THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated April 30, 1999, between
Mercantile Bancorporation Inc., a Missouri corporation ("Issuer"), and
Firstar Corporation, a Wisconsin corporation ("Grantee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Grantee and Issuer have entered into an Agreement
and Plan of Merger of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to
this Stock Option Agreement (this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the
Merger Agreement and in consideration therefor and for Grantee's
entering into the Firstar Option Agreement, Issuer has agreed to grant
Grantee the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger
Agreement, the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms
hereof, up to 31,415,840 fully paid and nonassessable shares of Issuer's
common stock, par value $0.01 per Share ("Common Stock"), at a price of
$51.25 per share (the "Option Price"); provided, however, that in no
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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
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of such exercise (as provided in subsection (e) of this Section 2)
within 90 days following such Subsequent Triggering Event. Each of the
following shall be an "Exercise Termination Event": (i) the Effective
Time (as defined in the Merger Agreement) of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event, except a termination by Grantee pursuant to Section
8.1(d) of the Merger Agreement (unless the breach by Issuer giving rise
to such right of termination is non-volitional); or (iii) the passage of
12 months after termination of the Merger Agreement if such termination
follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.1(d) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional) (provided that if an Initial Triggering
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Event continues or occurs beyond such termination and prior to the
passage of such 12-month period, the Exercise Termination Event shall be
12 months from the expiration of the Last Triggering Event but in no
event more than 18 months after such termination). The "Last Triggering
Event" shall mean the last Initial Triggering Event to expire. The term
"Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of
the following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an
"Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in
an Acquisition Transaction (as hereinafter defined) with any
person (the term "person" for purposes of this Agreement having
the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board
of Directors of Issuer shall have recommended that the
shareholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any
similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated
by the Securities and Exchange Commission (the "SEC")) of Issuer,
(x) a purchase, lease or other acquisition or assumption of all or
a substantial portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of
the voting power of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall any
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merger, consolidation, purchase or similar transaction involving
only the Issuer and one or
2
more of its Subsidiaries or involving only any two or more of such
Subsidiaries, provided that any such transaction is not entered into
--------
in violation of the terms of the Merger Agreement, be deemed to be an
Acquisition Transaction;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to
authorize, recommend or propose, to engage in an Acquisition
Transaction with any person other than Grantee or a Grantee
Subsidiary, or the Board of Directors of Issuer shall have
publicly withdrawn or modified, or publicly announced its interest
to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement in anticipation
of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity
in the ordinary course of its business shall have acquired
beneficial ownership or the right to acquire beneficial ownership
of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the
rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
shareholders by public announcement or written communication that
is or becomes the subject of public disclosure to engage in an
Acquisition Transaction;
(v) After an overture is made by a third party to
Issuer or its shareholders to engage in an Acquisition
Transaction, Issuer shall have breached any covenant or obligation
contained in the Merger Agreement and such breach (x) would
entitle Grantee to terminate the Merger Agreement and (y) shall
not have been cured prior to the Notice Date (as hereinafter
defined); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which
Grantee has given its prior written consent, shall have filed an
application or notice with the Federal Reserve Board, or other
federal or state bank regulatory authority, which application or
notice has been accepted for processing, for approval to engage in
an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean
either of the following events or transactions occurring after the date
hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then-outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section 2,
except that the percentage referred to in clause (y) shall be 20%.
