenly divide the costs and expenses that we have
incurred in printing and mailing this document. We will also evenly divide the
fees that we will have to pay to the Securities and Exchange Commission in
connection with the merger.
WAIVER AND AMENDMENT (PAGE 50)
We may jointly amend the merger agreement, and each of us may waive our
right to require the other party to adhere to the terms and conditions of the
merger agreement. However, we may not do so after our shareholders approve the
merger if the amendment or waiver reduces or changes the consideration that will
be received by Mercantile shareholders, unless they approve the amendment or
waiver.
FIRSTAR AND MERCANTILE STOCK OPTION AGREEMENTS (PAGE 54 AND APPENDICES B
AND C)
Each of us, as an inducement to the other to enter into the merger
agreement, entered into a stock option agreement granting the other an option to
purchase shares of our common stock under the circumstances described in the
option agreements. We granted the options to each other in order to increase the
likelihood that we would complete the merger. The options could discourage other
companies from proposing a competing combination with either of us before we
complete the merger. The most Mercantile shares that Firstar can purchase if it
exercises its option is 19.9% of the outstanding shares of Mercantile common
stock, and the most Firstar shares that Mercantile can purchase if it exercises
its option is 9.9% of the outstanding shares of Firstar's common stock. The
purchase price under the option granted by Firstar is $31.56 per share and the
purchase price under the option granted by Mercantile is $51.25 per share, the
closing prices of our shares on the last trading day before the date we signed
the merger agreement. In some circumstances, the company holding the option, or
the company holding shares purchased under the option, may require the company
that granted the option to repurchase the option and/or those shares at a price
based on a formula described in the option. Either of us could instead choose to
give up our option to the granting company and receive a cash payment of $250
million.
Neither of us can exercise our option unless particular events described in
the option agreements occur. These events generally are agreements to engage in
business combinations or acquisition transactions with third parties and related
events, other than the merger we are proposing in this document, such as a
merger or the sale of a substantial amount of assets or stock. We don't know of
any event that has occurred as of the date of this document that would allow
either of us to exercise our option.
5
<PAGE>
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT DIFFER FROM YOUR
INTERESTS (PAGE 51)
Some of our directors and officers have interests in the merger that differ
from, or are in addition to, their interests as shareholders in our companies.
These interests exist because of employment or severance agreements that the
officers have entered into with Firstar or Mercantile, and rights that
Mercentile officers and directors have under Mercentile's benefit plans. These
employment and severance agreements provide the officers with severance benefits
if their employment with the combined company is terminated, and the plans
provide for the accelerated vesting of the benefits under the plans.
Additional interests of some of our directors and executive officers are
described under "Management and Operations After the Merger."
The members of our boards of directors knew about these additional interests
and considered them when they approved the merger agreement and the merger.
MERCANTILE STOCK OPTIONS (PAGE 39)
In the merger, each stock option to buy Mercantile common stock granted
under Mercantile's stock option plans that is outstanding and not yet exercised
immediately before completing the merger will become an option to buy Firstar
common stock. The number of shares of Firstar common stock subject to each new
stock option, as well as the exercise price of that stock option, will be
adjusted to reflect the exchange ratio.
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE 76)
The rights of Firstar shareholders are governed by Wisconsin law and by
Firstar's articles of incorporation and by-laws. The rights of Mercantile
shareholders are governed by Missouri law and by Mercantile's articles of
incorporation and by-laws. Upon our completing the merger, Mercantile
shareholders will become shareholders of Firstar, and your rights will be
governed by Wisconsin law, Firstar's articles of incorporation and Firstar's
by-laws. The combined company's articles of incorporation and by-laws will be
identical to Firstar's current articles and by-laws, except that we will
increase the number of shares the combined company may issue.
6
<PAGE>
MARKET PRICE INFORMATION (PAGE 62)
Shares of Firstar and Mercantile common stock are quoted on the New York
Stock Exchange. Firstar is listed under the symbol "FSR" and Mercantile is
listed under the symbol "MTL." The market value of the aggregate consideration
that Mercantile shareholders will receive in the merger is approximately $10.6
billion based on Firstar's closing stock price on April 29, 1999, the date
preceding public announcement of the transaction. The closing prices of Firstar
and Mercantile common stock on April 29, 1999 and June 18, 1999, and the implied
value to be received in the merger by Mercantile shareholders for each share of
Mercantile common stock on those dates, were as follows:
<TABLE>
<CAPTION>
VALUE OF MERGER
CONSIDERATION PER SHARE
OF MERCANTILE COMMON
FIRSTAR COMMON STOCK MERCANTILE COMMON STOCK STOCK
--------------------- ------------------------- -----------------------
<S> <C> <C> <C>
April 29, 1999........................... $ 31.56 $ 51.25 $ 66.00
June 18, 1999............................ $ 27.88 $ 56.38 $ 58.29
</TABLE>
Of course, the market price of Firstar common stock will fluctuate prior to
the merger, while the exchange ratio is fixed. You should obtain current stock
price quotations for Firstar common stock and Mercantile common stock.
7
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table shows historical information about our income per share,
dividends per share and book value per share, and similar information reflecting
the merger, which we refer to as "pro forma" information. In presenting the
comparative pro forma information for the time periods shown, we assumed that we
had been merged throughout those periods.
We also assumed that we will treat our companies as if they had always been
combined for accounting and financial reporting purposes--a method known as
pooling-of-interests accounting. The information listed as "equivalent pro
forma" was obtained by multiplying the pro forma amounts by the exchange ratio
of 2.091. We present this information to reflect the fact that Mercantile
shareholders will receive more than one share of Firstar common stock for each
share of Mercantile common stock exchanged in the merger.
We expect that we will incur merger and integration charges as a result of
combining our companies. We also anticipate that the merger will provide the
combined company with financial benefits that include reduced operating
expenses. Also, Firstar currently intends to increase its quarterly cash
dividend to $.1625 per share after completing the merger, subject to a
determination by the Firstar board of directors in its discretion to do so. This
intended increase isn't reflected in the pro forma dividend information in the
table. The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
reflect these anticipated financial benefits and, accordingly, does not attempt
to predict or suggest future results. It also does not necessarily reflect what
the historical results of the combined company would have been had our companies
been combined.
The per share data gives effect to all previous stock splits of Firstar
common stock and Mercantile common stock, including Firstar's three-for-one
split paid April 15, 1999 and Mercantile's three-for-two split paid October 1,
1997.
The information in the following table is based on, and you should read it
together with, the historical financial information that we have presented in
our prior filings with the SEC. We are incorporating this material into this
document by reference. See "Where You Can Find More Information" on page 92 for
a description of where you can find our prior filings.
8
<PAGE>
UNAUDITED COMPARATIVE PER COMMON SHARE DATA
OF FIRSTAR AND MERCANTILE
<TABLE>
<CAPTION>
AS OF OR
FOR THE THREE YEARS ENDED DECEMBER 31,
MONTHS ENDED ---------------------------------
MARCH 31, 1999 1998 1997 1996
----------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
FIRSTAR
Basic earnings per common share:
Historical......................................................... $ 0.26 $ 0.66 $ 0.83 $ 0.65
Pro forma.......................................................... 0.29 0.83 0.83 0.76
Diluted earnings per common share:
Historical......................................................... $ 0.25 $ 0.65 $ 0.81 $ 0.64
Pro forma.......................................................... 0.29 0.81 0.82 0.75
Dividends declared on common stock:
Historical......................................................... $ 0.10 $ 0.33 $ 0.27 $ 0.21
Pro forma.......................................................... 0.10 0.33 0.27 0.21
Book value per common share:
Historical......................................................... $ 5.56 $ 5.38 -- --
Pro forma.......................................................... 6.84 6.70 -- --
MERCANTILE
Basic earnings per share:
Historical......................................................... $ 0.75 $ 2.45 $ 1.76 $ 2.12
Equivalent pro forma............................................... 0.61 1.74 1.74 1.59
Diluted earnings per common share:
Historical......................................................... $ 0.74 $ 2.41 $ 1.73 $ 2.09
Equivalent pro forma............................................... 0.61 1.69 1.71 1.57
Dividends declared on common stock:
Historical......................................................... $ 0.34 $ 1.24 $ 1.15 $ 1.09
Equivalent pro forma............................................... 0.21 0.69 0.56 0.44
Book value per common share:
Historical......................................................... $ 19.65 $ 19.53 -- --
Equivalent pro forma............................................... 14.30 14.01 -- --
</TABLE>
9
<PAGE>
SELECTED FINANCIAL DATA
The following tables show summarized historical financial data for each of
us and also show similar pro forma information reflecting the merger. The pro
forma information reflects the pooling of interests method of accounting.
We expect that we will incur merger and integration charges as a result of
combining our companies. We also anticipate that the merger will provide the
combined company with financial benefits that include reduced operating
expenses. Also, Firstar currently intends to increase its quarterly cash
dividend to $.1625 per share after completing the merger, subject to a
determination by the Firstar board of directors in its discretion to do so. This
intended increase isn't reflected in the pro forma dividend information in the
table. The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
reflect these financial expenses or benefits and, accordingly, does not attempt
to predict or suggest future results. It also does not necessarily reflect what
the historical results of the new company would have been had our companies been
combined.
The information in the following tables is based on historical financial
information that we have presented in our prior filings with the SEC. You should
read all of the summary financial information we provide in the following tables
together with this historical financial information and with the more detailed
pro forma financial information we provide in this document, which you can find
beginning at page 96. This historical financial information is also incorporated
into this document by reference. See "Where You Can Find More Information" on
page 92 for a description of where you find this historical information.
Firstar's audited historical financial statements as of December 31, 1998
and 1997, and for the three fiscal years ended December 31, 1998, were audited
by PricewaterhouseCoopers LLP, and Mercantile's audited historical financial
statements were audited by KPMG LLP, both independent certified public
accountants.
10
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF FIRSTAR
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income................. $ 649,485 $ 633,796 $2,641,488 $2,377,099 $2,275,675 $2,192,418 $1,803,450
Interest expense................ 283,632 295,065 1,228,709 1,074,932 1,023,404 1,018,634 691,899
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income........... 365,853 338,731 1,412,779 1,302,167 1,252,271 1,173,784 1,111,551
Taxable equivalent adjustment... 10,163 10,210 43,296 40,559 39,053 38,490 39,630
---------- ---------- ---------- ---------- ---------- ---------- ----------
Taxable equivalent net
interest Income............. 376,016 348,941 1,456,075 1,342,726 1,291,324 1,212,274 1,151,181
Noninterest income.............. 223,084 197,043 860,148 712,043 621,415 554,732 504,804
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net revenue................... 599,100 545,984 2,316,223 2,054,769 1,912,739 1,767,006 1,655,985
Noninterest expense............. 300,169 300,395 1,521,192 1,126,506 1,152,252 1,086,385 1,026,566
Provision for loan losses....... 35,910 28,645 113,636 117,772 97,334 67,117 50,475
Net income...................... 169,587 138,834 430,147 513,894 415,418 380,831 357,684
PER COMMON SHARE..................
Basic EPS....................... $ 0.26 $ 0.22 $ 0.66 $ 0.83 $ 0.65 $ 0.59 $ 0.55
Diluted EPS..................... 0.25 0.21 0.65 0.81 0.64 0.58 0.55
Dividends declared.............. 0.10 0.08 0.33 0.27 0.21 0.18 0.16
Period-end book value........... 5.56 5.11 5.38 4.45 4.23 3.89 3.58
Period-end market price......... 29.83 19.71 31.00 19.13 10.21 6.61 4.04
AVERAGE BALANCES
Loans........................... $26,170,012 $24,198,975 $25,027,756 $22,569,767 $21,291,977 $20,151,581 $18,011,109
Loans held for sale............. 1,493,754 634,564 988,432 297,743 286,088 19,436 17,913
Investment securities........... 5,955,329 6,035,705 6,491,001 5,744,135 6,168,349 6,401,651 5,780,779
Short-term investments.......... 112,976 192,444 111,492 206,109 139,314 234,360 323,226
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning
assets...................... 33,732,071 31,061,688 32,618,681 28,817,754 27,885,728 26,807,028 24,133,027
Total assets.................... 38,202,899 34,429,252 36,524,976 31,625,258 30,666,581 29,327,958 26,385,339
Non-interest bearing deposits... 6,014,716 5,252,737 5,614,373 4,893,322 4,733,197 4,188,735 4,071,936
Interest-bearing deposits....... 21,810,606 20,146,691 21,216,625 18,830,568 18,689,884 18,058,090 16,331,182
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total deposits................ 27,825,322 25,399,428 26,830,998 23,723,890 23,423,081 22,246,825 20,403,118
Short-term borrowings........... 4,325,306 3,699,460 4,075,149 3,547,564 3,354,009 3,378,162 2,664,178
Long-term debt.................. 1,707,222 1,740,417 1,681,527 1,271,041 929,515 821,517 673,333
Shareholders' equity............ 3,656,466 3,077,477 3,379,195 2,609,363 2,540,314 2,425,113 2,248,238
RATIOS
Return on average assets........ 1.80% 1.64% 1.18% 1.62% 1.35% 1.30% 1.36%
Return on average common
equity........................ 18.81 18.30 12.73 19.69 16.35 15.70 15.91
Net interest margin............. 4.49 4.51 4.46 4.66 4.63 4.52 4.77
Noninterest expense to net
revenue....................... 50.10 55.02 65.68 54.82 60.24 61.48 61.99
Dividend payout ratio........... 40.00 38.10 50.77 32.92 32.64 30.46 28.66
Tier 1 risk-based capital....... 9.29 9.88 8.92 9.60 10.01 9.44 10.32
Total risk-based capital........ 11.29 12.26 11.01 12.03 12.75 12.01 12.86
Leverage........................ 8.07 8.36 7.52 8.23 7.80 7.09 7.48
Average shareholders' equity to
average total assets.......... 9.57 8.94 9.25 8.25 8.28 8.27 8.52
</TABLE>
11
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF MERCANTILE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income................. $ 586,938 $ 593,180 $2,392,118 $2,118,678 $1,771,120 $1,726,319 $1,502,039
Interest expense................ 302,709 320,459 1,287,858 1,070,940 822,157 808,540 593,760
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income........... 284,229 272,721 1,104,260 1,047,738 948,963 917,779 908,279
Taxable equivalent adjustment... 3,940 4,235 16,664 18,084 18,593 20,225 20,920
---------- ---------- ---------- ---------- ---------- ---------- ----------
Taxable equivalent net
interest Income............. 288,169 276,956 1,120,924 1,065,822 967,556 938,004 929,199
Noninterest income.............. 126,444 136,951 541,918 414,193 368,010 339,989 297,783
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net revenue................... 414,613 413,907 1,662,842 1,480,015 1,335,566 1,277,993 1,226,982
Noninterest expense............. 225,354 220,538 1,026,757 986,378 805,187 725,915 732,566
Provision for loan losses....... 7,479 8,537 51,154 86,355 78,766 44,952 53,094
Net income...................... 118,037 114,859 375,303 246,822 284,453 318,155 268,576
PER COMMON SHARE
Basic EPS....................... $ 0.75 $ 0.76 $ 2.45 $ 1.76 $ 2.12 $ 2.37 $ 2.05
Diluted EPS..................... 0.74 0.75 2.41 1.73 2.09 2.33 2.02
Dividends declared.............. 0.34 0.31 1.24 1.148 1.092 0.88 0.748
Period-end book value........... 19.65 18.77 19.53 18.57 16.87 16.31 14.43
Period-end market price......... 47.50 54.81 46.13 61.50 34.25 30.69 20.81
AVERAGE BALANCES
Loans........................... $22,330,334 $21,584,431 $21,780,088 $19,302,451 $15,989,784 $15,264,606 $13,687,183
Investment securities........... 9,486,018 8,963,419 9,190,266 6,909,485 5,756,902 5,546,575 5,914,088
Short-term investments.......... 562,611 479,150 542,670 453,043 338,319 395,506 405,527
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning
assets...................... 32,378,963 31,027,000 31,513,024 26,664,979 22,085,005 21,206,687 20,006,798
Total assets.................... 35,555,247 34,038,516 34,571,215 29,097,185 23,898,793 22,914,568 21,677,459
Non-interest bearing deposits... 4,050,078 3,746,005 3,899,766 3,410,398 3,178,244 2,907,648 2,951,411
Interest-bearing deposits....... 20,997,645 21,139,646 20,881,142 18,851,539 15,933,586 15,235,001 14,704,338
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total deposits................ 25,047,723 24,885,651 24,780,908 22,261,937 19,111,830 18,142,649 17,655,749
Short-term borrowings........... 2,700,936 3,875,928 3,294,078 2,929,826 1,671,352 1,829,383 1,517,324
Long-term debt.................. 4,133,759 1,822,540 3,049,791 869,495 342,968 380,636 394,874
Shareholders' equity............ 3,106,499 2,866,071 2,955,347 2,474,837 2,199,298 2,071,550 1,842,700
RATIOS
Return on average assets........ 1.33% 1.35% 1.09% 0.85% 1.19% 1.39% 1.24%
Return on average shareholders'
equity........................ 15.20 16.03 12.70 9.97 12.93 15.36 14.58
Net interest margin............. 3.61 3.62 3.56 4.00 4.38 4.42 4.64
Noninterest expense to net
revenue....................... 54.35 53.28 61.75 66.65 60.29 56.80 59.70
Dividend payout ratio........... 45.95 41.33 51.45 66.36 52.25 37.77 37.03
Tier 1 risk-based capital....... 9.78 9.20 9.84 9.40 11.50 12.37 12.03
Total risk-based capital........ 12.33 12.11 12.55 12.42 14.02 15.02 14.83
Leverage........................ 7.28 6.60 7.16 6.52 8.52 8.87 8.37
Average shareholders' equity to
average total assets.......... 8.74 8.42 8.54 8.51 9.20 9.04 8.50
</TABLE>
12
<PAGE>
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
OF FIRSTAR AND MERCANTILE
The following unaudited selected pro forma condensed combined financial data
combine Firstar's historical results with Mercantile's historical results, in
each case, as of or for the three month periods ended March 31, 1999 and 1998
and the fiscal years ended December 31, 1998, 1997, 1996, 1995 and 1994. Income
statement data gives effect to the merger as if it had occurred on January 1,
1994. Balance sheet data gives effect to the merger as if it has occurred on the
indicated balance sheet date.
SEE "WHERE YOU CAN FIND MORE INFORMATION" AND "UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION" FOR MORE DETAILED FINANCIAL INFORMATION.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS
Interest income................. $1,236,423 $1,226,976 $5,033,606 $4,495,777 $4,046,795 $3,918,737 $3,305,489
Interest expense................ 586,341 615,524 2,516,567 2,145,872 1,845,561 1,827,174 1,285,659
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income........... 650,082 611,452 2,517,039 2,349,905 2,201,234 2,091,563 2,019,830
Taxable equivalent adjustment... 14,103 14,445 59,960 58,643 57,646 58,715 60,550
---------- ---------- ---------- ---------- ---------- ---------- ----------
Taxable equivalent net
interest Income............. 664,185 625,897 2,576,999 2,408,548 2,258,880 2,150,278 2,080,380
Noninterest income.............. 349,528 333,994 1,402,066 1,126,236 989,425 894,721 802,587
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net revenue................... 1,013,713 959,891 3,979,065 3,534,784 3,248,305 3,044,999 2,882,967
Noninterest expense............. 525,523 520,933 2,547,949 2,112,884 1,957,439 1,812,300 1,759,132
Provision for loan losses....... 43,389 37,182 164,790 204,127 176,100 112,069 103,569
Net income...................... 287,624 253,693 805,450 760,716 699,871 698,986 626,260
PER COMMON SHARE
Basic EPS....................... $ 0.29 $ 0.27 $ 0.83 $ 0.83 $ 0.76 $ 0.75 $ 0.68
Diluted EPS..................... 0.29 0.26 0.81 0.82 0.75 0.74 0.67
Period-end book value........... 6.84 6.47 6.70 5.93 5.41 5.09 4.56
AVERAGE BALANCES
Loans........................... $48,500,346 $45,783,406 $46,807,844 $41,872,218 $37,281,761 $35,416,187 $31,698,292
Loans held for sale............. 1,493,754 634,564 988,432 297,743 286,088 19,436 17,913
Investment securities........... 15,441,347 14,999,124 15,681,267 12,653,620 11,925,251 11,948,226 11,694,867
Short-term investments.......... 675,587 671,594 654,162 659,152 477,633 629,866 728,753
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning
assets...................... 66,111,034 62,088,688 64,131,705 55,482,733 49,970,733 48,013,715 44,139,825
Total assets.................... 73,758,146 68,467,768 71,096,191 60,722,443 54,565,374 52,242,526 48,062,798
Non-interest bearing deposits... 10,064,794 8,998,742 9,514,139 8,303,720 7,911,441 7,096,383 7,023,347
Interest-bearing deposits....... 42,808,251 41,286,337 42,097,767 37,682,107 34,623,470 33,293,091 31,035,520
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total deposits................ 52,873,045 50,285,079 51,611,906 45,985,827 42,534,911 40,389,474 38,058,867
Short-term borrowings........... 7,026,242 7,575,388 7,369,227 6,477,390 5,025,361 5,207,545 4,181,502
Long-term debt.................. 5,840,981 3,562,957 4,731,318 2,140,536 1,272,483 1,202,153 1,068,207
Shareholders' equity............ 6,762,965 5,943,548 6,334,542 5,084,200 4,739,612 4,496,663 4,090,938
RATIOS
Return on average assets........ 1.58% 1.50% 1.13% 1.25% 1.28% 1.34% 1.30%
Return on average common
equity........................ 17.25 17.31 12.72 14.97 14.79 15.60 15.39
Net interest margin............. 4.07 4.09 4.02 4.34 4.52 4.48 4.71
Noninterest expense to net
revenue....................... 51.84 54.27 64.03 59.77 60.26 59.52 61.02
Average shareholders' equity to
average total assets.......... 9.17 8.68 8.91 8.37 8.69 8.61 8.51
EXCLUDING MERGER RELATED EXPENSES
AND OTHER NONRECURRING ITEMS
Net Income...................... $ 297,309 $ 253,693 $1,056,559 $ 878,353 $ 800,761 $ 726,619 $ 656,050
Diluted EPS..................... 0.29 0.26 1.07 0.94 0.86 0.77 0.70
Return on average assets........ 1.63% 1.50% 1.49% 1.45% 1.47% 1.39% 1.36%
Return on average common
equity........................ 17.83 17.31 16.68 17.30 16.95 16.28 16.22
Noninterest expense to net
revenue....................... 50.36 54.27 55.20 55.28 56.14 58.64 59.35
</TABLE>
13
<PAGE>
FIRSTAR SPECIAL MEETING
This section contains information from Firstar for Firstar shareholders
about the shareholder meeting Firstar has called to consider and approve the
merger agreement.
We are mailing this Joint Proxy Statement-Prospectus to you, as a Firstar
shareholder, on or about June 24, 1999. Together with this document, we are also
sending to you a notice of the Firstar special meeting and a form of proxy that
our board is soliciting for use at the special meeting. The special meeting will
be held on July 28, 1999, at 9:00 a.m., local time.
MATTERS TO BE CONSIDERED
The purpose of the special meeting is to vote on the approval of the merger
agreement, dated April 30, 1999, as amended as of June 17, 1999, between
Mercantile and Firstar, and the transactions contemplated in that agreement.
These include the merger of Mercantile into Firstar and an amendment to the
Firstar articles of incorporation, to take effect if and when the merger is
completed, increasing the number of shares of common stock Firstar is authorized
to issue from 800,000,000 to 2,000,000,000. The purpose of the special meeting
is also to vote on any other matters that may properly be submitted to a vote at
the special meeting. You may also be asked to vote on a proposal to adjourn or
postpone the special meeting. We could use any adjournment or postponement of
the special meeting for the purpose, among others, of allowing more time to
solicit votes to approve the merger agreement.
PROXIES
The accompanying form of proxy is for use at the special meeting if you
can't or don't wish to, attend in person. You can revoke the proxy at any time
before the vote is taken at the special meeting by submitting to our corporate
secretary written notice of revocation or a properly executed proxy of a later
date, or by attending the special meeting and electing to vote in person.
Written notices of revocation and other communications with respect to the
revocation of Firstar proxies should be addressed to:
Firstar Corporation
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Corporate Secretary
All shares represented by valid proxies we receive through this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified in this paragraph. If you make no specification on your proxy
card, your proxy will be voted in FAVOR of the approval of the merger agreement.
Our Board is presently unaware of any other matters that may be presented for
action at the special meeting. If other matters do properly come before the
special meeting, however, we intend that shares represented by proxies in the
form accompanying this document will be voted by and at the discretion of the
persons named in the proxies. However, proxies that indicate a vote against
approval of the merger agreement will not be voted in favor of any adjournment
or postponement of the special meeting to solicit additional proxies to approve
the merger agreement.
SOLICITATION OF PROXIES
We will bear the entire cost of soliciting proxies from you, except that we
and Mercantile have agreed to each pay one-half of the costs and expenses of
printing and mailing this document and all filing and other fees relating to the
merger paid to the Securities and Exchange Commission. In addition to soliciting
of proxies by mail, we will request banks, brokers and other record holders to
send proxies and proxy material to the beneficial owners of Firstar common stock
and secure their
14
<PAGE>
voting instructions, if necessary. We will reimburse those record holders for
their reasonable expenses in taking those actions. We have also made
arrangements with MacKenzie Partners, Inc. to assist us in soliciting proxies
from banks, brokers and nominees, and have agreed to pay $8,500 plus expenses
for their services. If necessary, we may also use several of our regular
employees, who will not be specially compensated, to solicit proxies from our
shareholders, either personally or by telephone, telegram, fax, letter or
special delivery letter.
RECORD DATE AND VOTING RIGHTS
In accordance with Wisconsin law, the Firstar by-laws and the rules of the
New York Stock Exchange, we have fixed June 17, 1999 as the record date for
determining the Firstar shareholders entitled to notice of and to vote at the
special meeting. Accordingly, you are only entitled to notice of, and to vote
at, the special meeting if you were a record holder of shares of Firstar common
stock at the close of business on the record date. At that time, there were
664,140,168 shares of Firstar common stock held by approximately 23,353 holders
of record. To have a quorum that permits us to conduct business at the special
meeting, we require the presence, whether in person or through return of a proxy
card, of holders of Firstar common stock representing a majority of the shares
outstanding and entitled to vote on the record date. You are entitled to one
vote for each outstanding share of Firstar common stock you held as of the close
of business on the record date.
Shares of Firstar common stock present in person at the special meeting but
not voting, and shares of Firstar common stock for which we have received
proxies indicating that their holders have abstained, will be counted as present
at the special meeting for purposes of determining whether we have a quorum for
transacting business. Brokers who hold shares of Firstar common stock in nominee
or "street" name for customers who are the beneficial owners of those shares may
not give a proxy to vote those shares on the merger agreement without specific
instructions from those customers. However, shares represented by proxies
returned by a broker holding these shares in "street" name will be counted for
purposes of determining whether a quorum exists, even if those shares aren't
voted by their beneficial owners in matters where the broker cannot vote the
shares in its discretion (so-called "BROKER NON-VOTES").
Under Wisconsin law, approval of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of
Firstar common stock entitled to vote at the special meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF FIRSTAR COMMON STOCK
ENTITLED TO VOTE AT THE SPECIAL MEETING, ABSTENTIONS AND BROKER NON-VOTES WILL
HAVE THE SAME EFFECT AS VOTES AGAINST APPROVAL OF THE MERGER AGREEMENT.
ACCORDINGLY, THE FIRSTAR BOARD URGES YOU TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
As of the record date:
- Our directors and executive officers beneficially owned approximately
31,596,829 shares of Firstar common stock, entitling them to exercise
approximately 4.8% of the voting power of the Firstar common stock
entitled to vote at the special meeting. We currently expect that each of
our directors and executive officers will vote the shares of Firstar
common stock he or she beneficially owns FOR approval of the merger
agreement.
- Mercantile's directors and executive officers beneficially owned
approximately 18,500 shares of Firstar common stock, or less than 0.1% of
the voting power of the Firstar common stock entitled to vote at the
special meeting.
- The banking, trust and investment management subsidiaries of Firstar, as
fiduciaries, custodians or agents, held a total of 80,036,432 shares of
Firstar common stock, representing approximately
15
<PAGE>
12.1% of the shares entitled to vote at the special meeting, and
maintained sole or shared voting power over 62,920,507 of these shares.
- The banking, trust and investment management subsidiaries of Mercantile,
as fiduciaries, custodians or agents, held a total of approximately
419,000 shares of Firstar common stock, representing less than 0.1% of the
shares entitled to vote at the special meeting, and maintained sole or
shared voting power over approximately 246,000 of these shares.
You can find additional information about beneficial ownership of Firstar
common stock by persons and entities owning more than 5% of the stock, and more
detailed information about beneficial ownership of Firstar common stock by our
directors and executive officers, in the definitive proxy statement we filed
with the SEC and sent to our shareholders in connection with our 1999 Annual
Meeting of Shareholders. See "Where You Can Find More Information" for
instructions on how you can obtain this document.
RECOMMENDATION OF FIRSTAR BOARD
The Firstar board has unanimously approved the merger agreement and the
transactions it contemplates, including the merger and the increase in Firstar's
authorized shares. The Firstar Board believes that the merger agreement and the
transactions it contemplates are fair to, and are in the best interests of,
Firstar and Firstar shareholders and recommends that Firstar shareholders vote
"FOR" approval of the merger agreement.
See "The Merger--Recommendation of the Firstar Board and Firstar's Reasons
for the Merger" for a more detailed discussion of the Firstar Board's
recommendation.
16
<PAGE>
MERCANTILE SPECIAL MEETING
This section contains information from Mercantile for Mercantile
shareholders about the shareholder meeting Mercantile has called to consider and
approve the merger agreement.
We are mailing this document to you, as a Mercantile shareholder, on or
about June 24, 1999. Together with this document, we are also sending to you a
notice of the Mercantile special meeting and a form of proxy that our board is
soliciting for use at the special meeting. The special meeting will be held on
Wednesday, July 28, 1999 at 9:00 a.m., local time.
MATTERS TO BE CONSIDERED
The purpose of the special meeting is to vote on the approval of the merger
agreement, dated April 30, 1999, between Mercantile and Firstar, and the
transactions contemplated in that agreement. These include the merger of
Mercantile into Firstar, and any other matters that may properly be submitted to
a vote at the special meeting. You may also be asked to vote upon a proposal to
adjourn or postpone the special meeting. We could use any adjournment or
postponement for the purpose, among others, of allowing more time to solicit
votes to approve the merger agreement.
PROXIES
You should use the proxy form accompanying this document, or vote by
telephone or internet submission, if you are unable or do not wish to attend the
special meeting in person. You can revoke your proxy at any time before the vote
is taken at the special meeting by submitting to our corporate secretary written
notice of revocation or a properly submitted proxy of a later date, or by
attending the special meeting and voting in person. Written notices of
revocation and other communications about revoking your proxy should be
addressed to:
Mercantile Bancorporation Inc.
7th and Washington
One Mercantile Center
St. Louis, Missouri 63101
Attention: Jon W. Bilstrom, Corporate Secretary
All shares represented by valid proxies we receive through this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified in this paragraph. If you make no specification on your
returned proxy card, your proxy will be voted in FAVOR of approval of the merger
agreement. Our board is presently unaware of any other matters that may be
presented for action at the special meeting. If other matters do properly come
before the special meeting, however, we intend that shares represented by
properly submitted proxies will be voted by and at the discretion of the persons
named in the proxies. However, proxies that indicate a vote against approval of
the merger agreement will not be voted in favor of any adjournment or
postponement of the special meeting for the purpose of soliciting additional
proxies to approve the merger agreement.
If you plan to attend the meeting you should promptly submit your proxy
indicating your intention to attend, as seating will be limited. You must also
bring the admission ticket attached to the proxy card included with this
document to enter.
SOLICITATION OF PROXIES
We will bear the entire cost of soliciting proxies from you, except that we
and Firstar have agreed to each pay one-half of the costs and expenses of
printing and mailing this document and all filing and other fees relating to the
merger paid to the SEC. In addition to solicitation of proxies by mail, we will
request banks, brokers and other record holders to send proxies and proxy
material to the beneficial owners of the stock and secure their voting
instructions, if necessary. We will reimburse these record
17
<PAGE>
holders for their reasonable expenses in taking those actions. We've also made
arrangements with Morrow & Co. to help us in soliciting proxies from banks,
brokers and nominees and have agreed to pay approximately $12,000 plus expenses
for these services. If necessary, we may also use several of our regular
employees, who will not be specially compensated, to solicit proxies from our
shareholders, either personally or by telephone, the internet, telegram, fax,
letter or special delivery letter.
RECORD DATE AND VOTING RIGHTS
In accordance with Missouri law, the Mercantile by-laws and the rules of the
NYSE, we have fixed June 17 as the record date for determining the Mercantile
shareholders entitled to notice of and to vote at the special meeting.
Accordingly, you are only entitled to notice of, and to vote at, the special
meeting if you were a record holder of Mercantile common stock at the close of
business on the record date. At that time, 158,156,398 shares of Mercantile
common stock were outstanding, held by 25,857 holders of record. To have a
quorum that permits us to conduct business at the special meeting, we require
the presence, whether in person or through the prior submission of a proxy, of
the holders of Mercantile common stock representing a majority of the shares
outstanding and entitled to vote on the record date. You are entitled to one
vote for each outstanding share of Mercantile common stock you held as of the
close of business on the record date.
Shares of Mercantile common stock present in person at the special meeting
but not voting, and shares of Mercantile common stock for which we have received
proxies indicating that their holders have abstained, will be counted as present
at the special meeting for purposes of determining whether we have a quorum for
transacting business. Shares held in street name that have been designated by
brokers on proxy cards as not voted will not be counted as votes cast for or
against any proposal. These broker non-votes will, however, be counted for
purposes of determining whether a quorum exists.
Under Missouri law, approval of the merger agreement requires the
affirmative vote of the holders of two-thirds of the outstanding shares of
Mercantile common stock entitled to vote at the special meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES OF MERCANTILE COMMON STOCK
ENTITLED TO VOTE AT THE SPECIAL MEETING, ABSTENTIONS AND BROKER NON-VOTES WILL
HAVE THE SAME EFFECT AS VOTES AGAINST APPROVAL OF THE MERGER AGREEMENT.
ACCORDINGLY, THE MERCANTILE BOARD URGES YOU TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE
OR, ALTERNATIVELY, TO SUBMIT YOUR PROXY VIA THE TELEPHONE OR INTERNET PROCEDURES
DESCRIBED UNDER "--VOTING VIA TELEPHONE OR INTERNET."
As of the record date:
- Directors and executive officers of Mercantile beneficially owned
approximately 12,600,000 shares of Mercantile common stock, entitling them
to exercise approximately 8.0% of the voting power of the Mercantile
common stock entitled to vote at the special meeting. We currently expect
that each of our directors and executive officers will vote the shares of
Mercantile common stock he or she beneficially owns FOR approval of the
merger agreement.
- Directors and executive officers of Firstar beneficially owned
approximately 12,500 shares of Mercantile common stock, or less than 0.1%
of the voting power of the Mercantile common stock entitled to vote at the
special meeting.
- The banking, trust and investment management subsidiaries of Mercantile,
as fiduciaries, custodians or agents, held a total of approximately
13,600,000 shares of Mercantile common stock, representing approximately
8.6% of the shares entitled to vote at the special meeting, and maintained
sole or shared voting power with respect to approximately 10,100,000 of
these shares.
18
<PAGE>
- The banking, trust and investment management subsidiaries of Firstar, as
fiduciaries, custodians or agents, held a total of 57,060 shares of
Mercantile common stock, representing less than 0.1% of the shares
entitled to vote at the special meeting, and maintained sole or shared
voting power over 26,719 of these shares.
You can find additional information about beneficial ownership of Mercantile
common stock by persons and entities owning more than 5% of the stock, and more
detailed information about beneficial ownership of Mercantile common stock by
our directors and executive officers, in the definitive proxy statement we filed
with the SEC and sent to our shareholders in connection with our 1999 Annual
Meeting of Shareholders. See "Where You Can Find More Information" for
instructions on how you can obtain this document.
RECOMMENDATION OF MERCANTILE BOARD
The Mercantile board has unanimously approved the merger agreement and the
transactions it contemplates, including the merger. The Mercantile board
believes that the merger agreement and the transactions it contemplates,
including the merger, are fair to, and are in the best interests of, Mercantile
and Mercantile shareholders and recommends that Mercantile shareholders vote
"FOR" the approval of the merger agreement.
See "The Merger--Recommendation of the Mercantile Board and Mercantile's
Reasons for the Merger" for a more detailed discussion of the Mercantile board's
recommendation.
VOTING VIA TELEPHONE OR INTERNET
If you are a registered Mercantile shareholder, there are three ways to vote
your proxy:
- By mail--sign, date and mail the enclosed proxy card using the return
envelope provided as described under "--Proxies."
- By telephone--call 1-888-514-4508 and follow the instructions on the
enclosed proxy card.
- By internet--access the proxy form at http://www.harrisbank.com/wproxy.
Follow the instructions for internet voting found there and on the
enclosed proxy card.
In order to be effective, telephone or internet proxy instructions must be
received before 12:01 A.M., July 27, 1999, to allow for processing the results.
The telephone and internet voting procedures used by Mercantile's transfer
agent, Harris Trust and Savings Bank, are designed to properly authenticate
shareholders's identities and to accurately record and count their proxies. If
you vote via the internet, please be advised that there may be costs involved,
including possibly access charges from internet access providers and telephone
companies. You will have to bear these costs.
If your shares are registered in the name of a brokerage, bank or other
nominee, you may not be able to use telephone and internet voting procedures.
Please refer to the voting materials you receive, or contact your broker, bank
or other nominee, to determine your options.
19
<PAGE>
THE MERGER
THIS SUMMARY OF THE MATERIAL TERMS AND PROVISIONS OF THE MERGER AGREEMENT
AND THE STOCK OPTION AGREEMENTS WE'VE ENTERED INTO IN CONNECTION WITH THE MERGER
AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT AND
THE STOCK OPTION AGREEMENTS. THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A, AN
AMENDMENT TO THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A-1, AND THE STOCK
OPTION AGREEMENTS ARE ATTACHED AS APPENDICES B AND C TO THIS DOCUMENT, AND WE
INCORPORATE EACH OF THOSE DOCUMENTS INTO THIS SUMMARY BY REFERENCE.
The Firstar board and the Mercantile board have each unanimously approved
the merger agreement, which provides for combining our companies through the
merger of Mercantile into Firstar at the effective time of the merger, with
Firstar as the surviving corporation.
With the limited exceptions we describe below, each share of Mercantile
common stock issued and outstanding at the effective time will be converted into
the right to receive 2.091 shares (the "EXCHANGE RATIO") of Firstar common
stock, and each share of Firstar common stock issued and outstanding at the
effective time will remain issued and outstanding.
When we refer to shares of Mercantile common stock in this document, we are
generally referring to those shares together with a Series B Junior
Participating Preferred Stock Purchase Right (a "MERCANTILE SHAREHOLDER RIGHT")
issued to Mercantile shareholders under the Rights Agreement (the "MERCANTILE
RIGHTS AGREEMENT"), dated as of May 20, 1998, as amended, between Mercantile and
Harris Trust and Savings Bank, as Rights Agent. When we refer to shares of
Firstar common stock in this document, we are generally referring to those
shares together with a Series A Junior Participating Preferred Stock Purchase
Right (a "FIRSTAR SHAREHOLDER RIGHT") issued to the Firstar shareholders under
the Rights Agreement (the "FIRSTAR RIGHTS AGREEMENT"), dated as of November 20,
1998, between Firstar and Firstar Bank Milwaukee, N.A., as Rights Agent. When
you surrender your shares of Mercantile common stock in exchange for Firstar
common stock after the merger is completed, you will be surrendering one
Mercantile Shareholder Right for each share of Mercantile common stock
surrendered for exchange and you will receive one Firstar Shareholder Right for
each share of Firstar common stock you receive in exchange.
This section describes the material aspects of the merger, including the
principal provisions of the merger agreement and the stock option agreements.
Capitalized terms we use here without an express definition have the meanings
given to those terms in those agreements.
BACKGROUND OF THE MERGER
Each of our companies has, in the past several years, expanded our
Midwest-based operations significantly through acquisitions and strategic
combinations. These transactions were, in part, based on the objective of
building stronger and more efficient franchises able to better compete in the
rapidly consolidating market for financial services and products. In undertaking
these transactions, our companies have each considered a number of factors,
including our company's potential strategic fit with the institution to be
acquired based on their businesses (both banking and non-banking), management
and employee cultures, and the geographic location and breadth of their
franchises. Each of our managements were familiar with the operations and
franchises of the other company as part of our ongoing strategic reviews of
competitors and potential alliances.
In the first quarter of 1999, Jerry A. Grundhofer, President and Chief
Executive Officer of Firstar, and Thomas H. Jacobsen, Chairman of the Board,
President and Chief Executive Officer of Mercantile, informally discussed the
possibility of a strategic combination of the two companies. After a brief
discussion concerning the possibility of a good fit between the two companies
and the potential advantages of a combination, Mr. Grundhofer and Mr. Jacobsen
decided that it would be worthwhile to explore a potential transaction in more
detail. A small group of senior executives at each of our
20
<PAGE>
companies then began a preliminary due diligence review of publicly available
information about the other company and began to develop analyses regarding the
financial terms of a possible combination. During this time, Mr. Grundhofer and
Mr. Jacobsen continued to discuss a possible merger, including the proposed
financial terms of a transaction. Mr. Grundhofer and Mr. Jacobsen each spoke
periodically with members of his company's board about the status of
discussions.
In April 1999, Firstar and Mercantile entered into a customary
confidentiality agreement governing the exchange of information regarding a
potential transaction, and representatives of the parties commenced further
in-depth due diligence investigations. Messrs. Grundhofer and Jacobsen and
members of their senior management teams held a series of discussions with
respect to the combination, including the specific terms of a potential
transaction. During this time, the principal financial and business terms of the
transaction were negotiated through arm's-length negotiations between Firstar
and Mercantile. Later in April 1999, legal counsel to Firstar and Mercantile
began to draft definitive documentation with respect to a possible merger of the
two companies. Firstar engaged Credit Suisse First Boston Corporation to advise
it on the proposed merger, and Mercantile engaged Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley & Co., Incorporated as its financial
advisors.
On April 30, 1999, the Firstar board held a special meeting at which senior
management of Firstar reviewed its discussions and negotiations with Mercantile
regarding a business combination, as well as the results of its due diligence
investigation of Mercantile. Senior management of Firstar and Firstar's
financial advisors presented detailed financial information with respect to
Mercantile and the potential transaction to the Firstar board, and CSFB rendered
its oral opinion that, as of that date, the exchange ratio set forth in the
merger agreement was fair to Firstar from a financial point of view. Also, at
this meeting, the Firstar board reviewed with Firstar's counsel the terms of the
merger and the definitive documents documenting the transaction and the legal
standards applicable to its decision to approve these agreements and the
transactions contemplated by these agreements. After questions by, and
discussion among, the members of the Firstar board, and after consideration of
the factors described under "--Recommendation of the Firstar Board and Firstar's
Reasons for the Merger," the Firstar board voted unanimously to approve the
merger agreement, the Option Agreements and the transactions contemplated by
those agreements.
On April 30, 1999, the Mercantile board held a special meeting, at which
senior management of Mercantile reviewed its discussions and negotiations with
Firstar regarding a business combination, as well as the results of its due
diligence investigation of Firstar. Mr. Jacobsen reviewed the Mercantile board's
prior discussions of strategic alternatives for Mercantile, reviewed the course
of discussions with Firstar and outlined the strategic rationale for the
proposed merger. DLJ presented detailed financial information with respect to
Firstar and the potential transaction to the Mercantile board, and DLJ rendered
an oral opinion that, as of April 30, 1999, the exchange ratio set forth in the
merger agreement was fair to Mercantile shareholders from a financial point of
view. Also, at this meeting, the Mercantile board discussed with Mercantile's
counsel the terms of the merger and the definitive agreements documenting the
transaction, and the legal standards applicable to its decision to approve these
agreements and the transactions contemplated by these agreements. After
questions by, and discussion among, the members of the Mercantile board, and
after consideration of the factors described under "--Recommendation of the
Mercantile board and Mercantile's Reasons for the Merger," the Mercantile board
voted unanimously to approve the merger agreement and the transactions
contemplated by the merger agreement, the Option Agreements and the transactions
contemplated by those agreements.
On April 30, 1999, following the adjournment of both the Mercantile and
Firstar Board meetings, Mercantile and Firstar executed the merger agreement and
the Option Agreements.
21
<PAGE>
RECOMMENDATION OF THE FIRSTAR BOARD AND FIRSTAR'S REASONS FOR THE MERGER
THE FIRSTAR BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, FIRSTAR AND FIRSTAR SHAREHOLDERS. ACCORDINGLY, THE FIRSTAR BOARD
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
THE FIRSTAR SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
We believe that the merger presents a unique opportunity to combine two of
the nation's leading financial institutions to create a premier banking and
financial services company with the capability to offer a full range of
financial products and services through a powerful Midwest distribution network.
In reaching our decision to approve the merger agreement and the Option
Agreements, we consulted with Firstar management, as well as with our company's
financial and legal advisors, and considered a variety of factors, including the
following:
- Our knowledge of our company's business, operations, financial condition,
earnings and prospects.
- The business, operations, financial condition, earnings and prospects of
Mercantile. In making its determination, we took into account the results
of our company's due diligence review of Mercantile.
- The consistency of the merger with our business strategy.
- The unique strategic opportunity presented by a merger of Firstar and
Mercantile to create the second largest banking franchise in the Midwest
and one of the top 10 bank holding companies in the United States, ranked
by market capitalization.
- Our expectation that the combined company would benefit from significantly
greater economies of scale than either Firstar or Mercantile separately in
its consumer banking, commercial banking, asset management and other
businesses.
- Our view that the combination of Firstar and Mercantile presents
manageable execution risk in view of the similar markets and customer
demographics served by Firstar and Mercantile, the compact and readily
accessible geographic area to be served by the combined company, the
similar business lines and business cultures of the two companies and our
management's prior experience in integrating acquisitions.
- While there can be no assurances as to future results, our expectation of
the financial impact on Firstar of combining with Mercantile in the
merger, including the pro forma capital ratios and asset quality of the
combined company, the expectation that the merger would enhance Firstar's
earnings per share beginning at completion, that $169 million in annual
pre-tax expense savings could be realized by fiscal year 2000 and a
pre-tax restructuring charge of $428 million would be taken, and that,
subject to determination by the Firstar board in its discretion, the
quarterly cash dividend per share of Firstar common stock would be
increased to $.1625 after completion of the merger.
- The complementary nature of the businesses of Firstar and Mercantile.
- Our belief and that of our company's senior management that Firstar and
Mercantile share a common vision about the importance of delivering
financial performance and shareholder value and that managements and
employees of Firstar and Mercantile possess complementary skills and
expertise.
- The structure of the merger and the terms of the merger agreement and the
Option Agreements, including the fixed exchange ratio, which provides
certainty as to the number of shares of Firstar common stock to be issued
in the merger, and the fact that the merger is
22
<PAGE>
intended to qualify as a reorganization under Section 368(a) of the U.S.
tax code and for "pooling of interests" accounting treatment.
- The proposed arrangements with members of management of Firstar and
Mercantile, including the fact that Mr. Grundhofer will continue as
Firstar's president and chief executive officer; that Mr. Jacobsen would
enter into an employment agreement with Firstar and under that agreement
would become chairman of the board of Firstar and co-chair the board's
executive committee with Mr. Grundhofer; and that the board of directors
of the combined company would be comprised of 14 directors designated by
Firstar and four directors designated by Mercantile. See "--Interests of
Certain Persons in the Merger" and "Management and Operations After the
Merger."
- The opinion of CSFB that, as of April 30, 1999, the exchange ratio set
forth in the merger agreement was fair from a financial point of view to
Firstar. See "--Opinion of Firstar's Financial Advisor."
- The likelihood that the merger will be approved by the appropriate
regulatory authorities. See "--Regulatory Approvals Required for the
Merger." In this connection, we considered that a modest amount of
divestitures of some assets and deposit liabilities was likely to be
required by regulatory authorities in connection with the merger.
This discussion of the information and factors considered by the Firstar
Board is not intended to be exhaustive but includes all material factors the
board considered. In reaching the determination to approve and recommend the
merger, the Firstar board did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
different factors. The Firstar board is unanimous in its recommendation that
Firstar shareholders vote for approval of the merger agreement.
RECOMMENDATION OF THE MERCANTILE BOARD AND MERCANTILE'S REASONS FOR THE MERGER
THE MERCANTILE BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, MERCANTILE AND MERCANTILE SHAREHOLDERS. ACCORDINGLY, THE
MERCANTILE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT MERCANTILE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT.
We believe that the consummation of the merger presents a unique opportunity
to combine two of the nation's strongest franchises to create a premier banking
and financial services company with the capability to offer a full range of
financial products and services in many of the nation's most attractive markets
through a powerful distribution network.
In reaching our decision to approve the merger agreement and the Option
Agreements, we consulted with our company's management, as well as with its
financial and legal advisors, and considered a number of factors, including the
following:
- Our knowledge of our company's business, operations, financial condition,
earnings and prospects.
- The business, operations, financial condition, earnings and prospects of
Firstar. In making our determination, we took into account the results of
our company's due diligence review of Mercantile.
- The consistency of the merger with our long-term business strategy.
- The unique strategic opportunity presented by a merger of Firstar and
Mercantile to create the second largest banking franchise in the Midwest
and one of the top 10 bank holding companies in the United States, ranked
by market capitalization.
23
<PAGE>
- Our expectation that the combined company would benefit from significantly
greater economies of scale than either Firstar or Mercantile separately in
its consumer banking, commercial banking, asset management and other
businesses.
