-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Wi8C/va6537jEpVPlXv4EzmGBrlv+hF7HCPxful3cE9O9RP8aqOTv1YHhFDIt6Z8 7NiUoV8rWY/NeGUXqtGV3g== 0000037076-94-000091.txt : 19940718 0000037076-94-000091.hdr.sgml : 19940718 ACCESSION NUMBER: 0000037076-94-000091 CONFORMED SUBMISSION TYPE: 424B1 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTAR CORP /WI/ CENTRAL INDEX KEY: 0000037076 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 390711710 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B1 SEC ACT: 1933 Act SEC FILE NUMBER: 033-53781 FILM NUMBER: 94539061 BUSINESS ADDRESS: STREET 1: 777 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147654985 MAIL ADDRESS: STREET 1: 777 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WISCONSIN CORP DATE OF NAME CHANGE: 19890124 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WISCONSIN BANKSHARES CORP DATE OF NAME CHANGE: 19750204 424B1 1 FIRSTAR CORPORATION 777 EAST WISCONSIN AVENUE MILWAUKEE, WI U.S.A. 53202 July 13, 1994 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D. C. 20549 Re: Firstar Corporation Prospectus Relating to Registration Statement No. 033-53781 on Form S-4 Ladies and Gentlemen: On behalf of Firstar Corporation, a Wisconsin corporation ("Firstar"), pursuant to Regulation S-T, we are transmitting herewith for filing Firstar's Prospectus relating to Registration Statement No. 033-53781 on Form S-4. This Prospectus has been redlined to show the changes effected thereby. For your reference, Firstar received "no review" status from the staff concerning this Registration Statement and became effective on July 6, 1994. It would be appreciated if you would contact either Joan M. Fagan, Assistant General Counsel, at (414) 765-5618 or the undersigned at (414) 765-5479 with any comments or questions regarding the attached. Very truly yours, William J. Schulz First Vice President, Secretary and Deputy General Counsel FIRST SOUTHEAST BANKING CORP. 303 Center Street Lake Geneva, Wisconsin 53147 ___________________________ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 8, 1994 ___________________________ To the Shareholders of First Southeast Banking Corp.: NOTICE IS HEREBY GIVEN that a special meeting ("Special Meeting") of the shareholders of First Southeast Banking Corp. ("First Southeast"), a Wisconsin corporation, pursuant to action of the Board of Directors, will be held at the offices of First Southeast, 303 Center Street, Lake Geneva, Wisconsin, on August 8, 1994 at 9:00 a.m. local time, for the purpose of considering and voting upon the following matters: 1. The approval and adoption of an Agreement and Plan of Reorganization and a Plan of Merger, each dated as of February 10, 1994, that provide for, among other things, the merger of First Southeast with and into Firstar Corporation of Wisconsin, a wholly owned subsidiary of Firstar Corporation, and for the conversion of the outstanding shares of First Southeast Common Stock into the right to receive shares of Firstar Corporation Common Stock and associated Preferred Stock Purchase Rights, as described and set forth in the Proxy Statement-Prospectus accompanying this notice (the "Merger"); and 2. Such other matters as may properly be brought before the Special Meeting or any adjournment or adjournments thereof. First Southeast shareholders have the statutory right to assert dissenters' rights under Sections 180.1301 to 180.1331 of the Wisconsin Business Corporation Law. In order to perfect this right, a First Southeast shareholder must not vote in favor of the Merger (this may be done by marking the proxy either to vote against the Merger or to abstain from voting thereon or by not voting at all) and must take such other action as is required by such statute, including delivery of, prior to the vote upon the Merger, written notice of intent to demand the "fair value" of the shareholder's First Southeast Common Stock. A copy of Section 180.1301 et seq. of the Wisconsin Business Corporation Law is attached as Exhibit A to the Proxy Statement-Prospectus. The Special Meeting may be postponed or adjourned from time to time without any notice other than by announcement at the Special Meeting of any postponements or adjournments thereof, and any and all business for which notice is hereby given may be transacted at such postponed or adjourned Special Meeting. THE BOARD OF DIRECTORS OF FIRST SOUTHEAST BELIEVES THE PROPOSED MERGER IS IN THE BEST INTERESTS OF FIRST SOUTHEAST AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF FIRST SOUTHEAST VOTE "FOR" PROPOSAL NUMBER ONE (1) ABOVE. The affirmative vote of the holders of a majority of the shares of common stock of First Southeast outstanding on the record date of June 22, 1994, is required to approve the above proposal. If you are unable to attend the Special Meeting in person, please complete, date and sign the enclosed proxy, which is solicited by First Southeast's Board of Directors, and return it promptly