3
(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
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or approval of the Federal Reserve Board or any other regulatory agency
is required in connection with such purchase, the Holder shall promptly
file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or
periods shall have passed. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price
for the shares of Common Stock purchased pursuant to the exercise of the
Option in immediately available funds by wire transfer to a bank account
designated by Issuer, provided that failure or refusal of Issuer to
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designate such a bank account shall not preclude the Holder from
exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock purchased
by the Holder and, if the Option should be exercised in part only, a new
Option evidencing the rights of the Holder thereof to purchase the
balance of the shares purchasable hereunder, and the Holder shall
deliver to Issuer a copy of this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate
is subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as
amended. A copy of such agreement is on file at the
principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Holder shall have delivered
to
4
Issuer a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1933 Act;
(ii) the reference to the provisions of this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do
not require the retention of such reference; and (iii) the legend shall
be removed in its entirety if the conditions in the preceding clauses
(i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in
immediately available funds, the Holder shall be deemed, subject to the
receipt of applicable regulatory approvals, to be the holder of record
of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section
2 in the name of the Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but
unissued or treasury shares of Common Stock so that the Option may be
exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other
rights to purchase Common Stock; (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid
the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer; (iii)
promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior
approval of or notice to the Federal Reserve Board or to any state
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or
such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take
all action provided herein to protect the rights of the Holder against
dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different
denominations entitling the holder thereof to purchase, on the same
terms and subject to the same conditions as are set forth herein, in the
aggregate the same number of shares of Com-
5
mon Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Stock Option Agreements and related Options for
which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Agreement,
if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares
of Common Stock that are purchasable upon exercise of the Option
pursuant to Section 1 of this Agreement, the number of shares of Common
Stock purchasable upon the exercise of the Option and the Option Price
shall be subject to adjustment from time to time as provided in this
Section 5. In the event of any change in, or distributions in respect
of, the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares, distributions on or in respect of the Common Stock, or the like,
the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder
and proper provision shall be made in any agreement governing any such
transaction to provide for such proper adjustment and the full
satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within 90 days of such Subsequent
Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option and
shall use its reasonable best efforts to cause such registration
statement to become effective and remain current in order to permit the
sale or other disposition of this Option and any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares")
in accordance with any plan of disposition requested by Grantee. Issuer
will use its reasonable best efforts to cause such registration
statement first to become effective and then to remain effective for
such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations. The foregoing
notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is
in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the
managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of the
Holder's Option or Option Shares would interfere with the successful
marketing of the shares of Common Stock offered by Issuer, the number of
Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; and provided, however, that
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after any such required reduction the number of Option
6
Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold
by the Holder and Issuer in the aggregate; and provided further,
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however, that if such reduction occurs, then the Issuer shall file a
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registration statement for the balance as promptly as practical and no
reduction shall thereafter occur. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such
Holder in connection with such registration, Issuer shall become a party
to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in
secondary offering underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be
entitled to registration rights under this Section 6, in each case by
promptly mailing the same, postage prepaid, to the address of record of
the persons entitled to receive such copies. Notwithstanding anything to
the contrary contained herein, in no event shall Issuer be obligated to
effect more than two registrations pursuant to this Section 6 by reason
of the fact that there shall be more than one Grantee as a result of any
assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a
Repurchase Event (as hereinafter defined), (i) following a request of
the Holder, delivered prior to an Exercise Termination Event, Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a
price (the "Option Repurchase Price") equal to the amount by which (A)
the Market/Offer Price (as hereinafter defined) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then
be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence
(or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner
shall designate at a price (the "Option Share Repurchase Price") equal
to the Market/Offer Price multiplied by the number of Option Shares so
designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice
of the required repurchase of this Option or the Owner gives notice of
the required repurchase of Option Shares, as the case may be, or (iv) in
the event of a sale of all or a substantial portion of Issuer's assets,
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or
the Owner, as the case may be, and reasonably acceptable to the Issuer,
divided by the number of shares of Common Stock of Issuer outstanding at
the time of such sale. In determining the Market/Offer Price, the value
of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as
the case may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may
exercise its right to require Issuer to repurchase the Option and any
Option Shares pursuant to this Section 7 by surrendering for such
purpose to Issuer, at its principal office, a copy of this Agreement or
7
certificates for Option Shares, as applicable, accompanied by a written
notice or notices stating that the Holder or the Owner, as the case may
be, elects to require Issuer to repurchase this Option and/or the Option
Shares in accordance with the provisions of this Section 7. Within the
latter to occur of (x) five business days after the surrender of the
Option and/or certificates representing Option Shares and the receipt of
such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase
Price and/or to the Owner the Option Share Repurchase Price therefor or
the portion thereof, if any, that Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under
applicable law or regulation from repurchasing the Option and/or the
Option Shares in full, Issuer shall immediately so notify the Holder
and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the
portion of the Option Repurchase Price and the Option Share Repurchase
Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after
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delivery of a notice of repurchase pursuant to paragraph (b) of this