- Our view that the combination of Firstar and Mercantile presents
manageable execution risk in view of the similar markets and customer
demographics served by Firstar and Mercantile, the compact and readily
accessible geographic area to be served by the combined company, the
similar business lines and business cultures of the two companies and
management's prior experience in integrating prior acquisitions.
- While there can be no assurances as to future results, our expectation of
the financial impact of the merger on Firstar, as the issuer of the stock
our shareholders would receive in the transaction, including the pro forma
capital ratios and asset quality of the combined company, the expectation
that the merger would enhance Firstar's earnings per share beginning at
completion, that $169 million in annual pre-tax expense savings could be
realized by fiscal year 2000 and that a pre-tax restructuring charge of
$428 million would be taken, and that, subject to determination by the
Firstar board in its discretion, the quarterly cash dividend per share of
Firstar common stock would be increased to $.1625 after completion of the
merger.
- The complementary nature of the businesses of Firstar and Mercantile.
- Our belief and that of our company's senior management that Firstar and
Mercantile share a common vision about the importance of delivering
financial performance and shareholder value and that managements and
employees of Firstar and Mercantile possess complementary skills and
expertise.
- The structure of the merger and the terms of the merger agreement and the
Option Agreements, and the fact that the merger is intended to qualify as
a reorganization under Section 368(a) of the U.S. tax code and for
"pooling of interests" accounting treatment.
- The proposed arrangements with members of management of Firstar and
Mercantile, including the fact that Mr. Grundhofer would continue as
Firstar's president and chief executive officer; that Mr. Jacobsen would
enter into an employment agreement with Firstar and under that agreement
would become chairman of the board of Firstar and co-chair the board's
executive committee with Mr. Grundhofer; and that the board of directors
of the combined company would be comprised of 14 directors designated by
Firstar and four directors designated by Mercantile. We also considered
the fact that directors and executive officers of Mercantile could be
expected to receive benefits in the merger under existing severance and
compensation arrangements with Mercantile and, in the case of Mr.
Jacobsen, as a result of his new employment agreement. See "--Interests of
Certain Persons in the Merger" and "Management and Operations After the
Merger."
- The opinion of DLJ that, as of April 30, 1999, the exchange ratio set
forth in the merger agreement was fair from a financial point of view to
Mercantile shareholders. See "--Opinion of Mercantile's Financial
Advisor."
- The likelihood that the merger will be approved by the appropriate
regulatory authorities. See "--Regulatory Approvals Required for the
Merger." In this connection, we considered that a modest amount of
divestitures of some assets and deposit liabilities was likely to be
required by regulatory authorities in connection with the merger.
This discussion of the information and factors considered by us is not
intended to be exhaustive but includes all material factors we considered. In
reaching its determination to approve and recommend the merger, the Mercantile
Board did not assign any relative or specific weights to the foregoing factors,
and individual directors may have given differing weights to different factors.
The
24
<PAGE>
Mercantile Board is unanimous in its recommendation that Mercantile shareholders
vote for approval of the merger agreement.
OPINION OF FIRSTAR'S FINANCIAL ADVISOR
CSFB acted as financial advisor to Firstar in connection with the merger.
Firstar selected CSFB based on its experience, expertise and familiarity with
Firstar and its business. CSFB is an internationally recognized investment
banking firm and is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with CSFB's engagement, Firstar asked CSFB to evaluate the
fairness of the exchange ratio to Firstar from a financial point of view. At the
April 30, 1999 meeting of the Firstar board to evaluate the merger, CSFB
rendered to the Firstar board an oral opinion that, as of April 30, 1999, and
based upon and subject to various matters stated in their opinion, the exchange
ratio set forth in the merger agreement was fair to Firstar from a financial
point of view. CSFB has confirmed this oral opinion by delivery of a written
opinion dated the date of this document (the "CSFB OPINION"). In delivering the
CSFB Opinion, CSFB updated selected analyses it performed in connection with its
April 30, 1999 oral opinion, and reviewed the assumptions on which those
analyses were based and the factors considered in connection with those
analyses.
WE HAVE ATTACHED THE FULL TEXT OF THE CSFB OPINION, WHICH DESCRIBES THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THAT OPINION, AS APPENDIX D TO THIS
DOCUMENT. WE INCORPORATE THE CSFB OPINION INTO THIS DESCRIPTION BY REFERENCE.
YOU SHOULD READ THE ENTIRE CSFB OPINION.
CSFB HAS CONSENTED TO THE INCLUSION OF THE CSFB OPINION AS APPENDIX D. IN
GIVING THIS CONSENT, CSFB DOES NOT ADMIT THAT IT COMES WITHIN THE CATEGORY OF
PERSONS WHOSE CONSENT IS REQUIRED UNDER SECTION 7 OF THE SECURITIES ACT OR THE
RULES AND REGULATIONS OF THE SEC UNDER THE SECURITIES ACT, NOR DOES CSFB ADMIT
THAT IT IS AN EXPERT WITH RESPECT TO ANY PART OF THE REGISTRATION STATEMENT OF
WHICH THIS DOCUMENT IS A PART WITHIN THE MEANING OF THE TERM "EXPERTS" AS USED
IN THE SECURITIES ACT OR THE RULES AND REGULATIONS OF THE SEC UNDER THE
SECURITIES ACT.
THE CSFB OPINION IS DIRECTED TO THE FIRSTAR BOARD. IT RELATES ONLY TO THE
FAIRNESS OF THE EXCHANGE RATIO TO FIRSTAR FROM A FINANCIAL POINT OF VIEW, DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTION AND DOES
NOT CONSTITUTE A RECOMMENDATION TO YOU AS A FIRSTAR SHAREHOLDER AS TO HOW YOU
SHOULD VOTE AT THE FIRSTAR SPECIAL MEETING. THE SUMMARY OF THE CSFB OPINION IN
THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT
OPINION.
In arriving at the CSFB Opinion, CSFB:
- reviewed the merger agreement and publicly available business and
financial information relating to Mercantile and Firstar that it
considered relevant
- reviewed other information relating to Mercantile and Firstar, including
forecasts of cost savings to be achieved in the merger, provided by
Mercantile and Firstar
- met with Mercantile's and Firstar's managements to discuss the business
and prospects of the two companies
- considered financial and stock market information about Mercantile and
Firstar and compared that information with similar information about other
publicly held companies in similar businesses
- considered the financial terms of other recent business combinations and
transactions
25
<PAGE>
- considered other information, financial studies, analyses and
investigations and financial, economic and market criteria that CSFB
deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB. CSFB relied on this information being complete and accurate in
all material respects. As to the financial forecasts, including the estimates of
future cost savings and operating synergies expected to be achieved as a result
of the merger, CSFB assumed that these forecasts were reasonably prepared and
reflected the best currently available estimates and judgments of the
managements of Mercantile and Firstar as to the future financial performance of
Mercantile and Firstar. In addition, Firstar did not ask CSFB to make, and CSFB
did not make, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Mercantile or Firstar, nor was CSFB
furnished with any evaluations or appraisals of this kind.
The CSFB Opinion was necessarily based upon financial, economic, market and
other conditions as they existed and could be evaluated on the date of the
opinion. CSFB did not express any opinion as to the actual value of the Firstar
common stock when issued to Mercantile shareholders in the merger, or the prices
at which the Firstar common stock will trade after the merger is completed.
In preparing its opinion, CSFB performed a variety of financial and
comparative analyses, including those described below. The summary of CSFB's
analyses described below should not be taken as a complete description of the
analyses underlying the CSFB Opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances. Therefore, such an opinion is not
readily susceptible to summary description. In arriving at its opinion, CSFB
made qualitative judgments as to the significance and relevance of each analysis
and factor considered by it. Accordingly, CSFB believes that its analyses must
be considered as a whole and that selecting portions of its analyses and
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying its analyses and the CSFB
Opinion.
In its analyses, CSFB made numerous assumptions with respect to Mercantile,
Firstar, industry performance, regulatory, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of Mercantile and Firstar. No company, transaction or business used in these
analyses as a comparison is identical to Mercantile, Firstar or the merger.
Moreover, an evaluation of the results of these analyses is not entirely
mathematical; rather, these analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the transaction, public trading or other values of the
companies, business segments or transactions being analyzed. The estimates
contained in these analyses and the ranges resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by these analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which those businesses or securities actually may be sold.
Accordingly, these analyses and estimates are inherently subject to substantial
uncertainty.
The CSFB Opinion and the financial analyses CSFB presented to the Firstar
board were among many factors considered by the Firstar board in its evaluation
of the merger and should not be viewed as determinative of the views of the
Firstar board or management of Firstar with respect to the exchange ratio or the
merger.
26
<PAGE>
The following is a summary of the material financial analyses performed by
CSFB in connection with its oral opinion rendered to the Firstar board April 30,
1999:
DISCOUNTED CASH FLOW VALUATION. CSFB analyzed the range of values of a
share of Mercantile common stock implied by the dividends per share that could
be paid based on earnings per share projected over a five-year period and by the
theoretical value of a share of Mercantile common stock at the end of the
five-year period. CSFB based the projected earnings per share of Mercantile
common stock on consensus earnings per share estimates, as reported by First
Call, for 1999 and 2000, excluding non-core net income items, and on the
consensus long-term growth rate for Mercantile's earnings per share, as reported
by First Call, for 2001 through 2004. First Call is an industry service provider
of global earnings information based on an average of earnings estimates
published by various investment banking firms. Earnings were adjusted to reflect
an assumed constant ratio of tangible common equity to assets that CSFB viewed
as appropriate. CSFB determined the theoretical value of a share of Mercantile
common stock at the end of the five-year period by applying terminal multiples
and discount rates that CSFB viewed as appropriate for a company with
Mercantile's risk characteristics. This analysis implied values per share of
Mercantile common stock between $52.28 and $61.75. When CSFB additionally
considered the effect of the expense savings expected to be achieved in the
merger, the same analysis with discounted terminal multiples implied values per
share of Mercantile common stock between $58.44 and $69.47.
COMPARABLE ACQUISITIONS ANALYSIS. CSFB analyzed key price multiples
publicly disclosed in all bank acquisitions announced since June 30, 1997 with a
transaction value greater than $2 billion and applied the average of these
multiples to the corresponding financial data of Mercantile to determine a range
of imputed values for a share of Mercantile common stock. The comparable bank
acquisitions included:
- First Union Corporation/Signet Banking Corporation
- NationsBank Corporation/Barnett Banks Inc.
- Bank One Corporation/First Commerce Corporation
- First Union Corporation/CoreStates Financial Corp.
- National City Corporation/First of America Bank Corporation
- First American Corporation/Deposit Guaranty Corp.
- Regions Financial Corporation/First Commercial Corporation
- Union Planters/Magna Group, Inc.
- Star Banc Corporation/Firstar Corporation
- Suntrust Banks, Inc./Crestar Financial Corporation
The multiples analyzed by CSFB included the multiple of the per share merger
consideration to:
- analysts' consensus earnings per share, as reported by First Call, for the
fiscal year in which the transaction was announced ("FIRST YEAR EPS")
- analysts' consensus earnings per share estimates, as reported by First
Call for the fiscal year following the year in which the transaction was
announced ("SECOND YEAR EPS")
- Second Year EPS adjusted to reflect expected cost savings and revenue
enhancements
- book value per share
- tangible book value per share
- market price on the date 30 days before announcement of the transaction
27
<PAGE>
The per share merger consideration for the merger was based on the closing
price of Firstar common stock on the NYSE on April 29, 1999. This analysis
yielded the following results:
<TABLE>
<CAPTION>
IMPUTED VALUE OF
MERCANTILE COMMON
STOCK BASED ON
AVERAGE OF COMPARABLE
RANGE FOR COMPARABLE COMPARABLE TRANSACTION
THE MERGER TRANSACTIONS TRANSACTIONS AVERAGE
------------- -------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Multiple of merger consideration to:
First Year EPS.......................... 21.6x 21.3x-28.2x 23.9x $ 72.90
Second Year EPS......................... 19.8 19.8-25.3 21.6 71.93
Second Year EPS with synergies.......... 16.7 9.6-18.6 14.2 54.95
Book value per share.................... 3.4 3.0-5.4 4.0 77.15
Tangible book value per share........... 4.5 3.6-5.9 4.6 67.91
Market premium............................ 29.6% 23.5%-69.1 % 40.4% $ 71.78
</TABLE>
COMPARABLE COMPANIES ANALYSIS. CSFB determined a range of imputed values
per share of Mercantile common stock by analyzing the multiples of the market
prices (all as of April 29, 1999) of the common stock of a number of peer
institutions to the institutions' First Year EPS, Second Year EPS, book value
per share and tangible book value per share. For purposes of applying the
multiples of the peer group to Mercantile's financial data, a 30% change of
control premium was included, which was based on the average of the premiums
paid in comparable bank acquisitions since 1994 with a value exceeding $1
billion. The peer group included:
- BB&T Corporation
- Comerica Incorporated
- First American Corporation
- First Security Corporation
- M&T Bank Corporation
- Regions Financial Corporation
- SouthTrust Corporation
- Summit Bancorp
- Huntington Bancshares Incorporated
This analysis indicated the following:
<TABLE>
<CAPTION>
VALUE PER SHARE OF
MERCANTILE COMMON
AVERAGE FOR STOCK
RANGE FOR COMPARABLE COMPARABLE IMPLIED BY COMPARABLE
THE MERGER COMPANIES COMPANIES COMPANIES AVERAGE
------------- -------------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Multiple of market price to:
First Year EPS.......................... 21.6x 17.6x-26.5x 20.8x $ 63.52
Second Year EPS......................... 19.8 15.9-23.8 18.8 62.63
Book value per share.................... 3.4 2.8-5.4 3.7 72.48
Tangible book value per share........... 4.5 3.6-6.4 4.8 69.71
</TABLE>
CONTRIBUTION ANALYSIS. CSFB analyzed the relative contribution to selected
pro forma financial measures that Firstar and Mercantile would be making to the
combined company and compared this to the pro forma ownership of the outstanding
common stock of the combined company of Firstar shareholders and Mercantile
shareholders. CSFB noted that, based on the exchange ratio of 2.091 and the
number of shares of Firstar common stock and Mercantile common stock outstanding
at March 31, 1999, Firstar shareholders would own approximately 67%, and
Mercantile shareholders would own
28
<PAGE>
approximately 33%, of the outstanding common stock of the combined company. CSFB
compared these percentages to the following pro forma data:
<TABLE>
<CAPTION>
RELATIVE CONTRIBUTION
PERCENTAGE
--------------------------
FIRSTAR MERCANTILE
----------- -------------
<S> <C> <C>
Assets at March 31, 1999..................................................................... 52% 48%
Common Equity at March 31, 1999.............................................................. 54 46
Tangible Common Equity at March 31, 1999..................................................... 54 46
Earnings for the Three Month Period Ended March 31, 1999..................................... 60 40
1999 Estimated Earnings...................................................................... 62 38
</TABLE>
Estimated earnings for 1999 were based on consensus analyst estimates as
reported by First Call.
CSFB also compared the multiples to earnings per share implied by the
consideration in the merger, based on the closing price of Firstar common stock
on April 29, 1999, to corresponding multiples in recent comparable transactions.
The recent comparable transactions analyzed for this purpose were market
extension transactions greater than $2 billion in value since June 30, 1997.
This analysis showed that:
- Firstar's stock price represented a multiple of 27.7x to estimated
earnings per share for 1999 and 23.0x to estimated earnings per share for
2000, while the merger consideration represents a multiple of 21.6x to
Mercantile's estimated earnings per share for 1999 and 19.8x to
Mercantile's estimated earnings per share for 2000.
- The recent comparable transactions had an average multiple of merger price
to estimated earnings per share for the fiscal year in which the merger
was announced of 23.9x, and an average multiple of merger price to
estimated earnings per share for the fiscal year following the year in
which the merger was announced of 21.6x.
- The multiple of the merger consideration to Mercantile's 1999 estimated
earnings per share was 78% of the multiple of Firstar's stock price to its
estimated 1999 earnings per share; the corresponding average for the
recent comparable transactions was 131%.
- The multiple of the merger consideration to Mercantile's 2000 estimated
earnings per share was 86% of the multiple of Firstar's stock price to its
estimated 2000 earnings per share; while the corresponding average for the
recent comparable transactions was 137%.
Estimated earnings were based on consensus analyst estimates as reported by
First Call.
MERGER CONSEQUENCES ANALYSIS. CSFB analyzed the pro forma effect of the
merger on the earnings per share of Firstar for 1999 and 2000 based on analyst's
consensus estimates as reported by First Call. In performing this analysis, CSFB
considered:
- the cost savings expected to be achieved in 1999 and 2000
- the expected restructuring charge
- the anticipated impact on earnings of potential regulatory deposit
divestitures
- adjustments to Mercantile's estimated 2000 earnings per share as reported
by First Call to exclude projected securities gains and to make other
adjustments to conform to Firstar's reporting practices.
Based on this analysis, CSFB determined that the merger would add 8.5% to
Firstar's estimated earnings per share for 1999 and 10.7% to Firstar's estimated
earnings per share for 2000.
Under the terms of CSFB's engagement, Firstar has agreed to pay CSFB a total
fee of $15 million, $4 million of which was payable upon execution of the merger
agreement and the balance of which was payable upon the mailing of this document
to Mercantile shareholders. Firstar has also agreed to
29
<PAGE>
indemnify CSFB and various related persons and entities against various
liabilities, including liabilities under the federal securities laws, arising
out of CSFB's engagement, and to reimburse CSFB for its reasonable out-of-pocket
expenses, including the reasonable fees and expenses of its legal counsel,
incurred by CSFB in connection with its engagement. In the ordinary course of
its business, CSFB and its affiliates may actively trade the debt and equity
securities of both Mercantile and Firstar for their own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in these securities. In the past, CSFB provided financial advisory and
financial services to Firstar and received customary fees for those services.
OPINION OF MERCANTILE'S FINANCIAL ADVISOR
Mercantile engaged DLJ to act as financial advisor with respect to the
possible business combination with Firstar. Mercantile's decision to engage DLJ
was based upon DLJ's qualifications, expertise and reputation, as well as upon
its senior bankers' familiarity and prior experience with Mercantile.
On April 30, 1999, DLJ rendered to the Mercantile board its oral opinion to
the effect that, based upon the considerations set forth in its opinion and such
other factors as DLJ deemed relevant, the exchange ratio was fair from a
financial point of view to the holders of the Mercantile common stock. DLJ
subsequently confirmed its opinion in a written opinion dated as of the date of
this document (the "DLJ OPINION").
You should consider the following when reading the discussion of the DLJ
Opinion in this document:
- The following description of the DLJ Opinion is qualified by reference to
the full opinion attached as Appendix E to this document. We urge you to
read carefully the entire DLJ Opinion.
- The DLJ Opinion was necessarily based on economic, market, financial and
other conditions as they existed on the date of that opinion and on the
information made available to DLJ as of that date and, although subsequent
developments may affect the DLJ Opinion, DLJ does not have any obligation
to update, revise or reaffirm its opinion.
- DLJ expressed no opinion as to the prices at which the Mercantile common
stock or the Firstar common stock will actually trade at any time.
- The DLJ Opinion does not address the relative merits of the merger and the
other business strategies considered by Mercantile's board nor does it
address the board's decision to proceed with the merger.
- The DLJ Opinion does not constitute a recommendation to any shareholder as
to how such shareholder should vote on the proposed transaction.
In arriving at its opinion, DLJ, among other things:
- reviewed the merger agreement
- reviewed financial and other information that was publicly available or
furnished to DLJ by Mercantile and Firstar, including earnings estimates
and information as reported by the Institutional Brokers Estimate Service
(commonly referred to as "I/B/E/S") that was provided during discussions
with their respective managements. I/B/E/S is a data service that monitors
and publishes compilations of earnings estimates by selected research
analysts regarding companies of interest to institutional investors.
- reviewed certain assumptions with respect to financial projections of
Mercantile and Firstar, including certain cost savings and operating
synergies, and the impact of certain business divestitures anticipated by
the management of Mercantile and Firstar to result from the merger
- compared certain financial and securities data of Mercantile and Firstar
with various other companies whose securities are traded in public markets
30
<PAGE>
- reviewed the historical stock prices and trading volumes of Mercantile
common stock and Firstar common stock
- reviewed prices and premiums paid in certain other business combinations
- conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of its opinion.
In rendering its opinions, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to DLJ by Mercantile and Firstar or
their respective representatives, or that was otherwise reviewed by DLJ. In
particular, DLJ relied upon the estimates of Mercantile's management of the cost
savings and operating synergies achievable as a result of the merger and the
impact of anticipated business divestitures, and upon the estimates of Firstar's
management with respect to these cost savings, operating synergies and
divestitures. With respect to the projections that DLJ reviewed, including cost
savings and operating synergies and the impact of divestitures, DLJ assumed that
they were reasonably prepared on a basis that did not materially differ from the
best currently available estimates and judgments of the management of Mercantile
and Firstar as to the future operating and financial performance of Mercantile,
Firstar or the combined company. DLJ is not expert in the evaluation of loan and
lease portfolios for purposes of assessing the adequacy of the allowances for
losses with respect to these portfolios and assumed, with the consent of the
Mercantile board, that the allowances for Mercantile and Firstar were in the
aggregate adequate to cover all such losses. In addition, DLJ did not review
individual credit files nor did DLJ make an independent evaluation or appraisal
of the assets and liabilities (including any hedge or derivative positions) of
Mercantile or Firstar or any of their subsidiaries, and DLJ was not furnished
with any such evaluation or appraisal. DLJ did not assume any responsibility for
making any independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by it. DLJ assumed
that the merger will qualify as a "pooling-of-interests" transaction under
generally accepted accounting principles. DLJ assumed that the transaction will
qualify as a tax-free reorganization for United States federal income tax
purposes and that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the merger will be obtained without
any adverse effect, other than the impact of the anticipated divestitures, on
Mercantile, Firstar or on the anticipated benefits of the merger.
DLJ, as part of its investment banking services, is regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, DLJ and its affiliates actively trade the
securities of Mercantile and Firstar for their own account and for the accounts
of customers, and, accordingly, may at any time hold a long or short position in
those securities. DLJ has performed investment banking and other services for
Firstar in the past and has been compensated for such services, and certain of
DLJ's senior bankers' were previously employed by entities that have performed
such services for Mercantile and had been compensated for such services.
Mercantile has agreed to pay DLJ a transaction fee with respect to a
business combination of $25 million, $100,000 of which was payable in cash upon
execution of DLJ's engagement letter, $3 million of which was payable in cash
upon execution of a definitive agreement relating to a transaction, $3 million
of which was payable in cash at the time of mailing of this document and the
remainder of which is contingent upon consummation of the merger and payable in
cash at the closing of the merger. Mercantile has also agreed to reimburse DLJ
for all out-of-pocket expenses, including reasonable attorneys' fees and
expenses, and to indemnify DLJ against various liabilities, including certain
liabilities under the federal securities laws.
31
<PAGE>
The following is a summary of the material financial analyses DLJ used in
connection with providing its oral opinion to the Mercantile board on April 30,
1999 and does not purport to be a complete description of the analyses performed
by DLJ. The following quantitative information, to the extent it is based on
market data, is based on market data as it existed at or about April 29, 1999
and is not necessarily indicative of current market conditions. You should
understand that the order of analyses (and results thereof) described does not
represent relative importance or weight given to these analyses by DLJ. This
summary of financial analyses includes information presented in tabular format.
THE TABLES SHOULD BE READ TOGETHER WITH THE TEXT THAT ACCOMPANIES THEM.
FIRSTAR BUSINESS REVIEW. DLJ analyzed the different business lines
comprising Firstar's business. In this regard, DLJ reviewed selected five-year
historical consolidated financial information of each of Firstar's business
lines, both in dollar terms and as a percentage of total consolidated results,
in order to assess Firstar's business lines and the diversity of its business
performance. DLJ also reviewed Firstar's operating profitability and growth
performance during the period. In addition, DLJ discussed:
- Firstar's deposit market share, based on the dollar value of deposits, in
the states in which Firstar operates
- research analysts' recommendations with respect to the Firstar common
stock
- Firstar's acquisition history of banks and branches, including an analysis
of the prices paid for these acquisitions and the affect of these
acquisitions on the value of Firstar's common stock.
PRO FORMA MERGER ANALYSIS. DLJ analyzed the pro forma impact of the merger
on the combined company's market capitalization, total assets and net income
(excluding management estimates of synergies); loan portfolio contribution by
business line; deposit base contribution; noninterest income contribution;
market share, excluding any regulatory required deposit divestitures, based on
the dollar value of deposits in the states in which Firstar operates, the states
in which Mercantile operates and the states in which both entities operate;
profitability (including management estimates of synergies provided to DLJ as it
prepared its analyses); capitalization; and credit quality.
DLJ analyzed the pro forma financial impact of the merger on both Firstar's
and Mercantile's fully diluted earnings per share on both a GAAP basis and a
cash basis, on the book value per share and the tangible book value per share
and on projected annualized dividends. For purposes of these analyses, DLJ
assumed that the merger would close in the fourth quarter of 1999. DLJ used
I/B/E/S earnings estimates for Firstar and Mercantile for 1999 and 2000 and
I/B/E/S's estimated long-term earnings growth rate for later years. DLJ
performed this analysis using Mercantile and Firstar management assumptions
provided to DLJ as it prepared its analyses as to cost savings (including the
phase-in period for achieving them), divestitures expected to be required to
obtain regulatory approvals, estimated potential deposit runoffs and the
anticipated pre-tax restructuring charge. DLJ's analyses of the merger from
Mercantile's perspective showed that the merger, compared to continued operation
of Mercantile on a stand-alone basis, would be accretive to Mercantile's GAAP
estimated earnings starting in 2002 and dilutive to Mercantile's estimated cash
earnings, book value per share and tangible book value per share through that
period. DLJ's analyses of the merger from Firstar's perspective showed that the
merger, compared to the continued operation of Firstar on a stand-alone basis,
would be accretive to Firstar's GAAP estimated earnings, cash earnings, book
value per share and tangible book value per share through that period. DLJ
analyzed the projected annualized dividends based on an expected increase in
Firstar's annual dividend from $0.40 to $0.65 per share.
HISTORICAL STOCK PRICE PERFORMANCE ANALYSIS. DLJ compared the daily closing
price per share of Firstar common stock and Mercantile common stock for the
one-year and three-year periods ended April 28, 1999. For each company, DLJ also
compared the ratio of closing stock price on April 29, 1999 to the 52-week high
and low prices. DLJ noted that Firstar's common stock closing price of $31.563
on April 29, 1999 represented 89.3% of the 52-week high price and 174.7% of the
52-week low
32
<PAGE>
price. Mercantile's common stock closing price of $51.250 on April 29, 1999
represented 91.8% of the 52-week high price and 130.0% of the 52-week low price.
COMPARABLE COMPANY ANALYSIS. DLJ compared selected operating and stock
market results of Firstar and Mercantile to publicly available information for
peer companies that DLJ selected and deemed to be relevant. The Firstar peer
group, which included selected commercial banks with an estimated forward
price-to-earnings ratio greater than 20x and a market capitalization greater
than $5 billion as of April 29, 1999, consisted of:
- State Street Corporation
- Fifth Third Bancorp
- Synovus Financial Corp.
- Northern Trust Corporation
- Zions Bancorporation
- Bank of New York Company, Inc.
- Marshall & Ilsley Corporation
- First Tennessee National Corporation
- Old Kent Financial Corporation
- Mellon Bank Corporation
The Mercantile peer group, which included selected commercial banks with
comparable business lines and market capitalization to Mercantile consisted of:
- KeyCorp
- BB&T Corporation
- Comerica Incorporated
- Regions Financial Corporation
- Summit Bancorp
- SouthTrust Corporation
- Union Planters Corporation
- AmSouth Bancorporation
- Zions Bancorp
- Old Kent Financial Corp.
- Huntington Bancshares Incorporated
In addition, DLJ analyzed Firstar and Mercantile compared to their peer
group, the S&P 500 and a further regional bank peer group on the following
bases:
- relative stock price performance for the one-year and three-year periods
ended April 28, 1999
- one-year and three-year relative forward price-to-earnings performance
- total return for the year-to-date, one-year, three-year and five-year
periods
- a valuation analysis of Firstar and Mercantile compared with the low,
median and high multiples of the peer groups discussed above.
The regional peer group consisted of:
33
<PAGE>
- U.S. Bancorp
- National City Corporation
- SunTrust Banks, Inc.
- Mellon Bank Corporation
- Fifth Third Bancorp
- Wachovia Corporation
- PNC Bank Corp.
- KeyCorp
- BB&T Corporation
- Comerica Incorporated
- Regions Financial Corporation
- Marshall & Ilsley Corporation
- Summit Bancorp
- Huntington Bancshares Incorporated
- SouthTrust Corporation
- Union Planters Corporation
- AmSouth Bancorporation
- First Tennessee National Corporation
- Zions Bancorporation
- Old Kent Financial Corporation
The following table compares selected information derived by DLJ for
Firstar, Mercantile, the median of the Firstar peer group, the median of the
Mercantile peer group and the median of the regional peer group:
<TABLE>
<CAPTION>
PRICING MULTIPLES
------------------------------
<S> <C> <C> <C> <C>
FORWARD FORWARD CASH TANGIBLE
PRICE/EARNINGS PRICE/EARNINGS BOOK VALUE BOOK VALUE
--------------- --------------- ------------- -------------
Firstar.................................................. 26.1x 24.5x 5.67x 6.78x
Mercantile............................................... 16.3x 14.6x 2.61x 3.46x
Firstar Peer Group Median................................ 23.5x 22.4x 5.49x 6.22x
Mercantile Peer Group Median............................. 15.3x 14.6x 3.44x 4.01x
Regional Peer Group Median............................... 17.3x 16.2x 3.53x 4.29x
</TABLE>
<TABLE>
<CAPTION>
OPERATING STATISTICS
--------------------------------
<S> <C> <C> <C> <C>
NORMALIZED
NORMALIZED RETURN ON
RETURN ON COMMON
ASSETS EQUITY EFFICIENCY RATIO FEE BASED RATIO
------------- ------------- ----------------- -----------------
Firstar............................................... 1.67% 17.99% 51.1% 37.2%
Mercantile............................................ 1.23% 14.10% 51.7% 30.0%
Firstar Peer Group Median............................. 1.41% 20.28% 60.9% 54.0%
Mercantile Peer Group Median.......................... 1.32% 17.27% 56.0% 28.9%
Regional Peer Group Median............................ 1.41% 18.32% 56.1% 35.5%
</TABLE>
DISCOUNTED DIVIDEND ANALYSIS. DLJ performed a discounted dividend analysis
to estimate a range of present values per share of Mercantile common stock and
Firstar common stock assuming each entity continued to operate as a stand-alone
entity. DLJ also performed a further pro forma analysis to estimate the range of
present values per share of Firstar common stock based on the pro forma combined
company. Analyses were conducted with and without applying the cost savings
estimated by management. These ranges were determined by adding the present
value of the estimated future dividend stream that each entity could generate
through December 31, 2004 and the present value of the "terminal value" of each
entities' common stock at December 31, 2004.
DLJ determined the range of present values per share of Mercantile and
Firstar common stock using the terminal year multiples and discount rates that
DLJ viewed as appropriate for companies with their risk characteristics. DLJ
used I/B/E/S earnings estimates for 1999 and 2000. For periods after 2000,
earnings were grown at I/B/E/S's estimated long-term growth rate, adjusted to
reflect an assumed constant ratio of tangible common equity to assets as DLJ
viewed appropriate. Based on these assumptions, the stand-alone present value of
the Mercantile common stock ranged from $39.14 to
34
<PAGE>
$57.00 per share and, using management assumptions provided to DLJ as it
prepared its analyses with respect to merger cost savings (including the
phase-in period for achieving these cost savings) and regulatory required
divestitures, ranged from $43.88 to $64.67 per share. The stand-alone present
value of Firstar common stock ranged from $30.72 to $42.62 per share and, using
management assumptions provided to DLJ as it prepared its analyses with respect
to merger cost savings (including the phase-in period for achieving these cost
savings) and regulatory required divestitures, ranged from $31.89 to $44.16 per
share. These ranges of present values for Firstar common stock implied values
per share of Mercantile common stock, based on the exchange ratio, of $64.24 to
$89.11 per share (excluding cost savings) and $66.69 to $92.35 per share
(including cost savings).
The discounted dividend analyses do not necessarily indicate actual values
or actual future results. They do not purport to reflect the prices at which any
securities may trade at the present time or at any time in the future. Dividend
discount analysis is a widely used valuation method, but the results of this
method are highly dependent upon the numerous assumptions that must be made,
including earnings growth rates, dividend payout rates, multiples to terminal
stock prices and discount rates.
COMPARABLE TRANSACTIONS ANALYSIS. DLJ analyzed publicly available
financial, operating and stock market information for the merger and for ten
selected comparable domestic commercial bank merger transactions greater than $5
billion in transaction value. DLJ divided these transactions into the following
three groups:
- IN-MARKET TRANSACTION. In-market transactions are transactions between
banks operating primarily in the same market. The transaction in this
group was NationsBank Corporation/Barnett Banks Inc.
- PARTIAL-MARKET TRANSACTIONS. These are transactions between banks whose
operations overlap in some, but not all, markets. The transactions in this
group were:
- First Union Corporation/CoreStates Financial Corp., Inc.
- Fleet Financial Group, Inc./BankBoston Corp.
- Wells Fargo & Company/First Interstate Bancorp
- OUT-OF-MARKET TRANSACTIONS. These are transactions between merger partners
operating primarily in different markets. The transactions in this group
were:
- SunTrust Banks Inc./Crestar Financial Corporation
- NationsBank Corporation/Boatmen's Bancshares, Inc.
- First Bank System, Inc./U.S. Bancorp
- Star Banc Corporation/Firstar Corporation
- National City Corporation/First of America Bank Corporation
- First Union Corporation/First Fidelity Bancorporation
In each case, the shareholders of the second-named company (comparable to
Mercantile in the merger) received stock of the first-named company (comparable
to Firstar in the merger) in the
35
<PAGE>
transaction. The following table compares information derived by DLJ about the
merger and these selected transactions:
<TABLE>
<CAPTION>
SELECTED TRANSACTION
-----------------------
<S> <C> <C> <C>
RANGE MEDIAN THE MERGER
---------- ----------- -------------
IN-MARKET TRANSACTION
Implied premium of offer price to market price on last trading day prior to
announcement................................................................. N/A 37.2% 28.8%
Ratio of implied offer price to:
Book value per share....................................................... N/A 4.05x 3.36x
Tangible book value per share.............................................. N/A 5.96x 4.46x
Latest 12 months earnings per share........................................ N/A 24.9x 24.0x
Forward 12 months earnings per share....................................... N/A 22.0x 21.0x
PARTIAL-MARKET TRANSACTIONS
Implied premium of offer price to market price on last trading day prior to
announcement................................................................. 12.9-25.9% 17.2% 28.8%
Ratio of implied offer price to:
Book value per share....................................................... 2.88-5.39x 3.25x 3.36x
Tangible book value per share.............................................. 3.61-5.95x 3.88x 4.46x
Latest 12 months earnings per share........................................ 12.5-22.1x 18.5x 24.0x
Forward 12 months earnings per share....................................... 12.0-20.5x 16.7x 21.0x
OUT-OF-MARKET TRANSACTIONS
Implied premium (discount) of offer price to market price on last trading day
prior to announcement........................................................ 22.4-40.4% 31.6% 28.8%
Ratio of implied offer price to:
Book value per share....................................................... 1.97-4.27x 3.62x 3.36x
Tangible book value per share.............................................. 2.74-4.70x 4.14x 4.46x
Latest 12 months earnings per share........................................ 12.4-28.5x 21.2x 24.0x
Forward 12 months earnings per share....................................... 11.0-25.8x 19.7x 21.0x
</TABLE>
In addition, DLJ calculated median values for all of these transactions
taken together as a group and compared this information to the merger:
<TABLE>
<CAPTION>
MEDIAN OF ALL
PRECEDENT
TRANSACTIONS THE MERGER
--------------- -------------
<S> <C> <C>
Implied premium of offer price to market price on last trading day prior to
announcement........................................................................ 29.2% 28.8%
Ratio of implied offer price to:
Book value per share.............................................................. 3.62x 3.36x
Tangible book value per share..................................................... 4.14x 4.46x
Latest 12 months earnings per share............................................... 20.3x 24.0x
Forward 12 months earnings per share.............................................. 18.9x 21.0x
</TABLE>
CONTRIBUTION ANALYSIS. DLJ computed the contributions of Mercantile and
Firstar to various elements of the combined company's income statement, balance
sheet and market capitalization, excluding estimated cost savings. Projected
earnings were based on I/B/E/S earnings estimates and long-term growth rates.
The following table compares the pro forma ownership of Mercantile and
36
<PAGE>
Firstar shareholders in the combined company based upon the exchange ratio with
each company's respective contribution to each element of this analysis:
<TABLE>
<CAPTION>
PRO FORMA
OWNERSHIP OF PRO FORMA OWNERSHIP
FIRSTAR SHAREHOLDERS OF MERCANTILE
IN THE COMBINED SHAREHOLDERS IN THE
COMPANY COMBINED COMPANY
--------------------- -----------------------
<S> <C> <C>
Implied pro forma ownership............................................ 66.3% 33.7%
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CONTRIBUTION MERCANTILE
TO COMBINED CONTRIBUTION TO
COMPANY COMBINED COMPANY
--------------------- -----------------------
<S> <C> <C>
Income Statement
12 months normalized net income at March 31, 1999...................... 58.5% 41.5%
Estimated 1999 net income.............................................. 61.2% 38.8%
Balance Sheet as of 3/31/99
Total loans.......................................................... 55.0% 45.0%
Total assets......................................................... 51.6% 48.4%
Total deposits....................................................... 53.0% 47.0%
Tangible common equity............................................... 52.6% 47.4%
Common equity........................................................ 54.3% 45.7%
Total tangible equity................................................ 52.6% 47.4%
Total equity......................................................... 54.3% 45.7%
Market Capitalization based on:
4/29/99 closing price................................................ 71.8% 28.2%
1-month average of closing prices ending 4/29/99..................... 73.1% 26.9%
3-month average of closing prices ending 4/29/99..................... 72.6% 27.4%
6-month average of closing prices ending 4/29/99..................... 71.6% 28.4%
1-year average of closing prices ending 4/29/99...................... 68.3% 31.7%
</TABLE>
HISTORICAL EXCHANGE RATIO ANALYSIS. DLJ calculated the ratio of the closing
price per share of Mercantile common stock to the closing price per share of
Firstar common stock for each trading day in the period from April 29, 1998 to
April 29, 1999 and compared those ratios with the exchange ratio. The results of
this calculation showed an average six-month stock price ratio of 1.644 and an
average one-year stock price ratio of 1.968 compared to the exchange ratio,
2.091, based on I/B/E/S estimates. DLJ also calculated the ratio of the multiple
of Mercantile's stock price to forward 12-months earnings per share to the
multiple of Firstar's stock price to forward 12-months earnings per share, based
on I/B/E/S estimates, over the same period. The results of this calculation
showed an average six-month ratio of 0.618 and an average one-year ratio of
0.702 compared to the ratio of 0.805 implied by the exchange ratio.
In connection with giving the DLJ Opinion dated as of the date of this
document, DLJ performed procedures to update the analyses described above as it
deemed appropriate and reviewed the current assumptions on which these analyses
were based and the factors considered by DLJ in performing those analyses.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
Therefore it is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses summarized above, without
considering these analyses as a whole, could create an incomplete view of the
processes underlying DLJ's opinions. In arriving at its fairness determinations,
DLJ considered the results of all those analyses and did not attribute any
particular weight to any factor or analysis considered by it. Instead, DLJ made
its determinations as to
37
<PAGE>
fairness on the basis of its experience and professional judgment after
considering the results of all those analyses. In addition, in performing its
analyses, DLJ made numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and other matters.
No company or transaction used in the above analyses as a comparison is directly
comparable to Mercantile or Firstar or the merger. The analyses were prepared
solely for purposes of DLJ providing its opinions to the Mercantile board as to
the fairness of the exchange ratio from a financial point of view and do not
purport to be appraisals or to necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based on forecasts of
future results do not necessarily indicate actual future results, which may be
significantly more or less favorable than suggested by those analyses. Because
those analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of Mercantile, Firstar, DLJ or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, DLJ's April 30, 1999 opinion to the Mercantile board was
among many factors taken into consideration by the Mercantile board in making
its determination to approve the merger agreement. Consequently, the analyses
described above should not be viewed as determinative of the Mercantile board's
or Mercantile management's opinion with respect to the value of Mercantile or a
combination of Mercantile and Firstar, or of whether the Mercantile board or
Mercantile management would have been willing to agree to a different exchange
ratio. Mercantile placed no limits on the scope of the analysis performed, or
opinion expressed, by DLJ.
THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Wisconsin and Missouri law, at the effective time, Mercantile
will merge into Firstar. Firstar will be the surviving corporation and will
continue its corporate existence under the laws of Wisconsin. When the merger is
effective, the separate corporate existence of Mercantile will terminate. The
articles of incorporation of Firstar will be the articles of incorporation of
the combined company, and the by-laws of Firstar will be the by-laws of the
combined company, except that the combined company's articles of incorporation
will authorize it to issue up to 2,000,000,000 shares of Firstar common stock,
instead of the 800,000,000 authorized under the current Firstar articles of
incorporation.
CONVERSION OF STOCK; TREATMENT OF OPTIONS
MERCANTILE COMMON STOCK. At the effective time, each share of Mercantile
common stock outstanding, together with the attached Mercantile Shareholder
Right, will be converted into the right to receive 2.091 shares of Firstar
common stock, together with the same number of attached Firstar Shareholder
Rights. The exchange ratio is subject to customary adjustments to preserve the
relative value of the consideration Mercantile shareholders are to receive in
the event of stock splits, reverse stock splits or the like before the merger is
completed as described below under "--Antidilution Adjustments." Because the
exchange ratio is fixed and because the market price of Firstar common stock
will fluctuate, the value of the shares of Firstar common stock that Mercantile
shareholders will receive in the merger may increase or decrease, both before
and after the merger.
Some shares of Mercantile common stock will not be converted in the merger.
These include shares as to which Mercantile shareholders demand appraisal rights
in compliance with Missouri law. See "Dissenters' Appraisal Rights." They also
include shares held by Firstar or Mercantile or any of our wholly-owned
subsidiaries (except for shares held in trust accounts, managed accounts and the
like, or otherwise held in a fiduciary capacity that are beneficially owned by
third parties ("TRUST ACCOUNT SHARES") or shares held by Firstar or Mercantile
or any of our subsidiaries in respect of a debt previously contracted ("DPC
SHARES")). Each outstanding share of Mercantile common stock owned by
38
<PAGE>
Firstar, Mercantile or any of our wholly-owned subsidiaries (other than Trust
Account Shares or DPC Shares) will be canceled at the effective time and will
cease to exist. No Firstar common stock or other consideration will be delivered
in exchange for these shares. All shares of Firstar common stock that are owned
by Mercantile or any of its wholly-owned subsidiaries (other than Trust Account
Shares and DPC Shares) will become authorized but unissued shares of the
surviving corporation's common stock.
All other shares of Firstar common stock issued and outstanding immediately
before the effective time will remain issued and outstanding immediately after
completion of the merger as shares of common stock of the surviving corporation.
They will not be affected by the merger.
MERCANTILE STOCK OPTIONS. Each option to acquire Mercantile common stock
granted under Mercantile's stock option and incentive plans (the "MERCANTILE
STOCK PLANS") outstanding and unexercised immediately prior to the effective
time will be converted automatically at the effective time into a stock option
to purchase Firstar common stock, with the following adjustments:
- the number of shares of Firstar common stock subject to the new option
will be equal to the product of the number of shares of Mercantile common
stock subject to the original option and the exchange ratio
- the exercise price per share of Firstar common stock subject to the new
option will be equal to the exercise price under the original option
divided by the exchange ratio
The duration and other terms of each new Firstar option will be
substantially the same as the original Mercantile option, except that all
references to Mercantile will be deemed to be references to Firstar. In any
event, options that are incentive stock options under the U.S. tax code will be
adjusted in the manner prescribed by the U.S. tax code.
ANTIDILUTION ADJUSTMENTS. If, before the effective time, the outstanding
shares of Mercantile common stock or Firstar common stock are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization, reclassification,
stock dividend, stock split reverse stock split or other similar change in
capitalization, an appropriate and proportionate adjustment will be made to the
exchange ratio.
39
<PAGE>
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
EXCHANGE PROCEDURES. At or prior to the effective time, Firstar will
deposit with Firstar Bank Milwaukee, N.A., or another bank or trust company
reasonably acceptable to each of us (the "EXCHANGE AGENT"), for the benefit of
Mercantile shareholders, certificates representing the shares of Firstar common
stock and cash in lieu of any fractional shares to be issued under the merger
agreement in exchange for outstanding shares of Mercantile common stock. We
refer to the fund into which Firstar deposits the certificates and cash,
together with any dividends or distributions on the fund, as the "EXCHANGE
FUND."
Within five business days after the date of the effective time, the exchange
agent will mail a transmittal letter to Mercantile shareholders. The form of
transmittal letter will contain instructions about the surrender of Mercantile
common stock certificates for Firstar common stock certificates and any cash in
lieu of fractional shares.
MERCANTILE COMMON STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE
ENCLOSED PROXY CARD. THEY SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNLESS
AND UNTIL YOU RECEIVE A TRANSMITTAL LETTER FOLLOWING THE EFFECTIVE TIME.
After the effective time, you will not be paid dividends or other
distributions declared on the Firstar common stock into which your Mercantile
common stock has been converted until you surrender Mercantile common stock
certificates for exchange. When you surrender your Mercantile certificates,
Firstar will pay you any unpaid dividends or other distributions, without
interest. After the effective time, there will be no transfers on the stock
transfer books of Mercantile of shares of Mercantile common stock issued and
outstanding immediately prior to the effective time. If Mercantile common stock
certificates are presented for transfer after the effective time, they will be
canceled and exchanged for certificates representing the applicable number of
shares of Firstar common stock. Any Mercantile shareholder that requests that
Firstar common stock certificates be issued in a name other than that in which
the certificate being surrendered is registered will have to pay transfer taxes
to the exchange agent in advance.
NO FRACTIONAL SHARES WILL BE ISSUED. The exchange agent will not issue
fractional shares of Firstar common stock to you in the merger. Accordingly,
there will be no dividends or voting rights with respect to any fractional
shares. For each fractional share that would otherwise be issued, the exchange
agent will pay cash in an amount equal to the fraction of a whole share that
would otherwise have been issued, multiplied by the closing sale price of
Firstar common stock on the NYSE on the trading day immediately preceding the
date of the effective time. No interest will be paid or accrued on the cash in
lieu of fractional shares.
None of Firstar, Mercantile or any other person will be liable to any former
Mercantile shareholder for any amount properly delivered to a public official
under applicable abandoned property, escheat or similar laws.
LOST, STOLEN OR DESTROYED MERCANTILE COMMON STOCK CERTIFICATES. If you've
lost a certificate representing Mercantile common stock, or it has been stolen
or destroyed, the exchange agent will issue the consideration properly payable
under the merger agreement on receipt of appropriate evidence of the loss, theft
or destruction and appropriate evidence that you own the certificate. The
exchange agent will also require you to post bond in an amount as Firstar may
determine is necessary to protect against any claim that may be made against
Firstar about ownership of the lost certificate.
NO ACTION BY FIRSTAR SHAREHOLDERS REQUIRED. Firstar shareholders will not
be required to exchange certificates representing their shares of Firstar common
stock or otherwise take any action as a result of the completion of the merger.
YOU DO NOT NEED TO SUBMIT SHARE CERTIFICATES FOR FIRSTAR COMMON STOCK TO
FIRSTAR, MERCANTILE, THE EXCHANGE AGENT OR TO ANY OTHER PERSON IN CONNECTION
WITH THE MERGER.
40
<PAGE>
For a description of the Firstar common stock and a description of the
differences between the rights of Mercantile shareholders and Firstar
shareholders, see "Firstar Capital Stock" and "Comparison of Rights of Firstar
Shareholders and Mercantile Shareholders."
EFFECTIVE TIME
The "EFFECTIVE TIME" will be the time set forth in the articles of merger
that we will file with the Wisconsin Department of Financial Institutions and
with the Secretary of State of the State of Missouri on the closing date of the
merger. We will close the merger on a date on which each of us agrees, but in
any case no later than five business days after the satisfaction or waiver
(where waiver is legally permissible) of the last remaining condition to the
merger, unless extended by our mutual agreement. See "--Conditions to
Consummation of the Merger."
We anticipate that we will complete the merger during the fiscal quarter
ending December 31, 1999. However, completion could be delayed if there is a
delay in obtaining the necessary regulatory approvals. There can be no
assurances as to if or when these approvals will be obtained or that the merger
will be consummated. If we don't complete the merger by April 30, 2000, either
of us may terminate the merger agreement, unless the failure to complete the
merger by this date is due to the failure of the party seeking to terminate the
merger agreement to perform or observe its covenants and agreements in the
merger agreement. See "--Conditions to Consummation of the Merger" and
"--Regulatory Approvals Required for the Merger."