Section 7 is prohibited under applicable law or regulation from
delivering to the Holder and/or the Owner, as appropriate, the Option
Repurchase Price and the Option Share Repurchase Price, respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required
notices, in each case as promptly as practicable in order to accomplish
such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate,
that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of
shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Stock Option Agreement was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a
certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event
shall be deemed to have occurred (i) upon the consummation of any
merger, consolidation or similar transaction involving Issuer or any
purchase, lease or other acquisition of all or a substantial portion of
the assets of Issuer, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the provisos to
Section 2(b)(i) hereof or (ii) upon the acquisition by any person of
beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, provided that no such event shall constitute a
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Repurchase Event unless a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event. The parties hereto
agree that Issuer's obligations to repurchase the Option or Option
Shares under this Section 7 shall not terminate upon the occurrence of
an Exercise Termination Event unless no
8
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
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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,
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for legal reasons, be the same as the Option, such terms shall be as
similar as possible and in no event less advantageous to the Holder. The
issuer of the Substitute Option shall also enter into an agreement with
the then Holder or
9
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned
Value multiplied by the number of shares of Common Stock for which the
Option is then exercisable, divided by the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock
shall then be equal to the Option Price multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock for
which the Option is then exercisable and the denominator of which shall
be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than
19.9% of the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute
Option would be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of
(i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute
Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described
in subsection (a) of this Section 8 unless the Acquiring Corporation and
any person that controls the Acquiring Corporation assume in writing all
the obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute
Option (the "Substitute Option Holder"), the Substitute Option Issuer
shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the "Substitute Option Repurchase Price") equal to the
amount by which (i) the Highest Closing Price (as hereinafter defined)
exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute
Option may then be exercised, and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price")
equal to the Highest Closing Price multiplied by the number of
Substitute Shares so designated. The term "Highest Closing Price" shall
mean the highest closing price for shares of Substitute Common Stock
within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require
the Substitute Option Issuer to repur-
10
chase the Substitute Option and the Substitute Shares pursuant to this
Section 9 by surrendering for such purpose to the Substitute Option
Issuer, at its principal office, the agreement for such Substitute
Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or
the Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9.
As promptly as practicable, and in any event within five business days
after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to
be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute
Share Repurchase Price therefor or, in either case, the portion thereof
which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, the
Substitute Option Issuer following a request for repurchase pursuant to
this Section 9 shall immediately so notify the Substitute Option Holder
and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute
Share Repurchase Price, respectively, which it is no longer prohibited
from delivering, within five business days after the date on which the
Substitute Option Issuer is no longer so prohibited; provided, however,
-------- -------
that if the Substitute Option Issuer is at any time after delivery of
a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its best efforts to obtain all required regulatory and legal approvals,
in each case as promptly as practicable, in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon,
in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer
is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Substitute Option Holder, a new Substitute Option
evidencing the right of the Substitute Option Holder to purchase that
number of shares of the Substitute Common Stock obtained by multiplying
the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the
Substitute Option Repurchase Price less the portion thereof theretofore
delivered to the Substitute Option Holder and the denominator of which
is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so
prohibited from repurchasing.
11
10. The 90-day or 6-month periods for exercise of certain
rights under Sections 2, 6, 7, 13 and 15 shall be extended: (i) to
the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; (ii) to the extent necessary to avoid liability under Section
16(b) of the 1934 Act by reason of such exercise and (iii) during any
period in which Grantee is precluded from exercising such rights due to
an injunction or other legal restriction, plus in each case such
additional period as is reasonably necessary for the exercise of such
rights promptly following the obtaining of such approvals or the
expiration of such periods.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance
with its terms will have reserved for issuance upon the exercise of the
Option, that number of shares of Common Stock equal to the maximum
number of shares of Common Stock at any time and from time to time
issuable hereunder, and all such shares, upon issuance pursuant hereto,
will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrance and
security interests and not subject to any preemptive rights.
(c) Issuer has taken all action (including if required
redeeming all of the Mercantile Shareholder Rights or amending or
terminating the Mercantile Rights Agreement) so that the entering into
of this Option Agreement, the acquisition of shares of Common Stock
hereunder and the other transactions contemplated hereby do not and will
not result in the grant of any rights to any person under the Mercantile
Rights Agreement or enable or require the Rights to be exercised,
distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common
Stock or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to
12
the public distribution thereof and will not be transferred or otherwise
disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of
the other party, except that in the event a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event, Grantee,
subject to the express provisions hereof, may assign in whole or in part
its rights and obligations hereunder within 90 days following such
Subsequent Triggering Event (or such later period as provided in Section
10); provided, however, that until the date 15 days following the
-------- -------
date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to
the Option, Grantee may not assign its rights under the Option except in
(i) a widely dispersed public distribution, (ii) a private placement in
which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g.,
----
a broker or investment banker) for the purpose of conducting a widely
dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts
to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without
limitation making application to list the shares of Common Stock
issuable hereunder on the New York Stock Exchange upon official notice
of issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not
be obligated to apply to state banking authorities for approval to
acquire the shares of Common Stock issuable hereunder until such time,
if ever, as it deems appropriate to do so.