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of Firstar, on
the one hand, and Mercantile, on the other, as to, among other things:
- the corporate organization and existence of each party and its
subsidiaries
- the capitalization of each party and its subsidiaries
- the corporate power and authority of each party
- the compliance of the merger agreement with:
- the certificate of incorporation and by-laws of each party
- applicable law
- material agreements, instruments or obligations
- governmental approvals
- the timely filing of required regulatory reports
- each party's financial statements and filings with the SEC
- each party's broker's fees
- the absence of material changes in each party's business since December
31, 1998
- the absence of material legal proceedings and injunctions
- the filing and accuracy of each party's tax returns
- each party's employee benefit plans and related matters
- the availability and accuracy of each party's reports and filings with the
SEC
- each party's compliance with applicable law, including the proper
administration of all accounts for which each party is a fiduciary
41
<PAGE>
- the validity of, and the absence of material defaults under, various
contracts
- agreements between each party and regulatory agencies
- the use of derivative instruments such as swaps and options
- the absence of undisclosed liabilities
- insurance
- the absence of environmental liabilities
- the inapplicability to the merger of state anti-takeover laws,
anti-takeover provisions in our charters and our shareholder rights plans
- each party's "Year 2000" risk management plan
- the tax and accounting treatment of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the merger agreement, prior to the effective time, each of us has
agreed to, and to cause our subsidiaries to:
- conduct its business in the ordinary course
- use reasonable best efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain
the services of its key officers and key employees, and
- take no action that would adversely affect or delay the ability of either
of us to obtain the necessary approvals of any regulatory agency or other
governmental entity or to perform its covenants and agreements under the
merger agreement or the Option Agreements, or to consummate the
transactions they contemplate.
In addition, except as expressly contemplated by the merger agreement or as
disclosed prior to signing the merger agreement, or as contemplated by the
Option Agreements, each of us has agreed that, without the consent of the other
party, we and our subsidiaries will not, among other things:
- in the case of Mercantile, other than in the ordinary course of business,
incur any indebtedness for borrowed money other than short-term
indebtedness incurred to refinance short-term indebtedness and
indebtedness of Mercantile or any of its subsidiaries to Mercantile or any
of its subsidiaries; assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other
individual, corporation or other entity; or make any loan or advance
- in the case of Mercantile, adjust, split, combine or reclassify any of our
capital stock
- make, declare or pay any dividend or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares
of its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, except:
- in the case of Mercantile, for regular quarterly cash dividends on
Mercantile common stock at a rate not in excess of $0.34 per share of
Mercantile common stock
- in the case of Firstar, for regular quarterly cash dividends at a rate
not in excess of $0.30 per share of Firstar common stock
- for dividends paid by any of the subsidiaries of each of Firstar and
Mercantile to Firstar or Mercantile or any of their subsidiaries,
respectively, and dividends paid in the ordinary
42
<PAGE>
course of business consistent with past practice by any subsidiaries
(whether or not wholly owned) of each of Mercantile and Firstar
- in the case of Mercantile, grant any stock appreciation rights or grant
any right to acquire any shares of its capital stock other than under the
Mercantile Rights Agreement
- in the case of Mercantile, issue any additional shares of capital stock
except:
- the exercise of stock options outstanding as of the date of the merger
agreement
- under the Mercantile Option Agreement
- under the Mercantile Rights Agreement
- in the case of Mercantile, sell, transfer, mortgage, encumber or otherwise
dispose of any material part of its business or any of its properties or
assets to any individual, corporation or other entity other than a
subsidiary, or cancel, release or assign any indebtedness to any such
person or any claims held by any such person, except in the ordinary
course of business or under contracts or agreements in force at the date
of the merger agreement
- in the case of Mercantile, except for transactions in the ordinary course
of business or under contracts or agreements in force at the date of or
permitted by the merger agreement, make any material investment, either by
purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets, in any other individual,
corporation or other entity other than a subsidiary of that corporation or
entity
- in the case of Mercantile, except for transactions in the ordinary course
of business, terminate, or waive any material provision of, any of its
material contracts or agreements, or make any change in any instrument or
agreement governing the terms of any of its securities, or material lease
or contract, other than normal renewals of contracts and leases without
material adverse changes of terms
- in the case of Mercantile, increase in any manner the compensation or
fringe benefits of any of its employees or pay any pension or retirement
allowance not required by any existing plan or agreement to any of its
employees or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any employee other than in
the ordinary course of business or accelerate the vesting of, or the
lapsing of restrictions with respect to, any stock options or other stock-
based compensation
- solicit or encourage from any third party or enter into any negotiations,
discussions or agreement in respect of, or authorize any individual,
corporation or other entity to solicit or encourage from any third party
or enter into any negotiations, discussions or agreement in respect of, or
provide or cause to be provided any confidential information in connection
with, any inquiries or proposals relating to the disposition of all or
substantially all of its business or assets, or the acquisition of its
voting securities, or the merger of it or any of its subsidiaries with any
corporation or other entity other than as provided by the merger agreement
(and each party has discontinued any such negotiations or discussions
initiated prior to the date of the merger agreement, and will promptly
notify the other of all of the relevant details relating to all inquiries
and proposals that it may receive relating to any of these matters)
- in the case of Mercantile, settle any material claim, action or proceeding
involving money damages, except in the ordinary course of business
- knowingly take any action that would prevent or impede the merger from
qualifying for "pooling of interests" accounting treatment or as a
reorganization within the meaning of Section 368(a) of the U.S. tax code
43
<PAGE>
- amend its articles of incorporation or its by-laws
- in the case of Mercantile, other than in prior consultation with Firstar,
restructure or materially change its investment securities portfolio or
its gap position, through purchases, sales or otherwise, or the manner in
which the portfolio is classified or reported
- take any action that is intended or expected to result in any of its
representations and warranties being or becoming untrue in any material
respect at any time prior to the effective time, or in any of the
conditions to the merger not being satisfied or in a violation of any
provision of the merger agreement, except, in every case, as may be
required by applicable law
- implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by U.S. GAAP or regulatory
guidelines, or
- agree to take, make any commitment to take, or adopt any resolutions of
its board of directors in support of, any of the actions listed above.
OTHER AGREEMENTS
In addition to the agreements about the conduct of our businesses we've
described above, we have also agreed in the merger agreement to take several
other actions:
- We agreed to cooperate with each other and to use our reasonable best
efforts to promptly prepare and file all necessary documentation to obtain
as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and governmental entities necessary or
advisable to consummate the merger.
- We each agreed, upon request, to furnish the other all information
concerning themselves and their subsidiaries, directors, officers and
shareholders and other matters as may be necessary or advisable in
connection with this document, or any other filing necessary in connection
with the merger.
- We agreed to use our reasonable best efforts to take all actions
necessary, proper or advisable to comply promptly with all legal
requirements that may be imposed on either of us or our subsidiaries
relating to the merger and to consummate the merger.
- Firstar agreed to cause the shares of Firstar common stock to be issued in
the merger to be approved for listing on the NYSE, subject to official
notice of issuance, prior to the effective time.
- Each of us has agreed to give the other access to all of our properties,
books, contracts, commitments and records and to provide information about
our businesses, properties and personnel and to keep each other's
information confidential, subject to the restrictions and for the purposes
set forth in the merger agreement.
44
<PAGE>
Also, we have agreed on the following points concerning employee benefit
plans:
- We agreed that the employee benefit plans in place at the effective time
covering employees of Firstar and Mercantile will remain in effect for
these employees until the combined company adopts the new benefit plans
covering employees of the combined company.
- We will cooperate in reviewing, evaluating and analyzing the Firstar
employee benefit plans and the Mercantile employee benefit plans in order
to develop appropriate new benefit plans.
- After the merger is completed, Firstar will recognize prior service with
Mercantile or its subsidiaries of each employee of Mercantile or any of
its subsidiaries (the "MERCANTILE EMPLOYEES") for the purposes of Firstar
employee benefit plans in which Mercantile Employees are eligible to
participate following the Effective Time, for purposes of eligibility,
vesting and levels of benefits, but not for purposes of benefit accruals
under any defined benefit pension plan.
- After the merger is completed, Firstar will waive any pre-existing
conditions or limitations and eligibility waiting periods under any group
health plans of Firstar for Mercantile Employees and their eligible
dependents.
- After the merger is completed, Firstar will give each Mercantile Employee
credit for the plan year in which the merger is completed towards
applicable deductibles and annual out-of-pocket limits for expenses
incurred prior to completion of the merger.
CONDITIONS TO COMPLETION OF THE MERGER
Firstar's and Mercantile's obligations to complete the merger are subject to
the satisfaction or waiver, where permissible, of the following conditions at or
prior to the effective time:
- the merger agreement and the transactions it contemplates will have been
duly approved by Firstar shareholders and Mercantile shareholders
- the shares of Firstar common stock that are to be issued upon completion
of the merger will have been authorized for listing on the NYSE, subject
to official notice of issuance
- all regulatory approvals required to consummate the merger will have been
obtained and will remain in full force and effect and any statutory
waiting periods required by law will have expired
- the registration statement of which this document forms a part will have
become effective, no stop order suspending the effectiveness of the
registration statement will have been issued by the SEC and no proceedings
for that purpose will have been initiated or threatened by the SEC
- no order, injunction or decree issued by any court or agency with
jurisdiction, or other legal restraint or prohibition, preventing
completion of the merger will be in effect
- no statute, rule, regulation, order, injunction or decree will have been
enacted, entered, promulgated or enforced by any governmental entity that
materially restricts or makes illegal completion of the merger
- each of us will have received the opinion of Wachtell, Lipton, Rosen &
Katz, in form and substance reasonably satisfactory to us, dated as of the
closing date, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in each of these opinions that
are consistent with the state of facts existing at the effective time:
- the merger will constitute a reorganization under Section 368(a) of the
U.S. tax code
45
<PAGE>
- Firstar and Mercantile will each be a party to the reorganization under
Section 368(b) of the U.S. tax code
- no gain or loss will be recognized by Firstar or Mercantile as a result
of the merger
- no gain or loss will be recognized by Mercantile shareholders who
exchange all of their Mercantile common stock solely for Firstar common
stock in the merger (except with respect to cash received in lieu of a
fractional share interest in Firstar common stock)
- each of us will have received a letter from our independent accountants to
the effect that the merger will qualify for "pooling of interests"
accounting treatment
- the representations and warranties of the other party to the merger
agreement will be true and correct in all material respects as of the date
of the merger agreement and (except to the extent that the representations
and warranties speak as of an earlier date) as of the closing date as
though made on the closing date, except that for purposes of this
condition, these representations and warranties (except for each party's
representations and warranties as to its capitalization, as to the absence
of any material adverse effect since December 31, 1998 and the absence of
undisclosed liabilities that would have a material adverse effect) will be
deemed to be true and correct unless the failure of these representations
and warranties to be so true and correct, individually or in the
aggregate, and without giving effect to any qualification as to
materiality set forth in the representations and warranties, would have a
material adverse effect on the other party
- the other party to the merger agreement will have performed in all
material respects all obligations required to be performed by it under the
merger agreement at or prior to the closing date.
The merger agreement defines "material adverse effect" as a material adverse
effect on
- the business, operations, results of operations or financial condition of
Mercantile, Firstar or the surviving corporation (as the case may be) and
its Subsidiaries, taken as a whole, or
- the ability of Mercantile, Firstar or the surviving corporation (as the
case may be) to complete in a timely manner the transactions contemplated
by the merger agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
We have agreed to use our reasonable best efforts to obtain all regulatory
approvals required to consummate the merger. We refer to these approvals, along
with the expiration of any statutory waiting periods related to these approvals,
as the "REQUISITE REGULATORY APPROVALS." These include approval from the Board
of Governors of the Federal Reserve System and various state regulatory
authorities. We intend to complete the filing of applications and notifications
to obtain the Requisite Regulatory Approvals promptly after the date of this
document. The merger cannot proceed in the absence of the Requisite Regulatory
Approvals. We cannot assure you that the Requisite Regulatory Approvals will be
obtained, and, if obtained, we cannot assure you as to the date of any of these
approvals or the absence of any litigation challenging them. Likewise, we cannot
assure you that the U.S. Department of Justice or a state attorney general will
not attempt to challenge the merger on antitrust grounds, or, if such a
challenge is made, as to the result of that challenge.
We are not aware of any other material governmental approvals or actions
that are required prior to the parties' consummation of the merger other than
those described below. We presently contemplate that if any additional
governmental approvals or actions are required, these approvals or actions will
be sought. However, we cannot assure you that any of these additional approvals
or actions will be obtained.
46
<PAGE>
FEDERAL RESERVE BOARD. The merger is subject to approval by the Board of
Governors of the Federal Reserve System under Sections 3 and 4 of the federal
Bank Holding Company Act and Section 25(a) of the Federal Reserve Act. Firstar
will promptly file the required application and notifications with the Federal
Reserve Board for approval of the merger. Assuming Federal Reserve Board
approval, the merger may not be consummated for 30 days, during which time the
DOJ may challenge the merger on antitrust grounds. With the approval of the
Federal Reserve Board and the DOJ, the waiting period may be reduced to no less
than 15 days.
The Federal Reserve Board is prohibited from approving any transaction under
the applicable statutes that would result in a monopoly, or that would be in
furtherance of any combination or conspiracy to monopolize, or to attempt to
monopolize, the business of banking in any part of the United States, or that
may have the effect in any section of the United States of substantially
lessening competition, or tending to create a monopoly, or resulting in a
restraint of trade, unless the Federal Reserve Board finds that the
anti-competitive effects of the transaction are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served.
In addition, in reviewing a transaction under the Bank Holding Company Act,
the Federal Reserve Board will consider the financial and managerial resources
of our companies and their subsidiary banks and the convenience and needs of the
communities to be served. As part of its consideration of these factors, we
expect that the Federal Reserve Board will consider the regulatory status of
Firstar and Mercantile, our progress in achieving Year 2000 computer compliance
and the overall capital and safety and soundness standards established by the
Federal Deposit Insurance Corporation Improvement Act of 1991 and the
regulations issued under that statute.
Under the Community Reinvestment Act of 1977, the Federal Reserve Board will
take into account our records of performance in meeting the credit needs of our
entire communities, including low- and moderate-income neighborhoods, served by
our companies. Each of our banking subsidiaries has received either an
outstanding or a satisfactory CRA rating from its federal regulator.
The Federal Reserve Board will furnish notice and a copy of the application
for approval of the merger to the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation and the appropriate state regulatory
authorities. These agencies have 30 days to submit their views and
recommendations to the Federal Reserve Board. The Federal Reserve Board is
required to hold a public hearing in the event it receives a written
recommendation of disapproval of the application from any of these agencies
within this 30-day period. Furthermore, the Bank Holding Company Act and Federal
Reserve Board regulations require published notice of, and the opportunity for
public comment on, the application submitted by Firstar for approval of the
merger, and authorize the Federal Reserve Board to hold a public hearing or
meeting if the Federal Reserve Board determines that a hearing or meeting would
be appropriate. Any hearing or meeting or comments provided by third parties
could prolong the period during which the application is under review by the
Federal Reserve Board.
If the DOJ were to commence an antitrust action, that action would stay the
effectiveness of Federal Reserve Board approval of the merger unless a court
specifically orders otherwise. In reviewing the merger, the DOJ could analyze
the merger's effect on competition differently than the Federal Reserve Board,
and thus it is possible that the DOJ could reach a different conclusion than the
Federal Reserve Board regarding the merger's competitive effects. In particular,
the DOJ may focus on the impact of the merger on competition for loans and other
financial services to small and middle market businesses. Failure of the DOJ to
object to the merger may not prevent the filing of antitrust actions by private
persons or state attorneys general.
Our rights to exercise our options under the Option Agreements are also
subject to the prior approval of the Federal Reserve Board, to the extent that
the exercise of these options would result in one of us owning more than 5% of
the outstanding shares of common stock of the other. Each of us
47
<PAGE>
has filed or intends to file the required application and notifications with the
Federal Reserve Board for approval of the exercise of its option under the
relevant Option Agreement. In considering whether to approve either company's
right to exercise its option, including its right to purchase more than 5% of
the outstanding shares of the other company's common stock, the Federal Reserve
Board would generally apply the same statutory criteria it would apply to its
consideration of approval of the merger.
STATE REGULATORY AUTHORITIES. Applications or notifications have been filed
with various state financial institution regulatory authorities in connection
with acquisitions or changes in control of subsidiaries of Mercantile that may
be deemed to result from the consummation of the merger. In addition, the merger
may be reviewed by the attorneys general in the various states in which Firstar
and Mercantile own banking subsidiaries. These authorities may be empowered
under the applicable state laws and regulations to investigate or disapprove the
merger under the circumstances and based upon the review provided for in
applicable state laws and regulations.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal income
tax consequences of the merger to Mercantile shareholders who hold Mercantile
common stock as a capital asset. The summary is based on the U.S. tax code,
regulations of the U.S. Treasury Department under the U.S. tax code,
administrative rulings and court decisions, in each case as in effect as of the
date of this document, all of which are subject to change at any time, possibly
with retroactive effect. This summary is not a complete description of all of
the tax consequences of the merger. In particular, this summary may not address
U.S. federal income tax considerations applicable to you if you are a Mercantile
shareholder subject to special treatment under U.S. federal income tax law,
including, for example:
- foreign persons - holders who acquired their
- financial institutions shares of Mercantile common
- dealers in securities stock through exercise of an
- insurance companies employee stock option or right,
- tax-exempt entities or otherwise as compensation
- holders who hold Mercantile
common stock as part of a
hedge, straddle or conversion
transaction
In addition, we do not provide any information in this document about the
tax consequences of the merger under applicable foreign, state or local laws.
IF YOU ARE A MERCANTILE SHAREHOLDER, WE URGE YOU TO CONSULT WITH YOUR TAX
ADVISORS ABOUT THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO YOU, INCLUDING
THE EFFECTS OF U.S. FEDERAL, STATE OR LOCAL, OR FOREIGN AND OTHER TAX LAWS.
In connection with the filing of the registration statement containing this
document with the SEC, the law firm of Wachtell, Lipton, Rosen & Katz has
delivered an opinion, dated the date of this document, addressing the U.S.
federal income tax consequences of the merger described below. That opinion has
been rendered on the basis of facts, representations and assumptions set forth
or referred to in the opinion. In rendering this opinion, Wachtell, Lipton,
Rosen & Katz required and relied upon factual representations contained in
certificates of officers of Firstar and Mercantile. The opinion is to the effect
that, for U.S. federal income tax purposes:
- the merger will constitute a reorganization within the meaning of Section
368(a) of the U.S. tax code
48
<PAGE>
- Firstar and Mercantile will each be a party to the reorganization within
the meaning of Section 368(b) of the U.S. tax code
- neither Firstar nor Mercantile will recognize any gain or loss as a result
of the merger
- Mercantile shareholders who exchange all of their Mercantile common stock
solely for Firstar common stock in connection with the merger will
recognize no gain or loss on that exchange (except with respect to cash
received in lieu of a fractional share interest in Firstar common stock).
None of the tax opinions to be delivered to the parties in connection with
the merger as described in this document are binding on the Internal Revenue
Service or the courts, and we do not intend to request a ruling from the IRS
with respect to the merger.
Cash that you receive in lieu of a fractional share interest in Firstar
common stock will be treated as received in redemption of the fractional share
interest, and in most cases you should recognize capital gain or loss for U.S.
federal income tax purposes measured by the difference between the amount of
cash received and the portion of the tax basis of the share of Mercantile common
stock allocable to the fractional share interest. This capital gain or loss
would be a long-term capital gain or loss if the holding period for the share of
Firstar common stock is greater than one year at the effective time. The holding
period of a share of Firstar common stock received in the merger (including a
fractional share interest deemed received and redeemed as described above) will
include the holding period in the Mercantile common stock surrendered in
exchange for the Firstar common stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING. Payments related to
Mercantile common stock may be subject to information reporting to the IRS and
to a 31% backup withholding tax. Backup withholding will not apply, however, to
a payment to you, or another payee, if you or the payee completes and signs the
substitute Form W-9 that we will include as part of the transmittal letter, or
otherwise proves to Firstar and the exchange agent that you or the payee is
exempt from backup withholding.
ACCOUNTING TREATMENT
We anticipate that we will account for the merger as a "pooling of
interests" transaction under U.S. GAAP. Under this method of accounting,
Mercantile shareholders and Firstar shareholders will be deemed to have combined
your existing voting common stock interests by virtue of the exchange of shares
of Mercantile common stock for shares of Firstar common stock. Accordingly, the
book value of the assets, liabilities and shareholders' equity of each of
Firstar and Mercantile, as reported on our consolidated balance sheets, will be
carried over to the consolidated balance sheet of the combined company. No
goodwill will be created. The combined company will be able to include in its
consolidated income the consolidated income of both our companies for the entire
fiscal year in which the merger occurs.
It is a condition to each of our obligations to consummate the merger that
we each receive an opinion from our independent accountants to the effect that
the merger will be accounted for as a "pooling of interests." See "--Conditions
to Consummation of the Merger."
We have prepared the unaudited pro forma financial information contained in
this document using the "pooling of interests" accounting method to account for
the merger. See "Summary--Unaudited Comparative Per Share Data" and "Unaudited
Pro Forma Condensed Combined Financial Information."
49
<PAGE>
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time, whether before or after approval by Firstar shareholders and Mercantile
shareholders:
- MUTUAL CONSENT--by our mutual consent, if each of our boards so determines
by a vote of a majority of the members of the entire board
- LEGAL IMPEDIMENT--by either of our boards if
- any governmental entity that must grant a Requisite Regulatory Approval
has denied approval of the merger and this denial has become final and
non-appealable
- any governmental entity with jurisdiction has issued a final
non-appealable order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the merger agreement
or
- any shareholder approval required by the merger agreement is not
obtained
- DELAY--by either of our boards if the merger is not completed on or before
the first anniversary of the date of the merger agreement, unless the
delay is caused by the failure of the party seeking to terminate the
merger agreement to perform its obligations in the merger agreement
- BREACH--by either of our boards (if the terminating party is not in
material breach of the merger agreement) if there has been a material
breach of the merger agreement on the part of the other party which,
individually or in the aggregate, would constitute, if occurring or
continuing on the closing date, the failure of the conditions described in
either of the last two paragraphs under "--Conditions to Consummation of
the Merger," and that is not cured within 45 days following written notice
to the party committing the breach or that, by its nature, cannot be cured
prior to the closing date.
Whether or not we complete the merger, all fees and expenses we incur in
connection with the merger will be paid by the party incurring the expenses.
However, the costs and expenses of printing and mailing this document, and all
filing and other fees paid to the SEC in connection with the merger, will be
borne equally by each of us.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
EXTENSION AND WAIVER. At any time before the effective time, either of us,
by action taken or authorized by our board, may, to the extent legally allowed:
- extend the time for the other to perform any of its obligations or other
acts
- waive any inaccuracies in the representations and warranties of the other
contained in the merger agreement or in any document delivered under the
merger agreement
- waive compliance by the other with any of the agreements or conditions
contained in the merger agreement.
However, after Firstar or Mercantile shareholders approve the merger
agreement, there may not be, without further approval of these shareholders, any
extension or waiver of the merger agreement that reduces the amount or changes
the form of the consideration to be delivered to the Mercantile shareholders,
other than as contemplated by the merger agreement.
AMENDMENT. Subject to compliance with applicable law, we may amend the
merger agreement by action taken or authorized by both of our boards at any time
before or after Firstar shareholders or Mercantile shareholders approve the
merger agreement, except that after the Firstar shareholders or Mercantile
shareholders have given their approval, there may not be, without further
approval of these
50
<PAGE>
shareholders, any amendment of the merger agreement that changes the amount or
the form of the consideration to be delivered to the Mercantile shareholders,
other than as contemplated by the merger agreement.
STOCK EXCHANGE LISTING
Firstar has agreed to cause the shares of Firstar common stock to be issued
in the merger to be approved for listing on the NYSE. Mercantile's obligation to
consummate the merger is conditioned on the shares of Firstar common stock being
authorized for listing on the NYSE, subject to official notice of issuance.
DIVIDENDS
We will coordinate the declaration and payment of regular quarterly cash
dividends on Firstar common stock and Mercantile common stock with the intent
that you will not receive two dividends for a single quarter, or fail to receive
one dividend, that you would otherwise receive in the absence of the merger.
Firstar has indicated its intention to increase its quarterly common stock cash
dividend to $.1625 after completion of the merger. All dividends on Firstar
common stock, whether before or after the merger, are subject to determination
by the Firstar board in its discretion.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some members of Mercantile's and Firstar's management, and the members of
the Mercantile board, have interests in the merger that are in addition to the
interest as Mercantile or Firstar shareholders they share with you. The
Mercantile and Firstar boards were aware of these different interests and
considered them, among other matters, in approving the merger agreement and the
transactions it contemplates.
EMPLOYMENT AGREEMENTS WITH FIRSTAR. In connection with entering into the
merger agreement, Firstar entered into an employment agreement with Mr.
Jacobsen. The agreement has a five year term starting at the completion of the
merger. Under the employment agreement, Mr. Jacobsen will:
- serve as the Chairman of the Board of Firstar and Co-Chairman of the
Firstar Board's Executive Committee until the annual meeting of Firstar's
shareholders in 2001, and
- serve as Chairman Emeritus of Firstar thereafter.
While Mr. Jacobsen serves as Chairman of the Board of Firstar, he will be
entitled to receive a base salary and an annual bonus equal to the base salary
and annual bonus paid to Firstar's chief executive officer. Mr. Jacobsen will
receive a cash payment of $5 million in partial consideration of his noncompete
and confidentiality obligations under the new employment agreement. Mr. Jacobsen
will also be granted 300,000 shares of restricted Firstar common stock on
completion of the merger and options to acquire 500,000 shares of Firstar common
stock on completion of the merger and in calendar year 2000. The restricted
stock and the option awards will vest on the fourth anniversary of the
completion of the merger or, if earlier, on Mr. Jacobsen's retirement after the
2001 annual shareholders' meeting. Beginning at the 2001 annual shareholders'
meeting, Mr. Jacobsen will be paid an annual retirement benefit of $2.5 million,
less any benefits payable under Firstar's tax-qualified retirement plan. Should
his spouse survive him, she will receive annually 50% of the retirement benefit.
The amounts paid under the employment agreement are partially in consideration
for Mr. Jacobsen's noncompete and confidentiality obligations, and those
portions of these amounts will be determined by an independent appraiser.
The employment agreement provides that, on a termination of Mr. Jacobsen's
employment by Firstar, other than for cause or disability, or by him for good
reason, he will be entitled to a payment consisting of:
51
<PAGE>
- a PRO RATA annual bonus through the date of termination, based on the
highest annual bonus earned in the three years prior to the termination
date, plus
- the product of (a) the number of months from the date of termination
until the 2001 annual shareholders' meeting, divided by 12 and (b) the
sum of his base salary and annual bonus (based on the highest annual
bonus earned in the three years prior to the termination date).
Also, if this type of termination of Mr. Jacobsen's employment occurs, the
restricted stock and option awards will vest immediately and Mr. Jacobsen and
his current spouse will be entitled to receive medical and dental benefits
coverage for the remainder of their lives.
If any amounts payable to Mr. Jacobsen under the employment agreement or
otherwise would be subject to the excise tax under section 4999 of the U.S. tax
code, an additional payment will be made so that after the payment of all income
and excise taxes, Mr. Jacobsen will be in the same after-tax position as if no
excise tax under section 4999 had been imposed. However, if these additional
payments (excluding additional amounts payable due to the excise tax) do not
exceed 110% of the greatest amount that could be paid to Mr. Jacobsen without
requiring payment of the excise tax, no additional payments will be made on
account of the excise tax. Instead, the payments otherwise due to Mr. Jacobsen
will be reduced as necessary to prevent the application of the excise tax. On
completion of the merger, Mr. Jacobsen's employment agreement with Firstar will
supersede his current employment agreement with Mercantile described below. See
"--Existing Mercantile Severance and Employment Arrangements."
An employment agreement is in effect between Firstar and Roger L.
Fitzsimonds that provides that on Mr. Fitzsimonds' termination of employment
other than for cause or disability, or by him for good reason or retirement, he
will be entitled to a payment consisting of:
- a PRO RATA annual bonus through the date of termination, based on his
guaranteed annual bonus, plus
- the product of (a) the number of months from the date of termination
until Mr. Fitzsimonds' 62(nd) birthday, divided by 12, and (b) the sum of
his base salary and guaranteed annual bonus, plus
- a payment under his prior Firstar agreement equal to three times the sum
of his base salary and target bonus under the annual incentive plan in
effect in 1998.
Also, if this type of termination of Mr. Fitzsimonds' employment occurs, any
unvested restricted stock and option awards will vest immediately and he will be
entitled to an unreduced retirement under Firstar's qualified and non-qualified
retirement plans. If any amounts payable to Mr. Fitzsimonds under the employment
agreement or otherwise would be subject to the excise tax under section 4999 of
the U.S. tax code, an additional payment will be made so that after the payment
of all income and excise taxes, Mr. Fitzsimonds will be in the same after-tax
position as if no excise tax under section 4999 had been imposed.
EXISTING MERCANTILE SEVERANCE AND EMPLOYMENT ARRANGEMENTS. Change of
control severance agreements are in effect between Mercantile and a number of
its executive officers, including Messrs. Adams, Arnold, Dubinsky and McClure.
Also, Mercantile's existing employment agreement with Mr. Jacobsen provides for
severance payments on a termination of his employment in connection with a
change of control of Mercantile.
Under the change of control severance agreements, if, during the three-year
period following a change of control, the employment of a covered executive is
terminated by the employer other than for cause or due to death or disability,
or by the covered executive for good reason, the covered executive will be
entitled to receive a payment consisting of:
52
<PAGE>
- a PRO RATA annual bonus, plus
- accrued and unpaid vacation pay, plus
- a special bonus equal to the sum of the covered executive's base salary
and the highest annual bonus (as defined in the severance agreements),
plus
- two times the sum of the covered executive's base salary and the highest
annual bonus, plus
- an amount equal to the value of three years' additional service credit
under Mercantile's tax-qualified and supplemental retirement plans.
Under Mr. Jacobsen's existing employment agreement with Mercantile, on a
termination of Mr. Jacobsen's employment in connection with a change of control,
other than for cause, or by Mr. Jacobsen under the terms of the agreement, he
will be entitled to receive a payment consisting of:
- a PRO RATA highest annual bonus and special bonus amounts (as defined in
Mr. Jacobsen's employment agreement), plus
- accrued and unpaid vacation pay, plus
- an amount equal to his base salary and the highest annual bonus through
October 31, 2004, plus
- a supplemental retirement benefit amount calculated to include additional
service credit through October 31, 2004 and based on 28 years of service.
The special bonus is also payable to an executive upon the first anniversary
of a change of control, but is not payable twice. If any amounts payable to an
executive under the agreements or otherwise would subject the executive to the
excise tax under section 4999 of the U.S. tax code, a payment will be made so
that after the payment of all income and excise taxes, the executive will be in
the same after-tax position as if no excise tax under section 4999 had been
imposed.
In addition, on a covered termination following a change of control, each
executive will be entitled to continued welfare benefit coverage for three years
after the date of termination (in the case of Mr. Jacobsen, through October 31,
2004).
The transactions contemplated by the merger agreement will constitute a
change of control for purposes of the change of control severance agreements and
Mr. Jacobsen's employment agreement. For purposes of Mr. Jacobsen's employment
agreement with Mercantile, Mr. Jacobsen's employment will be deemed to be
terminated upon completion of the merger, and the new employment agreement with
Firstar will then supersede his Mercantile employment agreement. See
"--Employment Agreements with Firstar."
MERCANTILE SUPPLEMENTAL RETIREMENT PLAN. Under the Mercantile supplemental
retirement plan, on a change of control of Mercantile, participants are fully
vested in their benefits under the plan. The transactions provided for by the
merger agreement will constitute a change of control for purposes of the
supplemental retirement plan.
MERCANTILE STOCK-BASED RIGHTS. The merger agreement provides that, on
completion of the merger, each outstanding and unexercised stock option to
purchase shares of Mercantile common stock granted under Mercantile's
stock-based plans will no longer represent the right to acquire shares of
Mercantile common stock and will become a right to acquire Firstar common stock.
Under Mercantile's stock-based plans, unvested stock options and stock
appreciation rights will become fully vested and exercisable, and all
restrictions on restricted stock awards will lapse, on a
53
<PAGE>
change of control of Mercantile. The transactions provided for by the merger
agreement will constitute a change of control under these plans.
- The number of unvested Mercantile stock options held by Messrs. Jacobsen,
Adams, Arnold, Dubinsky and McClure that will vest in connection with the
merger is 416,400, 130,125, 142,425, 111,000 and 145,125, respectively.
- The number of shares of Mercantile common stock underlying awards of
restricted stock held by Messrs. Jacobsen, Adams, Arnold, Dubinsky and
McClure that will become freely transferable in connection with the
merger is 299,850, 30,000, 40,000, 25,000 and 32,500, respectively.
- The number of unvested stock options to acquire shares of Mercantile
common stock held by the members of the Mercantile Board of Directors
that will become fully vested and exercisable as in connection with the
merger is 10,000.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that, after
the merger, Firstar will indemnify any person who is a current or former
director, officer or employee of Mercantile or its subsidiaries at the
completion of the merger. This indemnity covers any claim or proceeding, whether
actual or threatened, to which such a person has been made, or has been
threatened to be made, a party and that relates the person's service as a
director, officer or employee of Mercantile or its subsidiaries or to the merger
agreement, the Option Agreements or any of the transactions contemplated by
those agreements. Firstar has agreed that, if this type of indemnity is required
by the merger agreement, it will indemnify a covered person to the fullest
extent permitted by law against any liability or expense the person incurs
related to a covered claim or proceeding.
The merger agreement also provides that Firstar will use its reasonable best
effort to cause the persons serving as officers and directors of Mercantile or
its subsidiaries immediately before completion of the merger to be covered for
at least six years after completion of the merger by Mercantile's directors' and
officers' liability insurance policy (or any equivalent substitute for that
policy). The policy will cover acts or omissions taking place prior to
completion of the merger committed by these officers and directors.
FIRSTAR AND MERCANTILE OPTION AGREEMENTS
Immediately after the execution of the merger agreement, Firstar and
Mercantile entered into a stock option agreement, dated April 30, 1999 (the
"FIRSTAR OPTION AGREEMENT"), under which Firstar granted Mercantile an option to
purchase Firstar common stock from Firstar under the conditions we describe
below. At the same time, Mercantile and Firstar entered into a stock option
agreement, dated April 30, 1999 (the "MERCANTILE OPTION AGREEMENT" and, together
with the Firstar Option Agreement, the "OPTION AGREEMENTS"), under which
Mercantile granted to Firstar an option to purchase Mercantile common stock from
Mercantile under the conditions we describe below. Firstar and Mercantile each
granted these options to induce the other to enter into the merger agreement.
The terms and conditions of the Firstar Option Agreement and the Mercantile
Option Agreement are identical in all material respects, except that the Firstar
Option Agreement grants Mercantile an option on 9.9% of Firstar's outstanding
common stock, while the Mercantile Option Agreement grants Firstar an option on
19.9% of Mercantile's outstanding common stock. For purposes of this section,
except as otherwise noted:
- the Firstar Option Agreement or the Mercantile Option Agreement, as the
case may be, is sometimes referred to as the "ISSUER OPTION AGREEMENT"
- the company obligated to issue stock under an Option Agreement is
sometimes referred to as the "ISSUER"
54
<PAGE>
- the company holding the option is sometimes referred to as the "OPTIONEE"
- the Firstar option or the Mercantile option, as the case may be, is
sometimes referred to as the "ISSUER OPTION"
- common stock of the company granting the option, as the case may be, is
referred to as "ISSUER COMMON STOCK."
The Option Agreements are intended to increase the likelihood that the
merger will be consummated in accordance with the terms of the merger agreement
and to compensate the Optionee if the merger is not consummated. Consequently,
aspects of the Option Agreements may discourage persons who might be interested
in acquiring all of or a significant interest in Firstar or Mercantile from
considering or proposing an acquisition, even if, in the case of Mercantile,
these persons were prepared to offer to pay consideration to the Mercantile
shareholders that had a higher current market price than the shares of Firstar
common stock to be received under the merger agreement. An agreement to acquire
Firstar or Mercantile, or the accumulation of 20% or more of their common stock,
by a third party could cause the Firstar option or the Mercantile option, as the
case may be, to become exercisable. The existence of the Issuer Options could
significantly increase the cost to a potential acquiror of acquiring either of
our companies. This increased cost might discourage a potential acquiror from
considering or proposing an acquisition or might result in a potential acquiror
proposing to pay a lower per share price to acquire the Issuer than it might
otherwise have proposed to pay. Moreover, following consultation with our
respective independent accountants, we believe that the exercise or repurchase
of either of the Issuer Options is likely to prohibit another acquiror from
accounting for any acquisition of the Issuer using the "pooling of interests"
accounting method for a period of two years.
The Firstar Option Agreement provides for the purchase by Mercantile of up
to 65,460,210 shares (the "FIRSTAR OPTION SHARES" or the "ISSUER OPTION SHARES,"
as the case may be) of Firstar common stock at an exercise price of $31.56 per
share (the closing price on the NYSE composite tape on the day the exchange
ratio was agreed upon). The Firstar Option Shares will in no event exceed 9.9%
of the Firstar common stock issued and outstanding without giving effect to the
exercise of the Firstar Option.
The Mercantile Option Agreement provides for the purchase by Firstar of up
to 31,415,840 shares (the "MERCANTILE OPTION SHARES" or the "ISSUER OPTION
SHARES," as the case may be) of Mercantile common stock at an exercise price of
$51.25 per share (the closing price on the NYSE composite tape on the day the
exchange ratio was agreed upon), payable in cash. The Mercantile Option Shares,
if issued under the Mercantile Option Agreement, will in no event exceed 19.9%
of the Mercantile common stock issued and outstanding without giving effect to
the issuance of any Mercantile common stock subject to the Mercantile Option.
The number of shares of Issuer Common Stock subject to the applicable Issuer
Option will be increased or decreased, as appropriate, to the extent that
additional shares of Issuer Common Stock are either
- issued or otherwise become outstanding, other than under an exercise of an
Issuer Option
- redeemed, repurchased, retired or otherwise cease to be outstanding after
April 30, 1999
such that, thereafter, the number of Issuer Option Shares will continue to equal
19.9% (in the case of the Mercantile Option) and 9.9% (in the case of the
Firstar option) of the Issuer Common Stock then issued and outstanding before
considering the issuance of any Issuer Common Stock subject to the Issuer
Option.
Also, in the event of any change in, or distributions in respect of, the
number of shares of Issuer Common Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination,
55
<PAGE>
subdivision, conversion, exchange of shares, distribution on or in respect of
such Issuer Common Stock or similar transaction, the type and number of Issuer
Option Shares purchasable upon exercise of the applicable Issuer Option, and the
applicable option price, will be adjusted in such a manner as will fully
preserve the economic benefits of the option.
Each Issuer Option Agreement provides that the Optionee or any other holder
or holders of the Issuer Option (as used in this section, collectively, the
"HOLDER") may exercise the Issuer Option, in whole or in part, subject to
regulatory approval, if both an "Initial Triggering Event" and a "Subsequent
Triggering Event" has occurred prior to the occurrence of an "Exercise
Termination Event"; so long as the Holder has sent to the Issuer written notice
of the exercise within 90 days following the Subsequent Triggering Event
(subject to extension as provided in each Issuer Option Agreement). Any exercise
of the Issuer Option will be deemed to occur on the date this notice is sent.
The terms Initial Triggering Event and Subsequent Triggering Event generally
relate to attempts by one or more third parties to acquire a significant
interest in the Issuer. For purposes of each Issuer Option Agreement, the term
"INITIAL TRIGGERING EVENT" means the occurrence of any of the following events
or transactions after April 30, 1999:
- the Issuer or any subsidiary of the Issuer, without the Optionee's prior
written consent, enters into an agreement to engage in, or the Issuer's
board recommends that shareholders of the Issuer approve or accept, an
Acquisition Transaction with any person or group, other than as
contemplated by the merger agreement
- the Issuer or any subsidiary of the Issuer, without the Optionee's prior
written consent, authorizes, recommends, proposes or publicly announces
its intention to authorize, recommend or propose to engage in an
Acquisition Transaction, or the Issuer's board publicly withdraws or
modifies, or publicly announces its intention to withdraw or modify, in
any manner adverse to the Optionee, its recommendation that its
shareholders approve the merger agreement in anticipation of engaging in
an Acquisition Transaction
- any person, other than the Optionee, any subsidiary of the Optionee or any
Issuer subsidiary acting in a fiduciary capacity in the ordinary course of
business acquires beneficial ownership, or the right to acquire beneficial
ownership, of 10% or more of the outstanding shares of Issuer Common Stock
- any person other than the Optionee or any subsidiary of the Optionee makes
a BONA FIDE proposal to the Issuer or its shareholders by public
announcement or written communication that becomes the subject of public
disclosure to engage in an Acquisition Transaction
- the Issuer breaches any covenant or obligation in the merger agreement
after any person, other than the Optionee or any subsidiaries of the
Optionee, has proposed an Acquisition Transaction, and this breach both
would entitle the Optionee to terminate the merger agreement and is not
remedied prior to the date of the Optionee's notice to the Issuer of the
exercise of the Option
- any person other than the Optionee or any subsidiary of the Optionee,
other than in connection with a transaction to which the Optionee has
given its prior written consent, files an application or notice with the
Federal Reserve Board, or other federal or state bank regulatory
authority, which application or notice has been accepted for processing,
for approval to engage in an Acquisition Transaction.
For purposes of each Issuer Option Agreement, the term "ACQUISITION
TRANSACTION" means:
- a merger or consolidation, or any similar transaction with the Issuer or
any of its Significant Subsidiaries (as defined in Rule 1-02 of Regulation
S-X of the SEC)
56
<PAGE>
- a purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets or deposits of the Issuer or any of its
Significant Subsidiaries
- a purchase or other acquisition of securities representing 10% or more of
the voting power of the Issuer or
- any substantially similar transaction, except that in no event will any
merger, consolidation, purchase or similar transaction involving only the
Issuer and one or more of its subsidiaries, or involving only any two or
more of its subsidiaries, and not entered into in violation of the merger
agreement, be an Acquisition Transaction.
The term "SUBSEQUENT TRIGGERING EVENT" means the occurrence of either of the
following events or transactions after April 30, 1999:
- the acquisition by any person of beneficial ownership of 20% or more of
the then outstanding shares of Issuer Common Stock, or
- the occurrence of the Initial Triggering Event described above in the
first bullet point under the definition of "Initial Triggering Event,"
except that the percentage referred to in the third bullet point of the
definition of "Acquisition Transaction" will be 20%.
Each Issuer Option will expire upon the occurrence of an "EXERCISE
TERMINATION EVENT," which includes:
- the effective time
- termination of the merger agreement in accordance with the provisions of
the merger agreement if prior to the occurrence of an Initial Triggering
Event, except as a result of an uncured and volitional material breach by
the Issuer of the merger agreement or
- the date that is 12 months after the termination of the merger agreement
if the termination occurs after the occurrence of an Initial Triggering
Event or is a termination by the Optionee as a result of an uncured
material breach by the Issuer of the merger agreement, unless the breach
by the Issuer is non-volitional.
If an Initial Triggering Event continues or occurs beyond the termination of
the merger agreement and prior to the passage of this 12-month period, the
Issuer Option will terminate 12 months from the expiration of the last Initial
Triggering Event to expire, but in no event more than 18 months after the
termination of the merger agreement.
As of the date of this document, to our knowledge, no Initial Triggering
Event or Subsequent Triggering Event has occurred.
Under some circumstances the issuer of an option may be required to
repurchase the option, and any shares for which the option was exercised, for a
price specified in the Option Agreement. Immediately prior to the occurrence of
a Repurchase Event,
- following a request of a Holder, delivered prior to an Exercise
Termination Event, the Issuer, or any successor to the Issuer, will
repurchase the Issuer Option from the Holder at a price (the "ISSUER
OPTION REPURCHASE PRICE") equal to the amount by which
- the Market/Offer Price exceeds
- the exercise price, multiplied by the number of shares for which the
Issuer Option may then be exercised and
- at the request of the owner of Issuer Option Shares from time to time (the
"OWNER"), delivered within 90 days of the occurrence of a Repurchase Event
(or a later period as provided in Section 10 of each of the Option
Agreements), the Issuer will repurchase the number of the
57
<PAGE>
Issuer Option Shares from the Owner as the Owner will designate at a price
(the "ISSUER OPTION SHARE REPURCHASE PRICE") equal to the Market/Offer
Price multiplied by the number of Option Shares so designated.
The term "MARKET/OFFER PRICE" means the highest of:
- the price per share of Issuer Common Stock at which a tender offer or
exchange offer for the Issuer Common Stock has been made
- the price per share of Issuer Common Stock to be paid by any third party
under an agreement with Issuer
- the highest closing price for shares of Issuer Common Stock within the
six-month period immediately preceding the date the Holder gives notice of
the required repurchase of the Issuer Option or the Owner gives notice of
the required repurchase of Issuer Option Shares, as the case may be, or
- in the event of a sale of all or a substantial portion of the Issuer's
assets, the sum of the price paid in the sale for these assets and the
current market value of the remaining assets of the Issuer as determined
by a nationally recognized investment banking firm selected by the Holder
or the Owner, as the case may be, and reasonably acceptable to the Issuer,
divided by the number of shares of Issuer Common Stock outstanding at the
time of the sale.
A "REPURCHASE EVENT" is deemed to have occurred:
- upon the consummation of an Acquisition Transaction or
- upon the acquisition by any person of the beneficial ownership of 50% or
more of the then outstanding Issuer Common Stock, as long as a Subsequent
Triggering Event has occurred prior to an Exercise Termination Event.
In some situations, the option will convert into an option to purchase the
shares of a successor to the Issuer. In the event that, prior to an Exercise
Termination Event, the Issuer enters into any agreement:
- to consolidate with or merge into any person, other than the Optionee or
one of its subsidiaries, such that Issuer is not the continuing or
surviving corporation of the consolidation or merger
- to permit any person, other than the Optionee or one of its subsidiaries,
to merge into the Issuer and the Issuer is the continuing or surviving
corporation, but, in connection with the consolidation or merger, the
then-outstanding shares of the Issuer Common Stock are changed into or
exchanged for stock or other securities of any other person or cash or any
other property, or the then-outstanding shares of Issuer Common Stock
after the merger will represent less than 50% of the outstanding voting
shares and voting share equivalents of the merged corporation
- to sell or otherwise transfer all or substantially all of its assets to
any person, other than the Optionee or any of its subsidiaries,
then the agreement governing these transactions must provide that, upon
consummation of the transaction and upon terms and conditions set forth in the
Issuer Option Agreement, the option will be converted into, or exchanged for, an
option having substantially the same terms as the option (the "SUBSTITUTE
OPTION") to purchase securities, at the election of the Holder, of either the
acquiring person or any person that controls the acquiring person.
At the request of the Holder of the Substitute Option, the issuer of the
Substitute Option will repurchase it at a price, and subject to any other terms
and conditions that are set forth in the Issuer Option Agreement.
58
<PAGE>
CASH SURRENDER VALUE. The Optionee may, at any time during which the Issuer
would be required to repurchase the Issuer Option or any Issuer Option Shares as
described above, surrender the Issuer Option (together with any Issuer Option
Shares issued to and then owned by the Holder) to the Issuer in exchange for a
cash payment equal to the Surrender Price, except that the Optionee may not
exercise this right if the Issuer has previously repurchased the Issuer Option
(or any portion of the Issuer Option) or any Issuer Option Shares as described
above. The "SURRENDER PRICE" is
- $250,000,000, plus
- if applicable, the aggregate purchase price previously paid by the
Optionee with respect to any Issuer Option Shares, minus
- if applicable, the excess of:
- the net cash, if any, received by the Optionee in an arm's-length sale
of Issuer Option Shares (or any other securities into which these
Issuer Option Shares were converted or exchanged) to any party not
affiliated with the Optionee, over
- the purchase price paid by the Optionee with respect to these Issuer
Option Shares.
Some rights and obligations of the Optionee and the Issuer under the Option
Agreement are subject to receipt of required regulatory approvals. The approval
of the Federal Reserve Board is required for the acquisition by the Optionee of
more than 5% of the outstanding shares of Issuer Common Stock. Accordingly, the
Optionee has included or will include in its applications with the Federal
Reserve Board a request for approval of the right of the Optionee to exercise
its rights under the Issuer Option Agreement, including its right to purchase
more than 5% of the outstanding shares of Issuer Common Stock. Acquisitions of
5% or less may be subject to the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, which, if it applied, would require the Optionee to
wait for a specified period before completing the acquisition.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Firstar common stock to be issued to Mercantile shareholders
in the merger have been registered under the Securities Act. They may be traded
freely and without restriction by you if you are not deemed to be an affiliate
of Mercantile under the Securities Act. An "AFFILIATE" of Mercantile, as defined
by the rules promulgated under the Securities Act, is a person who directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, Mercantile. Any subsequent transfer of these shares
by any person who is an affiliate of Mercantile at the time of the merger is
submitted for vote of the Mercantile shareholders will, under existing law,
require one of the following:
- the further registration under the Securities Act of the proposed transfer
of these shares of Firstar common stock
- compliance with Rule 145 under the Securities Act (permitting limited
sales in some circumstances)
- the availability of another exemption from the registration requirements
of the Securities Act.
We expect these restrictions to apply to the directors and executive
officers of Mercantile, some of their family members and to entities in which
they may have a substantial ownership interest. Stop transfer instructions will
be given by Firstar to its transfer agent with respect to the Firstar common
stock to be received by persons subject to the restrictions described above, and
the certificates for this stock will bear appropriate legends.
SEC guidelines regarding qualifying for the "pooling of interests" method of
accounting also limit sales of shares of the acquiring (Firstar) and acquired
(Mercantile) company by affiliates of either
59
<PAGE>
company in a business combination. SEC guidelines indicate further that "pooling
of interests" accounting will generally not be challenged on the basis of sales
by these affiliates if they do not dispose of any of the shares of the
corporation they own or shares of a corporation they receive in connection with
a merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined company have been published.
Each of us has agreed in the merger agreement to use its best efforts to
cause each person who is an affiliate of our company (for purposes of Rule 145
and for purposes of qualifying the merger for "pooling of interests" accounting
treatment) to deliver to the other a written agreement intended to ensure
compliance with the Securities Act and preserve the ability to treat the merger
as a "pooling of interests."
Firstar has agreed in the merger agreement to use its best efforts to
publish, not later than 90 days after the end of the first month after the
completion of the merger in which there are at least 30 days of post-merger
combined operations, combined sales and net income figures as contemplated by
and in accordance with the terms of the SEC's Accounting Series Release No. 135.
60
<PAGE>
MANAGEMENT AND OPERATIONS AFTER THE MERGER
BOARD OF DIRECTORS. Prior to the completion of the merger, Firstar expects
to reduce the number of directors serving on the Firstar board to 18 from the
present 31. Firstar and Mercantile have agreed that 14 of the 18 directors will
be designated by Firstar, and that the remaining four directors will be
designated by Mercantile. It is expected that Mr. Grundhofer will be one of the
Firstar designees and that Mr. Jacobsen will be one of the Mercantile designees.
The other designees have not yet been determined as of the date of this
document.
MANAGEMENT. Firstar and Mercantile have agreed that Mr. Jacobsen will serve
as Chairman of the Firstar board, and Chairman of the executive committee of the
Firstar board, after completion of the merger until the annual meeting of
Firstar shareholders in 2001, after which Mr. Jacobsen will become Chairman
Emeritus of Firstar. Mr. Grundhofer will continue to serve as President and
Chief Executive Officer of Firstar after completion of the merger. Mr.
Fitzsimonds, the current Chairman of the Firstar board, has indicated his
intention to retire upon completion of the merger and will become Chairman
Emeritus at that time.
OPERATIONS. Following completion of the merger, Firstar will continued to
be headquartered in Milwaukee, Wisconsin, while the headquarters for corporate
banking will be in St. Louis, Missouri.
While there can be no assurances, Firstar and Mercantile presently expect to
achieve approximately $169 million in annual pre-tax expense savings by fiscal
year 2000 as a result of the merger. Firstar and Mercantile expect that these
expense savings will be derived principally from centralization of corporate
activities, consolidation of data processing and operations, optimization of
commercial banking, retail branch and alternative delivery channels for bank
products and services, improvements in technology and reconfiguration of the
mortgage, credit card and asset management businesses.
Firstar and Mercantile also expect that the combined company will incur
one-time merger-related and restructuring charges of approximately $428 million
(pre-tax), principally as a result of conversion costs, employee-related
expenses, costs relating to the integration of systems and operations, expenses
relating to occupancy and equipment writedowns and various other costs. For
additional information with respect to these charges, see "Unaudited Pro Forma
Condensed Combined Financial Information."
61
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
FIRSTAR. Firstar common stock is listed on the NYSE and traded under the
symbol "FSR." The following table sets forth, for the periods indicated, the
high and low reported closing sale prices per share of Firstar common stock on
the NYSE composite transactions reporting system and cash dividends declared per
share of Firstar common stock. The cash dividend and stock price information has
been adjusted to reflect the three-for-one split of Firstar common stock paid on
April 15, 1999.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------------- DIVIDENDS
HIGH LOW DECLARED
---------- ---------- ---------
<S> <C> <C> <C>
1997
First Quarter............... 14 61/64 9 63/64 .067
Second Quarter.............. 14 59/64 12 61/64 .067
Third Quarter............... 15 11/16 14 13/64 .067
Fourth Quarter.............. 19 21/64 15 3/8 .067
1998
First Quarter............... 20 27/64 17 45/64 .077
Second Quarter.............. 21 29/64 19 47/64 .077
Third Quarter............... 24 1/2 18 19/64 .077
Fourth Quarter.............. 31 19 1/16 .10
1999
First Quarter............... 31 7/64 27 27/64 .10
Second Quarter (through June
18, 1999)................. 34 9/16 26 1/2 .10
</TABLE>
Firstar has indicated that it intends to increase the per share quarterly
dividend on Firstar common stock to $.1625 after completing the merger. The
timing and amount of future dividends will depend upon earnings, cash
requirements, the financial condition of Firstar and its subsidiaries,
applicable government regulations and other factors deemed relevant by the
Firstar board. As described under "Regulation and Supervision--Dividend
Restrictions," various U.S. state and federal laws limit the ability of
affiliate banks to pay dividends to Firstar. The merger agreement restricts the
cash dividends that may be paid on Firstar common stock pending consummation of
the merger. See "The Merger--Conduct of Business Pending the Merger" and
"--Other Agreements."
62
<PAGE>
MERCANTILE. Mercantile common stock is listed on the NYSE and traded under
the symbol "MTL." The following table sets forth the high and low closing sales
prices for Mercantile common stock for the periods indicated, as listed in the
NYSE composite transaction reporting system, and the quarterly cash dividends
declared per share for the periods indicated. The cash dividend and stock price
information has been adjusted to reflect the three-for-two split of Mercantile
common stock paid on October 1, 1997.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------------- DIVIDENDS
HIGH LOW DECLARED
---------- ---------- ---------
<S> <C> <C> <C>
1997
First Quarter............... 39 19/32 33 1/2 .287
Second Quarter.............. 41 35/64 35 21/64 .287
Third Quarter............... 52 51/64 41 1/2 .287
Fourth Quarter.............. 61 1/2 46 7/8 .287
1998
First Quarter............... 60 49 13/16 .31
Second Quarter.............. 57 1/16 49 13/16 .31
Third Quarter............... 55 43 1/4 .31
Fourth Quarter.............. 47 15/16 42 1/16 .31
1999
First Quarter............... 52 1/8 43 .34
Second Quarter (through June
18, 1999)................. 60 11/16 47 5/8 .34
</TABLE>
The timing and amount of future dividends will depend upon earnings, cash
requirements, the financial condition of Mercantile and its subsidiaries,
applicable government regulations and other factors deemed relevant by the
Mercantile board. As described under "Regulation and Supervision-Dividend
Restrictions," various U.S. state and federal laws limit the ability of
affiliate banks to pay dividends to Mercantile. The merger agreement restricts
the cash dividends that may be paid on Mercantile common stock pending
consummation of the merger. See "The Merger--Conduct of Business Pending the
Merger" and "--Other Agreements."
63
<PAGE>
INFORMATION ABOUT FIRSTAR
Firstar is a regional, multi-state bank holding company organized under the
laws of Wisconsin and registered under the Bank Holding Company Act. Firstar was
founded in 1853. The current Firstar was created by the merger of Star Banc
Corporation and Firstar Corporation on November 20, 1998 and owns subsidiaries
engaged in banking and in a variety of related businesses. Our subsidiaries
provide banking, trust, investment, insurance and other financial services to
customers through banks located in Ohio, Wisconsin, Kentucky, Illinois, Indiana,
Iowa, Minnesota, Tennessee and Arizona. We deliver additional financial services
to our customers through subsidiaries engaged in various businesses, principally
trust and investment management, residential mortgage banking, consumer
financing, consumer and credit related insurance, and corporate operational
services.
At March 31, 1999, Firstar's consolidated total assets were approximately
$38 billion, its consolidated total deposits were approximately $28 billion and
its consolidated total shareholders' equity was approximately $3.7 billion.
Based on total assets at March 31, 1999, Firstar was the 23(rd) largest bank
holding company in the United States.
We expand our businesses in part by acquiring banking institutions and other
companies engaged in activities closely related to banking. We continue to
explore opportunities to acquire banking institutions and other companies
permitted by the Bank Holding Company Act. Discussions are continually being
carried on relating to such acquisitions. We do not presently know whether, or
on what terms, these discussions will lead to further acquisitions. It is our
policy not to comment on these discussions or possible acquisitions until a
definitive agreement for an acquisition has been signed.
Firstar is a legal entity separate and distinct from its banking and
non-banking subsidiaries. Accordingly, the right of Firstar, and thus the right
of Firstar's creditors, to participate in any distribution of the assets or
earnings of any subsidiary, other than in its capacity as a creditor of the
subsidiary, is subject to the prior payment of claims of creditors of the
subsidiary. The principal sources of our company's revenues are dividends and
fees from our subsidiaries. See "Regulation and Supervision--Dividend
Restrictions" for a discussion of the restrictions on the subsidiary banks'
ability to pay dividends to Firstar.
Our executive offices are located at 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, and its telephone number is (414) 765-4321.
MANAGEMENT AND ADDITIONAL INFORMATION
Firstar's Annual Report on Form 10-K for the year ended December 31, 1998
incorporates by reference or sets forth information about executive
compensation, various benefit plans including stock option plans, voting
securities and their principal holders, various relationships and related
transactions and other related matters pertaining to our company. We incorporate
this Annual Report on Form 10-K in this document by reference. If you would like
copies of these documents, you may contact us at the address or telephone number
indicated under "Where You Can Find More Information."
64
<PAGE>
INFORMATION ABOUT MERCANTILE
Mercantile is a bank holding company registered under the Bank Holding
Company Act, and incorporated in Missouri. Mercantile was organized on March 10,
1970. Mercantile owns, directly or indirectly, all of the stock of Mercantile
Bank N.A., six other commercial banks, one trust company, and other non-banking
subsidiaries located in Missouri, Iowa, Illinois, Kansas, Arkansas, and
Kentucky. Our non-banking subsidiaries include companies providing brokerage
services, asset-based lending, factoring, investment advisory services, leasing
services and credit life and other insurance products as agent.
At March 31, 1999, Mercantile's consolidated total assets were approximately
$36 billion, its total deposits were approximately $25 billion, and its
consolidated total shareholders' equity was approximately $3 billion. Based on
total assets at March 31, 1999, Mercantile was the 26(th) largest bank holding
company in the United States.
Mercantile is a legal entity separate and distinct from its banking and
non-banking subsidiaries. Accordingly, the right of Mercantile, and thus the
right of Mercantile's creditors, to participate in any distribution of the
assets or earnings of any subsidiary, other than in its capacity as a creditor
of the subsidiary, is subject to the prior payment of claims of creditors of the
subsidiary. The principal sources of our company's revenues are dividends and
fees from our subsidiaries. See "Regulation and Supervision--Dividend
Restrictions" for a discussion of the restrictions on the subsidiary banks'
ability to pay dividends to Mercantile.
Mercantile's executive offices are located at One Mercantile Center, St.
Louis, Missouri 63101, and its telephone number is (314) 418-2525.
MANAGEMENT AND ADDITIONAL INFORMATION
Mercantile's Annual Report on Form 10-K for the year ended December 31, 1998
incorporates by reference or sets forth information relating to executive
compensation, various benefit plans (including stock option plans), voting
securities and their principal holders, various relationships and related
transactions and other related matters pertaining to our company. We incorporate
this Annual Report on Form 10-K in this document by reference. If you would like
copies of these documents, you may contact Mercantile at our address or
telephone number indicated under "Where You Can Find More Information."
65
<PAGE>
REGULATION AND SUPERVISION
The following discussion briefly describes the material elements of the
regulatory framework governing bank holding companies and their subsidiaries,
and provides specific information relevant to our companies. This regulatory
framework is intended primarily for the protection of depositors and the federal
deposit insurance funds and not for the protection of security holders. To the
extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to those provisions. A
change in the statutes, regulations or regulatory policies applicable to our
companies or our subsidiaries may have a material effect on our businesses. More
information is contained in the documents incorporated in this document by
reference. See "Where You Can Find More Information" for information on how you
can obtain these documents.
As bank holding companies, our companies are each subject to regulation
under the Bank Holding Company Act, and to inspection, examination and
supervision by the Federal Reserve Board. Under the Bank Holding Company Act,
bank holding companies generally may not acquire the ownership or control of
more than 5% of the voting shares, or substantially all the assets, of any
company, including a bank or another bank holding company, without the Federal
Reserve Board's prior approval. Also, bank holding companies generally may
engage only in banking and other activities that are determined by the Federal
Reserve Board to be closely related to banking.
Our affiliate national banking associations, such as Star Bank, N.A. and
Mercantile Bank National Association, are subject to regulation and examination
primarily by the OCC and, secondarily, by the FDIC and the Federal Reserve
Board. Each of Firstar's and Mercantile's state-chartered banks, such as Firstar
Bank Wisconsin and Mercantile Bank of Illinois, are subject to primary federal
regulation and examination by the FDIC or the Federal Reserve Board and, in
addition, are regulated and examined by banking departments of the states where
they are chartered. Firstar, Mercantile and our subsidiaries also are affected
by the fiscal and monetary policies of the federal government and the Federal
Reserve Board, and by various other governmental requirements and regulations.
LIABILITY FOR BANK SUBSIDIARIES
Under current Federal Reserve Board policy, a bank holding company is
expected to act as a source of financial and managerial strength to each of its
subsidiary banks and to maintain resources adequate to support each subsidiary
bank. This support may be required at times when the bank holding company may
not have the resources to provide it. In addition, Section 55 of the National
Bank Act permits the OCC to order the PRO RATA assessment of stockholders, such
as Firstar and Mercantile, of a national bank whose capital has become impaired.
If a stockholder fails, within three months, to pay that assessment, the OCC can
order the sale of the stockholder's stock to cover the deficiency. In the event
of a bank holding company's bankruptcy, any commitment by the bank holding
company to a U.S. federal bank regulatory agency to maintain the capital of a
subsidiary bank would be assumed by the bankruptcy trustee and entitled to
priority of payment.
All of Firstar's and Mercantile's banks are FDIC-insured depositary
institutions. Any depository institution insured by the FDIC, like our bank
subsidiaries, can be held liable for any loss incurred, or reasonably expected
to be incurred, by the FDIC due to the default of an FDIC-insured depository
institution controlled by the same bank holding company, or for any assistance
provided by the FDIC to an FDIC-insured depository institution controlled by the
same bank holding company that is in danger of default.
"DEFAULT" generally means the appointment of a conservator or receiver. "IN
DANGER OF DEFAULT" generally means the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance.
66
<PAGE>
Also, if a default occurred with respect to a bank, any capital loans to the
bank from its parent holding company would be subordinate in right of payment to
payment of the bank's depositors and certain of its other obligations.
CAPITAL REQUIREMENTS
Each of our companies is subject to risk-based capital requirements and
guidelines imposed by the Federal Reserve Board. These are substantially similar
to the capital requirements and guidelines imposed by the Federal Reserve Board,
the OCC and the FDIC on the depository institutions under their jurisdictions.
For this purpose, a depository institution's or holding company's assets, and
some of its specified off-balance sheet commitments and obligations, are
assigned to various risk categories. A depository institution's or holding
company's capital, in turn, is classified in one of three tiers, depending on
type:
<TABLE>
<CAPTION>
CORE ("TIER 1") CAPITAL SUPPLEMENTARY ("TIER 2") CAPITAL MARKET RISK ("TIER 3") CAPITAL
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
- - common equity among other items: among other items:
- - retained earnings
- - qualifying noncumulative perpetual - perpetual preferred stock not - qualifying unsecured subordinated
preferred stock meeting the Tier 1 definition debt
- - a limited amount of qualifying - qualifying mandatory convertible
cumulative perpetual preferred securities
stock at the holding company level
- qualifying subordinated debt
- - minority interests in equity
accounts of consolidated
subsidiaries - allowances for loan and lease
losses, subject to limitations
- - less goodwill and most intangible
assets
</TABLE>
Each of our companies, like other bank holding companies, currently is
required to maintain Tier 1 capital and "TOTAL CAPITAL" (the sum of Tier 1, Tier
2 and Tier 3 capital) equal to at least 4% and 8%, respectively, of its total
risk-weighted assets (including various off-balance-sheet items, such as standby
letters of credit). For a holding company to be considered "well capitalized"
for regulatory purposes, its Tier 1 and total capital ratios must be 6% and 10%
on a risk-adjusted basis, respectively. At March 31, 1999, each of our companies
met both requirements, with Tier 1 and total capital equal to 9.29% and 11.21%
(in the case of Firstar), and 9.78% and 12.33% (in the case of Mercantile) of
its respective total risk-weighted assets.
Federal Reserve Board, FDIC and OCC rules requires Firstar and Mercantile to
incorporate market and interest rate risk components into their risk-based
capital standards. Under these market risk requirements, capital is allocated to
support the amount of market risk related to a financial institution's ongoing
trading activities.
The Federal Reserve Board also requires bank holding companies to maintain a
minimum "LEVERAGE RATIO" (Tier 1 capital to adjusted total assets) of 3% if the
holding company has the highest regulatory rating and meets other requirements,
or of 3% plus an additional "cushion" of at least 100 to 200 basis points (one
to two percentage points) if the holding company does not meet these
requirements. At March 31, 1999, Firstar's leverage ratio was 8.07% and
Mercantile's leverage ratio was 7.28%.
67
<PAGE>
The Federal Reserve Board may set capital requirements higher than the
minimums we've described for holding companies whose circumstances warrant it.
For example, holding companies experiencing or anticipating significant growth
may be expected to maintain capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets. The
Federal Reserve Board has also indicated that it will consider a "tangible Tier
1 capital leverage ratio" (deducting all intangibles) and other indications of
capital strength in evaluating proposals for expansion or new activities.
Each of our banking subsidiaries is subject to similar risk-based and
leverage capital requirements adopted by its applicable federal banking agency.
Each was in compliance with the applicable capital requirements as of March 31,
1999.
Failure to meet capital requirements could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to restrictions on its business, which are described under "--Federal
Deposit Insurance Corporation Improvement Act of 1991."
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The FDICIA,
among other things, identifies five capital categories for insured depository
institutions: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. It requires U.S.
federal bank regulatory agencies to implement systems for "prompt corrective
action" for insured depository institutions that do not meet minimum capital
requirements based on these categories. The FDICIA imposes progressively more
restrictive constraints on operations, management and capital distributions,
depending on the category in which an institution is classified. Unless a bank
or thrift is well capitalized, it is subject to restrictions on its ability to
offer brokered deposits and on other aspects of its operations. An
undercapitalized bank or thrift must develop a capital restoration plan and its
parent holding company must guarantee the bank's or thrift's compliance with the
plan up to the lesser of 5% of the bank's or thrift's assets at the time it
became undercapitalized and the amount needed to comply with the plan.
As of March 31, 1999, each bank and thrift subsidiary of Firstar and
Mercantile was well capitalized, based on the prompt corrective action ratios
and guidelines described above. You should note, however, that a bank's capital
category is determined solely for the purpose of applying the OCC's (or the
FDIC's) prompt corrective action regulations and that the capital category may
not constitute an accurate representation of the bank's overall financial
condition or prospects for other purposes.
DIVIDEND RESTRICTIONS
Federal and state laws limit the amount of dividends our affiliate banks can
pay to our companies without regulatory approval. Dividend payments by national
banks are limited to the lesser of (1) the level of undivided profits and (2)
absent regulatory approval, an amount not more than net income for the current
year combined with retained net income for the preceding two years. Likewise,
the approval of the Federal Reserve Board is required for any dividend by a
state-chartered bank that is a member of the Federal Reserve System (a "STATE
MEMBER BANK") if the total of all dividends declared by the bank in any calendar
year would exceed the total of its net profits (as defined by regulatory
agencies) for that year combined with its retained net profits for the preceding
two years. In addition, a state member bank may not pay a dividend in an amount
greater than its net profits then on hand. At March 31, 1999, $143.6 million of
the total shareholders' equity of Firstar's affiliate banks was available for
payment of dividends to Firstar without approval by the applicable regulatory
authority, and $87 million of the total shareholder's equity of Mercantile's
affiliate banks was available for payment of dividends to Mercantile without
regulatory approval.
In addition, federal bank regulatory authorities have authority to prohibit
our affiliate banks from engaging in unsafe or unsound practices in conducting
their business. The payment of dividends,
68
<PAGE>
depending upon the financial condition of the bank in question, could be deemed
an unsafe or unsound practice. The ability of our affiliate banks to pay
dividends in the future is currently, and could be further, influenced by bank
regulatory policies and capital guidelines.
DEPOSIT INSURANCE ASSESSMENTS
The deposits of each of our subsidiary banks are insured up to regulatory
limits by the FDIC, and, accordingly, are subject to deposit insurance
assessments to maintain the Bank Insurance Fund ("BIF") and/or the Savings
Association Insurance Fund ("SAIF") administered by the FDIC. The FDIC has
adopted regulations establishing a permanent risk-related deposit insurance
assessment system. Under this system, the FDIC places each insured bank in one
of nine risk categories based on the bank's capitalization and supervisory
evaluations provided to the FDIC by the institution's primary federal regulator.
Each insured bank's insurance assessment rate is then determined by the risk
category in which it is classified by the FDIC.
The annual insurance premiums on bank deposits insured by the BIF and the
SAIF vary between $0.00 per $100 of deposits for banks classified in the highest
capital and supervisory evaluation categories to $0.27 per $100 of deposits for
banks classified in the lowest capital and supervisory evaluation categories.
The Deposit Insurance Funds Act of 1996 provides for assessments to be
imposed on insured depository institutions with respect to deposits insured by
the BIF and the SAIF (in addition to assessments currently imposed on depository
institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost
of Financing Corporation ("FICO") funding. The FDIC established the FICO
assessment rates effective January 1, 1999 at $0.012 per $100 annually for
BIF-assessable deposits and $0.061 per $100 annually for SAIF-assessable
deposits. The FICO assessments do not vary depending upon a depository
institution's capitalization or supervisory evaluations. Firstar's subsidiary
banks held approximately $5.3 billion and Mercantile's subsidiary banks held
approximately $4.4 billion of SAIF-assessable deposits as of March 31, 1999.
DEPOSITOR PREFERENCE STATUTE
In the "liquidation or other resolution" of the institution by any receiver,
federal legislation provides that deposits and certain claims for administrative
expenses and employee compensation against the insured depository institution
would be afforded a priority over other general unsecured claims against that
institution, including federal funds and letters of credit.
BROKERED DEPOSITS
Under FDIC regulations, no FDIC-insured depository institution can accept
brokered deposits unless it is well capitalized or both is adequately
capitalized and receives a waiver from the FDIC. In addition, these regulations
prohibit any depository institution that is not well capitalized from paying an
interest rate on deposits in excess of 75 basis points over certain prevailing
market rates or, unless it provides certain notice to affected depositors,
offering "pass through" deposit insurance on certain employee benefit plan
accounts.
INTERSTATE BANKING AND BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, subject to certain concentration limits and other requirements:
- bank holding companies such as Firstar and Mercantile can acquire banks
and bank holding companies located in any state
69
<PAGE>
- any subsidiary bank of a bank holding company can receive deposits, renew
time deposits, close loans, service loans and receive loan payments as an
agent for any other bank subsidiary of that bank holding company
- banks can acquire branch offices outside their home states by merging with
out-of-state banks, purchasing branches in other states and establishing
de novo branch offices in other states. The ability of banks to acquire
branch offices through purchase or opening of other branches is
contingent, however, on the host state having adopted legislation "opting
in" to those provisions of Riegle-Neal. In addition, the ability of a bank
to merge with a bank located in another state is contingent on the host
state not having adopted legislation "opting out" of that provision of
Riegle-Neal.
Our combined company might use Riegle-Neal to acquire banks in additional
states and to consolidate its bank subsidiaries under a smaller number of
separate charters.
CONTROL ACQUISITIONS
The Change in Bank Control Act prohibits a person or group of persons from
acquiring "control" of a bank holding company, unless the Federal Reserve Board
has been notified and has not objected to the transaction. Under a rebuttable
presumption established by the Federal Reserve Board, the acquisition of 10% or
more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Securities Exchange Act of 1934,
such as Firstar or Mercantile, would, under the circumstances set forth in the
presumption, constitute acquisition of control of the bank holding company.
In addition, a company is required to obtain the approval of the Federal
Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the
case of an acquiror that is a bank holding company) or more of any class of
outstanding common stock of a bank holding company, or otherwise obtaining
control or a "controlling influence" over that bank holding company.
FUTURE LEGISLATION
Various legislation, including proposals to substantially change the
financial institution regulatory system, expand the powers of banking
institutions and bank holding companies, and limit the investments that a
depository institution may make with insured funds, is from time to time
introduced in the U.S. Congress. This legislation may change banking statutes
and the operating environment of the combined company and its subsidiaries in
substantial and unpredictable ways. We cannot accurately predict whether this
potential legislation will ultimately be enacted, and, if enacted, the ultimate
effect that it, or implementing regulations, would have upon the financial
condition or results of operations of the combined company or any of its
subsidiaries.
70
<PAGE>
FIRSTAR CAPITAL STOCK
As a result of the conversion of shares of Mercantile common stock to shares
of Firstar common stock at the effective time, Mercantile shareholders will
become Firstar shareholders. Your rights as Firstar shareholders will be
governed by Wisconsin law, the Firstar articles of incorporation and the Firstar
by-laws. This description of Firstar's capital stock, including the Firstar
common stock to be issued in the merger, reflects the anticipated state of
affairs at the effective time. The following summarizes the material terms of
Firstar's capital stock but does not purport to be complete, and is qualified in
its entirety by reference to the applicable provisions of federal law governing
bank holding companies, Wisconsin law and the Firstar articles of incorporation,
bylaws and Firstar Rights Agreement. A copy of the Firstar articles of
incorporation as in effect as of the date of this document is attached as an
exhibit to Firstar's Annual Report on Form 10-K for the year ended December 31,
1998. See "Where You Can Find More Information" for information on how to obtain
this document.
FIRSTAR COMMON STOCK
Firstar is authorized to issue 800,000,000 shares of Firstar common stock.
The merger agreement provides that by virtue of the completion of the merger,
Firstar's articles of incorporation will be amended to authorize us to issue
2,000,000,000 shares of common stock.
All of the issued and outstanding shares of Firstar common stock are, and
upon the issuance of Firstar common stock in connection with the merger will be,
validly issued, fully paid and nonassessable except for possible assessment in
limited circumstances required by Wisconsin law. See "Comparison of Rights of
Firstar Shareholders and Mercantile Shareholders--Assessability."
Firstar Bank Milwaukee, N.A., a subsidiary of Firstar, is the transfer agent
and registrar for the shares of Firstar common stock.
VOTING AND OTHER RIGHTS. The holders of Firstar common stock are entitled to
one vote per share, and in general, a majority of votes cast with respect to a
matter will be sufficient to authorize action upon routine matters. Directors
are to be elected by a plurality of the votes cast, and, unlike Mercantile
shareholders, Firstar shareholders do not have the right to cumulate their votes
in the election of directors. For that reason, holders of a majority of the
shares of Firstar common stock entitled to vote in any election of directors of
Firstar may elect all of the directors standing for election. In general,
however:
- amendments to the Firstar articles of incorporation will be approved if
the votes cast within a voting group favoring the action exceed the votes
cast within the voting group opposing the action; and
- a merger or dissolution of Firstar, or the sale of all or substantially
all of our assets, must be approved by the affirmative vote of the holders
of a majority of the voting power of the outstanding voting shares and the
affirmative vote of the holders of a majority of the outstanding shares of
each class entitled to vote on the matter as a class.
NO PREEMPTIVE OR CONVERSION RIGHTS. Firstar common stock does not entitle
its holders to any preemptive rights, redemption privileges, sinking fund
privileges or conversion rights.
ASSETS UPON DISSOLUTION. In the event of liquidation, holders of Firstar
common stock would be entitled to receive proportionately any assets legally
available for distribution to shareholders of Firstar with respect to shares
held by them, subject to any prior rights of any Firstar preferred stock then
outstanding.
DISTRIBUTIONS. Firstar shareholders are entitled to receive the dividends or
distributions that the Firstar Board may declare out of funds legally available
for these payments. The payment of distributions by Firstar is subject to the
restrictions of Wisconsin law applicable to the declaration of
71
<PAGE>
distributions by a corporation. A corporation generally may not authorize and
make distributions if, after giving effect to the distribution, it would be
unable to meet its debts as they become due in the usual course of business or
if the corporation's total assets would be less than the sum of its total
liabilities plus, unless the corporation's articles of incorporation provide
otherwise, the amount that would be needed, if it were to be dissolved at the
time of distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to the rights of those
receiving the distribution. In addition, the payment of distributions to
shareholders is subject to any prior rights of outstanding preferred stock. See
"--Firstar Preferred Stock."
As a bank holding company, the ability of the Firstar to pay distributions
will be affected by the ability of its banking subsidiaries to pay dividends.
The ability of these banking subsidiaries, as well as of Firstar, to pay
dividends in the future currently is, and could be further, influenced by bank
regulatory requirements and capital guidelines. See "Regulation and Supervision"
for a more detailed description.
RESTRICTIONS ON OWNERSHIP. The Bank Holding Company Act requires any "bank
holding company" (as defined in the Bank Holding Company Act) to obtain the
approval of the Federal Reserve Board prior to the acquisition of 5% or more of
Firstar common stock. Any person, other than a bank holding company, is required
to obtain prior approval of the Federal Reserve Board to acquire 10% or more of
Firstar common stock under the Change in Bank Control Act. Any holder of 25% or
more of Firstar common stock (or a holder of 5% or more if such holder otherwise
exercises a "controlling influence" over Firstar) is subject to regulation as a
bank holding company under the Bank Holding Company Act. See "Regulation and
Supervision--Control Acquisitions" for further description of the effects of the
Change in Bank Control Act.
PREFERRED SHARE PURCHASE RIGHTS. Each issued share of Firstar common stock
includes a Firstar Shareholder Right. See "--Firstar Rights Plan."
FIRSTAR PREFERRED STOCK
Firstar has authorized 10,000,000 shares of preferred stock, par value $1.00
per share. As of the date of this document, no shares of Firstar preferred stock
were outstanding. The Firstar board is authorized to issue preferred stock in
one or more series, to fix the number of shares in each such series, and to
determine the designations and preferences, limitation and relative rights, of
each series. The Firstar board may determine the number of shares constituting
such series and the designation of any such series, dividend rates, terms of
redemption, liquidation preferences, sinking fund requirements, conversion
rights, voting rights, and whether the preferred stock can be issued as a share
dividend with respect to another class or series of shares, all without any vote
or other action on the part of shareholders. The Firstar board has designated
2,300,000 shares of Firstar preferred stock for issuance as Series A Junior
Participating Preferred Stock (the "FIRSTAR SERIES A PREFERRED SHARES") under
the Firstar Rights Agreement. No Firstar Series A Preferred Shares are
outstanding as of the date of this Joint Proxy Statement--Prospectus.
FIRSTAR RIGHTS PLAN
On November 20, 1998, the Firstar board declared a dividend of one Firstar
Shareholder Right for each outstanding share of Firstar common stock. The
dividend was paid on December 1, 1998 (the "RIGHTS RECORD DATE") to the Firstar
shareholders of record on that date. Each Firstar Shareholder Right entitles the
registered holder to purchase from Firstar one one-hundredth of a Firstar Series
A Preferred Share, subject to adjustment, at a price of $175 per one
one-hundredth of a Firstar Series A Preferred Share (the "PURCHASE PRICE"). An
adjustment to the number of one one-hundredths of a Firstar Series A Preferred
Share purchasable on exercise of a right was made as a result of the three-
72
<PAGE>
for-one stock split paid April 15, 1999. The description and terms of the
Firstar Shareholder Rights are set forth in the Firstar Rights Agreement.
Until the earlier to occur of (1) ten days following a public announcement
that a person or group of affiliated or associated persons (an "ACQUIRING
PERSON") have acquired beneficial ownership of 15% or more of the outstanding
shares of Firstar common stock or (2) ten business days (or a later date as may
be determined by action of the Firstar Board prior to the time that any person
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding shares of Firstar common stock (the earlier of these dates being
called the "DISTRIBUTION DATE"), the Firstar Shareholder Rights will be
evidenced, with respect to any of the Firstar common stock certificates
outstanding as of the Rights Record Date, by a Firstar common stock certificate
with a copy of the Summary of Rights, attached to the Rights Agreement as
Exhibit C (the "SUMMARY OF RIGHTS"), attached to the certificate.
The Firstar Rights Agreement provides that, until the Distribution Date, the
Firstar Shareholder Rights can only be transferred with the shares of Firstar
common stock to which they are attached. Until the Distribution Date (or earlier
redemption or expiration of the Firstar Shareholder Rights), new Firstar common
stock certificates issued after the Rights Record Date, upon transfer or new
issuance of Firstar common stock, will contain a notation incorporating the
Firstar Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Firstar Shareholder Rights), the surrender for
transfer of any certificates for shares of Firstar common stock, outstanding as
of the Rights Record Date, even without this notation or a copy of the Summary
of Rights being attached to the certificates, will also constitute the transfer
of the Firstar Shareholder Rights associated with the shares of Firstar common
stock represented by the certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Firstar Shareholder
Rights ("FIRSTAR RIGHT CERTIFICATES") will be mailed to holders of record of the
shares of Firstar common stock as of the close of business on the Distribution
Date and these separate Firstar Right Certificates alone will evidence the
Firstar Shareholder Rights.
The Firstar Shareholder Rights are not exercisable until the Distribution
Date. The Firstar Shareholder Rights will expire on December 1, 2008 (the "FINAL
EXPIRATION DATE"), unless the Final Expiration Date is extended or unless the
Firstar Shareholder Rights are earlier redeemed by Firstar, in each case, as
described below.
The Purchase Price payable, and the number of Firstar Series A Preferred
Shares or other securities or property issuable, upon exercise of the Firstar
Shareholder Rights are subject to adjustment from time to time to prevent
dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Firstar Series A Preferred Shares;
- upon the grant to holders of the Firstar Series A Preferred Shares of
certain rights or warrants to subscribe for or purchase Firstar Series A
Preferred Shares at a price, or securities convertible into Firstar Series
A Preferred Shares with a conversion price, less than the then current
market price of the Firstar Series A Preferred Shares; or
- upon the distribution to holders of the Firstar Series A Preferred Shares
of evidences of indebtedness or assets (excluding regular quarterly cash
dividends or dividends payable in Firstar Series A Preferred Shares) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Firstar Shareholder Rights and the number of one
one-hundredths of a Firstar Series A Preferred Share issuable upon exercise of
each Firstar Shareholder Right are also subject to adjustment in the event of a
stock split of the shares of Firstar common stock or a stock
73
<PAGE>
dividend on the shares of Firstar common stock payable in shares of Firstar
common stock or subdivisions, consolidations or combinations of the shares of
Firstar common stock occurring, in any such case, prior to the Distribution
Date.
On March 9, 1999, the Firstar Board declared a three-for-one split of the
shares of Firstar common stock to be effected in the form of a 100% stock
dividend payable on April 15, 1999, to Firstar shareholders of record on March
31, 1999. Under the provisions of the Firstar Rights Agreement, certain
adjustments to the number of Firstar Shareholder Rights outstanding, the number
of Firstar Series A Preferred Shares purchasable upon exercise of each Firstar
Shareholder Right, and the Redemption Price (as defined in the Firstar Rights
Agreement) were made as a result of the Firstar stock split.
Firstar Series A Preferred Shares purchasable upon exercise of the Firstar
Shareholder Rights will not be redeemable. Each Firstar Series A Preferred Share
will be entitled to a minimum preferential quarterly dividend payment of $1 per
share but will be entitled to an aggregate dividend of 100 times the dividend
declared per share of Firstar common stock. In the event of liquidation, the
holders of the Firstar Series A Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per share of Firstar common
stock. Each Firstar Series A Preferred Share will have 100 votes, voting
together with the shares of Firstar common stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of Firstar common
stock are exchanged, each Firstar Series A Preferred Share will be entitled to
receive 100 times the amount received per share of Firstar common stock. These
rights are protected by customary antidilution provisions.
Because of the nature of the Firstar Series A Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
Firstar Series A Preferred Share purchasable upon exercise of each Firstar
Shareholder Right should approximate the value of one share of Firstar common
stock.
In the event that Firstar is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Firstar
Shareholder Right will then have the right to receive, upon the exercise of the
Firstar Shareholder Right at its then-current exercise price, that number of
shares of common stock of the acquiring company that at the time of such
transaction will have a market value of two times the exercise price of the
Firstar Shareholder Right. In the event that any person or group of affiliated
or associated persons becomes the beneficial owner of 15% or more of the
outstanding shares of Firstar common stock, proper provision will be made so
that each holder of a Firstar Shareholder Right, other than Firstar Shareholder
Rights beneficially owned by the Acquiring Person (which will be void after that
time), will then have the right to receive upon exercise that number of shares
of Firstar common stock having a market value of two times the exercise price of
the Firstar Shareholder Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
shares of Firstar common stock, and prior to their acquisition of 50% or more of
the outstanding shares of Firstar common stock, the Firstar board may exchange
the Firstar Shareholder Rights (other than Firstar Shareholder Rights owned by
such person or group which have become void), in whole or in part, at an
exchange ratio of one share of Firstar common stock, or one one-hundredth of a
Firstar Series A Preferred Share (or of a share of a class or series of Firstar
preferred stock having equivalent rights, preferences and privileges), per
Firstar Shareholder Right (subject to adjustment).
With some exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in the
Purchase Price. No fractional Firstar Series A Preferred Shares will be issued
(other than fractions which are integral multiples of one one-hundredth of a
Firstar Series A Preferred Share, which may, at the election of Firstar, be
evidenced by scrip or
74
<PAGE>
depositary receipts), and, in lieu of fractional shares, an adjustment in cash
will be made based on the market price of the Firstar Series A Preferred Shares
on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
shares of Firstar common stock, the Firstar board may redeem the Firstar
Shareholder Rights in whole, but not in part, at a price of $.01 per Firstar
Shareholder Right (the "RIGHTS REDEMPTION PRICE"). The redemption of the Firstar
Shareholder Rights may be made effective at the time, on the basis, and with the
conditions that the Firstar board, in its sole discretion, may establish.
Immediately upon any redemption of the Firstar Shareholder Rights, the right to
exercise the Firstar Shareholder Rights will terminate and the only right of the
holders of Firstar Shareholder Rights will be to receive the Rights Redemption
Price.
The terms of the Firstar Shareholder Rights may be amended by the Firstar
board without the consent of the holders of the Firstar Shareholder Rights,
including an amendment to lower the 15% triggering thresholds described above to
not less than the greater of:
- .001% greater than the largest percentage of the outstanding shares of
Firstar common stock then known to Firstar to be beneficially owned by any
person or group of affiliated or associated persons; and
- 10%, except that from and after the time that any person becomes an
Acquiring Person no amendment may adversely affect the interests of the
holders of the Firstar Shareholder Rights.
Until a Firstar Shareholder Right is exercised, the holder of the Firstar
Shareholder Right, as such, will have no rights as a shareholder of Firstar,
including, without limitation, the right to vote or to receive dividends.
THE FIRSTAR SHAREHOLDER RIGHTS HAVE ANTI-TAKEOVER EFFECTS. The Firstar
Shareholder Rights will cause substantial dilution to a person or group that
attempts to acquire Firstar on terms not approved by the Firstar board, except
by means of an offer conditioned on a substantial number of Firstar Shareholder
Rights being acquired. The Firstar Shareholder Rights should not interfere with
any merger or other business combination approved by the Firstar board since the
Firstar Shareholder Rights may be redeemed by Firstar at the Rights Redemption
Price prior to the time that a person or group has acquired beneficial ownership
of 15% or more of the shares of Firstar common stock.
The Firstar Rights Agreement, specifying the terms of the Firstar
Shareholder Rights and including, as an exhibit, the form of the certificate of
designation setting forth the terms of the Firstar Series A Preferred Shares,
are attached as an exhibit to Firstar's Registration Statement on Form 8-A,
filed December 1, 1998, and is incorporated in this document by reference. The
foregoing description of the Firstar Shareholder Rights is qualified in its
entirety by reference to this exhibit.
75
<PAGE>
COMPARISON OF RIGHTS OF FIRSTAR SHAREHOLDERS AND MERCANTILE SHAREHOLDERS
The articles of incorporation and by-laws of the combined company at the
effective time will be identical to those of Firstar currently except that the
articles of incorporation of the combined company will authorize the issuance of
2,000,000,000 shares of common stock, rather than 800,000,000 shares. The rights
of Firstar shareholders are currently governed by the Wisconsin Business
Corporation Law, or WBCL, the Firstar articles of incorporation and Firstar
by-laws. The rights of Mercantile shareholders are currently governed by the
Missouri Business and General Corporation Law, or MBCL, and by the Mercantile
articles of incorporation and the Mercantile by-laws. The following is a summary
of the material differences between the WBCL, the Firstar articles of
incorporation and the Firstar by-laws, on the one hand, and the MBCL, the
Mercantile articles of incorporation and the Mercantile by-laws, on the other
hand. This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the Firstar articles of
incorporation, the Firstar by-laws, the Mercantile articles of incorporation,
the Mercantile by-laws, the WBCL and the MBCL.
<TABLE>
<CAPTION>
AUTHORIZED CAPITAL STOCK
<S> <C>
MERCANTILE FIRSTAR
- - 400,000,000 shares of common stock Firstar currently:
- - 5,000,000 shares of preferred stock. - 800,000,000 shares of common stock
- 10,000,000 shares of preferred stock.
Firstar after the merger:
- 2,000,000,000 shares of common stock
- 10,000,000 shares of preferred stock.
<CAPTION>
SIZE OF BOARD OF DIRECTORS
<S> <C>
MERCANTILE FIRSTAR
The Mercantile articles of incorporation The Firstar articles of incorporation provide
provide for the Mercantile board to consist for the Firstar board to consist of not less
of 18 directors, but allow for the exact than nine nor more than 35 members. The exact
number to be fixed as provided in the number is fixed by resolution of the Firstar
Mercantile by-laws, so long as Mercantile board.
board consists of not less than 12 nor more At the effective time, it is intended that
than 24 directors. The Mercantile by-laws the Firstar board will consist of 18
currently provide for 19 directors, but allow directors, with 14 to be designated by
the exact number to be fixed by a resolution Firstar board and four to be designated by
of at least two-thirds of the Mercantile Mercantile.
directors.
<CAPTION>
CUMULATIVE VOTING FOR DIRECTORS
<S> <C>
Cumulative voting entitles each shareholder to cast an aggregate number of votes equal
to the number of voting shares held, multiplied by the number of directors to be elected.
Each shareholder may cast all of their votes for one nominee or distribute them among two or
more nominees, thus permitting holders of less than a majority of the outstanding shares of
voting stock to achieve board representation. Where cumulative voting is not permitted,
holders of all outstanding shares of voting stock of a corporation elect the entire board of
directors of the corporation, thereby precluding the election of any directors by the
holders of less than a majority of the outstanding shares of voting stock.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE VOTING FOR DIRECTORS (CONTINUED)
MERCANTILE FIRSTAR
<S> <C>
Under MBCL Section 245, cumulative voting is Under the WBCL, unless otherwise provided in
permitted, unless a corporation's articles of a corporation's articles of incorporation,
incorporation or by-laws provide otherwise. shareholders do not have a right to cumulate
Mercantile's by-laws provide for cumulative their votes for directors. The Firstar
voting. articles of incorporation do not provide for
cumulative voting.
<CAPTION>
CLASSES OF DIRECTORS
<S> <C>
MERCANTILE FIRSTAR
The Mercantile articles of incorporation and The Firstar articles of incorporation contain
by-laws provide that the Mercantile board is a substantially identical provision.
divided into three classes of directors as
nearly equal in number as possible, with each
class being elected to a staggered three-year
term.
<CAPTION>
QUALIFICATIONS OF DIRECTORS
<S> <C>
MERCANTILE FIRSTAR
The Mercantile by-laws set forth no age The Firstar by-laws provide that, with
requirement for directors, and further limited exceptions, a person is not eligible
provide that the Mercantile directors need to be elected or re-elected to the Firstar
not be shareholders of Mercantile or board if that person is over 70 years of age.
residents of the state of Missouri.
<CAPTION>
FILLING VACANCIES ON THE BOARD
<S> <C>
MERCANTILE FIRSTAR
Under the Mercantile by-laws, any vacancy Under the Firstar articles of incorporation,
occurring in the Mercantile board may be any vacancy occurring in the Firstar board
filled by the affirmative vote of a majority may be filled by the affirmative vote of not
of the remaining directors. less than a majority of the remaining
directors of all classes. If there are no
directors then in office, the shareholders
will be entitled to fill vacancies on the
board.
<CAPTION>
REMOVAL OF DIRECTORS
<S> <C>
MERCANTILE FIRSTAR
Under MBCL Section 317, any director of a WBCL Section 808 allows for the removal of
Missouri corporation may be removed for cause directors on a classified board with or
by a majority of the board if that director without cause unless the articles of
fails to meet the qualifications for director incorporation or by- laws provide that
or is in breach of any agreement with the directors may be removed only for cause. The
corporation relating to the director's Firstar articles of incorporation provide
service to the corporation as a director or that a director may be removed at any time,
employee. Under the Mercantile articles of but only for cause. "CAUSE" is defined in the
incorporation and the Mercantile by- Firstar articles of incorporation as a
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
REMOVAL OF DIRECTORS (CONTINUED)
laws, removal by shareholders of the entire nonappealable conviction of a felony or a
Board or any individual director without nonappealable judgment by a court of
cause requires the affirmative vote of not liability for willful misconduct in the
less than 75% of the total votes entitled to performance of his duties in a matter that
be voted at a meeting of shareholders called has a material adverse effect on the
for the election of directors. No individual corporation.
director may be removed if the votes cast
against the director's removal would be
sufficient to be elect the director if
cumulatively voted at an election of the
class of directors to which the director
belongs. At a meeting called expressly for
that purpose, any director may be removed for
cause by the affirmative vote of a majority
of shares entitled to vote upon the election
of directors.
NOMINATION OF DIRECTORS FOR ELECTION
<S> <C>
MERCANTILE FIRSTAR
Under the Mercantile by-laws, nominations for Under the Firstar articles of incorporation,
the Mercantile board may be made by any nominations for the Firstar board may be made
director or by any shareholder who complies by any director or by any shareholder who
with the notice procedures described in the complies with the notice procedures described
Mercantile by-laws. These procedures require in the Firstar articles of incorporation.
the notice to be received by Mercantile no These procedures require the nomination to be
later than the 60th nor earlier than the 90th received by Firstar no later than the earlier
day prior to the first anniversary of the of:
preceding year's annual meeting. However, if - 45 days in advance of the first anniversary
the annual meeting is more than 30 days of the date proxy statements were mailed
before or more than 60 days later this for the prior year's annual meeting, and
anniversary date, the notice must be - the later of 70 days prior to the date of
delivered no earlier than 90 and no later the annual meeting for which the nomination
than 60 days prior to the annual meeting. The is being made and 10 business days after
Mercantile by-laws further provide that if the first public announcement of the date
the number of directors is increased and of the annual meeting
there is no public announcement naming the
nominees or specifying the size of the
increased board at least 70 days prior to the
first anniversary of the preceding year's
annual meeting, a notice for a nominee for
the new position must be received within 10
business days following this public
announcement.
<CAPTION>
ANTI-TAKEOVER PROVISIONS--BUSINESS COMBINATIONS
<S> <C>
Both the MBCL and WBCL law contain business combination statutes that protect domestic
corporations from hostile takeovers, and from actions following such a takeover, by
prohibiting some transactions once an acquiror has gained a significant holding in the
corporation.
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
ANTI-TAKEOVER PROVISIONS--BUSINESS COMBINATIONS (CONTINUED)
<S> <C>
MISSOURI LAW WISCONSIN LAW
Under MBCL Section 459, during the five-year WBCL Section 1141 restricts a broad range of
period after a person becomes an interested business combinations between a Wisconsin
shareholder, no business combination may corporation and an interested shareholder for
occur unless the business combination, or the a period of three years unless specified
transaction in which an interested conditions are met. The WBCL defines a
shareholder becomes an interested "BUSINESS COMBINATION" as including a merger
shareholder, was approved by the board of or a share exchange, sale of assets, issuance
directors before the person became an of stock or rights to purchase stock and
interested shareholder. Business combinations other related party transactions. An
may occur following this five-year period if "interested shareholder" is as a person who
one of these conditions is met: beneficially owns, directly or indirectly,
- - prior to the stock acquisition by the 10% of the outstanding voting stock of a
interested shareholder, the board of corporation or who is an affiliate or
directors approves the transaction in which associate of the corporation and beneficially
the interested shareholder became an owned 10% of the voting stock within the last
interested shareholder or approves the three years.
business combination During the initial three-year period after a
- - the holders of a majority of the person becomes an interested shareholder in a
outstanding voting stock, other than stock public Wisconsin corporation, with some
owned by the interested shareholder, exceptions, the WBCL prohibits a business
approve the business combination combination with the interested shareholder
- - the business combination satisfies "fair unless the corporation's board of directors
price" and procedural requirements detailed approved the business combination or the
in the statute acquisition of the stock prior to the
A "BUSINESS COMBINATION" includes mergers, acquisition date. Following this three-year
sales of corporate assets or stock; period, the WBCL also prohibits a business
dissolutions or liquidations proposed by or combination with an interested shareholder
as a result of an agreement with an unless:
interested shareholder; and certain - the board of directors approved the
reclassifications and recapitalizations. An business combination or the acquisition of
"INTERESTED SHAREHOLDER" includes any person the stock prior to the acquisition date
or entity which beneficially owns or controls - the business combination is approved by a
20% or more of the outstanding voting shares majority of the outstanding voting stock
of the corporation, or is an affiliate or not owned by the interested shareholder
associate of the corporation and had such - the consideration to be received by
ownership within the last five years. shareholders meets the "fair price" and
form requirements of the statute, or
- the business combination is of a type
specifically excluded from the coverage of
the statute
In addition, shareholders of Wisconsin
corporations have appraisal rights in
business combinations that they may not have
in transactions not involving an interested
shareholder. See "--Dissenters' Appraisal
Rights."
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
ANTI-TAKEOVER PROVISIONS--BUSINESS COMBINATIONS (CONTINUED)
<S> <C>
WBCL Sections 1130 to 1134 govern mergers or
share exchanges between public Wisconsin
corporations and significant shareholders,
and sales of all or substantially all of the
assets public Wisconsin corporations to
significant shareholders. These transactions
must be approved by 80% of all shareholders
and two-thirds of shareholders other than the
significant shareholder, unless the
shareholders receive a statutory fair price.
This is intended to insure that shareholders
in a second step merger, share exchange or
asset sale receive at least what shareholders
received in the first step. WBCL Section 1130
defines a "SIGNIFICANT SHAREHOLDER" as the
beneficial owner of 10% or more of the voting
power of the outstanding voting shares, or an
affiliate of the Wisconsin corporation that
beneficially owned 10% or more of the voting
power of the then outstanding shares within
the last two years.