15. (a) Grantee may in its sole discretion, at any time
during which Issuer would be required to repurchase the Option or any
Option Shares pursuant to Section 7, surrender the Option (together with
any Option Shares issued to and then owned by the Holder) to Issuer in
exchange for a cash payment equal to the Surrender Price (as hereinafter
defined); provided, however, the Grantee may not exercise its rights
-------- -------
pursuant to this Section 15 if Issuer has previously repurchased the
Option (or any portion thereof) or any Option Shares pursuant to Section
7. The "Surrender Price" shall be equal to (i) $250,000,000, plus (ii)
if applicable, the aggregate purchase price previously paid pursuant
hereto by Grantee with respect to any Option Shares, minus (iii) if
applicable, the excess of (A) the net cash, if any, received by Grantee
pursuant to the arm's-length sale of Option Shares (or any other
securities into which such Option Shares were converted or exchanged) to
any party not affiliated with Grantee, over (B) the purchase price paid
by Grantee with respect to such Option Shares.
(b) Grantee may exercise its right to surrender the Option
and any Option Shares pursuant to this Section 15 by surrendering for
such purpose to Issuer, at its principal office, a copy of this
Agreement, together with certificates for Option Shares, if any,
accompanied by a written notice stating (i) that Grantee elects to
surrender the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender
13
Price. Within two business days after the surrender of the Option and
the Option Shares, if applicable, Issuer shall deliver or cause to be
delivered to Grantee the Surrender Price.
(c) To the extent that the Issuer is prohibited under
applicable law or regulation from paying the Surrender Price to Grantee
in full, Issuer shall immediately so notify Grantee and thereafter
deliver, or cause to be delivered, from time to time, to Grantee, that
portion of the Surrender Price that Issuer is not or no longer
prohibited from paying, within two business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer
-------- -------
at any time after delivery of a notice of surrender pursuant to Section
15(b) is prohibited under applicable law or regulation from paying to
Grantee the Surrender Price in full, (i) Issuer shall (A) use its best
efforts to obtain all required regulatory and legal approvals and to
file any required notices as promptly as practicable in order to make
such payments, (B) within two business days of the submission or receipt
of any documents relating to any such regulatory and legal approvals,
provide Grantee with copies of the same, and (C) keep Grantee advised of
both the status of any such request for regulatory and legal approvals
and any discussions with any relevant regulatory or other third party
reasonably related to the same, and (ii) Grantee may revoke such notice
or surrender by delivery of a notice of revocation to Issuer and, upon
delivery of such notice of revocation, the Exercise Termination Event
shall be extended to a date six months from the date on which the
Exercise Termination Event would have occurred if not for the provisions
of this Section 15(c) (during which period Grantee may exercise any of
its rights hereunder, including any and all rights pursuant to this
Section 15).
(d) Grantee shall have rights substantially identical to
those set forth in paragraphs (a), (b) and (c) of this Section 15 with
respect to the Substitute Option and the Substitute Option Issuer during
any period in which the Substitute Option Issuer would be required to
repurchase the Substitute Option pursuant to Section 9.
16. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be
enforceable by either party hereto through injunctive or other equitable
relief.
17. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated. If for
any reason such court or regulatory agency determines that the Holder is
not permitted to acquire, or Issuer or Substitute Option Issuer, as the
case may be, is not permitted to repurchase pursuant to Section 7 or
Section 9, as the case may be, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
5 hereof), or Issuer or Substitute Option Issuer is not permitted to pay
the full amount of the Surrender Price pursuant to Section 15, it is the
express intention of Issuer (which shall be binding on the Substitute
Option Issuer) to allow the Holder to acquire or to require Issuer or
Substitute Option Issuer to repurchase such lesser number of shares, or
14
to require Issuer or Substitute Option Issuer to pay such portion of the
Surrender Price, as may be permissible, without any amendment or
modification hereof.
18. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram, telecopy or telex, or by
registered or certified mail (postage prepaid, return receipt requested)
at the respective addresses of the parties set forth in the Merger
Agreement.
19. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the
laws that might otherwise govern under applicable principles of
conflicts of laws thereof (except to the extent that mandatory
provisions of federal law apply).
20. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
21. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
22. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement
between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with
respect thereof, written or oral. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided
herein.
23. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the Merger
Agreement.
15
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized,
all as of the date first above written.
MERCANTILE BANCORPORATION INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman of the Board, President
and Chief Executive Officer
FIRSTAR CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
President and Chief
Executive Officer
[Mercantile Stock Option]