In addition, the articles of incorporation of both of our companies also contain
provisions regulating business combinations with persons who own a specified portion of our
stock.
MERCANTILE FIRSTAR
The Mercantile articles of incorporation The Firstar articles of incorporation
provide that, in addition to any shareholder prohibit business combinations with a
vote required under the MBCL, the affirmative shareholder who or which, together with its
vote of the holders of not less than 75% of "Associates" or "Affiliates" (as defined in
the total votes of the then outstanding Firstar articles of incorporation) is, or was
shares of capital stock of Mercantile voting within the past two years, the beneficial
together as a single class is required for owner of 5% or more of the voting power of
the approval of any business combination. The Firstar unless the transaction:
Mercantile articles of incorporation define a - is approved by at least 80% of the voting
"BUSINESS COMBINATION" for this purpose to power of all the shares of capital stock of
include mergers or consolidations, Firstar
dispositions of assets, issuances of - is approved by a majority of "Continuing
securities, liquidations or dissolutions of Directors" (as defined in Firstar articles
Mercantile, reclassifications of securities of incorporation), or
or recapitalizations of Mercantile, involving - meets the "fair price" requirements set
Mercantile on the one hand, and an interested forth in Firstar articles of incorporation
person or its affiliate on the other. An For this purpose, the Firstar articles of
"INTERESTED PERSON" is any person that is, or incorporation define "BUSINESS COMBINATION"
at any time within the previous two years to include a merger or consolidation, the
was, the beneficial owner of 5% or more of sale or disposition of 1% or more of
the voting power of Mercantile's outstanding Firstar's assets, the issuance or transfer of
voting stock. If, however, at least securities in exchange for consideration
two-thirds of the Mercantile Board approve equal to 1% or more of Firstar's assets,
the business combination, the 75% vote dissolutions, liquidations, spin-offs or
requirement does not apply. Similar split-ups proposed by the interested
supermajority vote requirements apply to shareholder or an
amendments of this provision.
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
ANTI-TAKEOVER PROVISIONS--BUSINESS COMBINATIONS (CONTINUED)
affiliate; or any reclassification or
recapitalization that is either proposed by
the interested shareholder or has the effect
of increasing the percentage of any class of
equity securities owned by the interested
shareholder or its affiliates.
ANTI-TAKEOVER PROVISIONS--CONTROL SHARE ACQUISITIONS
<S> <C>
MERCANTILE FIRSTAR
The Missouri control share acquisition WBCL Section 1150 provides that in particular
statute, MBCL Section 407, provides that an circumstances the voting power of shares of a
acquiring person who, after any acquisition public Wisconsin corporation held by any
of shares of a publicly traded corporation, person in excess of 20% of the voting power
has voting power, when added to all shares of is limited to 10% of the voting power these
the same corporation already owned or excess shares would otherwise have. Full
controlled by the acquiring person, to voting power may be restored if a majority of
exercise or direct the exercise of: the voting power of shares represented at a
- - 20% or more but less than 33 1/3%, meeting, including those held by the party
- - 33 1/3% or more but less than a majority, seeking restoration, are voted in favor of
or the restoration.
- - a majority, WBCL Section 1134 requires shareholder
of the voting power of outstanding stock of approval for some transactions in the context
the corporation, must obtain shareholder of a tender offer or similar action for more
approval for the purchase of these "control than 5% of any class of a Wisconsin
shares". If approval is not given, the corporation's stock. Shareholder approval is
acquiring person loses the right to vote the required for the acquisition of more than 5%
control shares. The statute prohibits an of the corporation's stock at a price above
acquiring person from voting its shares market value from any person who holds more
unless specific disclosure requirements are than 3% of the voting shares and has held the
met and the retention or restoration of shares for less than two years, unless the
voting rights is approved by both (1) a corporation makes an equal offer to acquire
majority of the outstanding voting stock, and all shares. Shareholder approval is also
(2) a majority of the outstanding voting required for the sale or option of assets
stock after exclusion of interested shares. that amount to at least 10% of the market
"INTERESTED SHARES" are defined as shares value of the corporation, but this
owned by the acquiring person, by directors requirement does not apply if the corporation
who are also employees, and by officers of has at least three directors who are not
the corporation. Shareholders are given officers or employees of the corporation, or
dissenters' rights with respect to the vote a majority of the disinterested directors
on control share acquisitions and may demand chooses to opt out of this provision.
payment of the fair value of their shares by
following the procedures set forth in the
control share acquisition statute.
A number of acquisitions of shares are deemed
not to constitute control share acquisitions,
including:
- - purchases in connection with an issuance of
shares by the corporation
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
ANTI-TAKEOVER PROVISIONS--CONTROL SHARE ACQUISITIONS (CONTINUED)
- - mergers involving the corporation which
satisfy the other requirements of the MBCL
- - transactions with a person who owned a
majority of the voting power of the
corporation within the prior year
- - purchases by or from a person who has
previously satisfied the provisions of the
control share acquisition statute, so long
as the transaction does not result in the
purchasing party having voting power after
the purchase in the percentage range beyond
the range for which the selling party
previously satisfied the provisions of the
statute.
<S> <C>
A corporation may exempt itself from
application of the statute by including a
provision in its articles of incorporation or
by-laws expressly electing not to be covered
by the statute. The Mercantile articles of
incorporation and by-laws do not "opt out" of
the control share acquisition statute.
<CAPTION>
SHAREHOLDER RIGHTS PLAN
<S> <C>
Each of our companies has implemented a shareholder rights plan with substantially
similar terms, except that under the Firstar plan, a group of persons becomes an Acquiring
Person upon a public announcement that they have acquired or intend to acquire 15% of
Firstar's voting stock; in the case of Mercantile, this threshold is set at 20%. Each of
these thresholds can be reduced by amendment. At the effective time, the Mercantile
shareholder rights plan will terminate and the Firstar shareholder rights plan will be the
rights plan for the combined company. Each share of Firstar common stock issued in the
merger will be issued with an attached right. See "Firstar Capital Stock--Firstar Rights
Plan."
<CAPTION>
SHAREHOLDER ACTION WITHOUT A MEETING
<S> <C>
MERCANTILE FIRSTAR
Under MBCL Section 275 and the Mercantile by- Under WBCL Section 704, any action that may
laws, written action of shareholders in lieu be taken by shareholders at a meeting may be
of a meeting is permitted only if the consent taken without a meeting only if a consent is
is signed by all of the shareholders entitled signed by all of the shareholders entitled to
to vote with respect to the subject matter. vote with respect to the subject matter,
unless the articles of incorporation provide
otherwise. The Firstar articles of
incorporation do not otherwise provide.
<CAPTION>
CALLING SPECIAL MEETINGS OF SHAREHOLDERS
<S> <C>
MERCANTILE FIRSTAR
Under MBCL Section 225, a special meeting of Under WBCL Section 702, a special meeting of
the shareholders may be called by the board shareholders may be called by either the
of directors or another person as may be board of directors, by any person authorized
designated in a corporation's by-laws. The by the articles of incorporation or by-laws
Mercantile by-laws provide that special to do so, or upon a written demand of the
meetings of shareholders may holders of 10% of the
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
CALLING SPECIAL MEETINGS OF SHAREHOLDERS (CONTINUED)
be called by the chairman of the board or by votes entitled to be cast at the meeting. The
two-thirds of the Mercantile board. Firstar articles of incorporation expressly
Accordingly, Mercantile shareholders do not provide that the ability of shareholders to
have the right to demand that a special demand a special meeting of shareholders is
meeting be called. restricted to the fullest extent now or
hereafter permitted by the WBCL. Under the
Firstar by-laws, the chairman of the board,
the president or a majority of the Firstar
board may also call a special meeting. The
Firstar by-laws set forth in detail the
procedures required to call a special meeting
of shareholders and the business that may be
conducted at a special meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
<S> <C>
MERCANTILE FIRSTAR
The Mercantile by-laws provide that in order The Firstar by-laws provide that in order for
for a shareholder to bring business before a shareholder to bring business before the
the annual meeting, the shareholder must give annual meeting, the shareholder must give
timely notice of the proposal to Mercantile. timely notice of the proposal to Firstar. To
To be timely, the notice must be received not be timely, a notice must be received no later
later than the 60th day nor earlier than the than the earlier of
90th day prior to the first anniversary of - 45 days in advance of the first anniversary
the preceding year's annual meeting. However, of the date proxy statements were mailed
if the annual meeting is more than 30 days for the prior year's annual meeting, and
before or more than 60 days after the - the later of 70 days prior to the date of
anniversary of the prior year's annual the annual meeting for which the nomination
meeting, to be timely the notice must be is being made and 10 business days after
delivered no earlier than 90 days prior to the first public announcement of the date
the annual meeting and no later than the of the annual meeting
later of 60 days prior to the annual meeting
or 10 days after the first public
announcement of the meeting date.
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
NOTICE OF SHAREHOLDER MEETINGS
MERCANTILE FIRSTAR
<S> <C>
Under MBCL Section 230 and the Mercantile by- Under WBCL Section 705, a Wisconsin
laws, Mercantile must deliver a notice of an corporation must notify its shareholders of
annual or special meeting not less than 10 annual or special meetings not less than 10
nor more than 70 days before the date of the nor more than 60 days before an annual or
meeting. special meeting, unless provided otherwise in
the corporation's articles of incorporation
or by-laws. The Firstar by-laws generally
follow the WBCL on this point, except that
for special meetings called by the chairman
of the board or the president upon the demand
of shareholders, Firstar must send the notice
within 30 days after holders of shares
representing at least 10% of the votes
entitled to be cast at the special meeting
deliver the demand to Firstar.
<CAPTION>
SHAREHOLDER VOTE REQUIRED FOR MERGERS
<S> <C>
MERCANTILE FIRSTAR
MBCL Section 425 provides that a plan of WBCL Section 1103 permits the approval of a
merger or consolidation requires the plan of merger or share exchange by the
affirmative vote of two-thirds of the holders of a majority of the outstanding
outstanding shares entitled to vote in order shares of each voting group of capital stock
to be approved. entitled to vote.
<CAPTION>
DIVIDENDS
<S> <C>
MERCANTILE FIRSTAR
Under MBCL Section 220, a Missouri Under WBCL Section 640, the board of
corporation may not pay cash dividends at a directors of a Wisconsin corporation may
time when the net assets of the corporation authorize, and the corporation may pay,
are less than its stated capital or when the dividends or make other distributions to its
payment of the dividend would reduce the net shareholders (including the repurchase of its
assets below stated capital. The MBCL places shares) unless either of following is true:
additional restrictions on dividends that are - after the distribution the corporation
payable in shares of the corporation's stock. would not be able to pay its debts as they
In addition, under MBCL Section 210, a become due in the usual course of business,
dividend paid out of paid-in capital cannot or
be paid: - the corporation's total assets after the
- - unless all cumulative dividends on distribution would be less than the sum of
preferred or special classes of stock have its total liabilities plus, unless the
been paid articles of incorporation provide
- - when net assets are less than stated otherwise, the amount that would be needed,
capital or the dividend would reduce net if the corporation were to be dissolved at
assets below stated capital, and the time of the distribution, to satisfy
- - unless identified as a liquidating dividend the preferential rights upon dissolution of
shareholders whose preferential rights are
superior to those receiving the
distribution
The Firstar articles of incorporation provide
that the shareholders have the right to
receive
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
DIVIDENDS (CONTINUED)
dividends if and when declared by the Firstar
board out of funds legally available for
dividends.
DISSENTER'S APPRAISAL RIGHTS
<S> <C>
MERCANTILE FIRSTAR
Under MBCL Section 455, a shareholder of any Under WBCL Section 1302, a shareholder of a
corporation which is a party to a merger or corporation is generally entitled to receive
consolidation, or which sells all or payment of the fair value of their stock if
substantially all of its assets, has the the shareholder dissents from transactions
right to dissent from this corporate action including a proposed merger, share exchange
and to demand payment of the value of his or a sale of substantially all of the assets
shares. See "Dissenters' Appraisal Rights." of the corporation. However, dissenters'
rights generally are not available to holders
of shares, such as shares of Firstar common
stock, that are registered on a national
securities exchange or quoted on NASDAQ,
unless the corporation's articles of
incorporation provide otherwise or the
transaction is a business combination as
described under "-- Anti-Takeover
Provisions--Business Combinations." A merger
that does not alter the contract rights of
the shares and does not change or convert the
shares is not a business combination for this
purpose. Under WBCL Section 1003, the
presence or absence of dissenter's rights for
a voting group affects the right of that
group to vote on amendments to a
corporation's articles of incorporation. If a
voting group would have dissenters' rights as
a result of the amendment, then a majority of
the votes entitled to be cast by that voting
group is required for adoption of the
amendment.
<CAPTION>
SHAREHOLDERS' PREEMPTIVE RIGHTS
<S> <C>
MERCANTILE FIRSTAR
MBCL Section 305 allows preemptive rights to Under WBCL Section 630, unless otherwise
be limited or denied to the extent provided provided in a corporation's articles of
in a corporation's articles of incorporation. incorporation, shareholders do not have a
The Mercantile articles of incorporation preemptive rights. The Firstar articles of
expressly eliminate preemptive rights. incorporation do not provide for preemptive
rights.
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER CLASS VOTING RIGHTS
MERCANTILE FIRSTAR
<S> <C>
Under MBCL Section 93, holders of a Under WBCL Sections 1004 and 1103, holders of
particular class of shares are entitled to a particular class of shares are entitled to
vote as a separate class if the rights of vote as a separate class if the rights of
that class are affected in various respects that class are affected in various respects
by amendments to the articles of by mergers, consolidations or amendments to
incorporation. Mergers and consolidations, the articles of incorporation. Under WBCL
however, are expressly not deemed to involve Section 1003, the presence or absence of
a proposed amendment to the articles of dissenter's rights for a voting group affects
incorporation. If the amendment affects only the right of that group to vote on amendments
a part of a class, that part is entitled to to a corporation's articles of incorporation.
vote as a class. If a voting group would have dissenters'
rights as a result of the amendment, then a
majority of the votes entitled to be cast by
that voting group is required for adoption of
the amendment. See "--Dissenters' Appraisal
Rights."
<CAPTION>
CONSIDERATION OF NON-SHAREHOLDER INTERESTS BY BOARD OF DIRECTORS
<S> <C>
MERCANTILE FIRSTAR
MBCL Section 347 allows the board of Under WBCL Section 827, in discharging his or
directors of a Missouri corporation, in the her duties to the corporation and in
exercise of its business judgment in determining what he or she believes to be in
connection with an acquisition proposal, to the best interests of the corporation, a
consider: director or officer may, in addition to
- - the consideration being offered in the considering the effects of any action on
proposal in relation to the current value shareholders, consider the effects of the
of the corporation in a freely negotiated action on employees, suppliers, customers,
sale or orderly liquidation, or the the communities in which the corporation
discounted future value of the corporation operates and any other factors that the
as an independent entity director or officer considers pertinent. The
- - political, economic and other factors Firstar articles of incorporation expressly
bearing on security prices generally or the incorporate the constituency provisions of
current market value of the corporation's the WBCL and permit a director to consider
securities in particular the long-term as well as short-term interests
- - whether the acquisition proposal would of Firstar and its shareholders, including
violate any laws the possibility that these interests may be
- - social, legal and economic effects on best served by Firstar's continued
employees, suppliers, customers and the independence.
communities in which the corporation does
business, and
- - the financial condition and competence of
the person making the proposal
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
INDEMNIFICATION
MERCANTILE FIRSTAR
<S> <C>
MBCL Section 355 provides that a Missouri Under WBCL Section 851, a Wisconsin
corporation may indemnify any person corporation must indemnify its directors and
threatened with an action by virtue of their officers against liability incurred by the
position as a director, officer or employee director or officer in a proceeding to which
of the corporation. The corporation may the indemnified person was a party because he
indemnify a director, officer or employee if or she is a director or officer, unless
he or she acted in good faith and in a manner liability was incurred because a director or
he or she reasonably believed to be in or not officer breached or failed to perform a duty
opposed to the best interests of the that he or she owes to the corporation and
corporation, and, with respect to any the breach or failure constitutes any of the
criminal action or proceeding, had no following:
reasonable cause to believe that his or her - a willful failure to deal fairly with the
conduct was unlawful. The Mercantile articles corporation or its shareholders in
of incorporation provide for indemnification connection with a matter in which the
of directors, officers and employees, except director or officer has a material conflict
in cases of conduct which is finally adjudged of interest
to be knowingly fraudulent, deliberately - a violation of criminal law, unless the
dishonest or willful misconduct, or in cases director or officer had reasonable cause to
of an accounting for profits under Section believe that his or her conduct was lawful
16(b) of the Exchange Act. Mercantile may or no reasonable cause to believe that his
make advances of expenses to the extent the or her conduct was unlawful
Mercantile board deems appropriate, so long - a transaction from which the director or
as the indemnified party provides a written officer derived an improper personal
undertaking to repay any amounts if the benefit
person is ultimately not entitled to - willful misconduct.
indemnification.
The Firstar by-laws provide for
indemnification of directors and officers to
the fullest extent permitted by the WBCL and
set forth additional procedural requirements
for indemnification. Firstar will reimburse
the director or officer for reasonable
expenses as incurred, so long as the director
or officer provides a written certificate
affirming his or her good faith belief that
he or she has not engaged in any conduct
constituting a breach of duty, and that he or
she will repay Firstar if ultimately not
entitled to indemnification.
<CAPTION>
ASSESSABILITY
<S> <C>
MERCANTILE FIRSTAR
MBCL Section 280 provides that if a Missouri WBCL Section 622 provides that shareholders
corporation has insufficient property to pay of Wisconsin corporations are personally
any execution levied against it, then the liable to an amount equal to the par value of
execution may be levied against shareholders, shares owned by them (and to the
but only to the extent of the amount of the consideration for which shares without par
unpaid balance of the shares owned by the value were issued) for debts owing to
shareholder. This type of execution must be employees of the corporation for services
made by court order, and no performed for the corporation, but not
exceeding
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
ASSESSABILITY (CONTINUED)
shareholder may be liable in excess of the six months' service in any one case.
amount of shares owned.
AMENDMENTS TO ARTICLES OF INCORPORATION
<S> <C>
MERCANTILE FIRSTAR
Under the MBCL, shareholders must approve a Under WBCL Section 1003, the board of
proposed charter amendment to the articles of directors may propose amendments to a
incorporation of a Missouri corporation by a corporation's articles of incorporation and
majority vote of the outstanding shares can establish conditions for the amendment.
entitled to vote. The Mercantile articles of The WBCL provides that amendments to articles
incorporation provide that amendments by the of incorporation, except in some limited
shareholders to the Mercantile articles of circumstances, must be approved by the
incorporation relating to the number, shareholders in addition to approval by the
classification, qualifications or removal of board of directors. The vote of shareholders
directors, and the filling of vacancies on needed to approve an amendment depends in
the Mercantile board, require the affirmative part on the rights of the voting groups
vote of not less than 75% of the total votes entitled to vote separately on the amendment.
of Mercantile's outstanding shares of capital If a voting group would have dissenters'
stock entitled to vote at a meeting, voting rights as a result of the amendment, then a
together as a single class, unless the majority of the votes entitled to be cast by
amendment has previously been expressly that voting group is required for adoption of
approved by at least two-thirds of the the amendment. Otherwise, the WBCL provides
Mercantile board, in which case the only that, if a quorum exists, the amendment will
required vote of shareholders is the vote be adopted if the votes cast within the
provided for by the MBCL or otherwise. voting group favoring the action exceed the
votes cast opposing the action, unless the
articles of incorporation or the WBCL require
a greater number of affirmative votes. The
Firstar articles of incorporation require the
affirmative vote of not less than 80% of the
outstanding shares entitled to vote for
directors to amend provisions of the Firstar
articles of incorporation relating to:
- shareholder proposals
- the board of directors
- business combinations
- special meetings of shareholders
- amendments to the provision of Firstar's
articles of incorporation that calls for
the above supermajority votes.
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
AMENDMENT OF BY-LAWS
MERCANTILE FIRSTAR
<S> <C>
MBCL Section 290 vests the power to amend the WBCL Section 1020 provides that a
by-laws in the hands of the shareholders, corporation's shareholders or board of
unless and to the extent that this power is directors may adopt, amend or repeal the
vested in the board of directors by the corporation's by-laws. However, the
articles of incorporation. The Mercantile corporation's articles of incorporation may
articles of incorporation do vest this power reserve that power exclusively to the
in the Mercantile board. The Mercantile shareholders. In addition, the shareholders
articles of incorporation provide that in adopting, amending or repealing a
amendments by shareholders to Mercantile's particular by-law may provide that the board
by-laws relating to the number, of directors may not amend, repeal or readopt
classification, qualifications or removal of that by-law. The Firstar articles of
directors, and the filling of vacancies on incorporation require the affirmative vote of
the Mercantile board, require the affirmative not less than 80% of the outstanding shares
vote of not less than 75% of the total votes entitled to vote for directors to amend
of Mercantile's outstanding shares of capital provisions of the Firstar by-laws relating to
stock entitled to vote at a meeting, voting shareholder proposals and special meetings.
together as a single class, unless the
amendment has previously been expressly
approved by at least two-thirds of the
Mercantile board, in which case the only
required vote of shareholders is the vote
provided for by the MBCL or otherwise.
</TABLE>
89
<PAGE>
DISSENTERS' APPRAISAL RIGHTS
Under MBCL Section 455, a shareholder of any Missouri corporation that is a
party to a merger or consolidation, or which sells all or substantially all of
its assets, has the right to dissent from this corporate action and to demand
payment of the value of his shares. To exercise these appraisal rights, the
shareholder must:
- file a written objection to the merger before the merger is submitted to a
shareholder vote;
- not vote in favor of the merger
- within 20 days after the merger is effected, make written demand on the
surviving corporation for payment of the fair value of the shares as of
the day prior to the date on which the vote was taken approving the merger
- state the number and class of shares owned by the dissenting shareholder.
If the dissenting shareholder and the surviving corporation agree on the
value of the shares within 30 days of the merger taking effect, the corporation
will make payment for the shares within 90 days after this date. If the
dissenting shareholder and the surviving corporation cannot agree on the value
of the shares within 30 days of the merger taking effect, the shareholder may,
within 60 days following the end of the 30-day period, file a petition with any
court within the county in which the registered office of the surviving
corporation is situated for a judicial determination of the fair value of the
shares. If the dissenting shareholder does not file the petitions within the
above time frames, he or she will be presumed to have approved and ratified the
merger.
LEGAL MATTERS
The validity of the Firstar common stock to be issued in connection with the
merger will be passed upon by Foley & Lardner, Milwaukee, Wisconsin. Harry V.
Carlson, Jr. of Foley & Lardner beneficially owns shares of Firstar common
stock. As of the date of this document, the number of shares Mr. Carlson owns is
less than 0.1% of the outstanding shares of Firstar common stock.
EXPERTS
The consolidated financial statements of Firstar and its subsidiaries
incorporated in this document by reference to Firstar's Annual Report on Form
10-K for the year ended December 31, 1998 have been incorporated in this
document by reference in reliance on the report with respect to those financial
statements of PricewaterhouseCoopers LLP, independent public accountants, given
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Mercantile and its subsidiaries as
of December 31, 1998, 1997, and 1996, and for each of the years in the
three-year period ended December 31, 1998 incorporated in this document by
reference to Mercantile's Annual Report on Form 10-K have been incorporated in
this document by reference in reliance on the report with respect to those
financial statements of KPMG LLP, independent public accountants, given upon the
authority of said firm as experts in accounting and auditing.
90
<PAGE>
SHAREHOLDER PROPOSALS
Shareholders of Firstar may submit proposals to be considered for
shareholder action at the 2000 annual meeting of Firstar shareholders if they do
so in accordance with applicable regulations of the SEC. Any proposals must be
received by the Secretary of Firstar no later than October 31, 1999 in order to
be considered for inclusion in Firstar's 2000 proxy materials. Any proposal from
a Firstar shareholder to be presented at the 2000 annual meeting of Firstar
shareholders that is submitted outside the processes of Rule 14a-8 under the
Exchange Act and that therefore will not be included in proxy materials to be
sent to Firstar shareholders by Firstar must be received by the Secretary of
Firstar no later than the earlier of (1) February 28, 2000, and (2) the later of
70 days prior to the date of the 2000 annual meeting of Firstar shareholders and
10 business days after the first public announcement of the date of the 2000
annual meeting in order to be considered timely received under the Firstar
by-laws.
Mercantile will hold a 2000 annual meeting of shareholders only if the
merger is not consummated before the time of the meeting. In the event that such
a meeting is held, any proposals of Mercantile shareholders intended to be
presented at the meeting must be received by the Secretary of Mercantile no
later than November 14, 1999 in order to be considered for inclusion in the
Mercantile proxy materials relating to the meeting. Any proposal from a
Mercantile shareholder that is submitted outside the processes of Rule 14a-8
under the Exchange Act and that therefore will not be included in proxy
materials to be sent to Mercantile shareholders by Mercantile must be received
by the Secretary of Mercantile not earlier than January 21, 2000 nor later than
February 20, 2000 in order to be considered timely received under the Mercantile
by-laws.
OTHER MATTERS
As of the date of this document, the Mercantile board and the Firstar board
know of no matters that will be presented for consideration at either of their
special meetings other than as described in this document. If any other matters
properly come before either of the Firstar or Mercantile special meetings, or
any adjournments or postponements of these meetings, and be voted upon, the
enclosed proxies will be deemed to confer discretionary authority on the
individuals that they name as proxies to vote the shares represented by these
proxies as to any of these matters. The individuals named as proxies intend to
vote or not to vote in accordance with the recommendation of the respective
managements of Mercantile and Firstar.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP will be present at the Firstar
special meeting and representatives of KPMG LLP will be present at the
Mercantile special meeting. In each case, these representatives will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
91
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Firstar has filed a registration statement with the SEC under the Securities
Act that registers the distribution to Mercantile shareholders of the shares of
Firstar common stock to be issued in connection with the merger. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about Firstar and Firstar common stock. The
rules and regulations of the SEC allow us to omit some information included in
the registration statement from this document.
In addition, Firstar (File No. 1-2981) and Mercantile (File No. 1-11792)
file reports, proxy statements and other information with the SEC under the
Exchange Act. You may read and copy this information at the following locations
of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like Firstar and
Mercantile, who file electronically with the SEC. The address of that site is
http://www.sec.gov. Firstar's address on the world wide web is
http://www.firstar.com, and Mercantile's address is http://www.mercantile.com.
The information on our web sites is not a part of this document.
You can also inspect reports, proxy statements and other information about
Firstar and Mercantile at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
The SEC allows Firstar and Mercantile to "incorporate by reference"
information into this document. This means that the companies can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered
to be a part of this document, except for any information that is superseded by
information that is included directly in this document.
92
<PAGE>
This document incorporates by reference the documents listed below that
Firstar and Mercantile have previously filed with the SEC. They contain
important information about our companies and their financial condition.
<TABLE>
<CAPTION>
FIRSTAR SEC FILINGS PERIOD
- --------------------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K (excluding the
report, dated January 11, 1999, of Arthur
Andersen LLP set forth in Exhibit 13
thereto)................................... Year ended December 31, 1998, as filed
March 24, 1999
Quarterly Report on Form 10-Q................ Quarter ended March 31, 1999, as filed
May 14, 1999
The description of Firstar common stock set
forth in the Firstar Current Report on Form
8-K filed on March 16, 1999, including any
amendment or report filed with the SEC for
the purpose of updating such description.
The description of Firstar Preferred Stock
Purchase Rights set forth in the Firstar
registration statement filed under Section
12 of the Exchange Act on Form 8-A on
December 1, 1998, including any amendment
or report filed with the SEC for the
purpose of updating such description.
Current Reports on Form 8-K.................. Filed:
- March 16, 1999
- April 2, 1999
- May 4, 1999
- May 19, 1999
- May 20, 1999
<CAPTION>
MERCANTILE SEC FILINGS PERIOD
- --------------------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K................... Year ended December 31, 1998, as filed March
30, 1999
Quarterly Report on Form 10-Q................ Quarter ended March 31, 1999, as filed May
14, 1999
The description of Mercantile common stock
set forth in Item 1 of the Mercantile
registration statement filed under Section
12 of the Exchange Act on Form 8-A on May
27, 1998, including any amendment or report
filed with the SEC for the purpose of
updating such description.
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE SEC FILINGS PERIOD
- --------------------------------------------- ---------------------------------------------
The description of Mercantile Shareholder
Rights set forth in the Mercantile
registration statement filed under Section
12 of the Exchange Act on Form 8-A on May
27, 1998, including any amendment or report
filed with the SEC for the purpose of
updating such description.
<S> <C>
Current Reports on Form 8-K.................. Filed May 4, 1999
</TABLE>
Firstar and Mercantile incorporate by reference additional documents that
either company may file with the SEC between the date of this document and the
dates of each of their special meetings. These documents include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
Firstar has supplied all information contained or incorporated by reference
in this document relating to Firstar, as well as all pro forma financial
information, and Mercantile has supplied all such information relating to
Mercantile.
You can obtain any of the documents incorporated by reference in this
document through Firstar or Mercantile, as the case may be, or from the SEC
through the SEC's internet world wide web site at the address described above.
Documents incorporated by reference are available from the companies without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this document. You can
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone from the appropriate company at the following
addresses:
<TABLE>
<S> <C>
FIRSTAR MERCANTILE
Investor Relations Investor Relations, Tram 14-2
Firstar Corporation Mercantile Bancorporation Inc.
777 East Wisconsin Avenue 7th and Washington
Milwaukee, Wisconsin 53202 One Mercantile Center
Telephone (414) 765-4325 St. Louis, Missouri 63101
Telephone (314) 418-1359
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JULY 21, 1999 TO
RECEIVE THEM BEFORE THE SPECIAL MEETINGS. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this document or in any of the materials that
we've incorporated into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
94
<PAGE>
FORWARD-LOOKING STATEMENTS
This document, including information included or incorporated by reference
in this document, contains forward-looking statements with respect to the
financial condition, results of operations and business of Firstar and
Mercantile and, assuming the consummation of the merger, a combined Firstar and
Mercantile, including statements relating to:
- the synergies (including cost savings), and accretion to reported earnings
expected to be realized from the merger
- business opportunities and strategies potentially available to the
combined company; the restructuring charges expected to be incurred in
connection with the merger
- management, operations and policies of the combined company after the
merger
- statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "intends," "estimates," "should" or similar
expressions.
These forward-looking statements involve some risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among other things,
the following possibilities:
- expected cost savings from the merger cannot be fully realized or realized
within the expected time
- revenues following the merger are lower than expected
- competitive pressure among depository institutions increases significantly
- costs or difficulties related to the integration of the businesses of
Firstar and Mercantile are greater than expected
- changes in the interest rate environment reduce interest margins
- general economic conditions, either nationally or in the states in which
the combined company will be doing business, are less favorable than
expected
- legislation or regulatory requirements or changes adversely affect the
business in which the combined company will be engaged
- changes may occur in the securities market.
All dividends on Firstar common stock are subject to determination by the
Firstar board in its discretion.
See "Where You Can Find More Information."
95
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
and explanatory notes are presented to show the impact of the merger on our
companies' historical financial positions and results of operations under the
"pooling of interests" method of accounting. Under this method of accounting,
the recorded asset, liabilities, shareholders' equity, income and expenses of
both companies are combined and reflected at their historical amounts. The
unaudited pro forma condensed combined financial information combines the
historical financial information of Firstar and Mercantile as of March 31, 1999,
for the three-month period ended March 31, 1999, and for the twelve-month
periods ended December 31, 1998, 1997, and 1996. The unaudited pro forma
condensed combined balance sheet as of March 31, 1999 assumes the merger was
consummated on that date. The unaudited pro forma condensed combined statements
of income give effect to the merger as if the merger had been consummated at the
beginning of the earliest period presented.
The merger, which is expected to be completed in the fourth quarter of 1999,
provides for the exchange of 2.091 shares of Firstar common stock for each
outstanding share of Mercantile common stock. The unaudited pro forma condensed
combined financial information is based on and derived from, and should be read
in conjunction with, our historical consolidated financial statements and the
related notes, which are incorporated in this document by reference. See "Where
You can Find More Information."
The unaudited pro forma condensed combined balance sheet as of March 31,
1999 reflects the effect of an estimated non-recurring merger charge of $428
million. See Note 3 to the unaudited pro forma financial information on page 99
for further information. The combined company expects to achieve substantial
merger benefits, including operating cost savings. The pro forma earnings do not
reflect any financial benefits which are expected to result from the
consolidation of operations and are not indicative of the results of future
operations. No assurances can be given with respect to the ultimate level of
financial benefits to be realized. See "Management and Operations After the
Merger."
The unaudited pro forma condensed combined financial information is
presented for illustrative purposes only in accordance with the assumptions set
forth below, and is not necessarily indicative of the operating results or
financial position that would have occurred if the merger had been consummated
during the periods or as of the dates for which the pro forma data are
presented, nor is it necessarily indicative of future operating results or
financial position of the combined company.
96
<PAGE>
FIRSTAR CORPORATION AND MERCANTILE BANCORPORATION INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MERCANTILE PRO FORMA
FIRSTAR BANCORPORATION PRO FORMA FIRSTAR
CORPORATION INC. ADJUSTMENTS CORPORATION
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks.............................. $ 2,069,888 $ 1,210,972 $ $ 3,280,860
Money market investments............................. 86,220 657,831 744,051
Trading securities................................... 0 188,069 188,069
Investment securities:
Available-for-sale................................. 5,720,607 9,308,727 15,029,334
Held-to-maturity................................... 219,007 81,906 300,913
------------- -------------- ----------- -------------
Total securities................................... 5,939,614 9,390,633 0 15,330,247
Loans:
Commercial loans................................... 9,284,217 6,498,961 15,783,178
Real estate loans.................................. 9,269,501 12,438,037 21,707,538
Retail loans....................................... 7,773,591 3,363,951 11,137,542
------------- -------------- ----------- -------------
Total loans...................................... 26,327,309 22,300,949 0 48,628,258
Allowance for loan losses...................... 401,943 309,048 710,991
------------- -------------- ----------- -------------
Net loans........................................ 25,925,366 21,991,901 0 47,917,267
Loans held for sale.................................. 1,179,985 176,050 1,356,035
Premises and equipment............................... 609,377 533,807 (24,000) 1,119,184
Intangible assets.................................... 1,085,725 765,560 1,851,285
Other assets......................................... 1,055,675 663,996 1,719,671
------------- -------------- ----------- -------------
Total assets..................................... $ 37,951,850 $ 35,578,819 $ (24,000) $ 73,506,669
------------- -------------- ----------- -------------
------------- -------------- ----------- -------------
LIABILITIES:
Deposits:
Noninterest-bearing deposits....................... $ 5,982,868 $ 3,901,014 $ $ 9,883,882
Interest-bearing deposits.......................... 21,884,893 20,821,383 42,706,276
------------- -------------- ----------- -------------
Total deposits................................... 27,867,761 24,722,397 0 52,590,158
Short-term borrowings................................ 3,913,666 2,730,375 6,644,041
Long-term debt....................................... 1,687,599 4,406,070 6,093,669
Other liabilities.................................... 804,570 618,514 262,000 1,685,084
------------- -------------- ----------- -------------
Total liabilities................................ 34,273,596 32,477,356 262,000 67,012,952
------------- -------------- ----------- -------------
SHAREHOLDERS' EQUITY:
Common stock......................................... 6,641 1,578 1,695 9,914
Surplus.............................................. 1,266,731 1,009,106 (3,848) 2,271,989
Retained earnings.................................... 2,370,742 2,099,532 (286,000) 4,184,274
Treasury stock, at cost.............................. (41,720) (2,153) 2,153 (41,720)
Accumulated other comprehensive income............... 75,860 (6,600) 69,260
------------- -------------- ----------- -------------
Total shareholders' equity....................... 3,678,254 3,101,463 (286,000) 6,493,717
------------- -------------- ----------- -------------
Total liabilities and shareholders' equity....... $ 37,951,850 $ 35,578,819 $ (24,000) $ 73,506,669
------------- -------------- ----------- -------------
------------- -------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
97
<PAGE>
FIRSTAR CORPORATION AND MERCANTILE BANCORPORATION INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERCANTILE PRO FORMA
FIRSTAR BANCORPORATION PRO FORMA FIRSTAR
CORPORATION INC. ADJUSTMENTS CORPORATION
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................... $ 528,102 $ 431,903 $ $ 960,005
Interest and fees on loans held for sale................. 27,156 27,156
Interest on investment securities........................ 92,918 145,756 238,674
Interest on trading securities........................... 11 2,579 2,590
Interest on money market investments..................... 1,298 6,700 7,998
----------- --------------- ----------- -----------
Total interest income.................................. 649,485 586,938 0 1,236,423
INTEREST EXPENSE:
Interest on deposits..................................... 210,579 216,638 427,217
Interest on short-term borrowings........................ 46,873 30,857 77,730
Interest on long-term debt............................... 26,180 55,214 81,394
----------- --------------- ----------- -----------
Total interest expense................................. 283,632 302,709 0 586,341
----------- --------------- ----------- -----------
Net interest income.................................. 365,853 284,229 0 650,082
Provision for loan losses................................ 35,910 7,479 43,389
----------- --------------- ----------- -----------
Net interest income after provision for loan
losses............................................. 329,943 276,750 0 606,693
NONINTEREST INCOME:
Trust income............................................. 72,353 29,142 101,495
Mortgage banking income.................................. 33,899 6,199 40,098
Service charges on deposits.............................. 45,139 29,640 74,779
Credit card income....................................... 21,674 3,503 25,177
ATM Income............................................... 6,661 3,772 10,433
All other income......................................... 43,360 41,225 84,585
----------- --------------- ----------- -----------
223,086 113,481 0 336,567
Investment securities gains/(losses)--net................ (2) 12,963 12,961
----------- --------------- ----------- -----------
Total noninterest income............................... 223,084 126,444 0 349,528
NONINTEREST EXPENSE:
Salaries................................................. 116,767 101,687 218,454
Pension and other employee benefits...................... 22,379 21,652 44,031
Equipment expense........................................ 21,742 23,689 45,431
Occupancy expense--net................................... 26,215 17,191 43,406
All other expense........................................ 98,066 61,135 159,201
----------- --------------- ----------- -----------
285,169 225,354 0 510,523
Merger and restructuring expenses........................ 15,000 15,000
----------- --------------- ----------- -----------
Total noninterest expense.............................. 300,169 225,354 0 525,523
----------- --------------- ----------- -----------
INCOME BEFORE TAX........................................ 252,858 177,840 0 430,698
Income tax............................................... 83,271 59,803 143,074
----------- --------------- ----------- -----------
NET INCOME............................................... $ 169,587 $ 118,037 $ 0 $ 287,624
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
PER SHARE:
Basic earnings per common share.......................... $ 0.26 $ 0.75 $ 0.29
Diluted earnings per common share........................ 0.25 0.74 0.29
Average common shares--basic (thousands)................. 661,572 157,633 991,182
Average common shares--diluted (thousands)............... 675,118 159,602 1,008,845
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
98
<PAGE>
FIRSTAR CORPORATION AND MERCANTILE BANCORPORATION INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERCANTILE PRO FORMA
FIRSTAR BANCORPORATION PRO FORMA FIRSTAR
CORPORATION INC. ADJUSTMENTS CORPORATION
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................... $2,152,359 $1,771,235 $ $$3,923,594
Interest and fees on loans held for sale................. 70,808 70,808
Interest on investment securities........................ 412,212 581,865 994,077
Interest on trading securities........................... 73 8,821 8,894
Interest on money market investments..................... 6,036 30,197 36,233
----------- -------------- ----------- -----------
Total interest income.................................. 2,641,488 2,392,118 0 5,033,606
INTEREST EXPENSE:
Interest on deposits..................................... 911,958 931,716 1,843,674
Interest on short-term borrowings........................ 207,650 174,335 381,985
Interest on long-term debt............................... 109,101 181,807 290,908
----------- -------------- ----------- -----------
Total interest expense................................. 1,228,709 1,287,858 0 2,516,567
----------- -------------- ----------- -----------
Net interest income.................................. 1,412,779 1,104,260 0 2,517,039
Provision for loan losses................................ 113,636 51,154 164,790
----------- -------------- ----------- -----------
Net interest income after provision for loan
losses............................................... 1,299,143 1,053,106 0 2,352,249
NONINTEREST INCOME:
Trust income............................................. 262,259 112,999 375,258
Mortgage banking income.................................. 151,096 54,455 205,551
Service charges on deposits.............................. 177,008 119,277 296,285
Credit card income....................................... 84,853 12,556 97,409
ATM Income............................................... 28,672 15,556 44,228
All other income......................................... 155,165 163,589 318,754
----------- -------------- ----------- -----------
859,053 478,432 0 1,337,485
Investment securities gains/(losses)--net................ 1,095 15,435 16,530
Gain on sale of subsidiaries............................. 48,051 48,051
----------- -------------- ----------- -----------
Total noninterest income............................... 860,148 541,918 0 1,402,066
NONINTEREST EXPENSE:
Salaries................................................. 540,977 418,351 959,328
Pension and other employee benefits...................... 97,025 77,608 174,633
Equipment expense........................................ 103,713 85,426 189,139
Occupancy expense--net................................... 102,464 67,003 169,467
All other expense........................................ 434,043 244,047 678,090
----------- -------------- ----------- -----------
1,278,222 892,435 0 2,170,657
Merger and retructuring expenses......................... 242,970 134,322 377,292
----------- -------------- ----------- -----------
Total noninterest expense.............................. 1,521,192 1,026,757 0 2,547,949
----------- -------------- ----------- -----------
INCOME BEFORE TAX........................................ 638,099 568,267 0 1,206,366
Income tax............................................... 207,952 192,964 400,916
----------- -------------- ----------- -----------
NET INCOME............................................... $ 430,147 $ 375,303 $ 0 $ 805,450
----------- -------------- ----------- -----------
----------- -------------- ----------- -----------
PER SHARE:
Basic earnings per common share.......................... $ 0.66 $ 2.45 $ 0.83
Diluted earnings per common share........................ 0.65 2.41 0.81
Average common shares--basic (thousands)................. 649,530 153,462 970,420
Average common shares--diluted (thousands)............... 663,054 155,921 989,085
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
99
<PAGE>
FIRSTAR CORPORATION AND MERCANTILE BANCORPORATION INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERCANTILE PRO FORMA
FIRSTAR BANCORPORATION PRO FORMA FIRSTAR
CORPORATION INC. ADJUSTMENTS CORPORATION
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................... $1,982,684 $1,651,816 $ $3,634,500
Interest and fees on loans held for sale................. 20,878 20,878
Interest on investment securities........................ 362,224 432,460 794,684
Interest on trading securities........................... 131 7,077 7,208
Interest on money market investments..................... 11,182 27,325 38,507
----------- -------------- ----------- -----------
Total interest income................................ 2,377,099 2,118,678 0 4,495,777
INTEREST EXPENSE:
Interest on deposits..................................... 804,406 842,949 1,647,355
Interest on short-term borrowings........................ 183,642 159,013 342,655
Interest on long-term debt............................... 86,884 68,978 155,862
----------- -------------- ----------- -----------
Total interest expense............................... 1,074,932 1,070,940 0 2,145,872
----------- -------------- ----------- -----------
Net interest income................................ 1,302,167 1,047,738 0 2,349,905
Provision for loan losses................................ 117,772 86,355 204,127
----------- -------------- ----------- -----------
Net interest income after provision for loan
losses........................................... 1,184,395 961,383 0 2,145,778
NONINTEREST INCOME:
Trust income............................................. 234,195 103,928 338,123
Mortgage banking income.................................. 70,644 26,625 97,269
Service charges on deposits.............................. 152,410 109,058 261,468
Credit card income....................................... 88,615 21,169 109,784
ATM Income............................................... 22,397 13,271 35,668
All other income......................................... 124,877 132,493 257,370
----------- -------------- ----------- -----------
693,138 406,544 0 1,099,682
Investment securities gains/(losses)--net................ (3,916) 7,649 3,733
Gain on sale of merchant processing...................... 22,821 22,821
----------- -------------- ----------- -----------
Total noninterest income............................. 712,043 414,193 0 1,126,236
NONINTEREST EXPENSE:
Salaries................................................. 478,159 381,942 860,101
Pension and other employee benefits...................... 91,114 85,048 176,162
Equipment expense........................................ 94,369 70,272 164,641
Occupancy expense--net................................... 91,348 61,697 153,045
All other expense........................................ 371,516 216,026 587,542
----------- -------------- ----------- -----------
1,126,506 814,985 0 1,941,491
Loss on sale of credit card loans........................ 50,000 50,000
Merger and restructuring expenses........................ 121,393 121,393
----------- -------------- ----------- -----------
Total noninterest expense............................ 1,126,506 986,378 0 2,112,884
----------- -------------- ----------- -----------
INCOME BEFORE TAX........................................ 769,932 389,198 0 1,159,130
Income tax............................................... 256,038 142,376 398,414
----------- -------------- ----------- -----------
NET INCOME............................................... $ 513,894 $ 246,822 $ 0 $ 760,716
----------- -------------- ----------- -----------
----------- -------------- ----------- -----------
PER SHARE:
Basic earnings per common share.......................... $ 0.83 $ 1.76 $ 0.83
Diluted earnings per common share........................ 0.81 1.73 0.82
Average common shares--basic (thousands)................. 620,283 140,009 913,042
Average common shares--diluted (thousands)............... 634,149 142,639 932,407
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
100
<PAGE>
FIRSTAR CORPORATION AND MERCANTILE BANCORPORATION INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERCANTILE
FIRSTAR BANCORPORATION PRO FORMA PRO FORMA FIRSTAR
CORPORATION INC. ADJUSTMENTS CORPORATION
----------- -------------- ----------- -----------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans......................... $1,869,407 $1,404,809 $ $ 3,274,216
Interest and fees on loans held for sale........... 20,454 20,454
Interest on investment securities.................. 378,408 343,375 721,783
Interest on trading securities..................... 344 3,630 3,974
Interest on money market investments............... 7,062 19,306 26,368
----------- -------------- ----------- -----------------
Total interest income.............................. 2,275,675 1,771,120 0 4,046,795
INTEREST EXPENSE:
Interest on deposits............................... 788,023 692,138 1,480,161
Interest on short-term borrowings.................. 171,694 89,676 261,370
Interest on long-term debt......................... 63,687 40,343 104,030
----------- -------------- ----------- -----------------
Total interest expense............................. 1,023,404 822,157 0 1,845,561
----------- -------------- ----------- -----------------
Net interest income................................ 1,252,271 948,963 0 2,201,234
Provision for loan losses.......................... 97,334 78,766 176,100
----------- -------------- ----------- -----------------
Net interest income after provision for loan
losses........................................... 1,154,937 870,197 0 2,025,134
NONINTEREST INCOME:
Trust income....................................... 196,891 93,704 290,595
Mortgage banking income............................ 64,811 13,518 78,329
Service charges on deposits........................ 147,424 98,908 246,332
Credit card income................................. 81,622 28,415 110,037
ATM Income......................................... 15,547 8,450 23,997
All other income................................... 117,485 124,723 242,208
----------- -------------- ----------- -----------------
623,780 367,718 0 991,498
Investment securities gains/(losses)--net.......... (2,365) 292 (2,073)
----------- -------------- ----------- -----------------
Total noninterest income........................... 621,415 368,010 0 989,425
NONINTEREST EXPENSE:
Salaries........................................... 466,133 335,803 801,936
Pension and other employee benefits................ 97,089 77,437 174,526
Equipment expense.................................. 86,952 60,605 147,557
Occupancy expense--net............................. 91,460 55,489 146,949
All other expense.................................. 341,829 212,397 554,226
----------- -------------- ----------- -----------------
1,083,463 741,731 0 1,825,194
SAIF assessments................................... 15,522 12,385 27,907
Merger and restructuring expenses.................. 53,267 51,071 104,338
----------- -------------- ----------- -----------------
Total noninterest expense.......................... 1,152,252 805,187 0 1,957,439
INCOME BEFORE TAX.................................. 624,100 433,020 0 1,057,120
Income tax......................................... 208,682 148,567 357,249
----------- -------------- ----------- -----------------
NET INCOME......................................... $ 415,418 $ 284,453 $ 0 $ 699,871
----------- -------------- ----------- -----------------
----------- -------------- ----------- -----------------
PER SHARE:
Basic earnings per common share.................... $ 0.65 $ 2.12 $ 0.76
Diluted earnings per common share.................. 0.64 2.09 0.75
Average common shares--basic (thousands)........... 633,858 133,926 913,897
Average common shares--diluted (thousands)......... 644,640 135,996 929,008
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
101
<PAGE>
FIRSTAR CORPORATION
AND MERCANTILE BANCORPORATION INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
NOTE 1--BASIS OF PRESENTATION
On April 30, 1999 Firstar Corporation announced that it had signed a
definitive agreement to acquire Mercantile Bancorporation Inc. through an
exchange of shares.
The unaudited pro forma condensed combined financial information has been
prepared assuming that the merger will be accounted for under the pooling of
interests method and is based on the historical consolidated financial
statements of the two companies. A review of each company's respective
accounting policies has not been completed. As a result of this review, it might
be necessary to restate certain amounts in the financial statements of the
combined company to conform to those accounting policies that are most
appropriate. Any such restatements are not expected to be material.
NOTE 2--SHAREHOLDERS' EQUITY
Under the terms of the merger agreement, Mercantile shareholders will
receive 2.091 shares of Firstar common stock for each share of Mercantile common
stock owned. Mercantile had 157,868,547 shares of common stock outstanding at
March 31, 1999 which will be exchanged for approximately 330,104,000 shares of
Firstar common stock. The combined company will have approximately 991,318,000
shares outstanding after the merger. The common stock in the unaudited pro forma
condensed combined balance sheet has been adjusted to reflect the par value
amount of shares of the combined company. Pro forma retained earnings reflects
an adjustment for estimated merger related charges as described in Note 3 below.
NOTE 3--MERGER RELATED CHARGES
In connection with the merger, Firstar and Mercantile expect the combined
company to incur pre-tax merger related charges of approximately $428 million.
These are expected to include approximately $159 million in employee related
payments, $94 million in direct conversion costs, $60 million in charges related
to consolidation of systems and operations, $24 million in occupancy and
equipment charges (elimination of duplicate facilities and write-off of
equipment) and $91 million in other merger related costs (including legal and
investment banking fees).
The merger related charges and related tax effect have been reflected in the
unaudited pro forma condensed combined balance sheet as of March 31, 1999, and
have not been reflected in the unaudited pro forma condensed combined income
statements as they are not expected to have a continuing impact on the
operations of the combined company.
102
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Acquiring Person........................... 73
Acquisition Transaction.................... 56
affiliate.................................. 59
BIF........................................ 69
broker non-votes........................... 15
business combination....................... 79,80
cause...................................... 77
CSFB Opinion............................... 25
default.................................... 66
Distribution Date.......................... 73
DLJ Opinion................................ 30
DPC Shares................................. 38
effective time............................. 41
exchange agent............................. 40
Exchange Fund.............................. 40
exchange ratio............................. 20
Exercise Termination Event................. 57
FICO....................................... 69
Final Expiration Date...................... 73
First Year EPS............................. 27
Firstar Option Agreement................... 54
Firstar Option Shares...................... 55
Firstar Right Certificates................. 73
Firstar Rights Agreement................... 20
Firstar Series A Preferred Shares.......... 72
Firstar Shareholder Right.................. 20
Holder..................................... 56
in danger of default....................... 66
I/B/E/S.................................... 30
Initial Triggering Event................... 56
interested person.......................... 80
interested shares.......................... 81
interested shareholder..................... 79
Issuer..................................... 54
Issuer Common Stock........................ 55
<CAPTION>
PAGE NO.
---------
<S> <C>
Issuer Option.............................. 55
Issuer Option Agreement.................... 54
Issuer Option Repurchase Price............. 57
Issuer Option Share Repurchase Price....... 58
Issuer Option Shares....................... 55
leverage ratio............................. 67
Market/Offer Price......................... 58
Mercantile Employees....................... 45
Mercantile Option Agreement................ 54
Mercantile Option Shares................... 55
Mercantile Rights Agreement................ 20
Mercantile Shareholder Right............... 20
Mercantile Stock Plans..................... 39
Option Agreements.......................... 54
Optionee................................... 55
Owner...................................... 57
Purchase Price............................. 72
Repurchase Event........................... 58
Requisite Regulatory Approvals............. 46
Rights Record Date......................... 72
Rights Redemption Price.................... 75
SAIF....................................... 69
Second Year EPS............................ 27
significant shareholder.................... 80
State Member Bank.......................... 68
Subsequent Triggering Event................ 57
Substitute Option.......................... 58
Summary of Rights.......................... 73
Surrender Price............................ 59
Tier 1..................................... 67
Tier 2..................................... 67
Tier 3..................................... 67
total capital.............................. 67
Trust Account Shares....................... 38
</TABLE>
103
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
MERCANTILE BANCORPORATION INC.
AND
FIRSTAR CORPORATION
DATED AS OF APRIL 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
AGREEMENT AND PLAN OF MERGER
ARTICLE I
THE MERGER
1.1 The Merger......................................................................................... A-1
1.2 Effective Time..................................................................................... A-2
1.3 Effects of the Merger.............................................................................. A-2
1.4 Conversion of Mercantile Common Stock.............................................................. A-2
1.5 Firstar Capital Stock.............................................................................. A-4
1.6 Options............................................................................................ A-4
1.7 Certificate of Incorporation....................................................................... A-4
1.8 By-Laws............................................................................................ A-5
1.9 Tax and Accounting Consequences.................................................................... A-5
1.10 Board of Directors; Management..................................................................... A-5
1.11 Headquarters of Surviving Corporation.............................................................. A-5
ARTICLE II
EXCHANGE OF SHARES
2.1 Firstar to Make Shares Available................................................................... A-5
2.2 Exchange of Shares................................................................................. A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRSTAR
3.1 Corporate Organization............................................................................. A-7
3.2 Capitalization..................................................................................... A-8
3.3 Authority; No Violation............................................................................ A-9
3.4 Consents and Approvals............................................................................. A-10
3.5 Reports............................................................................................ A-10
3.6 Financial Statements............................................................................... A-11
3.7 Broker's Fees...................................................................................... A-11
3.8 Absence of Certain Changes or Events............................................................... A-11
3.9 Legal Proceedings.................................................................................. A-12
3.10 Taxes and Tax Returns.............................................................................. A-12
3.11 Employee Benefit Plans............................................................................. A-13
3.12 SEC Reports........................................................................................ A-15
3.13 Compliance with Applicable Law..................................................................... A-15
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
3.14 Certain Contracts.................................................................................. A-15
3.15 Agreements with Regulatory Agencies................................................................ A-16
3.16 Interest Rate Risk Management Instruments.......................................................... A-16
3.17 Undisclosed Liabilities............................................................................ A-17
3.18 Insurance.......................................................................................... A-17
3.19 Environmental Liability............................................................................ A-17
3.20 Charter Provisions; State Takeover Laws; Firstar Rights Agreement.................................. A-17
3.21 Year 2000.......................................................................................... A-18
3.22 Reorganization; Pooling of Interests............................................................... A-18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERCANTILE
4.1 Corporate Organization............................................................................. A-18
4.2 Capitalization..................................................................................... A-19
4.3 Authority; No Violation............................................................................ A-20
4.4 Consents and Approvals............................................................................. A-21
4.5 Reports............................................................................................ A-21
4.6 Financial Statements............................................................................... A-21
4.7 Broker's Fees...................................................................................... A-22
4.8 Absence of Certain Changes or Events............................................................... A-22
4.9 Legal Proceedings.................................................................................. A-22
4.10 Taxes and Tax Returns.............................................................................. A-23
4.11 Employee Benefit Plans............................................................................. A-24
4.12 SEC Reports........................................................................................ A-25
4.13 Compliance with Applicable Law..................................................................... A-25
4.14 Certain Contracts.................................................................................. A-26
4.15 Agreements with Regulatory Agencies................................................................ A-27
4.16 Interest Rate Risk Management Instruments.......................................................... A-27
4.17 Undisclosed Liabilities............................................................................ A-27
4.18 Insurance.......................................................................................... A-27
4.19 Environmental Liability............................................................................ A-28
4.20 Charter Provisions; State Takeover Laws; Mercantile Rights Agreement............................... A-28
4.21 Year 2000.......................................................................................... A-28
4.22 Reorganization; Pooling of Interests............................................................... A-28
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time.................................................. A-29
5.2 Forbearances....................................................................................... A-29
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters................................................................................. A-32
6.2 Access to Information.............................................................................. A-33
6.3 Shareholders' Approvals............................................................................ A-33
6.4 Legal Conditions to Merger......................................................................... A-34
6.5 Affiliates; Publication of Combined Financial Results.............................................. A-34
6.6 Stock Exchange Listing............................................................................. A-34
6.7 Employee Benefit Plans............................................................................. A-34
6.8 Indemnification; Directors' and Officers' Insurance................................................ A-35
6.9 Additional Agreements.............................................................................. A-36
6.10 Advice of Changes.................................................................................. A-36
6.11 Dividends.......................................................................................... A-36
6.12 Exemption from Liability Under Section 16(b)....................................................... A-37
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger......................................... A-37
7.2 Conditions to Obligations of Mercantile............................................................ A-38
7.3 Conditions to Obligations of Firstar............................................................... A-39
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination........................................................................................ A-40
8.2 Effect of Termination.............................................................................. A-40
8.3 Amendment.......................................................................................... A-41
8.4 Extension; Waiver.................................................................................. A-41
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing............................................................................................ A-41
9.2 Nonsurvival of Representations, Warranties and Agreements.......................................... A-41
9.3 Expenses........................................................................................... A-42
9.4 Notices............................................................................................ A-42
9.5 Interpretation..................................................................................... A-42
9.6 Counterparts....................................................................................... A-43
9.7 Entire Agreement................................................................................... A-43
9.8 Governing Law...................................................................................... A-43
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
9.9 Publicity.......................................................................................... A-43
9.10 Assignment; Third Party Beneficiaries.............................................................. A-43
9.11 Certain Agreements of the Surviving Corporation.................................................... A-43
Exhibit A--Mercantile Option Agreement
Exhibit B--Firstar Option Agreement
Exhibit 6.5(a)(1)--Form of Affiliate Letter Addressed to Firstar
Exhibit 6.5(a)(2)--Form of Affiliate Letter Addressed to Mercantile
</TABLE>
A-iv
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
SECTION PAGE NO.
---------------------------------- -----------
<S> <C> <C>
Agreement.......................................................... Recitals.......................... A-1
BHC Act............................................................ 3.1(a)............................ A-8
CERCLA............................................................. 3.19.............................. A-17
Certificate........................................................ 1.4(b)............................ A-3
Closing............................................................ 9.1............................... A-41
Closing Date....................................................... 9.1............................... A-41
Code............................................................... 1.6(b)............................ A-4
Confidentiality Agreement.......................................... 6.2(b)............................ A-33
Derivative Instruments............................................. 3.16.............................. A-16
Dissenting Shares.................................................. 1.4(d)............................ A-3
DPC Shares......................................................... 1.4(a)............................ A-2
DRIP Suspension Date............................................... 4.2(a)............................ A-19
Effective Time..................................................... 1.2............................... A-2
ERISA.............................................................. 3.11(a)........................... A-13
Exchange Act....................................................... 3.6............................... A-11
Exchange Agent..................................................... 2.1............................... A-5
Exchange Fund...................................................... 2.1............................... A-5
Exchange Ratio..................................................... 1.4(a)............................ A-2
Federal Reserve Board.............................................. 3.4............................... A-10
Firstar............................................................ Recitals.......................... A-1
Firstar 10-K....................................................... 3.6............................... A-11
Firstar Articles................................................... 1.7............................... A-4
Firstar Benefit Plans.............................................. 3.11(a)........................... A-13
Firstar Capital Stock.............................................. 3.2(a)............................ A-8
Firstar Common Stock............................................... 1.4(a)............................ A-2
Firstar Contract................................................... 3.14(a)........................... A-16
Firstar Disclosure Schedule........................................ 3................................. A-7
Firstar DRIP....................................................... 3.2(a)............................ A-8
Firstar ERISA Affiliate............................................ 3.11(a)........................... A-13
Firstar Option Agreement........................................... Recitals.......................... A-1
Firstar Preferred Stock............................................ 3.2(a)............................ A-8
Firstar Regulatory Agreement....................................... 3.15.............................. A-16
Firstar Reports.................................................... 3.12(a)........................... A-15
Firstar Rights..................................................... 3.2(a)............................ A-8
Firstar Rights Agreement........................................... 1.4(a)............................ A-3
Firstar Shareholder Rights......................................... 1.4(a)............................ A-3
Firstar Stock Plans................................................ 3.2(a)............................ A-8
GAAP............................................................... 1.9............................... A-5
Governmental Entity................................................ 3.4............................... A-10
Indemnified Parties................................................ 6.8(a)............................ A-35
</TABLE>
A-v
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE NO.
---------------------------------- -----------
<S> <C> <C>
IRS................................................................ 3.10(a)........................... A-12
Joint Proxy Statement.............................................. 3.4............................... A-10
Liens.............................................................. 3.2(b)............................ A-9
Material Adverse Effect............................................ 3.1(a)............................ A-8
MBCL............................................................... 1.1(a)............................ A-1
Merger............................................................. Recitals.......................... A-1
Merger Consideration............................................... 1.1(b)............................ A-2
Missouri Articles.................................................. 1.2............................... A-2
Missouri Secretary................................................. 1.2............................... A-2
Mercantile......................................................... Recitals.......................... A-1
Mercantile 10-K.................................................... 4.6............................... A-21
Mercantile Articles................................................ 4.1(a)............................ A-18
Mercantile Benefit Plans........................................... 4.11(a)........................... A-24
Mercantile Capital Stock........................................... 4.2(a)............................ A-19
Mercantile Common Stock............................................ 1.4(a)............................ A-2
Mercantile Contract................................................ 4.14(a)........................... A-26
Mercantile Disclosure Schedule..................................... 4................................. A-18
Mercantile Employees............................................... 6.7(a)............................ A-35
Mercantile DRIP.................................................... 4.2(a)............................ A-19
Mercantile ERISA Affiliate......................................... 4.11(a)........................... A-24
Mercantile Insiders................................................ 6.12.............................. A-37
Mercantile Option Agreement........................................ Recitals.......................... A-1
Mercantile Preferred Stock......................................... 4.2(a)............................ A-19
Mercantile Regulatory Agreement.................................... 4.15.............................. A-27
Mercantile Reports................................................. 4.12(a)........................... A-25
Mercantile Rights.................................................. 4.2(a)............................ A-19
Mercantile Rights Agreement........................................ 1.4(a)............................ A-3
Mercantile Shareholder Rights...................................... 1.4(a)............................ A-3
Mercantile Stock Plans............................................. 4.2(a)............................ A-19
New Benefit Plans.................................................. 6.7(a)............................ A-35
Non-Subsidiary Affiliate........................................... 3.2(b)............................ A-9
NYSE............................................................... 2.2(e)............................ A-7
OCC................................................................ 3.5............................... A-10
Option Agreements.................................................. Recitals.......................... A-1
Regulatory Agencies................................................ 3.5............................... A-10
Requisite Regulatory Approvals..................................... 7.1(c)............................ A-37
S-4................................................................ 3.4............................... A-10
SEC................................................................ 3.4............................... A-10
Section 16 Information............................................. 6.12.............................. A-37
Securities Act..................................................... 3.12(a)........................... A-15
SRO................................................................ 3.4............................... A-10
State Approvals.................................................... 3.4............................... A-10
State Regulator.................................................... 3.5............................... A-10
</TABLE>
A-vi
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE NO.
---------------------------------- -----------
<S> <C> <C>
Subsidiary......................................................... 3.1(a)............................ A-8
Surviving Corporation.............................................. Recitals.......................... A-1
Tax................................................................ 3.10(b)........................... A-13
Taxes.............................................................. 3.10(b)........................... A-13
Trust Account Shares............................................... 1.4(a)............................ A-2
WBCL............................................................... 1.1(a)............................ A-1
Wisconsin Articles................................................. 1.2............................... A-2
Wisconsin Department............................................... 1.2............................... A-2
Year 2000 Issues................................................... 3.21.............................. A-18
</TABLE>
A-vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 30, 1999 (this "Agreement"),
by and between FIRSTAR CORPORATION, a Wisconsin corporation ("Firstar"), and
MERCANTILE BANCORPORATION INC., a Missouri corporation ("Mercantile").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of each of Firstar and Mercantile have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the strategic business combination transaction
provided for herein in which Mercantile will, subject to the terms and
conditions set forth herein, merge with and into Firstar (the "Merger"), so that
Firstar is the surviving corporation (hereinafter sometimes referred to in such
capacity as the "Surviving Corporation") in the Merger; and
WHEREAS, as a condition to, and immediately after, the execution of this
Agreement, and as a condition to the execution of the Firstar Option Agreement,
Mercantile and Firstar are entering into a stock option agreement with
Mercantile as issuer, and Firstar as grantee, of the stock option contemplated
thereby (the "Mercantile Option Agreement") in the form attached hereto as
Exhibit A; and
WHEREAS, as a condition to, and immediately after, the execution of this
Agreement, and as a condition to the execution of the Mercantile Option
Agreement, Mercantile and Firstar are entering into a Firstar stock option
agreement with Firstar as issuer, and Mercantile as grantee, of the stock option
contemplated thereby (the "Firstar Option Agreement"; and together with the
Mercantile Option Agreement, the "Option Agreements") in the form attached
hereto as Exhibit B; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. (a) Subject to the terms and conditions of this Agreement,
in accordance with Business Corporation Law of the State of Wisconsin (the
"WBCL") and the General and Business Corporation Law of the State of Missouri
(the "MBCL"), at the Effective Time, Mercantile shall merge with and into
Firstar. Firstar shall be the Surviving Corporation in the Merger, and shall
continue its corporate existence under the laws of the State of
A-1
<PAGE>
Wisconsin. Upon consummation of the Merger, the separate corporate existence of
Mercantile shall terminate.
(b) Firstar and Mercantile may, upon mutual agreement, at any time change
the method of effecting the combination of Mercantile and Firstar (including
without limitation the provisions of this Article I) if and to the extent they
deem such change to be desirable, including without limitation to provide for a
merger of either party with a wholly-owned subsidiary of the other; PROVIDED,
HOWEVER, that no such change shall (A) alter or change the amount of
consideration to be provided to holders of Mercantile Common Stock as provided
for in this Agreement (the "Merger Consideration"), (B) adversely affect the tax
treatment of shareholders as a result of receiving the Merger Consideration or
(C) materially impede or delay consummation of the transactions contemplated by
this Agreement.
1.2 EFFECTIVE TIME. The Merger shall become effective as set forth in
articles of merger (the "Wisconsin Articles") that shall be filed with the
Wisconsin Department of Financial Institutions (the "Wisconsin Department"), and
in the articles of merger (the "Missouri Articles") that shall be filed with the
Secretary of State of the State of Missouri (the "Missouri Secretary"), in each
case on the Closing Date. The term "Effective Time" shall be the date and time
when the Merger becomes effective, as set forth in the Wisconsin Articles and
the Missouri Articles.
1.3 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in the WBCL and the MBCL.
1.4 CONVERSION OF MERCANTILE COMMON STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of Mercantile, Firstar
or the holder of any of the following securities:
(a) Subject to Section 2.2(e), each share of the common stock, par
value $0.01 per share, of Mercantile (together with the Mercantile
Shareholder Right attached thereto, the "Mercantile Common Stock") issued
and outstanding immediately prior to the Effective Time, except for
Dissenting Shares (as defined herein) and shares of Mercantile Common Stock
owned, directly or indirectly, by Mercantile or Firstar or any of their
respective wholly-owned Subsidiaries (other than (A) shares of Mercantile
Common Stock held, directly or indirectly, in trust accounts, managed
accounts and the like, or otherwise held in a fiduciary capacity, that are
beneficially owned by third parties (any such shares, whether held directly
or indirectly by Mercantile or Firstar, as the case may be, being referred
to herein as "Trust Account Shares") and (B) any shares of Mercantile Common
Stock held by Mercantile or Firstar or any of their respective Subsidiaries
in respect of a debt previously contracted (any such shares of Mercantile
Common Stock, and shares of Firstar Common Stock that are similarly held,
whether held directly or indirectly by Mercantile or Firstar, being referred
to herein as "DPC Shares")) shall be converted into the right to receive
2.091 shares (the "Exchange Ratio") of the common stock, par value $0.01 per
share, of Firstar (together with the Firstar Shareholder Rights attached
thereto, the "Firstar Common Stock"), together with the same number of
Firstar Shareholder Rights attached thereto.
A-2
<PAGE>
As used herein, (i) "Mercantile Shareholder Rights" shall mean the
preferred share purchase rights issued to the holders of Mercantile Common
Stock pursuant to the Rights Agreement, dated as of May 20, 1998 (as such
may be amended, supplemented, restated or replaced from time to time),
between Mercantile and Harris Trust and Savings Bank (the "Mercantile Rights
Agreement"), and (ii) "Firstar Shareholder Rights" shall mean the preferred
share purchase rights issued to the holders Firstar Common Stock pursuant to
the Rights Agreement, dated as of November 20, 1998 (as such may be amended,
supplemented, restated or replaced from time to time), between Firstar and
Firstar Bank Milwaukee, N.A. (the "Firstar Rights Agreement").
(b) All of the shares of Mercantile Common Stock converted into the
right to receive Firstar Common Stock pursuant to this Article I shall no
longer be outstanding and shall automatically be cancelled and shall cease
to exist as of the Effective Time, and each certificate previously
representing any such shares of Mercantile Common Stock (each a
"Certificate") shall thereafter represent only the right to receive (i) a
certificate representing the number of whole shares of Firstar Common Stock
and (ii) cash in lieu of fractional shares into which the shares of
Mercantile Common Stock represented by such Certificate have been converted
pursuant to this Section 1.4 and Section 2.2(e). Certificates previously
representing shares of Mercantile Common Stock shall be exchanged for
certificates representing whole shares of Firstar Common Stock and cash in
lieu of fractional shares issued in consideration therefor upon the
surrender of such Certificates in accordance with Section 2.2, without any
interest thereon. If, prior to the Effective Time and as permitted by this
Agreement, the outstanding shares of Firstar Common Stock or Mercantile
Common Stock shall have been increased, decreased, changed into or exchanged
for a different number or kind of shares or securities as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, or other similar change in capitalization, an
appropriate and proportionate adjustment shall be made to the Exchange
Ratio.
(c) At the Effective Time, all shares of Mercantile Common Stock that
are owned, directly or indirectly, by Mercantile or Firstar or any of their
respective wholly-owned Subsidiaries (other than Trust Account Shares and
DPC Shares) shall be cancelled and shall cease to exist and no capital stock
of Firstar or other consideration shall be delivered in exchange therefor.
All shares of Firstar Common Stock that are owned by Mercantile or any of
its wholly-owned Subsidiaries (other than Trust Account Shares and DPC
Shares) shall as of the Effective Time become authorized but unissued shares
of Firstar Common Stock.
(d) Notwithstanding anything in this Agreement to the contrary, shares
of Mercantile Common Stock that are outstanding immediately prior to the
Effective Time and with respect to which dissenters' rights shall have been
properly demanded in accordance with Section 455 of the MBCL ("Dissenting
Shares") shall not be converted into the right to receive, or be
exchangeable for, Firstar Common Stock or cash in lieu of fractional shares
but, instead, the holders thereof shall be entitled to payment of the
appraised value of such Dissenting Shares in accordance with the provisions
of Section 455 of the MBCL; PROVIDED, HOWEVER, that (i) if any holder of
Dissenting Shares shall subsequently deliver a written withdrawal of such
holder's demand for appraisal of such shares, or (ii) if any holder fails to
establish such holder's entitle-
A-3
<PAGE>
ment to dissenters' rights as provided in Section 455 of the MBCL, such
holder or holders (as the case may be) shall forfeit the right to appraisal
of such shares of Mercantile Common Stock and each of such shares shall
thereupon be deemed to have been converted into the right to receive, and to
have become exchangeable for, as of the Effective Time, Firstar Common Stock
and/or cash in lieu of fractional shares, without any interest thereon, as
provided in Section 1.4(a) and Article II hereof.
1.5 FIRSTAR CAPITAL STOCK. Except as otherwise provided in Section 1.4(c),
at and after the Effective Time, each share of Firstar capital stock (including
Firstar Common Stock) issued and outstanding immediately prior to the Closing
Date shall remain an issued and outstanding share of capital stock of the
Surviving Corporation and shall not be affected by the Merger.
1.6 OPTIONS. (a) At the Effective Time, each option granted by Mercantile
to purchase shares of Mercantile Common Stock that is outstanding and
unexercised immediately prior thereto shall cease to represent a right to
acquire shares of Mercantile Common Stock and shall be converted automatically
into an option to purchase shares of Firstar Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of the Mercantile Stock Plans and the agreements evidencing grants thereunder):
(i) The number of shares of Firstar Common Stock to be subject to the new
option shall be equal to the product of the number of shares of
Mercantile Common Stock subject to the original option and the Exchange
Ratio, PROVIDED that any fractional shares of Firstar Common Stock
resulting from such multiplication shall be rounded to the nearest whole
share; and
(ii) The exercise price per share of Firstar Common Stock under the new
option shall be equal to the exercise price per share of Mercantile
Common Stock under the original option divided by the Exchange Ratio,
PROVIDED that such exercise price shall be rounded to the nearest whole
cent.
(b) The adjustment provided herein with respect to any options that are
"incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code")) shall be and is intended to be effected
in a manner that is consistent with Section 424(a) of the Code. The duration and
other terms of the new option shall be the same as the original option, except
that all references to Mercantile shall be deemed to be references to Firstar.
1.7 CERTIFICATE OF INCORPORATION. Subject to the terms and conditions of
this Agreement, at the Effective Time, the Articles of Incorporation of Firstar,
as the same may be amended as permitted hereby at the Effective Time (the
"Firstar Articles"), shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law, except
that the first sentence of Section 1 of Article III thereof shall state in its
entirety:
A-4
<PAGE>
(1) The number of shares which the Corporation shall have authority to
issue is 1,610,000,000, divided into the following classes:
(a) 1,600,000,000 shares of the par value of $.01 each, designated
as "Common Stock"; and
(b) 10,000,000 shares of the par value of $1.00 each, designated as
"Preferred Stock."
1.8 BY-LAWS. Subject to the terms and conditions of this Agreement, at the
Effective Time, the By-Laws of Firstar shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.9 TAX AND ACCOUNTING CONSEQUENCES. It is intended that the Merger shall
constitute a "reorganization" within the meaning of Section 368(a) of the Code,
that this Agreement shall constitute a "plan of reorganization" for the purposes
of Sections 354 and 361 of the Code and that the Merger shall be accounted for
as a "pooling of interests" under generally accepted accounting principles
("GAAP").
1.10 BOARD OF DIRECTORS; MANAGEMENT. The directors and officers of Firstar
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation of the Surviving Corporation until their respective successors
are duly elected or appointed and qualified.
1.11 HEADQUARTERS OF SURVIVING CORPORATION. From and after the Effective
Time, the location of the headquarters and principal executive offices of the
Surviving Corporation shall be that of the headquarters and principal executive
offices of Firstar as of the date of this Agreement.
ARTICLE II
EXCHANGE OF SHARES
2.1 FIRSTAR TO MAKE SHARES AVAILABLE. At or prior to the Effective Time,
Firstar shall deposit, or shall cause to be deposited, with Firstar Bank
Milwaukee, N.A., or another bank or trust company reasonably acceptable to each
of Mercantile and Firstar (the "Exchange Agent"), for the benefit of the holders
of Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Firstar Common Stock, and cash in lieu of any
fractional shares (such cash and certificates for shares of Firstar Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund"), to be issued pursuant to
Section 1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding
shares of Mercantile Common Stock.
2.2 EXCHANGE OF SHARES. (a) As soon as practicable after the Effective
Time, and in no event later than five business days thereafter, the Exchange
Agent shall mail to each holder of record of one or more Certificates a letter
of transmittal (which shall specify that
A-5
<PAGE>
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing the shares of Firstar Common Stock and any cash in
lieu of fractional shares into which the shares of Mercantile Common Stock
represented by such Certificate or Certificates shall have been converted
pursuant to this Agreement. Upon proper surrender of a Certificate or
Certificates for exchange and cancellation to the Exchange Agent, together with
such properly completed letter of transmittal, duly executed, the holder of such
Certificate or Certificates shall be entitled to receive in exchange therefor,
as applicable, (i) a certificate representing that number of whole shares of
Firstar Common Stock to which such holder of Mercantile Common Stock shall have
become entitled pursuant to the provisions of Article I and (ii) a check
representing the amount of any cash in lieu of fractional shares that such
holder has the right to receive in respect of the Certificate or Certificates
surrendered pursuant to the provisions of this Article II, and the Certificate
or Certificates so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on any cash in lieu of fractional shares or on any unpaid
dividends and distributions payable to holders of Certificates.
(b) No dividends or other distributions declared with respect to Firstar
Common Stock shall be paid to the holder of any unsurrendered Certificate until
the holder thereof shall surrender such Certificate in accordance with this
Article II. After the surrender of a Certificate in accordance with this Article
II, the record holder thereof shall be entitled to receive any such dividends or
other distributions, without any interest thereon, that theretofore had become
payable with respect to shares of Firstar Common Stock represented by such
Certificate.
(c) If any certificate representing shares of Firstar Common Stock is to be
issued in a name other than that in which the Certificate or Certificates
surrendered in exchange therefor is or are registered, it shall be a condition
of the issuance thereof that the Certificate or Certificates so surrendered
shall be properly endorsed (or accompanied by an appropriate instrument of
transfer) and otherwise in proper form for transfer, and that the person
requesting such exchange shall pay to the Exchange Agent in advance any transfer
or other taxes required by reason of the issuance of a certificate representing
shares of Firstar Common Stock in any name other than that of the registered
holder of the Certificate or Certificates surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Mercantile of the shares of Mercantile Common Stock that were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented for transfer to the Exchange Agent,
they shall be cancelled and exchanged for certificates representing shares of
Firstar Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Firstar Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Firstar Common Stock shall be payable on or with
respect to any fractional share, and such fractional share
A-6
<PAGE>
interests shall not entitle the owner thereof to vote or to any other rights of
a shareholder of Firstar. In lieu of the issuance of any such fractional share,
Firstar shall pay to each former shareholder of Mercantile who otherwise would
be entitled to receive such fractional share an amount in cash determined by
multiplying (i) the closing-sale price of Firstar Common Stock on the New York
Stock Exchange, Inc. (the "NYSE") as reported by THE WALL STREET JOURNAL for the
trading day immediately preceding the date of the Effective Time by (ii) the
fraction of a share (rounded to the nearest thousandth when expressed in decimal
form) of Firstar Common Stock to which such holder would otherwise be entitled
to receive pursuant to Section 1.4.
(f) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Mercantile for 12 months after the Effective Time shall be paid
to Firstar. Any former shareholders of Mercantile who have not theretofore
complied with this Article II shall thereafter look only to Firstar for payment
of the shares of Firstar Common Stock, cash in lieu of any fractional shares and
any unpaid dividends and distributions on the Firstar Common Stock deliverable
in respect of each share of Mercantile Common Stock, as the case may be, such
shareholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of Mercantile,
Firstar, the Exchange Agent or any other person shall be liable to any former
holder of shares of Mercantile Common Stock for any amount delivered in good
faith to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if reasonably required by
Firstar, the posting by such person of a bond in such amount as Firstar may
determine is reasonably necessary as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the shares of Firstar
Common Stock and any cash in lieu of fractional shares deliverable in respect
thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRSTAR
Except as disclosed in the Firstar disclosure schedule delivered to
Mercantile concurrently herewith (the "Firstar Disclosure Schedule") Firstar
hereby represents and warrants to Mercantile as follows:
3.1 CORPORATE ORGANIZATION. (a) Firstar is a corporation duly organized,
validly existing and in good standing under the laws of the State of Wisconsin.
Firstar has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, either individually or in the
A-7
<PAGE>
aggregate, have a Material Adverse Effect on Firstar. As used in this Agreement,
the term "Material Adverse Effect" means, with respect to Mercantile, Firstar or
the Surviving Corporation, as the case may be, a material adverse effect on (i)
the business, operations, results of operations or financial condition of such
party and its Subsidiaries taken as a whole or (ii) the ability of such party to
timely consummate the transactions contemplated hereby. As used in this
Agreement, the word "Subsidiary", when used with respect to any party, means any
bank, corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, that is consolidated with
such party for financial reporting purposes. Firstar is duly registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended (the
"BHC Act").
(b) Each Firstar Subsidiary (i) is duly organized and validly existing under
the laws of its jurisdiction of organization, (ii) is duly qualified to do
business and in good standing in all jurisdictions (whether federal, state,
local or foreign) where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and in which the failure to be so
qualified would have a Material Adverse Effect on Firstar and (iii) has all
requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
3.2 CAPITALIZATION. (a) The authorized capital stock of Firstar consists
of (i) 800,000,000 shares of Firstar Common Stock, of which, as of March 31,
1999, 661,214,244 shares were issued and outstanding and 2,887,734 shares were
held in treasury, (ii) 10,000,000 shares of preferred stock, par value $1.00 per
share (the "Firstar Preferred Stock" and, together with the Firstar Common
Stock, the "Firstar Capital Stock"), of which, as of the date hereof, no shares
are issued and outstanding. All of the issued and outstanding shares of Firstar
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except
pursuant to the terms of (i) the Firstar Option Agreement, (ii) options and
stock issued pursuant to employee and director stock plans of Firstar in effect
as of the date hereof (the "Firstar Stock Plans") and (iii) the Firstar Rights
Agreement, Firstar does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Firstar Capital
Stock or any other equity securities of Firstar or any securities representing
the right to purchase or otherwise receive any shares of Firstar Capital Stock
(collectively, including the items contemplated by clauses (i) through (iii) of
this sentence, the "Firstar Rights"). As of March 31, 1999, no shares of Firstar
Capital Stock were reserved for issuance, except for 65,460,211 shares of
Firstar Common Stock reserved for issuance upon exercise of the Firstar Option
Agreement, no shares of Firstar Common Stock reserved for issuance in connection
with the Firstar Dividend Reinvestment Plan (the "Firstar DRIP"), 25,897,722
shares of Firstar Common Stock reserved for issuance upon the exercise of stock
options pursuant to the Firstar Stock Plans and 2,300,000 shares of Series A
Junior Participating Preferred Stock reserved for issuance in connection with
the Firstar Rights Agreement. Since March 31, 1999, Firstar has not issued any
shares of its capital stock or any securities convertible into or exercisable
for any shares of its capital stock, other than as would be permitted by Section
5.2 hereof and pursuant to the Firstar Option Agreement.
A-8
<PAGE>
(b) Firstar owns, directly or indirectly, all of the issued and outstanding
shares of capital stock or other equity ownership interests of each of the
Firstar Subsidiaries, free and clear of any liens, pledges, charges,
encumbrances and security interests whatsoever ("Liens"), and all of such shares
or equity ownership interests are duly authorized and validly issued and are
fully paid, nonassessable (subject to 12 U.S.C. Section 55) and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. No Firstar Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary. Section 3.2(b) of the Firstar Disclosure Schedule sets forth a
list of the material investments of Firstar in corporations, joint ventures,
partnerships, limited liability companies and other entities other than its
Subsidiaries (each, a "Non-Subsidiary Affiliate").
3.3 AUTHORITY; NO VIOLATION. (a) Firstar has full corporate power and
authority to execute and deliver this Agreement and each of the Option
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Option Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors of Firstar. The Board of
Directors of Firstar has directed that this Agreement and the transactions
contemplated hereby be submitted to Firstar's shareholders for approval at a
meeting of such shareholders and, except for the approval of this Agreement and
the transactions contemplated hereby by the affirmative vote of the holders of a
majority of the outstanding shares of Firstar Common Stock entitled to vote
thereon, no corporate proceedings on the part of Firstar are necessary to
approve this Agreement and the Option Agreements and to consummate the
transactions contemplated hereby and thereby. This Agreement and each of the
Option Agreements have been duly and validly executed and delivered by Firstar
and (assuming due authorization, execution and delivery by Mercantile)
constitute valid and binding obligations of Firstar, enforceable against Firstar
in accordance with their terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement and the Option
Agreements by Firstar nor the consummation by Firstar of the transactions
contemplated hereby or thereby, nor compliance by Firstar with any of the terms
or provisions hereof or thereof, will (i) violate any provision of the Firstar
Articles or By-Laws or (ii) assuming that the consents and approvals referred to
in Section 3.4 are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Firstar, any of its Subsidiaries or Non-Subsidiary Affiliates or any of their
respective properties or assets or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event that, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Firstar, any of its Subsidiaries or Non-Subsidiary Affiliates under,
any of the terms, conditions or provisions of any note, bond, mortgage, inden-
A-9
<PAGE>
ture, deed of trust, license, lease, agreement or other instrument or obligation
to which Firstar, any of its Subsidiaries or its Non-Subsidiary Affiliates is a
party, or by which they or any of their respective properties or assets may be
bound or affected, except (in the case of clause (y) above) for such violations,
conflicts, breaches or defaults that, either individually or in the aggregate,
will not have a Material Adverse Effect on Firstar.
3.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act and the Federal Reserve
Act, as amended, and approval of such applications and notices, (ii) the filing
of any required applications or notices with any state or foreign agencies and
approval of such applications and notices (the "State Approvals"), (iii) the
filing with the Securities and Exchange Commission (the "SEC") of a joint proxy
statement in definitive form relating to the meetings of Mercantile's and
Firstar's shareholders to be held in connection with this Agreement and the
transactions contemplated hereby (the "Joint Proxy Statement"), and of the
registration statement on Form S-4 (the "S-4") in which the Joint Proxy
Statement will be included as a prospectus, (iv) the filing of the Wisconsin
Articles with the Wisconsin Department pursuant to the WBCL, (v) the filing of
the Missouri Articles with the Missouri Secretary pursuant to the MBCL, (vi) any
consents, authorizations, approvals, filings or exemptions in connection with
compliance with the applicable provisions of federal and state securities laws
relating to the regulation of broker-dealers, investment advisers or transfer
agents, and federal commodities laws relating to the regulation of futures
commission merchants and the rules and regulations thereunder and of any
applicable industry self-regulatory organization ("SRO"), and the rules of the
NYSE, or that are required under consumer finance, mortgage banking and other
similar laws and (vii) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the issuance of the shares of Firstar Common Stock pursuant to this
Agreement, no consents or approvals of or filings or registrations with any
court, administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") are necessary in connection with
(A) the execution and delivery by Firstar of this Agreement and the Option
Agreements and (B) the consummation by Firstar of the transactions contemplated
hereby and thereby.
3.5 REPORTS. Firstar and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1997 with (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance
Corporation, (iii) any state regulatory authority (each a "State Regulator"),
(iv) the Office of the Comptroller of the Currency (the "OCC"), (v) the SEC and
(vi) any SRO (collectively "Regulatory Agencies"), and all other reports and
statements required to be filed by them since January 1, 1997, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state, or any Regulatory
Agency, and have paid all fees and assessments due and payable in connection
therewith, except where the failure to file such report, registration or
statement or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect on Firstar. Except for normal
examinations conducted by a Regulatory Agency in the ordinary course of the
business of Firstar and its Subsidiaries, no
A-10
<PAGE>
Regulatory Agency has initiated any proceeding or, to the best knowledge of
Firstar, investigation into the business or operations of Firstar or any of its
Subsidiaries since January 1, 1997, except where such proceedings or
investigation will not, either individually or in the aggregate, have a Material
Adverse Effect on Firstar. There is no unresolved violation, criticism, or
exception by any Regulatory Agency with respect to any report or statement
relating to any examinations of Firstar or any of its Subsidiaries that, in the
reasonable judgment of Firstar, will, either individually or in the aggregate,
have a Material Adverse Effect on Firstar.
3.6 FINANCIAL STATEMENTS. The consolidated balance sheets of Firstar and
its Subsidiaries as of December 31, for the fiscal years 1997 and 1998, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the fiscal years 1996 through 1998, inclusive, are reported in
Firstar's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(the "Firstar 10-K") filed with the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and are accompanied by the audit report
of PricewaterhouseCoopers LLP, independent public accountants with respect to
Firstar. The December 31, 1998 consolidated balance sheet of Firstar (including
the related notes, where applicable) fairly presents in all material respects
the consolidated financial position of Firstar and its Subsidiaries as of the
date thereof, and the other financial statements referred to in this Section 3.6
(including the related notes, where applicable) fairly present in all material
respects the results of the consolidated operations and changes in shareholders'
equity and consolidated financial position of Firstar and its Subsidiaries for
the respective fiscal periods or as of the respective dates therein set forth;
each of such statements (including the related notes, where applicable) complies
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto; and each of
such statements (including the related notes, where applicable) has been
prepared in all material respects in accordance with GAAP consistently applied
during the periods involved, except, in each case, as indicated in such
statements or in the notes thereto. The books and records of Firstar and its
Subsidiaries have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
3.7 BROKER'S FEES. Except for Credit Suisse First Boston Corporation, none
of Firstar nor any Firstar Subsidiary nor any of their respective officers or
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with the Merger or
related transactions contemplated by this Agreement or the Option Agreements.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Except as publicly disclosed
in Firstar Reports filed prior to the date hereof, since December 31, 1998, no
event or events have occurred that have had, either individually or in the
aggregate, a Material Adverse Effect on Firstar.
A-11
<PAGE>
(b) Except as publicly disclosed in Firstar Reports filed prior to the date
hereof, since December 31, 1998, Firstar and its Subsidiaries have carried on
their respective businesses in all material respects in the ordinary course.
(c) Since December 31, 1998, neither Firstar nor any of its Subsidiaries has
suffered any strike, work stoppage, slowdown, or other labor disturbance that
will, either individually or in the aggregate, have a Material Adverse Effect on
Firstar.
3.9 LEGAL PROCEEDINGS. (a) Neither Firstar nor any of its Subsidiaries is
a party to any, and there are no pending or, to the best of Firstar's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against
Firstar or any of its Subsidiaries or challenging the validity or propriety of
the transactions contemplated by this Agreement or the Firstar Option Agreement
as to which, in any such case, there is a reasonable probability of an adverse
determination and that, if adversely determined, will, either individually or in
the aggregate, have a Material Adverse Effect on Firstar.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies or banks) imposed upon Firstar, any of its Subsidiaries or the assets
of Firstar or any of its Subsidiaries that has had, or will have, either
individually or in the aggregate, a Material Adverse Effect on Firstar or the
Surviving Corporation.
3.10 TAXES AND TAX RETURNS. (a) Each of Firstar and its Subsidiaries has
duly filed all federal, state, foreign and local information returns and tax
returns required to be filed by it on or prior to the date hereof (all such
returns being accurate and complete in all material respects) and has duly paid
or made provisions for the payment of all Taxes and other governmental charges
that have been incurred or are due or claimed to be due from it by federal,
state, foreign or local taxing authorities on or prior to the date of this
Agreement (including, without limitation, if and to the extent applicable, those
due in respect of its properties, income, business, capital stock, deposits,
franchises, licenses, sales and payrolls) other than (i) Taxes or other charges
that are not yet delinquent or are being contested in good faith and have not
been finally determined, or (ii) information returns, tax returns, Taxes or
other governmental charges as to which the failure to file, pay or make
provision for will not, either individually or in the aggregate, have a Material
Adverse Effect on Firstar. The federal and material state income tax returns of
Firstar and its Subsidiaries have been examined by the Internal Revenue Service
(the "IRS") or the relevant state taxing authorities, as the case may be, for
all years to and including 1993 and any liability with respect thereto has been
satisfied or any liability with respect to deficiencies asserted as a result of
such examination has been reserved against in accordance with GAAP. To the best
of Firstar's knowledge, there are no material disputes pending, or claims
asserted for, Taxes or assessments upon Firstar or any of its Subsidiaries for
which Firstar has not established reserves in accordance with GAAP. In addition,
(A) proper and accurate amounts have been withheld by Firstar and its
Subsidiaries from their employees for all prior periods in compliance in all
material respects with the tax withholding provisions of applicable federal,
state and local laws, except where failure to do
A-12
<PAGE>
so will not, either individually or in the aggregate, have a Material Adverse
Effect on Firstar, (B) federal, state, and local returns that are accurate and
complete in all material respects have been filed by Firstar and its
Subsidiaries for all periods for which returns were due with respect to income
tax withholding, Social Security and unemployment taxes, except where failure to
do so will not, either individually or in the aggregate, have a Material Adverse
Effect on Firstar, (C) the amounts shown on such federal, state or local returns
to be due and payable have been paid in full or provision therefor has been
included by Firstar in its consolidated financial statements in accordance with
GAAP, except where failure to do so will not, either individually or in the
aggregate, have a Material Adverse Effect on Firstar and (D) there are no Tax
liens upon any property or assets of Firstar or its Subsidiaries except liens
for current Taxes not yet due or liens that will not, either individually or in
the aggregate, have a Material Adverse Effect on Firstar. Neither Firstar nor
any of its Subsidiaries has been required to include in income any adjustment
pursuant to Section 481 of the Code by reason of a voluntary change in
accounting method initiated by Firstar or any of its Subsidiaries, and the IRS
has not initiated or proposed in writing any such adjustment or change in
accounting method, in either case that has had or will have, either individually
or in the aggregate, a Material Adverse Effect on Firstar. Except as set forth
in the financial statements described in Section 3.6 (including the related
notes, where applicable), neither Firstar nor any of its Subsidiaries has
entered into a transaction that is being accounted for as an installment
obligation under Section 453 of the Code, that will have, either individually or
in the aggregate, a Material Adverse Effect on Firstar.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all federal,
state, local, and foreign income, excise, gross receipts, gross income, AD
VALOREM, profits, gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles, franchise, backup
withholding, and other taxes, charges, levies or like assessments together with
all penalties and additions to tax and interest thereon.
(c) No deduction has been disallowed under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by Firstar or any Subsidiary
of Firstar under any contract, plan, program, arrangement or understanding.
3.11 EMPLOYEE BENEFIT PLANS. (a) The Firstar Disclosure Schedule sets
forth a true and complete list of each material employee or director benefit,
employment or compensation plan, arrangement or agreement that is maintained, or
contributed to, as of the date of this Agreement (the "Firstar Benefit Plans")
by Firstar, any of its Subsidiaries or by any trade or business, whether or not
incorporated (a "Firstar ERISA Affiliate"), all of which together with Firstar
would be deemed a "single employer" within the meaning of Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Firstar has heretofore made available to Mercantile true and complete
copies of each of the Firstar Benefit Plans and certain related documents,
including, but not limited to, (i) the actuarial report for such Firstar Benefit
Plan (if applicable) for each of the last two years and (ii) the most recent
determination letter from the IRS (if applicable) for such Firstar Benefit Plan.
A-13
<PAGE>
(c) (i) Each of the Firstar Benefit Plans has been operated and administered
in all material respects in compliance with applicable laws, including, but not
limited to, ERISA and the Code, (ii) each of the Firstar Benefit Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code is so
qualified, and, to the knowledge of Firstar, there are no existing circumstances
or any events that have occurred that will adversely affect the qualified status
of any such Firstar Benefit Plan, (iii) with respect to each Firstar Benefit
Plan that is subject to Title IV of ERISA, the present value of accrued benefits
under such Firstar Benefit Plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such Firstar
Benefit Plan's actuary with respect to such Firstar Benefit Plan, did not, as of
its latest valuation date, exceed the then-current value of the assets of such
Firstar Benefit Plan allocable to such accrued benefits, (iv) no Firstar Benefit
Plan provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees or
directors of Firstar or its Subsidiaries beyond their retirement or other
termination of service, other than (A) coverage mandated by applicable law, (B)
death benefits or retirement benefits under any "employee pension plan" (as such
term is defined in Section 3(2) of ERISA), (C) deferred compensation benefits
accrued as liabilities on the books of Firstar or its Subsidiaries or (D)
benefits the full cost of which is borne by the current or former employee or
director (or his or her beneficiary), (v) no material liability under Title IV
of ERISA has been incurred by Firstar, its Subsidiaries or any Firstar ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Firstar, its Subsidiaries or any Firstar ERISA
Affiliate of incurring a material liability thereunder, (vi) no Firstar Benefit
Plan is a "multiemployer pension plan" (as such term is defined in Section 3(37)
of ERISA), (vii) all contributions or other amounts payable by Firstar or its
Subsidiaries as of the Effective Time with respect to each Firstar Benefit Plan
in respect of current or prior plan years have been paid or accrued in
accordance with GAAP and Section 412 of the Code, (viii) none of Firstar, its
Subsidiaries or any other person, including any fiduciary, has engaged in a
transaction in connection with which Firstar, its Subsidiaries or any Firstar
Benefit Plan will be subject to either a material civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to
Section 4975 or 4976 of the Code, and (ix) to the best knowledge of Firstar
there are no pending, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Firstar Benefit
Plans or any trusts related thereto that will have, either individually or in
the aggregate, a Material Adverse Effect on Firstar.
(d) Neither the execution and delivery of this Agreement nor the shareholder
approval or consummation of the transactions contemplated hereby will (either
alone or in conjunction with any other event) (i) result (either alone or upon
the occurrence of any additional acts or events) in any payment (including,
without limitation, severance, unemployment compensation, "excess parachute
payment" (within the meaning of Section 280G of the Code), forgiveness of
indebtedness or otherwise) becoming due to any director or any employee of
Firstar or any of its affiliates from Firstar or any of its affiliates under any
Firstar Benefit Plan or otherwise, (ii) increase or affect the calculation of
the amount of any benefits otherwise payable under any Firstar Benefit Plan or
(iii) result in any acceleration of the time of payment or vesting of any such
benefits.
A-14
<PAGE>
3.12 SEC REPORTS. No (a) final registration statement, prospectus, report,
schedule and definitive proxy statement filed since January 1, 1997 by Firstar
with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act (the "Firstar Reports") and prior to the date hereof
or (b) communication mailed by Firstar to its shareholders since January 1, 1997
and prior to the date hereof, as of the date thereof, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading, except that
information as of a later date (but before the date hereof) shall be deemed to
modify information as of an earlier date. Since January 1, 1997, as of their
respective dates, all Firstar Reports filed under the Securities Act and the
Exchange Act complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
3.13 COMPLIANCE WITH APPLICABLE LAW. (a) Firstar and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and have complied in all material respects with and are not in
default in any material respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to
Firstar or any of its Subsidiaries, except where the failure to hold such
license, franchise, permit or authorization or such noncompliance or default
will not, either individually or in the aggregate, have a Material Adverse
Effect on Firstar.
(b) Except as will not have, either individually or in the aggregate, a
Material Adverse Effect on Firstar, Firstar and each Firstar Subsidiary have
properly administered all accounts for which it acts as a fiduciary, including
accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents, applicable state and federal law and
regulation and common law. None of Firstar, any Firstar Subsidiary, or any
director, officer or employee of Firstar or of any Firstar Subsidiary, has
committed any breach of trust with respect to any such fiduciary account that
will have a Material Adverse Effect on Firstar, and the accountings for each
such fiduciary account are true and correct in all material respects and
accurately reflect the assets of such fiduciary account.
3.14 CERTAIN CONTRACTS. (a) Neither Firstar nor any of its Subsidiaries is
a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers or employees, other than in the ordinary course of business consistent
with past practice, (ii) that is a "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date
of this Agreement that has not been filed or incorporated by reference in the
Firstar Reports, (iii) that materially restricts the conduct of any line of
business by Firstar or upon consummation of the Merger will materially restrict
the ability of the Surviving Corporation to engage in any line of business in
which a bank holding company may lawfully engage or (iv) with or to a labor
union or guild (including any collective bargaining agreement). Firstar has
previously made available to Mercantile true and correct copies of all
employment and deferred compensation agreements that are in writing and to which
Firstar is a party. Each
A-15
<PAGE>
contract, arrangement, commitment or understanding of the type described in this
Section 3.14(a) and in Section 3.11(a), whether or not set forth in the Firstar
Disclosure Schedule, is referred to herein as a "Firstar Contract", and neither
Firstar nor any of its Subsidiaries knows of, or has received notice of, any
violation of the above by any of the other parties thereto that, either
individually or in the aggregate, will have a Material Adverse Effect on
Firstar.
(b) (i) Each Firstar Contract is valid and binding on Firstar or any of its
Subsidiaries, as applicable, and in full force and effect, (ii) Firstar and each
of its Subsidiaries has in all material respects performed all obligations
required to be performed by it to date under each Firstar Contract, except where
such noncompliance, either individually or in the aggregate, will not have a
Material Adverse Effect on Firstar, and (iii) no event or condition exists that
constitutes or, after notice or lapse of time or both, will constitute, a
material default on the part of Firstar or any of its Subsidiaries under any
such Firstar Contract, except where such default, either individually or in the
aggregate, will not have a Material Adverse Effect on Firstar.
3.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither Firstar nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1997, a recipient of any supervisory letter from, or since January 1,
1997, has adopted any board resolutions at the request of any Regulatory Agency
or other Governmental Entity that currently restricts in any material respect
the conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business (each,
whether or not set forth in the Firstar Disclosure Schedule, a "Firstar
Regulatory Agreement"), nor has Firstar or any of its Subsidiaries been advised
since January 1, 1997, by any Regulatory Agency or other Governmental Entity
that it is considering issuing or requesting any such Regulatory Agreement.
3.16 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All derivative
instruments, as such term is used in Statement of Financial Accounting Standards
No. 133 (including, without limitation, interest rate swaps, caps, floors and
option agreements and other interest rate risk management arrangements)
("Derivative Instruments"), to which Firstar or any of its Subsidiaries is a
party, whether entered into for the account of Firstar or for the account of a
customer of Firstar or one of its Subsidiaries, were entered into in the
ordinary course of business and, to Firstar's knowledge, in accordance with
prudent banking practice and applicable rules, regulations and policies of any
Regulatory Authority and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations of Firstar
or one of its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. Firstar and each of its
Subsidiaries have duly performed in all material respects all of their material
obligations thereunder to the extent that such obligations to perform have
accrued; and, to Firstar's knowledge, there are no material breaches, violations
or defaults or allegations or assertions of such by any party thereunder.
A-16
<PAGE>
3.17 UNDISCLOSED LIABILITIES. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Firstar
included in the Firstar December 31, 1998 Form 10-K and for liabilities incurred
in the ordinary course of business consistent with past practice, since December
31, 1998, neither Firstar nor any of its Subsidiaries has incurred any liability
of any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either individually or in the aggregate, has
had or will have a Material Adverse Effect on Firstar.
3.18 INSURANCE. Firstar and its Subsidiaries have in effect insurance
coverage with reputable insurers or are self-insured, that in respect of
amounts, premiums, types and risks insured, constitutes reasonably adequate
coverage against all risks customarily insured against by bank holding companies
and their subsidiaries comparable in size and operations to Firstar and its
Subsidiaries.
3.19 ENVIRONMENTAL LIABILITY. There are no legal, administrative, arbitral
or other proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that could reasonably result in the imposition, on
Firstar of any liability or obligation arising under common law or under any
local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), pending or
threatened against Firstar, which liability or obligation will, either
individually or in the aggregate, have a Material Adverse Effect on Firstar. To
the knowledge of Firstar, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any liability or
obligation that will, individually or in the aggregate, have a Material Adverse
Effect on Firstar. Firstar is not subject to any agreement, order, judgment,
decree, letter or memorandum by or with any Governmental Entity, regulatory
agency or third party imposing any liability or obligation with respect to the
foregoing that will have, either individually or in the aggregate, a Material
Adverse Effect on Firstar.
3.20 CHARTER PROVISIONS; STATE TAKEOVER LAWS; FIRSTAR RIGHTS
AGREEMENT. (a) The provisions of Section 1131 of the WBCL are not applicable to
this Agreement, the Firstar Option Agreement or the transactions contemplated
hereby or thereby. The Board of Directors of Firstar has approved the
transactions contemplated by this Agreement and the Firstar Option Agreement for
purposes of Article V of the Firstar Articles and Section 1141 of the WBCL such
that the provisions of such Article V and such Section 1141 will not apply to
this Agreement or Firstar Option Agreement or any of the transactions
contemplated hereby or thereby.
(b) Firstar has taken all action, if any, necessary or appropriate so that
the entering into of this Agreement and the Firstar Option Agreement, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not result in the ability of any person to exercise any Firstar Shareholder
Rights under the Firstar Rights Agreement or enable or require the Firstar
Shareholder Rights to separate from the shares of Firstar Common Stock to which
they are attached or to be triggered or become exercisable. No "Distribution
Date" or "Shares Acquisition Date" (as such terms are defined in the Firstar
Rights Plan) has occurred.
A-17
<PAGE>
3.21 YEAR 2000. None of Firstar or any of the Firstar Subsidiaries has
received, or reasonably expects to receive, a "Year 2000 Deficiency Notification
Letter" (as such term is employed in the Federal Reserve Board's Supervision and
Regulation Letter No. SR 98-3(SUP), dated March 4, 1998). Firstar has made
available to Mercantile a complete and accurate copy of Firstar's plan,
including an estimate of the anticipated associated costs, for addressing the
issues ("Year 2000 Issues") set forth in the interagency statements of the
Federal Financial Institutions Examination Council addressed to the boards of
directors and chief executive officers of all federally supervised financial
institutions regarding Year 2000 safety and soundness for insured depository
institutions. Between the date of this Agreement and the Effective Time, Firstar
shall use reasonable best efforts to implement such plan. Firstar and its
Subsidiaries has complied in all material respects with the "Interagency
Guidelines Establishing Year 2000 Standards for Safety and Soundness" issued
pursuant to Section 39 of the Federal Deposit Insurance Act and effective
October 15, 1998.
3.22 REORGANIZATION; POOLING OF INTERESTS. As of the date of this
Agreement, Firstar has no reason to believe that the Merger will not qualify as
a "reorganization" within the meaning of Section 368(a) of the Code and as a
"pooling of interests" for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERCANTILE
Except as disclosed in the Mercantile disclosure schedule delivered to
Firstar concurrently herewith (the "Mercantile Disclosure Schedule") Mercantile
hereby represents and warrants to Firstar as follows:
4.1 CORPORATE ORGANIZATION. (a) Mercantile is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Missouri. Mercantile has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, either individually or in the aggregate, have a Material Adverse
Effect on Mercantile. Mercantile is duly registered as a bank holding company
under the BHC Act. True and complete copies of the Articles of Incorporation of
Mercantile (the "Mercantile Articles") and By-Laws of Mercantile, as in effect
as of the date of this Agreement, have previously been made available by
Mercantile to Firstar.
(b) Each Mercantile Subsidiary (i) is duly organized and validly existing
under the laws of its jurisdiction of organization, (ii) is duly qualified to do
business and in good standing in all jurisdictions (whether Federal, state,
local or foreign) where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and in which the failure
A-18
<PAGE>
to be so qualified would have a Material Adverse Effect on Mercantile, and (iii)
has all requisite corporate power and authority to own or lease its properties
and assets and to carry on its business as now conducted.
4.2 CAPITALIZATION. (a) The authorized capital stock of Mercantile
consists of 400,000,000 shares of Mercantile Common Stock, of which, as of March
31, 1999, 157,868,547 shares were issued and outstanding, and 5,000,000 shares
of preferred stock, no par value ("Mercantile Preferred Stock" and, together
with the Mercantile Common Stock, the "Mercantile Capital Stock"), of which none
is issued and outstanding as of the date hereof. As of March 31, 1999, 47,363
shares of Mercantile Common Stock were held in Mercantile's treasury. As of the
date hereof, no shares of Mercantile Common Stock or Mercantile Preferred Stock
were reserved for issuance, except for (i) the shares of Mercantile Common Stock
issuable pursuant to the Mercantile Option Agreement, (ii) 11,074,528 shares
reserved for issuance pursuant to employee and director stock plans of
Mercantile in effect as of the date hereof (the "Mercantile Stock Plans"), (iii)
2,000,000 shares reserved for issuance pursuant to the Mercantile Shareholder
Investment Plan (the "Mercantile DRIP") and (iv) 2,000,000 shares of Series B
Junior Participating Preferred Stock reserved for issuance pursuant to the
Mercantile Rights Agreement. All of the issued and outstanding shares of
Mercantile Capital Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this Agreement,
except for the Mercantile Option Agreement, the Mercantile Stock Plans and as
contemplated by the Mercantile Rights Agreement, Mercantile does not have and is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Mercantile Capital Stock or any other equity securities of
Mercantile or any securities representing the right to purchase or otherwise
receive any shares of Mercantile Capital Stock (collectively, "Mercantile
Rights"). Since March 31, 1999, Mercantile has not issued any shares of its
capital stock or any securities convertible into or exercisable for any shares
of its capital stock, other than as permitted by Section 5.2(b) and pursuant to
(A) the exercise of employee stock options granted prior to such date, (B) the
Mercantile DRIP and (C) pursuant to the Mercantile Option Agreement. Mercantile
shall terminate or suspend the Mercantile DRIP prior to the next record date to
be declared following the date hereof with respect to the quarterly dividend
payable on shares of Mercantile Common Stock (currently anticipated to be on or
about June 10, 1999) such that no shares of Mercantile Capital Stock shall
thereafter be issued or become issuable pursuant thereto (the date of such
termination or suspension, the "DRIP Suspension Date"). Mercantile has
previously provided Firstar with a list of the option holders, the date of each
option to purchase Mercantile Common Stock granted, the number of shares subject
to each such option, the expiration date of each such option and the price at
which each such option may be exercised under an applicable Mercantile Stock
Plan.
(b) Mercantile owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
of the Mercantile Subsidiaries, free and clear of any Liens, and all of such
shares or equity ownership interests are duly authorized and validly issued and
are fully paid, nonassessable (subject to 12 U.S.C. Section 55) and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. No Mercantile
A-19
<PAGE>
Subsidiary has or is bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of capital stock or any other equity security of such
Subsidiary or any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security of such
Subsidiary. Section 4.2(b) of the Mercantile Disclosure Schedule sets forth a
list of the material investments of Mercantile in Non-Subsidiary Affiliates.
4.3 AUTHORITY; NO VIOLATION. (a) Mercantile has full corporate power and
authority to execute and deliver this Agreement and each of the Option
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and each of the Option Agreements
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly approved by the Board of Directors of Mercantile. The
Board of Directors of Mercantile has directed that this Agreement and the
transactions contemplated hereby be submitted to Mercantile's shareholders for
adoption at a meeting of such shareholders and, except for the adoption of this
Agreement by the affirmative vote of the holders of two-thirds of the
outstanding shares of Mercantile Common Stock entitled to vote thereon, no other
corporate proceedings on the part of Mercantile are necessary to approve this
Agreement and the Option Agreements and to consummate the transactions
contemplated hereby and thereby. This Agreement and each of the Option
Agreements have been duly and validly executed and delivered by Mercantile and
(assuming due authorization, execution and delivery by Firstar) constitute valid
and binding obligations of Mercantile, enforceable against Mercantile in
accordance with their terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement or the Option
Agreements by Mercantile, nor the consummation by Mercantile of the transactions
contemplated hereby or thereby, nor compliance by Mercantile with any of the
terms or provisions hereof or thereof, will (i) violate any provision of the
Mercantile Articles or By-Laws, or (ii) assuming that the consents and approvals
referred to in Section 4.4 are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Mercantile, any of its Subsidiaries or Non-Subsidiary Affiliates
or any of their respective properties or assets or (y) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event that, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Mercantile, any of its Subsidiaries or its Non-Subsidiary Affiliates
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Mercantile, any of its Subsidiaries or Non-Subsidiary
Affiliates is a party, or by which they or any of their respective properties or
assets may be bound or affected, except (in the case of clause (y) above) for
such violations, conflicts, breaches or defaults that either individually or in
the aggregate will not have a Material Adverse Effect on Mercantile.
A-20
<PAGE>
4.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with the Federal Reserve Board under the BHC Act and the
Federal Reserve Act, as amended, and approval of such applications and notices,
(ii) the State Approvals, (iii) the filing with the SEC of the Joint Proxy
Statement and the S-4, (iv) the filing of the Wisconsin Articles with the
Wisconsin Department pursuant to the WBCL, (v) the filing of the Missouri
Articles with the Missouri Secretary pursuant to the MBCL, (vi) any consents,
authorizations, approvals, filings or exemptions in connection with compliance
with the applicable provisions of federal and state securities laws relating to
the regulation of broker-dealers, investment advisers or transfer agents, and
federal commodities laws relating to the regulation of futures commission
merchants and the rules and regulations thereunder and of any applicable SRO,
and the rules of the NYSE, or that are required under consumer finance, mortgage
banking and other similar laws and (vii) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of shares of Firstar Capital
Stock pursuant to this Agreement, no consents or approvals of or filings or
registrations with any Governmental Entity are necessary in connection with (A)
the execution and delivery by Mercantile of this Agreement and the Option
Agreements and (B) the consummation by Mercantile of the transactions
contemplated hereby or thereby.
4.5 REPORTS. Mercantile and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1997 with the Regulatory Agencies, and all other reports and statements required
to be filed by them since January 1, 1997, including, without limitation, any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, any state, or any Regulatory Agency, and have
paid all fees and assessments due and payable in connection therewith, except
where the failure to file such report, registration or statement or to pay such
fees and assessments, either individually or in the aggregate, will not have a
Material Adverse Effect on Mercantile. Except for normal examinations conducted
by a Regulatory Agency in the ordinary course of the business of Mercantile and
its Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the
best knowledge of Mercantile, investigation into the business or operations of
Mercantile or any of its Subsidiaries since January 1, 1997, except where such
proceedings or investigation will not have, either individually or in the
aggregate, a Material Adverse Effect on Mercantile. There is no unresolved
violation, criticism, or exception by any Regulatory Agency with respect to any
report or statement relating to any examinations of Mercantile or any of its
Subsidiaries that, in the reasonable judgment of Mercantile, will have, either
individually or in the aggregate, a Material Adverse Effect on Mercantile.
4.6 FINANCIAL STATEMENTS. Mercantile has previously made available to
Firstar copies of the consolidated balance sheets of Mercantile and its
Subsidiaries as of December 31, for the fiscal years 1997 and 1998, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the fiscal years 1996 through 1998, inclusive, as reported in
Mercantile's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 filed with the SEC under the Exchange Act (the "Mercantile 10-K"), in each
case accompanied by the audit report of KPMG LLP, independent public accountants
with respect to Mercantile. The December 31, 1998 consolidated balance sheet of
Mercantile (including the
A-21
<PAGE>
related notes, where applicable) fairly presents in all material respects the
consolidated financial position of Mercantile and its Subsidiaries as of the
date thereof, and the other financial statements referred to in this Section 4.6
(including the related notes, where applicable) fairly present in all material
respects the results of the consolidated operations and changes in shareholders'
equity and consolidated financial position of Mercantile and its Subsidiaries
for the respective fiscal periods or as of the respective dates therein set
forth; each of such statements (including the related notes, where applicable)
complies in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto; and
each of such statements (including the related notes, where applicable) has been
prepared in all material respects in accordance with GAAP consistently applied
during the periods involved, except, in each case, as indicated in such
statements or in the notes thereto. The books and records of Mercantile and its
Subsidiaries have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
4.7 BROKER'S FEES. Except for Donaldson, Lufkin & Jenrette and Morgan
Stanley & Co. Incorporated, none of Mercantile nor any Mercantile Subsidiary nor
any of their respective officers or directors has employed any broker or finder
or incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Merger or related transactions contemplated by this
Agreement or the Option Agreements.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Except as publicly disclosed
in Mercantile Reports filed prior to the date hereof, since December 31, 1998,
no event or events have occurred that has had, individually or in the aggregate,
a Material Adverse Effect on Mercantile.
(b) Except as publicly disclosed in Mercantile Reports filed prior to the
date hereof, since December 31, 1998, Mercantile and its Subsidiaries have
carried on their respective businesses in all material respects in the ordinary
course.
(c) Since December 31, 1998, neither Mercantile nor any of its Subsidiaries
has (i) except for such actions as are in the ordinary course of business or
except as required by applicable law, (A) increased the wages, salaries,
compensation, pension, or other fringe benefits or perquisites payable to any
executive officer, employee, or director from the amount thereof in effect as of
December 31, 1998, or (B) granted any severance or termination pay, entered into
any contract to make or grant any severance or termination pay, or paid any
bonuses, that in the aggregate exceed 5% of Mercantile's 1998 salary and
employee benefit expenses (other than customary year-end bonuses for fiscal 1998
and, if applicable, 1999) or (ii) suffered any strike, work stoppage, slowdown,
or other labor disturbance that will have, either individually or in the
aggregate, a Material Adverse Effect on Mercantile.
4.9 LEGAL PROCEEDINGS. (a) Neither Mercantile nor any of its Subsidiaries
is a party to any, and there are no pending or, to the best of Mercantile's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against Mercantile or any of its Subsidiaries or challenging
A-22
<PAGE>
the validity or propriety of the transactions contemplated by this Agreement or
the Mercantile Option Agreement as to which, in any such case, there is a
reasonable probability of an adverse determination and that, if adversely
determined, will have, either individually or in the aggregate, a Material
Adverse Effect on Mercantile.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies or banks) imposed upon Mercantile, any of its Subsidiaries or the
assets of Mercantile or any of its Subsidiaries that has had or will have,
either individually or in the aggregate, a Material Adverse Effect on Mercantile
or the Surviving Corporation.
4.10 TAXES AND TAX RETURNS. (a) Each of Mercantile and its Subsidiaries
has duly filed all federal, state, foreign and local information returns and tax
returns required to be filed by it on or prior to the date hereof (all such
returns being accurate and complete in all material respects) and has duly paid
or made provisions for the payment of all Taxes and other governmental charges
that have been incurred or are due or claimed to be due from it by federal,
state, foreign or local taxing authorities on or prior to the date of this
Agreement (including, without limitation, if and to the extent applicable, those
due in respect of its properties, income, business, capital stock, deposits,
franchises, licenses, sales and payrolls) other than (i) Taxes or other charges
that are not yet delinquent or are being contested in good faith and have not
been finally determined, or (ii) information returns, tax returns, Taxes or
other governmental charges as to which the failure to file, pay or make
provision for will not have, either individually or in the aggregate, a Material
Adverse Effect on Mercantile. The federal and material state income tax returns
of Mercantile and its Subsidiaries have been examined by the IRS or the relevant
state taxing authorities, as the case may be, through 1994 and any liability
with respect thereto has been satisfied or any liability with respect to
deficiencies asserted as a result of such examination has been reserved against
in accordance with GAAP. To the best of Mercantile's knowledge, there are no
material disputes pending, or claims asserted for, Taxes or assessments upon
Mercantile or any of its Subsidiaries for which Mercantile has not established
reserves in accordance with GAAP. In addition, (A) proper and accurate amounts
have been withheld by Mercantile and its Subsidiaries from their employees for
all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws, except where
failure to do so will not, either individually or in the aggregate, have a
Material Adverse Effect on Mercantile, (B) federal, state and local returns that
are accurate and complete in all material respects have been filed by Mercantile
and its Subsidiaries for all periods for which returns were due with respect to
income tax withholding, Social Security and unemployment taxes, except where
failure to do so will not, either individually or in the aggregate, have a
Material Adverse Effect on Mercantile, (C) the amounts shown on such federal,
state or local returns to be due and payable have been paid in full or provision
therefor has been included by Mercantile in its consolidated financial
statements in accordance with GAAP, except where failure to do so will not,
individually or in the aggregate, have a Material Adverse Effect on Mercantile
and (D) there are no Tax liens upon any property or assets of Mercantile or its
Subsidiaries except liens for current Taxes not yet due or liens that will not
have, either individually or in the aggregate, a Material Adverse Effect on
Mercantile. Neither Mercantile nor any of its Subsidiaries has been required to
in-
A-23
<PAGE>
clude in income any adjustment pursuant to Section 481 of the Code by reason of
a voluntary change in accounting method initiated by Mercantile or any of its
Subsidiaries, and the IRS has not initiated or proposed in writing any such
adjustment or change in accounting method, in either case, that has had or will
have, either individually or in the aggregate, a Material Adverse Effect on
Mercantile. Except as set forth in the financial statements described in Section
4.6 (including the related notes, where applicable), neither Mercantile nor any
of its Subsidiaries has entered into a transaction that is being accounted for
as an installment obligation under Section 453 of the Code, that will have,
either individually or in the aggregate, a Material Adverse Effect on
Mercantile.
(b) No deduction has been disallowed under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by Mercantile or any
Subsidiary of Mercantile under any contract, plan, program, arrangement or
understanding.
4.11 EMPLOYEE BENEFIT PLANS. (a) The Mercantile Disclosure Schedule sets
forth a true and complete list of each material employee benefit, employment or
compensation plan, arrangement or agreement that is maintained, or contributed
to, as of the date of this Agreement (the "Mercantile Benefit Plans") by
Mercantile, any of its Subsidiaries or by any trade or business, whether or not
incorporated (a "Mercantile ERISA Affiliate"), all of which together with
Mercantile would be deemed a "single employer" within the meaning of Section
4001 of ERISA.
(b) Mercantile has heretofore made available to Firstar true and complete
copies of each of the Mercantile Benefit Plans and certain related documents,
including, but not limited to, (i) the actuarial report for such Mercantile
Benefit Plan (if applicable) for the plan year ended December 31, 1998, and (ii)
the most recent determination letter from the IRS (if applicable) for such
Mercantile Benefit Plan.
(c) (i) Each of the Mercantile Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the Mercantile
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified, and, to the knowledge of Mercantile, there are no
existing circumstances or any events that have occurred that will adversely
affect the qualified status of any such Mercantile Benefit Plan, (iii) with
respect to each Mercantile Benefit Plan that is subject to Title IV of ERISA,
the present value of accrued benefits under such Mercantile Benefit Plan, based
upon the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such Mercantile Benefit Plan's actuary with respect
to such Mercantile Benefit Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Mercantile Benefit Plan
allocable to such accrued benefits, (iv) no Mercantile Benefit Plan provides
benefits, including, without limitation, death or medical benefits (whether or
not insured), with respect to current or former employees or directors of
Mercantile or its Subsidiaries beyond their retirement or other termination of
service, other than (A) coverage mandated by applicable law, (B) death benefits
or retirement benefits under any "employee pension plan" (as such term is
defined in Section 3(2) of ERISA), (C) deferred compensation benefits accrued as
liabilities on the books of Mercantile or its Subsidiaries or
A-24
<PAGE>
(D) benefits the full cost of which is borne by the current or former employee
or director (or his beneficiary), (v) no material liability under Title IV of
ERISA has been incurred by Mercantile, its Subsidiaries or any Mercantile ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Mercantile, its Subsidiaries or any Mercantile ERISA
Affiliate of incurring a material liability thereunder, (vi) no Mercantile
Benefit Plan is a "multiemployer pension plan" (as such term is defined in
Section 3(37) of ERISA), (vii) all contributions or other amounts payable by
Mercantile or its Subsidiaries as of the Effective Time with respect to each
Mercantile Benefit Plan in respect of current or prior plan years have been paid
or accrued in accordance with GAAP and Section 412 of the Code, (viii) none of
Mercantile, its Subsidiaries or any other person, including any fiduciary, has
engaged in a transaction in connection with which Mercantile, its Subsidiaries
or any Mercantile Benefit Plan will be subject to either a material civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax
imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to the best
knowledge of Mercantile there are no pending, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of the
Mercantile Benefit Plans or any trusts related thereto that will have, either
individually or in the aggregate, a Material Adverse Effect on Mercantile.
(d) Neither the execution and delivery of this Agreement nor the shareholder
approval or consummation of the transactions contemplated hereby will (either
alone or in conjunction with any other event) (i) result (either alone or upon
the occurrence of any additional acts or events) in any payment (including,
without limitation, severance, unemployment compensation, "excess parachute
payment" (within the meaning of Section 280G of the Code), forgiveness of
indebtedness or otherwise) becoming due to any director or any employee of
Mercantile or any of its affiliates from Mercantile or any of its affiliates
under any Mercantile Benefit Plan or otherwise, (ii) increase or affect the
calculation of the amount of any benefits otherwise payable under any Mercantile
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefits.
4.12 SEC REPORTS. Mercantile has previously made available to Firstar an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1997 by
Mercantile with the SEC pursuant to the Securities Act or the Exchange Act (the
"Mercantile Reports") and prior to the date hereof and (b) communication mailed
by Mercantile to its shareholders since January 1, 1997 and prior to the date
hereof, and no such Mercantile Report or communication, as of the date thereof,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date (but before the date
hereof) shall be deemed to modify information as of an earlier date. Since
January 1, 1997, as of their respective dates, all Mercantile Reports filed
under the Securities Act and the Exchange Act complied in all material respects
with the published rules and regulations of the SEC with respect thereto.
4.13 COMPLIANCE WITH APPLICABLE LAW. (a) Mercantile and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful con-
A-25
<PAGE>
duct of their respective businesses under and pursuant to each, and have
complied in all material respects with and are not in default in any material
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to Mercantile or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default will not, either individually
or in the aggregate, have a Material Adverse Effect on Mercantile.
(b) Except as will not have, either individually or in the aggregate, a
Material Adverse Effect on Mercantile, Mercantile and each Mercantile Subsidiary
have properly administered all accounts for which it acts as a fiduciary,
including accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents, applicable state and federal law and
regulation and common law. None of Mercantile, any Mercantile Subsidiary, or any
director, officer or employee of Mercantile or of any Mercantile Subsidiary, has
committed any breach of trust with respect to any such fiduciary account that
will have a Material Adverse Effect on Mercantile, and the accountings for each
such fiduciary account are true and correct in all material respects and
accurately reflect the assets of such fiduciary account.
4.14 CERTAIN CONTRACTS. (a) Neither Mercantile nor any of its Subsidiaries
is a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers or employees other than in the ordinary course of business consistent
with past practice, (ii) that is a "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date
of this Agreement that has not been filed or incorporated by reference in the
Mercantile Reports, (iii) that materially restricts the conduct of any line of
business by Mercantile or upon consummation of the Merger will materially
restrict the ability of the Surviving Corporation to engage in any line of
business in which a bank holding company may lawfully engage or (iv) with or to
a labor union or guild (including any collective bargaining agreement).
Mercantile has previously made available to Firstar true and correct copies of
all employment and deferred compensation agreements that are in writing and to
which Mercantile is a party. Each contract, arrangement, commitment or
understanding of the type described in this Section 4.14(a) and in Section
4.11(a), whether or not set forth in the Mercantile Disclosure Schedule, is
referred to herein as a "Mercantile Contract", and neither Mercantile nor any of
its Subsidiaries knows of, or has received notice of, any violation of the above
by any of the other parties thereto that will have, individually or in the
aggregate, a Material Adverse Effect on Mercantile.
(b) (i) Each Mercantile Contract is valid and binding on Mercantile or any
of its Subsidiaries, as applicable, and in full force and effect, (ii)
Mercantile and each of its Subsidiaries has in all material respects performed
all obligations required to be performed by it to date under each Mercantile
Contract, except where such noncompliance, either individually or in the
aggregate, will not have a Material Adverse Effect on Mercantile, and (iii) no
event or condition exists that constitutes or, after notice or lapse of time or
both, will constitute, a material default on the part of Mercantile or any of
its Subsidiaries under any such Mercantile
A-26
<PAGE>
Contract, except where such default, either individually or in the aggregate,
will not have a Material Adverse Effect on Mercantile.
4.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither Mercantile nor any of
its Subsidiaries is subject to any cease-and-desist or other order issued by, or
is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1997, a recipient of any supervisory letter from, or since January 1,
1997, has adopted any board resolutions at the request of any Regulatory Agency
or other Governmental Entity that currently restricts in any material respect
the conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business (each,
whether or not set forth in the Mercantile Disclosure Schedule, a "Mercantile
Regulatory Agreement"), nor has Mercantile or any of its Subsidiaries been
advised since January 1, 1997, by any Regulatory Agency or other Governmental
Entity that it is considering issuing or requesting any such Regulatory
Agreement.
4.16 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All Derivative Instruments
to which Mercantile or any of its Subsidiaries is a party, whether entered into
for the account of Mercantile or for the account of a customer of Mercantile or
one of its Subsidiaries, were entered into in the ordinary course of business
and, to Mercantile's knowledge, in accordance with prudent banking practice and
applicable rules, regulations and policies of any Regulatory Authority and with
counterparties believed to be financially responsible at the time and are legal,
valid and binding obligations of Mercantile or one of its Subsidiaries
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
rights of creditors generally and the availability of equitable remedies), and
are in full force and effect. Mercantile and each of its Subsidiaries have duly
performed in all material respects all of their material obligations thereunder
to the extent that such obligations to perform have accrued; and to Mercantile's
knowledge, there are no material breaches, violations or defaults or allegations
or assertions of such by any party thereunder.
4.17 UNDISCLOSED LIABILITIES. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Mercantile
included in the Mercantile December 31, 1998 Form 10-K and for liabilities
incurred in the ordinary course of business consistent with past practice, since
December 31, 1998, neither Mercantile nor any of its Subsidiaries has incurred
any liability of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due) that, either individually or in the
aggregate, has had or will have a Material Adverse Effect on Mercantile.
4.18 INSURANCE. Mercantile and its Subsidiaries have in effect insurance
coverage with reputable insurers or are self-insured, that in respect of
amounts, premiums, types and risks insured, constitutes reasonably adequate
coverage against all risks customarily insured against by bank holding companies
and their subsidiaries comparable in size and operations to Mercantile and its
Subsidiaries.
A-27
<PAGE>
4.19 ENVIRONMENTAL LIABILITY. There are no legal, administrative, arbitral
or other proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that reasonably could result in the imposition, on
Mercantile of any liability or obligation arising under common law or under any
local, state or federal environmental statute, regulation or ordinance
including, without limitation, CERCLA, pending or threatened against Mercantile,
which liability or obligation will have, either individually or in the
aggregate, a Material Adverse Effect on Mercantile. To the knowledge of
Mercantile, there is no reasonable basis for any such proceeding, claim, action
or governmental investigation that would impose any liability or obligation that
will have, either individually or in the aggregate, a Material Adverse Effect on
Mercantile. Mercantile is not subject to any agreement, order, judgment, decree,
letter or memorandum by or with any Governmental Entity, regulatory agency or
third party imposing any liability or obligation with respect to the foregoing
that will have, either individually or in the aggregate, a Material Adverse
Effect on Mercantile.
4.20 CHARTER PROVISIONS; STATE TAKEOVER LAWS; MERCANTILE RIGHTS
AGREEMENT. (a) The Board of Directors of Mercantile has approved the
transactions contemplated by this Agreement and the Mercantile Option Agreement
for purposes of Article 13, Section B of the Mercantile Articles and Sections
459.2 and 459.3 of the MBCL such that the provisions of Article 13, Section A of
the Mercantile Articles or such sections of the MBCL will not apply to this
Agreement or the Mercantile Option Agreement or any of the transactions
contemplated hereby or thereby.
(b) Mercantile has taken all action, if any, necessary or appropriate so
that the entering into of this Agreement and the Mercantile Stock Option
Agreement, and the consummation of the transactions contemplated hereby and
thereby, do not and will not result in the ability of any person to exercise any
Mercantile Shareholder Rights under the Mercantile Rights Agreement or enable or
require the Mercantile Shareholder Rights to separate from the shares of
Mercantile Common Stock to which they are attached or to be triggered or become
exercisable. No "Distribution Date" or "Stock Acquisition Date" (as such terms
are defined in the Mercantile Rights Plan) has occurred.
4.21 YEAR 2000. None of Mercantile or any of the Mercantile Subsidiaries
has received, or reasonably expects to receive, a Year 2000 Deficiency
Notification Letter. Mercantile has made available to Firstar a complete and
accurate copy of Mercantile's plan, including an estimate of the anticipated
associated costs, for addressing Year 2000 Issues. Between the date of this
Agreement and the Effective Time, Mercantile shall use reasonable best efforts
to implement such plan and any revisions thereto that may be reasonably
requested by Firstar. Mercantile and its Subsidiaries has complied in all
material respects with the "Interagency Guidelines Establishing Year 2000
Standards for Safety and Soundness" issued pursuant to section 39 of the Federal
Deposit Insurance Act and effective October 15, 1998.
4.22 REORGANIZATION; POOLING OF INTERESTS. As of the date of this
Agreement, Mercantile has no reason to believe that the Merger will not qualify
as a "reorganization" within
A-28
<PAGE>
the meaning of Section 368(a) of the Code and, subject to Section 6.4, as a
"pooling of interests" for accounting purposes.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated or permitted by this Agreement (including the Firstar Disclosure
Schedule and the Mercantile Disclosure Schedule) or the Option Agreements, each
of Mercantile and Firstar shall, and shall cause each of their respective
Subsidiaries to, (a) conduct its business in the ordinary course, (b) use
reasonable best efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain the
services of its key officers and key employees and (c) take no action that would
adversely affect or delay the ability of either Mercantile or Firstar to obtain
any necessary approvals of any Regulatory Agency or other Governmental Entity
required for the transactions contemplated hereby or to perform its covenants
and agreements under this Agreement or the Option Agreements or to consummate
the transactions contemplated hereby or thereby.
5.2 FORBEARANCES. During the period from the date of this Agreement to the
Effective Time, except as set forth in the Mercantile Disclosure Schedule or the
Firstar Disclosure Schedule, as the case may be, and, except as expressly
contemplated or permitted by this Agreement or the Option Agreements or as
otherwise indicated in this Section 5.2, neither Mercantile nor Firstar shall,
and neither Mercantile nor Firstar shall permit any of their respective
Subsidiaries to, without the prior written consent of the other party to this
Agreement:
(a) In the case of Mercantile, other than in the ordinary course of
business, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness (it being
understood that for purposes of this Section 5.2(a) "short-term" shall mean
maturities of six months or less) and indebtedness of Mercantile or any of
its Subsidiaries to Mercantile or any of its wholly-owned Subsidiaries),
assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or
other entity, or make any loan or advance (it being understood and agreed
that incurrence of indebtedness in the ordinary course of business shall
include, without limitation, the creation of deposit liabilities, purchases
of Federal funds, sales of certificates of deposit and entering into
repurchase agreements);
(b) (i) in the case of Mercantile, adjust, split, combine or reclassify
any capital stock;
(ii) make, declare or pay any dividend, or make any other distribution
on, or directly or indirectly redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities or obligations convertible
(whether currently
A-29
<PAGE>
convertible or convertible only after the passage of time or the
occurrence of certain events) into or exchangeable for any shares of its
capital stock (except (A) in the case of Firstar, for regular quarterly
cash dividends at a rate not in excess of $0.30 per share of Firstar
Common Stock, (B) in the case of Mercantile, for regular quarterly cash
dividends on Mercantile Common Stock at a rate not in excess of $0.34 per
share of Mercantile Common Stock and (C) dividends paid by any of the
Subsidiaries of each of Mercantile and Firstar to Mercantile or Firstar
or any of their Subsidiaries, respectively, and dividends paid in the
ordinary course of business consistent with past practice by any
Subsidiaries (whether or not wholly owned) of each of Mercantile and
Firstar);
(iii) in the case of Mercantile, grant any stock appreciation rights
or grant any individual, corporation or other entity any right to acquire
any shares of its capital stock, other than pursuant to the Mercantile
Rights Agreement as in effect as of the date hereof;
(iv) in the case of Mercantile, issue any additional shares of
capital stock except pursuant to (A) the exercise of stock options
outstanding as of the date hereof, (B) the Mercantile Option Agreement
(C) the Mercantile Rights Agreement or (D) the Mercantile DRIP in the
ordinary course of business prior to the DRIP Suspension Date; or
(c) in the case of Mercantile, sell, transfer, mortgage, encumber or
otherwise dispose of any material part of its business or any of its
material properties or assets to any individual, corporation or other entity
other than a Subsidiary, or cancel, release or assign any indebtedness to
any such person or any claims held by any such person, except in the
ordinary course of business or pursuant to contracts or agreements in force
at the date of this Agreement;
(d) in the case of Mercantile, except for transactions in the ordinary
course of business or pursuant to contracts or agreements in force at the
date of or permitted by this Agreement, make any material investment (either
by purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets) in any other individual,
corporation or other entity other than a Subsidiary thereof;
(e) in the case of Mercantile, except for transactions in the ordinary
course of business, terminate, or waive any material provision of, any
Mercantile Contract or make any change in any instrument or agreement
governing the terms of any of its securities, or material lease or contract,
other than normal renewals of contracts and leases without material adverse
changes of terms;
(f) in the case of Mercantile, increase in any manner the compensation
or fringe benefits of any of its employees or pay any pension or retirement
allowance not required by any existing plan or agreement to any such
employees or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement (or any
individual agreements evidencing grants or awards thereunder) or employment
agreement with
A-30
<PAGE>
or for the benefit of any employee other than in the ordinary course of
business, or accelerate the vesting of, or the lapsing of restrictions with
respect to, any stock options or other stock-based compensation;
(g) solicit or encourage from any third party or enter into any
negotiations, discussions or agreement in respect of, or authorize any
individual, corporation or other entity to solicit or encourage from any
third party or enter into any negotiations, discussions or agreement in
respect of, or provide or cause to be provided any confidential information
in connection with, any inquiries or proposals relating to the disposition
of all or substantially all of its business or assets, or the acquisition of
its voting securities, or the merger or consolidation of it or any of its
Subsidiaries with any corporation or other entity, other than as provided by
this Agreement (and it has discontinued any such negotiations or discussions
initiated prior to the date hereof and shall promptly notify the other party
hereto of all of the relevant details relating to all inquiries and
proposals that it may receive from and after the date hereof through and
excluding the Effective Time relating to any of such matters);
(h) in the case of Mercantile, settle any material claim, action or
proceeding involving money damages, except in the ordinary course of
business;
(i) knowingly take any action that would prevent or impede the Merger
from qualifying (i) for "pooling of interests" accounting treatment or (ii)
as a reorganization within the meaning of Section 368(a) of the Code;
PROVIDED, HOWEVER, that nothing contained herein shall limit the ability of
Mercantile or Firstar to exercise its rights under the Firstar Option
Agreement or the Mercantile Option Agreement, as the case may be;
(j) amend its certificate of incorporation or its bylaws;
(k) in the case of Mercantile, other than in prior consultation with
Firstar, restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or otherwise, or the
manner in which the portfolio is classified or reported;
(l) take any action that is intended or expected to result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, or
in any of the conditions to the Merger set forth in Article VII not being
satisfied or in a violation of any provision of this Agreement, except, in
every case, as may be required by applicable law;
(m) implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by GAAP or regulatory
guidelines; or
(n) agree to take, make any commitment to take, or adopt any resolutions
of its board of directors in support of, any of the actions prohibited to it
by this Section 5.2.
A-31
<PAGE>
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 REGULATORY MATTERS. (a) Mercantile and Firstar shall promptly prepare
and file with the SEC the Joint Proxy Statement and Firstar shall promptly
prepare and file with the SEC the S-4, in which the Joint Proxy Statement will
be included as a prospectus. Each of Mercantile and Firstar shall use their
reasonable best efforts to have the S-4 declared effective under the Securities
Act as promptly as practicable after such filing, and Mercantile and Firstar
shall thereafter mail or deliver the Joint Proxy Statement to their respective
shareholders. Firstar shall also use its reasonable best efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement, and Mercantile shall
furnish all information concerning Mercantile and the holders of Mercantile
Common Stock as may be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities that are necessary
or advisable to consummate the transactions contemplated by this Agreement
(including, without limitation, the Merger) and the Option Agreements, and to
comply with the terms and conditions of all such permits, consents, approvals
and authorizations of all such Governmental Entities. Mercantile and Firstar
shall have the right to review in advance, and, to the extent practicable, each
will consult the other on, in each case subject to applicable laws relating to
the exchange of information, all the information relating to Firstar or
Mercantile, as the case may be, and any of their respective Subsidiaries, that
appears in any filing made with, or written materials submitted to, any third
party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing rights of review and
consultation, each of the parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and the
Option Agreements and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein.
(c) Mercantile and Firstar shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with the Joint Proxy Statement, the S-4 or any other statement,
filing, notice or application made by or on behalf of Mercantile, Firstar or any
of their respective Subsidiaries to any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement.
(d) Mercantile and Firstar shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for con-
A-32
<PAGE>
summation of the transactions contemplated by this Agreement or the Option
Agreements that causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval will not be obtained or that
the receipt of any such approval will be materially delayed.
6.2 ACCESS TO INFORMATION. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, each of Mercantile and
Firstar, for the purposes of verifying the representations and warranties of the
other and preparing for the Merger and the other matters contemplated by this
Agreement, shall, and shall cause each of their respective Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the other party, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Mercantile and Firstar
shall, and shall cause their respective Subsidiaries to, make available to the
other party (i) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of federal securities laws or federal or state banking laws (other
than reports or documents that Mercantile or Firstar, as the case may be, is not
permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as such party may reasonably
request. Neither Mercantile nor Firstar nor any of their respective Subsidiaries
shall be required to provide such access or to disclose such information where
such access or disclosure would violate or prejudice the rights of Mercantile's
or Firstar's, as the case may be, customers, jeopardize the attorney-client
privilege of the institution in possession or control of such information or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior to the date of this Agreement. The parties
hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(b) Each of Mercantile and Firstar shall hold all information furnished by
or on behalf of the other party or any of such party's Subsidiaries or
representatives pursuant to Section 6.2(a) in confidence to the extent required
by, and in accordance with, the provisions of confidentiality agreements, dated
April 21, 1999 and April 23, 1999, in each case between Mercantile and Firstar
(together, the "Confidentiality Agreement").
(c) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein.
6.3 SHAREHOLDERS' APPROVALS. Each of Mercantile and Firstar shall call a
meeting of its shareholders to be held as soon as reasonably practicable for the
purpose of voting upon the requisite shareholder approvals required in
connection with this Agreement and the transactions contemplated hereby, and
each shall use its reasonable best efforts to cause such meetings to occur as
soon as reasonably practicable and on the same date. The Boards of Directors of
each of Firstar and Mercantile shall use its reasonable best efforts to obtain
from such shareholders the vote in favor of the approval of this Agreement
required by the WBCL and, as applicable, the rules of the NYSE, in the case of
Firstar, or by the MBCL, in the case of Mercantile, to consummate the
transactions contemplated hereby.
A-33
<PAGE>
6.4 LEGAL CONDITIONS TO MERGER. Each of Mercantile and Firstar shall, and
shall cause its Subsidiaries to, use their reasonable best efforts (a) to take,
or cause to be taken, all actions necessary, proper or advisable to comply
promptly with all legal requirements that may be imposed on such party or its
Subsidiaries with respect to the Merger and, subject to the conditions set forth
in Article VII hereof, to consummate the transactions contemplated by this
Agreement, and (b) to obtain (and to cooperate with the other party to obtain)
any material consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party that is required to be
obtained by Firstar or Mercantile or any of their respective Subsidiaries in
connection with the Merger and the other transactions contemplated by this
Agreement. Without limiting the foregoing and notwithstanding any other
provision hereof to the contrary, Mercantile shall promptly take (or has taken
prior to the date hereof) any and all action with respect to any Mercantile
Benefit Plan (including any Mercantile Stock Plan) and any award agreement
thereunder (including, if necessary, appropriately amending such Plan) to the
extent such action is reasonably necessary in order for the Merger to qualify
for "pooling of interests" accounting treatment.
6.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS. (a) Each of
Mercantile and Firstar shall use its reasonable best efforts to cause each
director, executive officer and other person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act, in the case of Mercantile only, and for
purposes of qualifying the Merger for "pooling of interests" accounting
treatment) of such party to deliver to the other party hereto, as soon as
practicable after the date of this Agreement, and prior to the date of the
shareholders' meetings called by Mercantile and Firstar to approve this
Agreement, a written agreement, in the form of Exhibit 6.5(a)(1) or (2), as
applicable, hereto, providing that such person will not sell, pledge, transfer
or otherwise dispose of any shares of Mercantile Common Stock or Firstar Common
Stock held by such "affiliate" and, in the case of the "affiliates" of
Mercantile, the shares of Firstar Common Stock to be received by such
"affiliate" in the Merger.
(b) The Surviving Corporation shall use its best efforts to publish as
promptly as reasonably practical, but in no event later than 90 days after the
end of the first month after the Effective Time in which there are at least 30
days of post-Merger combined operations (which month may be the month in which
the Effective Time occurs), combined sales and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135.
6.6 STOCK EXCHANGE LISTING. Firstar shall cause the shares of Firstar
Common Stock to be issued in the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Effective Time.
6.7 EMPLOYEE BENEFIT PLANS. (a) From and after the Effective Time, unless
otherwise mutually determined, the Firstar Benefit Plans and Mercantile Benefit
Plans in effect as of the date of this Agreement shall remain in effect with
respect to employees of Firstar or Mercantile (or their Subsidiaries),
respectively, covered by such plans at the Effective Time until such time as the
Surviving Corporation shall, subject to applicable law, the terms of this
Agreement and the terms of such plans, adopt new benefit plans with respect to
employees of
A-34
<PAGE>
the Surviving Corporation and its Subsidiaries (the "New Benefit Plans"). Prior
to the Closing Date, Firstar and Mercantile shall cooperate in reviewing,
evaluating and analyzing the Mercantile Benefit Plans and Firstar Benefit Plans
with a view towards developing appropriate New Benefit Plans for the employees
covered thereby. From and after the Effective Time, Firstar will, or will cause
the Surviving Corporation to, recognize the prior service with Mercantile or its
subsidiaries of each employee of Mercantile or any of its subsidiaries as of the
Effective Time (the "Mercantile Employees") in connection with all Firstar
employee benefit plans in which such Mercantile Employees are eligible to
participate following the Effective Time, for purposes of eligibility, vesting
and levels of benefits (but not for purposes of benefit accruals under any
defined benefit pension plan). From and after the Effective Time, Firstar will,
or will cause the Surviving Corporation to, (i) cause any pre-existing
conditions or limitations and eligibility waiting periods under any group health
plans of Firstar to be waived with respect to the Mercantile Employees and their
eligible dependents and (ii) give each Mercantile Employee credit for the plan
year in which the Effective Time occurs towards applicable deductibles and
annual out-of-pocket limits for expenses incurred prior to the Effective Time.
(b) The foregoing notwithstanding, the Surviving Corporation agrees to honor
in accordance with their terms all benefits vested as of the Effective Time
under the Mercantile Benefit Plans provided that such Mercantile Benefit Plans
are maintained and administered after the date hereof not in violation of
Section 5.2(f) of this Agreement.
(c) Nothing in this Section 6.7 shall be interpreted as preventing the
Surviving Corporation from amending, modifying or terminating any Mercantile
Benefit Plans, Firstar Benefit Plans, or other contracts, arrangements,
commitments or understandings, in accordance with their terms and applicable
law.
6.8 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) In the event
of any threatened or actual claim, action, suit, proceeding or investigation,
whether civil, criminal or administrative, including, without limitation, any
such claim, action, suit, proceeding or investigation in which any individual
who is now, or has been at any time prior to the date of this Agreement, or who
becomes prior to the Effective Time, a director or officer or employee of
Mercantile or any of its Subsidiaries, including any entity specified in the
Mercantile Disclosure Schedule (the "Indemnified Parties"), is, or is threatened
to be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he or she is or was a director,
officer or employee of Mercantile or any of its Subsidiaries or any entity
specified in the Mercantile Disclosure Schedule or any of their respective
predecessors or (ii) this Agreement, the Option Agreements or any of the
transactions contemplated hereby or thereby, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto. It
is understood and agreed that after the Effective Time, Firstar shall indemnify
and hold harmless, as and to the fullest extent permitted by law, each such
Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorney's fees and expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by law upon receipt of any
undertak-
A-35
<PAGE>
ing required by applicable law), judgments, fines and amounts paid in settlement
in connection with any such threatened or actual claim, action, suit, proceeding
or investigation.
(b) Firstar shall use its reasonable best efforts to cause the individuals
serving as officers and directors of Mercantile, its Subsidiaries or any entity
specified in the Mercantile Disclosure Schedule immediately prior to the
Effective Time to be covered for a period of six years from the Effective Time
(or the period of the applicable statute of limitations, if longer) by the
directors' and officers' liability insurance policy maintained by Mercantile
(PROVIDED that Firstar may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions that are not less
advantageous than such policy) with respect to acts or omissions occurring prior
to the Effective Time that were committed by such officers and directors in
their capacity as such.
(c) In the event Firstar or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Firstar
assume the obligations set forth in this Section 6.8.
(d) The provisions of this Section 6.8 shall survive the Effective Time and
are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
6.9 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement (including, without limitation, any merger between a Subsidiary of
Firstar, on the one hand, and a Subsidiary of Mercantile, on the other hand) or
to vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities and franchises of any of the parties to the
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, Firstar.
6.10 ADVICE OF CHANGES. Mercantile and Firstar shall each promptly advise
the other party of any change or event (i) having a Material Adverse Effect on
it or (ii) that it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants contained herein.
6.11 DIVIDENDS. After the date of this Agreement, each of Mercantile and
Firstar shall coordinate with the other the declaration of any dividends in
respect of Mercantile Common Stock and Firstar Common Stock and the record dates
and payment dates relating thereto, it being the intention of the parties hereto
that holders of Mercantile Common Stock shall not receive two dividends, or fail
to receive one dividend, for any quarter with respect to their shares of
Mercantile Common Stock and any shares of Firstar Common Stock any such holder
receives in exchange therefor in the Merger.
A-36
<PAGE>
6.12 EXEMPTION FROM LIABILITY UNDER SECTION 16(B). Assuming that
Mercantile delivers to Firstar the Section 16 Information in a timely fashion
prior to the Effective Time, the Board of Directors of Firstar, or a committee
of Non-Employee Directors thereof (as such term is defined for purposes of Rule
16b-3(d) under the Exchange Act), shall reasonably promptly thereafter and in
any event prior to the Effective Time adopt a resolution providing that the
receipt by the Mercantile Insiders of Firstar Common Stock in exchange for
shares of Mercantile Common Stock, and of options to purchase shares of Firstar
Common Stock upon conversion of options to purchase shares of Mercantile Common
Stock, in each case pursuant to the transactions contemplated hereby and to the
extent such securities are listed in the Section 16 Information, are intended to
be exempt from liability pursuant to Section 16(b) under the Exchange Act such
that any such receipt shall be so exempt. "Section 16 Information" shall mean
information accurate in all respects regarding the Mercantile Insiders, the
number of shares of Mercantile Common Stock held by each such Mercantile Insider
and expected to be exchanged for Firstar Common Stock in the Merger, and the
number and description of the options to purchase shares of Mercantile Common
Stock held by each such Mercantile Insider and expected to be converted into
options to purchase shares of Firstar Common Stock in connection with the
Merger. "Mercantile Insiders" shall mean those officers and directors of
Mercantile who are subject to the reporting requirements of Section 16(a) of the
Exchange Act and who are listed in the Section 16 Information.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of the parties to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by the respective requisite
affirmative votes of the holders of Firstar Common Stock and Mercantile
Common Stock entitled to vote thereon.
(b) NYSE LISTING. The shares of Firstar Common Stock that shall be
issued to the shareholders of Mercantile upon consummation of the Merger
shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
(c) OTHER APPROVALS. All regulatory approvals required to consummate the
transactions contemplated hereby shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect
thereof shall have expired (all such approvals and the expiration of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals").
A-37
<PAGE>
(d) S-4. The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger or
any of the other transactions contemplated by this Agreement shall be in
effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity
that prohibits, materially restricts or makes illegal consummation of the
Merger.
(f) FEDERAL TAX OPINION. The parties hereto shall each have received the
opinion of Wachtell, Lipton, Rosen & Katz, in form and substance reasonably
satisfactory to Mercantile and Firstar, dated the Closing Date,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in each such opinion that are consistent with the
state of facts existing at the Effective Time:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and Mercantile and Firstar will each be a
party to the reorganization within the meaning of Section 368(b) of the
Code;
(ii) No gain or loss will be recognized by Mercantile or Firstar as a
result of the Merger; and
(iii) No gain or loss will be recognized by shareholders of
Mercantile who exchange all of their Mercantile Common Stock solely for
Firstar Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Firstar Common Stock).
In rendering such opinions, counsel may require and rely upon
representations contained in certificates of officers of Mercantile, Firstar
and others.
(g) POOLING OF INTERESTS. Mercantile and Firstar shall each have
received a letter from their respective independent accountants addressed to
Firstar or Mercantile, as the case may be, to the effect that the Merger
will qualify for "pooling of interests" accounting treatment.
7.2 CONDITIONS TO OBLIGATIONS OF MERCANTILE. The obligation of Mercantile
to effect the Merger is also subject to the satisfaction, or waiver by
Mercantile, at or prior to the Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Firstar set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the
A-38
<PAGE>
Closing Date; PROVIDED, HOWEVER, that for purposes of this paragraph, such
representations and warranties (other than the representations set forth in
Sections 3.2(a), 3.8(a) or 3.17) shall be deemed to be true and correct
unless the failure or failures of such representations and warranties to be
so true and correct, either individually or in the aggregate, and without
giving effect to any qualification as to materiality or Material Adverse
Effect set forth in such representations or warranties, has had or will have
a Material Adverse Effect on Firstar or the Surviving Corporation.
Mercantile shall have received a certificate signed on behalf of Firstar by
the Chief Executive Officer and the Chief Financial Officer of Firstar to
the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF FIRSTAR. Firstar shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Mercantile shall
have received a certificate signed on behalf of Firstar by the Chief
Executive Officer and the Chief Financial Officer of Firstar to such effect.
7.3 CONDITIONS TO OBLIGATIONS OF FIRSTAR. The obligation of Firstar to
effect the Merger is also subject to the satisfaction or waiver by Firstar at or
prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Mercantile set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date; PROVIDED,
HOWEVER, that for purposes of this paragraph, such representations and
warranties (other than the representations set forth in Section 4.2(a),
4.8(a) or 4.17) shall be deemed to be true and correct unless the failure or
failures of such representations and warranties to be so true and correct,
either individually or in the aggregate, and without giving effect to any
qualification as to materiality set forth in such representations or
warranties, has had or will have a Material Adverse Effect on Mercantile.
Firstar shall have received a certificate signed on behalf of Mercantile by
the Chief Executive Officer and the Chief Financial Officer of Mercantile to
the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF MERCANTILE. Mercantile shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Firstar
shall have received a certificate signed on behalf of Mercantile by the
Chief Executive Officer and the Chief Financial Officer of Mercantile to
such effect.
A-39
<PAGE>
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of Mercantile or Firstar:
(a) by mutual consent of Mercantile and Firstar in a written instrument,
if the Board of Directors of each so determines by a vote of a majority of
the members of its entire Board;
(b) by either the Board of Directors of Mercantile or the Board of
Directors of Firstar if (i) any Governmental Entity that must grant a
Requisite Regulatory Approval has denied approval of the Merger and such
denial has become final and nonappealable or any Governmental Entity of
competent jurisdiction shall have issued a final nonappealable order
permanently enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement or (ii) any shareholder approval
required by Section 7.1(a) is not obtained at shareholder meetings duly
convened pursuant to Section 6.3 or at any postponement or adjournment
thereof;
(c) by either the Board of Directors of Mercantile or the Board of
Directors of Firstar if the Merger shall not have been consummated on or
before the first anniversary of the date of this Agreement, unless the
failure of the Closing to occur by such date shall be due to the failure of
the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein; or
(d) by either the Board of Directors of Mercantile or the Board of
Directors of Firstar (PROVIDED that the terminating party is not then in
breach of any representation, warranty, covenant or other agreement
contained herein) if there shall have been a breach of any of the covenants
or agreements or any of the representations or warranties set forth in this
Agreement on the part of Firstar, in the case of a termination by
Mercantile, or Mercantile, in the case of a termination by Firstar, which
breach, either individually or in the aggregate, would constitute, if
occurring or continuing on the Closing Date, the failure of the conditions
set forth in Section 7.2 or 7.3, as the case may be, and that is not cured
within 45 days following written notice to the party committing such breach
or by its nature or timing cannot be cured prior to the Closing Date.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Mercantile or Firstar as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, and none of Mercantile, Firstar, any
of their respective Subsidiaries or any of the officers or directors of any of
them shall have any liability of any nature whatsoever hereunder, or in
connection with the transactions contemplated hereby, except that (i) Sections
6.2(b), 8.2, 9.2 and 9.3 shall survive any termination of this Agreement, and
(ii) notwithstanding anything to the contrary contained in this Agreement,
neither Mercantile nor Firstar
A-40
<PAGE>
shall be relieved or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
8.3 AMENDMENT. Subject to compliance with applicable law and Section
1.1(b), this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with Merger by the shareholders
of Mercantile and Firstar; PROVIDED, HOWEVER, that after any approval of the
transactions contemplated by this Agreement by the respective shareholders of
Mercantile or Firstar, there may not be, without further approval of such
shareholders, any amendment of this Agreement that changes the amount or the
form of the consideration to be delivered hereunder to the holders of Mercantile
Common Stock, other than as contemplated by this Agreement. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; PROVIDED, HOWEVER,
that after any approval of the transactions contemplated by this Agreement by
the respective shareholders of Mercantile or Firstar, there may not be, without
further approval of such shareholders, any extension or waiver of this Agreement
or any portion thereof that reduces the amount or changes the form of the
consideration to be delivered to the holders of Mercantile Common Stock
hereunder, other than as contemplated by this Agreement. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date
and at a place to be specified by the parties, which shall be no later than five
business days after the satisfaction or waiver (subject to applicable law) of
the latest to occur of the conditions set forth in Article VII hereof, unless
extended by mutual agreement of the parties (the "Closing Date").
9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement (other than the Option
Agreements and the Confidentiality Agreement, which shall terminate in
accordance with the terms thereof) shall survive the
A-41
<PAGE>
Effective Time, except for Section 6.8 and for those other covenants and
agreements contained herein and therein that by their terms apply in whole or in
part after the Effective Time.
9.3 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense; PROVIDED, HOWEVER, that the costs and expenses of
printing and mailing the Joint Proxy Statement, and all filing and other fees
paid to the SEC in connection with the Merger, shall be borne equally by
Mercantile and Firstar.
9.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Mercantile, to:
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: Jon W. Bilstrom
General Counsel and Secretary
Telecopier: (314) 418-1386
and
(b) if to Firstar, to:
Firstar Corporation
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Jennie P. Carlson
Senior Vice President, General Counsel and Secretary
Telecopier:
9.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". No provision of this Agreement shall be construed to require
Firstar, Mercantile or any of their respective Subsidiaries or affiliates to
take or fail to take any action, including, without limitation, the disclosure
or non-disclosure by either party of any information to its shareholders, that
would (or its failure to take would) reasonably be expected to violate any
applicable statue, law, legal duty, rule or regulation.
A-42
<PAGE>
9.6 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.7 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof other than the Option
Agreements and the Confidentiality Agreement.
9.8 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law principles.
9.9 PUBLICITY. Except as otherwise required by applicable law or the rules
of the NYSE, neither Mercantile or Firstar shall, or shall permit any of its
Subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the consent
of Firstar, in the case of a proposed announcement or statement by Mercantile,
or Mercantile, in the case of a proposed announcement or statement by Firstar,
which consent shall not be unreasonably withheld.
9.10 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement nor any
of the rights, interests or obligations shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. Except as otherwise specifically
provided in Section 6.8, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
9.11 CERTAIN AGREEMENTS OF THE SURVIVING CORPORATION. Pursuant to Section
458 of the MBCL, and effective at the Effective Time, the Surviving Corporation
agrees that (i) it will promptly pay to the holders of Dissenting Shares the
amount, if any, to which they shall be entitled under the provisions of the MBCL
with respect to the rights of dissenting shareholders, and (ii) it may be served
with process in Missouri, and hereby irrevocably appoints the Missouri Secretary
as its agent to accept service of process, in any proceeding based upon any
cause of action against Mercantile arising in Missouri prior to the issuance of
the Missouri Articles by the Missouri Secretary, and in any proceeding for the
enforcement of rights of a holder of Dissenting Shares as such against the
Surviving Corporation.
A-43
<PAGE>
IN WITNESS WHEREOF, Mercantile and Firstar have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
<TABLE>
<S> <C> <C> <C>
FIRSTAR CORPORATION
BY:
MERCANTILE
BANCORPORATION
INC.
BY:
<CAPTION>
/S/ JERRY A. GRUNDHOFER
-----------------------------------------
Jerry A. Grundhofer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/S/ THOMAS H. JACOBSEN
-----------------------------------------
Thomas H. Jacobsen
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
A-44
<PAGE>
APPENDIX A-1
AMENDMENT NO. 1
to
AGREEMENT AND PLAN OF MERGER
AMENDMENT No. 1, dated as of June 17, 1999 (this "Amendment") by and between
Mercantile Bancorporation Inc., a Missouri corporation ("Mercantile"), and
Firstar Corporation, a Wisconsin corporation ("Firstar").
WHEREAS, Mercantile and Firstar have previously entered into that certain
Agreement and Plan of Merger, dated as of April 30, 1999 (the "Agreement"); and
WHEREAS, such persons wish to amend the Agreement, pursuant to Section 8.3
of the Agreement, in the manner set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used and not defined herein shall have the meanings
given them in the Agreement. All references to the Agreement in any other
agreement between Mercantile and Firstar relating to the transactions
contemplated by the Agreement shall be deemed to refer to the Agreement as
amended hereby.
2. Section 1.7 of the Agreement is hereby amended and restated to state in
its entirety as follows:
1.7 CERTIFICATE OF INCORPORATION. Subject to the terms and conditions of
this Agreement, at the Effective Time, the Articles of Incorporation of
Firstar, as the same may be amended as permitted hereby at the Effective
Time (the "Firstar Articles"), shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended in accordance with applicable
law, except that the first sentence of Section 1 of Article III thereof
shall state in its entirety:
(1) The number of shares which the Corporation shall have authority to
issue is 2,010,000,000, divided into the following classes:
(a) 2,000,000,000 shares of the par value of $.01 each, designated as
"Common Stock"; and
(b) 10,000,000 shares of the par value of $1.00 each, designated as
"Preferred Stock".
3. This Amendment shall be governed by and construed in accordance with the
laws of the state of New York, without regard to the conflict of law principles
thereof.
A-1-1
<PAGE>
4. This Amendment may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
5. Except as expressly amended hereby, the Agreement shall remain in full
force and effect.
A-1-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
<TABLE>
<S> <C> <C>
MERCANTILE BANCORPORATION, INC.
By: /s/ JON W. BILSTROM
-----------------------------------------
Name: Jon W. Bilstrom
Title:General Counsel and Secretary
FIRSTAR CORPORATION
By: /s/ JENNIE P. CARLSON
-----------------------------------------
Name: Jennie P. Carlson
Title:Senior Vice President, General
Counsel and Secretary
</TABLE>
A-1-3
<PAGE>
APPENDIX B
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated April 30, 1999, between Firstar Corporation, a
Wisconsin corporation ("Issuer"), and Mercantile Bancorporation Inc., a Missouri
corporation ("Grantee").
W I T N E S S E T H :
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor and for Grantee's entering into the Mercantile Option
Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 65,460,210 fully
paid and non-assessable shares of Issuer's common stock, par value $0.01 per
share ("Common Stock"), at a price of $31.56 per share (the "Option Price");
PROVIDED, HOWEVER, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 9.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either (i)
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement) or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding after the date of the Agreement, the number of
shares of Common Stock subject to the Option shall be increased or decreased, as
appropriate, so that, after such issuance, such number equals 9.9% of the number
of shares of Common Stock then issued and outstanding without giving effect to
any shares subject or issued pursuant to the Option. Nothing contained in this
Section 1(b) or elsewhere in this Agreement shall be deemed to authorize Issuer
or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in whole
or part, and from time to time, if, but only if, both an Initial Triggering
Event (as hereinafter defined) and a Subsequent Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Exercise Termination
Event (as hereinafter defined), PROVIDED that the Holder shall have sent the
written notice of such exercise (as provided in subsection (e) of this Section
2) within 90 days following such Subsequent Triggering Event. Each of the
following shall be an "Exercise Termination Event": (i) the Effective Time (as
defined in the Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event, except a termination by
Grantee pursuant to Section 8.1(d) of the Merger Agreement (unless the breach by
Issuer giving rise to such right of termination is non-volitional); or (iii) the
passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.1(d) of the Merger Agreement
(unless the breach by Issuer giving rise to such
B-1
<PAGE>
right of termination is non-volitional) (PROVIDED, that if an Initial Triggering
Event continues or occurs beyond such termination and prior to the passage of
such 12-month period, the Exercise Termination Event shall be 12 months from the
expiration of the Last Triggering Event but in no event more than 18 months
after such termination). The "Last Triggering Event" shall mean the last Initial
Triggering Event to expire. The term "Holder" shall mean the holder or holders
of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"), without
having received Grantee's prior written consent, shall have entered into
an agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer shall have recommended that the shareholders of
Issuer approve or accept any Acquisition Transaction. For purposes of
this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of
Issuer, (x) a purchase, lease or other acquisition or assumption of all
or a substantial portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise)
of securities representing 10% or more of the voting power of Issuer, or
(z) any substantially similar transaction; PROVIDED, HOWEVER, that in no
event shall any merger, consolidation, purchase or similar transaction
involving only the Issuer and one or more of its Subsidiaries or
involving only any two or more of such Subsidiaries, PROVIDED that any
such transaction is not entered into in violation of the terms of the
Merger Agreement, be deemed to be an Acquisition Transaction;
(ii) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to
engage in an Acquisition Transaction with any person other than Grantee
or a Grantee Subsidiary, or the Board of Directors of Issuer shall have
publicly withdrawn or modified, or publicly announced its interest to
withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the transactions
contemplated by the Merger Agreement in anticipation of engaging in an
Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or any Issuer
Subsidiary acting in a fiduciary capacity in the ordinary course of its
business shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares
of Common Stock (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the
1934 Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall have made
a BONA FIDE proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its shareholders
to engage in an Acquisition Transaction, Issuer shall have breached any
covenant or obligation contained in the Merger Agreement and such breach
(x) would entitle Grantee to terminate the Merger
B-2
<PAGE>
Agreement and (y) shall not have been cured prior to the Notice Date (as
hereinafter defined); or
(vi) Any person other than Grantee or any Grantee Subsidiary, other than in
connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the
Federal Reserve Board, or other federal or state bank regulatory
authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or more of
the then-outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in paragraph
(i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event of which it has notice
(together, a "Triggering Event"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to exercise
the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); PROVIDED that if prior
notification to or approval of the Federal Reserve Board or any other regulatory
agency is required in connection with such purchase, the Holder shall promptly
file the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, PROVIDED that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of such agreement is on file at the
B-3
<PAGE>
principal office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions of this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed, subject to the receipt of applicable regulatory
approvals, to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federal
Reserve Board or to any state regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board or such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto; and (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new
B-4
<PAGE>
Agreement of like tenor and date. Any such new Agreement executed and delivered
shall constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed or mutilated shall at
any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock, or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Option Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within 90 days of such Subsequent Triggering Event (whether on its own behalf or
on behalf of any subsequent holder of this Option (or part thereof) or any of
the shares of Common Stock issued pursuant hereto), promptly prepare, file and
keep current a shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option and shall use
its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and PROVIDED, HOWEVER, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and PROVIDED FURTHER, HOWEVER, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
B-5
<PAGE>
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
hereinafter defined), (i) following a request of the Holder, delivered prior to
an Exercise Termination Event, Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the Market/Offer Price (as hereinafter defined)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered within 90 days of such
occurrence (or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner shall
designate at a price (the "Option Share Repurchase Price") equal to the
Market/Offer Price multiplied by the number of Option Shares so designated. The
term "Market/Offer Price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been made,
(ii) the price per share of Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (iii) the highest closing price for shares of
Common Stock within the six-month period immediately preceding the date the
Holder gives notice of the required repurchase of this Option or the Owner gives
notice of the required repurchase of Option Shares, as the case may be, or (iv)
in the event of a sale of all or a substantial portion of Issuer's assets, the
sum of the price paid in such sale for such assets and the current market value
of the remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to the Issuer, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale. In determining the
Market/Offer Price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Within
the latter to occur of (x) five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be delivered
to the Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof, if any, that Issuer is not
then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; PROVIDED, HOWEVER, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices, in each case as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of
B-6
<PAGE>
shares of Common Stock for which the surrendered Stock Option Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, or (B) to the Owner, a certificate for the Option Shares it is
then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a substantial portion of the assets of Issuer, other than any such
transaction which would not constitute an Acquisition Transaction pursuant to
the provisos to Section 2(b)(i) hereof or (ii) upon the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, PROVIDED that no such event shall constitute a Repurchase Event
unless a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall not terminate
upon the occurrence of an Exercise Termination Event unless no Subsequent
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (B) Issuer in a merger in which Issuer is the continuing or
surviving person, and (C) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as defined
in Section 7.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than
the closing price of the shares of Substitute Common Stock on the day
preceding such consolidation, merger or sale, PROVIDED that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the person merging into
Issuer or by any company that controls or is controlled by such person,
as the Holder may elect.
B-7
<PAGE>
(c) The Substitute Option shall have the same terms as the Option, PROVIDED,
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute Option
in substantially the same form as this Agreement, which shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 9.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 9.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common Stock for which
the Substitute Option may then be exercised, and at the request of the owner
(the "Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal to
the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean the highest closing
price for shares of Substitute Common Stock within the six-month period
immediately preceding the date the Substitute Option Holder gives notice of the
required repurchase of the Substitute Option or the Substitute Share Owner gives
notice of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating
B-8
<PAGE>
thereto, the Substitute Option Issuer shall deliver or cause to be delivered to
the Substitute Option Holder the Substitute Option Repurchase Price and/or to
the Substitute Share Owner the Substitute Share Repurchase Price therefor or, in
either case, the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer following a
request for repurchase pursuant to this Section 9 shall immediately so notify
the Substitute Option Holder and/or the Substitute Share Owner and thereafter
deliver or cause to be delivered, from time to time, to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the portion of the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on which
the Substitute Option Issuer is no longer so prohibited; PROVIDED, HOWEVER, that
if the Substitute Option Issuer is at any time after delivery of a notice of
repurchase pursuant to subsection (b) of this Section 9 prohibited under
applicable law or regulation from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals, in each case as promptly as
practicable, in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day, or 6-month periods for exercise of certain rights under
Sections 2, 6, 7, 13 and 15 shall be extended: (i) to the extent necessary to
obtain all regulatory approvals for the exercise of such rights, for the
expiration of all statutory waiting periods; (ii) to the extent necessary to
avoid liability under Section 16(b) of the 1934 Act by reason of such exercise;
and (iii) during any period in which Grantee is precluded from exercising such
rights due to an injunction or other legal restriction, plus in each case such
additional period as is reasonably necessary for the exercise of such rights
promptly following the obtaining of such approvals or the expiration of such
periods.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of
B-9
<PAGE>
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) Issuer has taken all action (including if required redeeming all of the
Firstar Shareholder Rights or amending or terminating the Firstar Rights
Agreement) so that the entering into of this Option Agreement, the acquisition
of shares of Common Stock hereunder and the other transactions contemplated
hereby do not and will not result in the grant of any rights to any person under
the Firstar Rights Agreement or enable or require the Rights to be exercised,
distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered
or exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to make all filings
with, and to obtain consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement, including without limitation making application to list the shares of
Common Stock issuable hereunder on the New York Stock Exchange upon official
notice of issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not be
obligated to apply to state banking authorities for approval to acquire the
shares of Common Stock issuable hereunder until such time, if ever, as it deems
appropriate to do so.
15. (a) Grantee in its sole discretion may, at any time during which Issuer
would be required to repurchase the Option or any Option Shares pursuant to
Section 7, surrender the Option (together with any Option Shares issued to and
then owned by the Holder) to Issuer in exchange for a cash payment equal to the
Surrender Price (as hereinafter defined); PROVIDED, HOWEVER, that Grantee may
not exercise its rights pursuant to this Section 15 if Issuer has previously
repurchased the Option (or any portion thereof) or any Option Shares pursuant to
Section 7. The "Surrender Price" shall be equal to
B-10
<PAGE>
(i) $250,000,000, plus (ii) if applicable, the aggregate purchase price
previously paid pursuant hereto by Grantee with respect to any Option Shares,
minus (iii) if applicable, the excess of (A) the net cash, if any, received by
Grantee pursuant to the arm's-length sale of Option Shares (or any other
securities into which such Option Shares were converted or exchanged) to any
party not affiliated with Grantee, over (B) the purchase price paid by Grantee
with respect to such Option Shares.
(b) Grantee may exercise its right to surrender the Option and any Option
Shares pursuant to this Section 15 by surrendering for such purchase to Issuer,
at its principal office, a copy of this Agreement, together with certificates
for Option Shares, if any, accompanied by a written notice stating (i) that
Grantee elects to surrender the Option and Option Shares, if any, in accordance
with the provisions of this Section 15 and (ii) the Surrender Price. Within two
business days after the surrender of the Option and the Option Shares, if
applicable, Issuer shall deliver or cause to be delivered to Grantee the
Surrender Price.
(c) To the extent that the Issuer is prohibited under applicable law or
regulation from paying the Surrender Price to Grantee in full, Issuer shall
immediately so notify Grantee and thereafter deliver, or cause to be delivered,
from time to time, to Grantee, that portion of the Surrender Price that Issuer
is not or no longer prohibited from paying, within two business days after the
date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if
Issuer at any time after delivery of a notice of Surrender pursuant to Section
15(b) is prohibited under applicable law or regulation from paying to Grantee
the Surrender Price in full, (i) Issuer shall (A) use its best efforts to obtain
all required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to make such payments, (B) within two business
days of the submission or receipt of any documents relating to any such
regulatory and legal approvals, provide Grantee with copies of the same, and (C)
keep Grantee advised of both the status of any such request for regulatory and
legal approvals and any discussions with any relevant regulatory or other third
party reasonably related to the same, and (ii) Grantee may revoke such notice of
surrender by delivery of a notice of revocation, the Exercise Termination Event
shall be extended to a date six months from the date on which the Exercise
Termination Event would have occurred if not for the provisions of this Section
15(c) (during which period Grantee may exercise any of its rights hereunder,
including any and all rights pursuant to this Section 15).
(d) Grantee shall have rights substantially identical to those set forth in
paragraphs (a), (b) and (c) of this Section 15 with respect to the Substitute
Option and the Substitute Option Issuer during any period in which the
Substitute Option Issuer would be required to repurchase the Substitute Option
pursuant to Section 9.
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer or Substitute Option
Issuer, as the case may be, is not permitted to repurchase pursuant to Section 7
or Section 9, as the case may be, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), or Issuer or Substitute Option Issuer is not permitted to pay the full
Surrender Price, it is the express intention of Issuer (which shall be binding
on the Substitute Option Issuer) to allow the Holder to acquire or to require
Issuer or the Substitute Option Issuer, as the case may be, to repurchase such
lesser number of shares, or to pay such portion of the Surrender Price, as may
be permissible, without any amendment or modification hereof.
B-11
<PAGE>
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof (except to the
extent that mandatory provisions of federal law apply).
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<S> <C> <C>
FIRSTAR CORPORATION
By: /s/ JERRY A. GRUNDHOFER
-----------------------------------------
Jerry A. Grundhofer
President and Chief
Executive Officer
MERCANTILE BANCORPORATION INC.
By: /s/ THOMAS H. JACOBSEN
-----------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President and Chief
Executive Officer
</TABLE>
B-12
<PAGE>
APPENDIX C
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated April 30, 1999, between Mercantile
Bancorporation Inc., a Missouri corporation ("Issuer"), and Firstar Corporation,
a Wisconsin corporation ("Grantee").
W I T N E S S E T H :
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor and for Grantee's entering into the Firstar Option
Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 31,415,840 fully
paid and non-assessable shares of Issuer's common stock, par value $0.01 per
Share ("Common Stock"), at a price of $51.25 per share (the "Option Price");
PROVIDED, HOWEVER, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either (i)
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement) or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding after the date of the Agreement, the number of
shares of Common Stock subject to the Option shall be increased or decreased, as
appropriate, so that, after such issuance, such number equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in whole
or part, and from time to time, if, but only if, both an Initial Triggering
Event (as hereinafter defined) and a Subsequent Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Exercise Termination
Event (as hereinafter defined), PROVIDED that the Holder shall have sent the
written notice of such exercise (as provided in subsection (e) of this Section
2) within 90 days following such Subsequent Triggering Event. Each of the
following shall be an "Exercise Termination Event": (i) the Effective Time (as
defined in the Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event, except a termination by
Grantee pursuant to Section 8.1(d) of the Merger Agreement (unless the breach by
Issuer giving rise to such right of termination is non-volitional); or (iii) the
passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.1(d) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional) (PROVIDED, that if an Initial Triggering Event continues or
occurs
C-1
<PAGE>
beyond such termination and prior to the passage of such 12-month period, the
Exercise Termination Event shall be 12 months from the expiration of the Last
Triggering Event but in no event more than 18 months after such termination).
The "Last Triggering Event" shall mean the last Initial Triggering Event to
expire. The term "Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules
and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the shareholders of Issuer approve or accept any
Acquisition Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")) of Issuer, (x) a purchase, lease or other
acquisition or assumption of all or a substantial portion of the assets or
deposits of Issuer or any Significant Subsidiary of Issuer, (y) a purchase
or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of Issuer, or (z) any substantially similar transaction; PROVIDED,
HOWEVER, that in no event shall any merger, consolidation, purchase or
similar transaction involving only the Issuer and one or more of its
Subsidiaries or involving only any two or more of such Subsidiaries,
PROVIDED that any such transaction is not entered into in violation of the
terms of the Merger Agreement, be deemed to be an Acquisition Transaction;
(ii) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to
engage in an Acquisition Transaction with any person other than Grantee or a
Grantee Subsidiary, or the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its interest to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
shareholders of Issuer approve the transactions contemplated by the Merger
Agreement in anticipation of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or any Issuer
Subsidiary acting in a fiduciary capacity in the ordinary course of its
business shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares of Common
Stock (the term "beneficial ownership" for purposes of this Agreement having
the meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules
and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall have
made a BONA FIDE proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as hereinafter
defined); or
(vi) Any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority,
C-2
<PAGE>
which application or notice has been accepted for processing, for approval
to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or more
of the then-outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event and/or Subsequent Triggering Event of which it has
notice (together, a "Triggering Event"), it being understood that the giving of
such notice by Issuer shall not be a condition to the right of the Holder to
exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"), PROVIDED that if prior
notification to or approval of the Federal Reserve Board or any other regulatory
agency is required in connection with such purchase, the Holder shall promptly
file the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, PROVIDED that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer,
C-3
<PAGE>
to the effect that such legend is not required for purposes of the 1933 Act;
(ii) the reference to the provisions of this Agreement in the above legend shall
be removed by delivery of substitute certificate(s) without such reference if
the shares have been sold or transferred in compliance with the provisions of
this Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed, subject to the receipt of applicable regulatory
approvals, to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federal
Reserve Board or to any state regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board or such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto; and (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to
C-4
<PAGE>
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock, or the like, the type and number of shares of Common Stock purchasable
upon exercise hereof and the Option Price shall be appropriately adjusted in
such manner as shall fully preserve the economic benefits provided hereunder and
proper provision shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within 90 days of such Subsequent Triggering Event (whether on its own behalf or
on behalf of any subsequent holder of this Option (or part thereof) or any of
the shares of Common Stock issued pursuant hereto), promptly prepare, file and
keep current a shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option and shall use
its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and PROVIDED, HOWEVER, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and PROVIDED FURTHER, HOWEVER, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
hereinafter defined), (i) following a request of the Holder, delivered prior to
an Exercise Termination Event, Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the Market/Offer Price (as hereinafter defined)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered
C-5
<PAGE>
within 90 days of such occurrence (or such later period as provided in Section
10), Issuer shall repurchase such number of the Option Shares from the Owner as
the Owner shall designate at a price (the "Option Share Repurchase Price") equal
to the Market/Offer Price multiplied by the number of Option Shares so
designated. The term "Market/Offer Price" shall mean the highest of (i) the
price per share of Common Stock at which a tender offer or exchange offer
therefor has been made, (ii) the price per share of Common Stock to be paid by
any third party pursuant to an agreement with Issuer, (iii) the highest closing
price for shares of Common Stock within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, or (iv) in the event of a sale of all or a substantial portion
of Issuer's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Issuer, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the Market/Offer Price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably acceptable
to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Within
the latter to occur of (x) five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be delivered
to the Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof, if any, that Issuer is not
then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; PROVIDED, HOWEVER, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices, in each case as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
C-6
<PAGE>
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a substantial portion of the assets of Issuer, other than any such
transaction which would not constitute an Acquisition Transaction pursuant to
the provisos to Section 2(b)(i) hereof or (ii) upon the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, provided that no such event shall constitute a Repurchase Event
unless a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall not terminate
upon the occurrence of an Exercise Termination Event unless no Subsequent
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than Issuer),
(B) Issuer in a merger in which Issuer is the continuing or surviving
person, and (C) the transferee of all or substantially all of Issuer's
assets.
(ii) "Substitute Common Stock" shall mean the common stock issued by the
issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; PROVIDED that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer or by any
company that controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option, PROVIDED,
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute Option
in substantially the same form as this Agreement, which shall be applicable to
the Substitute Option.
C-7
<PAGE>
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common Stock for which
the Substitute Option may then be exercised, and at the request of the owner
(the "Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal to
the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean the highest closing
price for shares of Substitute Common Stock within the six-month period
immediately preceding the date the Substitute Option Holder gives notice of the
required repurchase of the Substitute Option or the Substitute Share Owner gives
notice of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
C-8
<PAGE>
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer following a
request for repurchase pursuant to this Section 9 shall immediately so notify
the Substitute Option Holder and/or the Substitute Share Owner and thereafter
deliver or cause to be delivered, from time to time, to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the portion of the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on which
the Substitute Option Issuer is no longer so prohibited; PROVIDED, HOWEVER, that
if the Substitute Option Issuer is at any time after delivery of a notice of
repurchase pursuant to subsection (b) of this Section 9 prohibited under
applicable law or regulation from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals, in each case as promptly as
practicable, in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day or 6-month periods for exercise of certain rights under
Sections 2, 6, 7, 13 and 15 shall be extended: (i) to the extent necessary to
obtain all regulatory approvals for the exercise of such rights, and for the
expiration of all statutory waiting periods; (ii) to the extent necessary to
avoid liability under Section 16(b) of the 1934 Act by reason of such exercise;
and (iii) during any period in which Grantee is precluded from exercising such
rights due to an injunction or other legal restriction, plus in each case such
additional period as is reasonably necessary for the exercise of such rights
promptly following the obtaining of such approvals or the expiration of such
periods.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, and all such shares, upon issuance pursuant
hereto, will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrance and security
interests and not subject to any preemptive rights.
C-9
<PAGE>
(c) Issuer has taken all action (including if required redeeming all of the
Mercantile Shareholder Rights or amending or terminating the Mercantile Rights
Agreement) so that the entering into of this Option Agreement, the acquisition
of shares of Common Stock hereunder and the other transactions contemplated
hereby do not and will not result in the grant of any rights to any person under
the Mercantile Rights Agreement or enable or require the Rights to be exercised,
distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (E.G., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to make all filings
with, and to obtain consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement, including, without limitation, making application to list the shares
of Common Stock issuable hereunder on the New York Stock Exchange upon official
notice of issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not be
obligated to apply to state banking authorities for approval to acquire the
shares of Common Stock issuable hereunder until such time, if ever, as it deems
appropriate to do so.
15. (a) Grantee may in its sole discretion, at any time during which Issuer
would be required to repurchase the Option or any Option Shares pursuant to
Section 7, surrender the Option (together with any Option Shares issued to and
then owned by the Holder) to Issuer in exchange for a cash payment equal to the
Surrender Price (as hereinafter defined); PROVIDED, HOWEVER, the Grantee may not
exercise its rights pursuant to this Section 15 if Issuer has previously
repurchased the Option (or any portion thereof) or any Option Shares pursuant to
Section 7. The "Surrender Price" shall be equal to (i) $250,000,000, plus (ii)
if applicable, the aggregate purchase price previously paid pursuant hereto by
Grantee with respect to any Option Shares, minus (iii) if applicable, the excess
of (A) the net cash, if any, received by Grantee pursuant to the arm's-length
sale of Option Shares (or any other securities into which such Option Shares
were converted or exchanged) to any party not affiliated with Grantee, over (B)
the purchase price paid by Grantee with respect to such Option Shares.
C-10
<PAGE>
(b) Grantee may exercise its right to surrender the Option and any Option
Shares pursuant to this Section 15 by surrendering for such purpose to Issuer,
at its principal office, a copy of this Agreement, together with certificates
for Option Shares, if any, accompanied by a written notice stating (i) that
Grantee elects to surrender the Option and Option Shares, if any, in accordance
with the provisions of this Section 15 and (ii) the Surrender Price. Within two
business days after the surrender of the Option and the Option Shares, if
applicable, Issuer shall deliver or cause to be delivered to Grantee the
Surrender Price.
(c) To the extent that the Issuer is prohibited under applicable law or
regulation from paying the Surrender Price to Grantee in full, Issuer shall
immediately so notify Grantee and thereafter deliver, or cause to be delivered,
from time to time, to Grantee, that portion of the Surrender Price that Issuer
is not or no longer prohibited from paying, within two business days after the
date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if
Issuer at any time after delivery of a notice of surrender pursuant to Section
15(b) is prohibited under applicable law or regulation from paying to Grantee
the Surrender Price in full, (i) Issuer shall (A) use its best efforts to obtain
all required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to make such payments, (B) within two business
days of the submission or receipt of any documents relating to any such
regulatory and legal approvals, provide Grantee with copies of the same, and (C)
keep Grantee advised of both the status of any such request for regulatory and
legal approvals and any discussions with any relevant regulatory or other third
party reasonably related to the same, and (ii) Grantee may revoke such notice or
surrender by delivery of a notice of revocation to Issuer and, upon delivery of
such notice of revocation, the Exercise Termination Event shall be extended to a
date six months from the date on which the Exercise Termination Event would have
occurred if not for the provisions of this Section 15(c) (during which period
Grantee may exercise any of its rights hereunder, including any and all rights
pursuant to this Section 15).
(d) Grantee shall have rights substantially identical to those set forth in
paragraphs (a), (b) and (c) of this Section 15 with respect to the Substitute
Option and the Substitute Option Issuer during any period in which the
Substitute Option Issuer would be required to repurchase the Substitute Option
pursuant to Section 9.
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer or Substitute Option
Issuer, as the case may be, is not permitted to repurchase pursuant to Section 7
or Section 9, as the case may be, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), or Issuer or Substitute Option Issuer is not permitted to pay the full
amount of the Surrender Price pursuant to Section 15, it is the express
intention of Issuer (which shall be binding on the Substitute Option Issuer) to
allow the Holder to acquire or to require Issuer or Substitute Option Issuer to
repurchase such lesser number of shares, or to require Issuer or Substitute
Option Issuer to pay such portion of the Surrender Price, as may be permissible,
without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
C-11
<PAGE>
19. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof (except to the
extent that mandatory provisions of federal law apply).
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
C-12
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<S> <C> <C>
MERCANTILE BANCORPORATION INC.
By: /s/ THOMAS H. JACOBSEN
-----------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President
and Chief Executive Officer
FIRSTAR CORPORATION
By: /s/ JERRY A. GRUNDHOFER
-----------------------------------------
Jerry A. Grundhofer
President and Chief
Executive Officer
</TABLE>
C-13
<PAGE>
APPENDIX D
June 21, 1999
Board of Directors
Firstar Corporation
777 East Wisconsin Avenue
Milwaukee, WI 53202
Dear Sirs and Mesdames:
You have asked us to advise you with respect to the fairness to Firstar
Corporation, a Wisconsin corporation (the "Acquiror") from a financial point of
view of the consideration to be paid by the Acquiror pursuant to the terms of
the Agreement and Plan of Merger, dated as of April 30, 1999 (the "Agreement"),
by and between the Acquiror and Mercantile Bancorporation, a Missouri
corporation (the "Company"). The Agreement provides for the merger (the
"Merger") of the Company with and into the Acquiror with the Acquiror being the
surviving corporation of the Merger. Pursuant to the Merger, each outstanding
share of common stock, par value $.01 per share, of the Company will be
converted into 2.091 shares of common stock, par value $.01 per share, of the
Acquiror (the "Exchange Ratio").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as the Agreement. We have also reviewed certain other information,
including financial forecasts, provided to us by the Company and the Acquiror,
and have met with the Company's and the Acquiror's management to discuss the
business and prospects of the Company and the Acquiror. In addition, we have
discussed with management of the Acquiror, and have relied upon their views
regarding the business, operational and strategic benefits and implications of
the Merger, including estimates of future cost savings and operating synergies
expected to be achieved as a result of the Merger.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared that data with similar data for
other publicly held companies in businesses similar to the Company and the
Acquiror and we have considered the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts (including estimates of future cost savings and operating
synergies expected to be achieved as a result of the Merger), we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's and the Acquiror's
management. In addition, we have not been requested to make, and have not made,
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Company or the Acquiror, nor have we been furnished with
any such evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. We are not expressing any opinion as to the actual
value of the common stock of the Acquiror when issued to the Company's
stockholders pursuant to the Merger or the prices at which such stock will trade
subsequent to the Merger.
We have acted as financial advisor to the Acquiror in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. In the past, we have
performed certain investment banking services for the Acquiror and have received
customary fees for such services.
D-1
<PAGE>
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of both the Company and the Acquiror for
our own and such affiliates' accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Acquiror in connection with its consideration of the Merger and
is not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the Acquiror from a financial point
of view.
<TABLE>
<S> <C> <C>
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ MICHAEL E. MARTIN
-----------------------------------------
Michael E. Martin
Name: Michael E. Martin
Title: Managing Director
</TABLE>
D-2
<PAGE>
APPENDIX E
June 21, 1999
Board of Directors
Mercantile Bancorporation Inc.
One Mercantile Center
7(th) & Washington
St. Louis, MO 63166
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, $.01 par value per share ("Company Common
Stock") of Mercantile Bancorporation Inc. ("Mercantile" or the "Company") of the
Exchange Ratio (as defined below) pursuant to the terms of the Agreement and
Plan of Merger, dated as of April 30, 1999, as amended as of June 17, 1999 (the
"Agreement"), by and between Firstar Corporation ("Firstar") and the Company
pursuant to which the Company will be merged (the "Merger") with and into
Firstar.
Pursuant to the Agreement, each share of common stock of the Company will be
converted, subject to certain exceptions, into the right to receive 2.091 shares
(the "Exchange Ratio") of common stock, $.01 par value per share ("Firstar
Common Stock") of Firstar.
In arriving at our opinion, we have reviewed the Agreement and financial and
other information that was publicly available or furnished to us by the Company
and Firstar including I/B/E/S International, Inc. earnings estimates and
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain assumptions with respect to financial projections of
the Company and Firstar, including certain cost savings and operating synergies,
and the impact of certain business divestitures, anticipated by the management
of the Company and Firstar to result from the merger. In addition, we have
compared certain financial and securities data of the Company and Firstar with
various other companies whose securities are traded in public markets, reviewed
the historical stock prices and trading volumes of Company Common Stock and
Firstar Common Stock, reviewed prices and premiums paid in certain other
business combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Firstar or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
of the cost savings and operating synergies achievable as a result of the Merger
and the impact of anticipated business divestitures and upon the estimates of
management of Firstar with respect to such cost savings, operating synergies and
divestitures. With respect to the financial projections (including cost savings
and operating synergies and the impact of divestitures) reviewed by us, we have
assumed that they have been reasonably prepared on a basis that does not
materially differ from the best currently available estimates and judgments of
the management of the Company and Firstar as to the future operating and
financial performance of Mercantile, Firstar and the combined company. We are
not experts in the evaluation of loan and lease portfolios for purposes of
assessing the adequacy of the allowances for losses with respect thereto and
have assumed, with your consent, that such allowances for each of the Company
and Firstar are in the aggregate adequate to cover all such losses. In addition,
we have not reviewed individual credit files nor have we made an independent
evaluation or appraisal of the assets and liabilities (including any hedge or
derivative positions) of the Company or Firstar or any of their subsidiaries and
we have not been furnished with any such evaluation or appraisal. We have not
assumed any responsibility for making any independent evaluation of any assets
or liabilities or for making any independent verification of any of the
information reviewed by us. We have assumed that
E-1
<PAGE>
the Merger will qualify as a pooling of interests transaction under generally
accepted accounting principles. We have also assumed that the transaction will
qualify as a tax-free reorganization for United States federal income tax
purposes and that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the Merger will be obtained without
any adverse effect, other than the impact of the anticipated divestitures, on
the Company, Firstar or on the anticipated benefits of the Merger.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company Common Stock or the Firstar Common Stock will
actually trade at any time. Our opinion does not address the relative merits of
the Merger and the other business strategies considered by the Company's Board
of Directors, nor does it address the Board's decision to proceed with the
Merger. Our opinion does not constitute a recommendation to any stockholder as
to how such stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of our
business, we and our affiliates actively trade the securities of the Company and
Firstar for our own account and for accounts of our customers, and, accordingly,
may at any time hold a long or short position in such securities. DLJ has
performed investment banking and other services for the Company and Firstar in
the past and has been compensated for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair from a financial point of view to
the holders of the Company Common Stock.
<TABLE>
<S> <C> <C>
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ RICHARD J. BARRETT
-----------------------------------------
Richard J. Barrett
Managing Director
</TABLE>
E-2
<PAGE>
APPENDIX F
TEXT OF SECTION 455 OF THE
MISSOURI GENERAL AND BUSINESS CORPORATION LAW
SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES, WHEN.
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholder and the surviving or
new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in any
court of competent jurisdiction within the county in which the registered office
of the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender of the surviving or new corporation of the certificate or certificates
representing said shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares, or in the surviving
or new corporation. Such shares may be held and disposed of by the surviving or
new corporation as it may see fit. Unless the dissenting shareholder shall file
such petition within the time herein limited, such shareholder and all persons
claiming under him shall be conclusively presumed to have approved and ratified
the merger or consolidation, and shall be bound the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger or consolidation.
F-1
<PAGE>
MERCANTILE BANCORPORATION INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS, WEDNESDAY, JULY 28, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
PROXY
The undersigned hereby appoint(s) T. H. JACOBSEN, J. W. McCLURE and J. W.
BILSTROM, and each of them, with or without the others, proxies, with full power
of substitution, to vote on the following matters as directed hereon and in
their discretion upon such other business as may properly come before the
meeting, all shares of stock of Mercantile Bancorporation Inc. (the
"Corporation") that the undersigned is entitled to vote at the Special Meeting
of Shareholders of the Corporation to be held at Mercantile Bancorporation Inc.,
7th and Washington, One Mercantile Center, St. Louis, Missouri 63101, on
Wednesday, July 28, 1999, at 9:00 A.M., local time, and all adjournments
thereof, all in accordance with and as more fully described in the Notice and
accompanying Joint Proxy Statement/Prospectus for such meeting, receipt of which
is hereby acknowledged.
1. Approval of the Agreement and Plan of Merger, dated as of April 30, 1999, as
amended, by and between the Corporation and Firstar Corporation, a Wisconsin
corporation, and the transactions contemplated by that agreement, as more
fully described in the Joint Proxy Statement-Prospectus accompanying this
form of proxy.
2. In their discretion, upon any other business, including adjournments of the
meeting, that may properly come before the meeting.
THIS PROXY, WHEN PROPERLY SUBMITTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, ALL PROPERLY SUBMITTED
PROXIES WILL BE VOTED "FOR" THE PROPOSALS LISTED.
IMPORTANT: THIS CARD MUST BE DATED AND SIGNED ON THE REVERSE SIDE AND RETURNED
PRIOR TO THE MEETING TO BE EFFECTIVE.
------------------------------------------------------------------------------
MERCANTILE BANCORPORATION INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
<TABLE>
<C> <S> <C> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger,
dated as of April 30, 1999, as amended, by and
between the Corporation and Firstar Corporation, / / FOR
a Wisconsin corporation, and the transactions / / AGAINST
contemplated by that agreement, as more fully / / ABSTAIN
described in the Joint Proxy
Statement-Prospectus accompanying this form of
proxy.
2. In their discretion, upon any other business
that may properly come before the meeting.
3. Check here if you will attend the meeting. 4. Check here if address change is noted.
/ / / /
Dated: , 1999
Signatures: --------------------------------
NOTE: Please sign exactly as name appears hereon.
Joint Owners should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such.
</TABLE>
<PAGE>
TRIANGLE FOLD AND DETACH HERE TRIANGLE
CONTROL NUMBER
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
<TABLE>
<S> <C>
TO VOTE BY PHONE Call toll free 1-888-514-4508 any time on a touch tone telephone. There is NO CHARGE to
you for the call.
Enter the 6-digit CONTROL NUMBER located above.
Option #1: To vote "FOR" ALL proposals: Press 1.
When asked, please confirm your vote by pressing 1.
Option #2: If you choose to vote on each proposal or nominee separately, press 0 and
follow the simple recorded instructions.
TO VOTE BY INTERNET Go to the following website:
www.harrisbank.com/wproxy
Enter the information requested on your computer screen, including your 6-digit CONTROL
NUMBER located above.
Follow the simple instructions on the screen.
</TABLE>
IF YOU VOTE BY TELEPHONE OR THE INTERNET, IT IS NOT NECESSARY TO MAIL BACK THE
PROXY CARD.
THANK YOU FOR VOTING!
TRIANGLE FOLD AND DETACH HERE TRIANGLE
SEE REVERSE SIDE
ADMISSION TICKET
This is your ticket of admission to the Special Meeting of
Shareholders of Mercantile Bancorporation Inc., to be held at
Mercantile Bancorporation Inc., 7th and Washington, One Mercantile
Center, St. Louis, Missouri 63101, on Wednesday, July 28, at 9:00
a.m., local time.
IF YOU PLAN TO ATTEND THE MEETING, PLEASE CHECK BOX NUMBER 3 ON
THE PROXY FORM AND SUBMIT YOUR PROXY PROMPTLY, AS MEETING SEATING
WILL BE LIMITED. PLEASE DETACH THIS CARD AND BRING IT WITH YOU TO
THE MEETING FOR PRESENTATION AT THE DOOR.
PLEASE NOTE: Cameras and recording devices are not permitted at
the Special Meeting.
THIS TICKET WILL ADMIT THE SHAREHOLDER(S) WHOSE NAME(S) APPEAR(S) ON
THE REVERSE SIDE OF THIS TICKET AND IS NONTRANSFERABLE.
MERCANTILE BANCORPORATION INC.
ANNUAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
MERCANTILE BANCORPORATION INC.
7TH AND WASHINGTON
ONE MERCANTILE CENTER
ST. LOUIS, MISSOURI 63101
WEDNESDAY, JULY 28, 1999