to First Southeast, so that your shares may be voted in accordance with your wishes. The giving of such proxy does not affect your right to vote in person in the event you attend the Special Meeting. You may revoke the proxy at any time prior to its exercise by later proxy received by, or by giving written notice to First Southeast or by attending the Special Meeting and voting in person. By Order of the Board of Directors _________________________________ David A. Straz, Jr., President June ____, 1994 PROSPECTUS OF FIRSTAR CORPORATION ____________________ PROXY STATEMENT OF FIRST SOUTHEAST BANKING CORP. ____________________ This Proxy Statement-Prospectus relates to shares of Common Stock of Firstar Corporation ("Firstar"), a Wisconsin corporation, to be issued pursuant to an Agreement and Plan of Reorganization, dated as of February 10, 1994 (the "Reorganization Agreement"), providing for the merger of First Southeast Banking Corp. ("First Southeast"), a Wisconsin corporation, into Firstar Corporation of Wisconsin ("FCW"), a Wisconsin corporation and a wholly owned subsidiary of Firstar. This Proxy Statement-Prospectus also serves as a proxy statement for the special meeting of shareholders of First Southeast to be held on August 8, 1994, and any adjournments or postponements thereof (the "Special Meeting"). A description of the proposed merger is included herein. This Proxy Statement-Prospectus is being furnished to the shareholders of First Southeast in connection with the solicitation of proxies by the Board of Directors of First Southeast for use at the Special Meeting. At the Special Meeting, holders of First Southeast Common Stock will consider and vote upon the approval and adoption of the Reorganization Agreement and a related Plan of Merger dated as of February 10, 1994 by and between First Southeast and FCW and joined in by Firstar for certain limited purposes (the "Plan of Merger" and, together with the Reorganization Agreement, the "Merger Agreements"), which provide for the merger of First Southeast with and into FCW (the "Merger"). Under the Merger Agreements, each outstanding share of common stock of First Southeast, $1.00 par value ("First Southeast Common Stock"), (other than shares held by any shareholder who properly exercises and preserves his statutory dissenter's rights) will be converted into the right to receive 16.91844 shares of common stock of Firstar, $1.25 par value, and associated Preferred Stock Purchase Rights (collectively referred to herein as "Firstar Common Stock"), subject to certain adjustments as provided in the Merger Agreements in connection with changes in Firstar Common Stock. Firstar Common Stock is traded on the New York Stock Exchange and the Chicago Stock Exchange, Incorporated. The composite closing price of Firstar Common Stock on such exchanges on May 31, 1994 was $32.875. Firstar has filed a Registration Statement on Form S-4 pursuant to the provisions of Rule 145 under the Securities Act of 1933, as amended, covering the shares of Firstar Common Stock to be issued in connection with the Merger. This Proxy Statement-Prospectus also constitutes a prospectus of Firstar filed as part of such Registration Statement. All information herein with respect to Firstar and FCW has been furnished by Firstar and all information with respect to First Southeast and the Banks has been furnished by First Southeast. This Proxy Statement-Prospectus does not cover any resale of the securities to be received by shareholders of First Southeast upon consummation of the Merger and no person is authorized to make any use of this Proxy Statement-Prospectus in connection with any such resale. Copies of this Proxy Statement-Prospectus will be mailed to shareholders on or about July 8, 1994. __________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Proxy Statement-Prospectus is July 6, 1994. __________________ AVAILABLE INFORMATION Firstar is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Regional Offices of the Commission at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511; and 26 Federal Plaza, Room 1228, New York, New York 10007. Copies of such material may also be obtained at prescribed rates by writing to the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy statements and other information filed by Firstar with the New York Stock Exchange and the Chicago Stock Exchange, Incorporated may be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and the Chicago Stock Exchange Incorporated, 440 South LaSalle Street, Chicago, Illinois 60605. No person is authorized to give any information or make any representation not contained in this Proxy Statement-Prospectus and, if given or made, the information or representation should not be relied upon as having been authorized by Firstar, FCW or First Southeast. This Proxy Statement-Prospectus does not constitute an offer to sell or a solicitation of an offer to purchase the securities offered hereby, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make such offer or solicitation of an offer or proxy in such jurisdiction. Neither the delivery of this Proxy Statement-Prospectus nor any distribution of the securities to which this Proxy Statement-Prospectus relates shall, under any circumstances, create any implication that there has been no change in the affairs of Firstar, FCW or First Southeast since the date of this Proxy Statement-Prospectus. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (OTHER THAN EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH INCORPORATED DOCUMENTS) ARE AVAILABLE UPON REQUEST WITHOUT CHARGE FROM MR. WILLIAM H. RISCH, SENIOR VICE PRESIDENT-FINANCE AND TREASURER, FIRSTAR CORPORATION, 777 EAST WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202 (TELEPHONE 414/765-4985). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY August 1, 1994. The following documents filed by Firstar with the Commission are incorporated herein by reference: (a) Firstar's Annual Report on Form 10-K for the year ended December 31, 1993; (b) Firstar's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994; and (c) the description of Firstar Common Stock (including the Preferred Stock Purchase Rights) contained in Firstar's registration statements filed pursuant to Section 12 of the Exchange Act and any amendment or report filed for the purpose of updating such description. All documents subsequently filed by Firstar pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the Closing Date referred to herein will be deemed to be incorporated by reference into this Proxy Statement-Prospectus and to be a part hereof from the date of filing of the documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. FIRSTAR CORPORATION AND FIRST SOUTHEAST BANKING CORP. PROXY STATEMENT-PROSPECTUS TABLE OF CONTENTS Page SUMMARY ............................................... Firstar Corporation and Firstar Corporation of Wisconsin ...................................... First Southeast Banking Corp. .................... The Proposed Merger .............................. The Meeting ...................................... Vote Required .................................... Recommendation of the Board of Directors ......... Dissenters' Rights ............................... Certain Federal Income Tax Consequences .......... Accounting Treatment ............................. Date of the Proposed Merger ...................... Terms and Conditions of the Merger; Regulatory Approval ............................ Management and Operations After the Merger ....... Waivers and Amendments to the Merger Agreements .. Termination ...................................... Interests of Certain Persons in the Merger ....... Resales of Firstar Common Stock by Affiliates .... Preferred Stock Purchase Rights .................. Markets and Dividends ............................ Selected Consolidated Financial Data of Firstar Corporation .................................... Selected Consolidated Financial Data of First Southeast Banking Corp. .................. Comparative Per Common Share Data ................ Historical and Pro Forma Selected Financial Contributions .................................. MEETING INFORMATION ................................... General .......................................... Date, Place and Time ............................. Record Date; Vote Required ....................... Voting and Revocation of Proxies ................. Solicitation of Proxies .......................... THE PROPOSED MERGER ................................... Background of and Reasons for the Merger ......... First Southeast Board Recommendation ............. Terms ............................................ Voting and Stock Purchase Agreements of First Southeast's Shareholders ................. Material Contacts Between Firstar and First Southeast ................................ Conduct of Business Until the Merger ............. Date of the Merger ............................... Conditions to the Merger ......................... Regulatory Approval .............................. Termination, Amendment and Waiver of Merger Agreements .............................. Management and Operations of First Southeast After the Merger; Interests of First Southeast Management in the Merger ....................... Certain Federal Income Tax Consequences .......... Certain Differences in Rights of Shareholders .... Accounting Treatment of the Merger ............... Resale of Firstar Common Stock ................... Rights of Dissenting Shareholders ................ FIRSTAR CORPORATION ................................... General .......................................... Competition ...................................... Supervision ...................................... Other Acquisitions and Transactions .............. Recent Development ............................... Incorporation of Certain Information by Reference FIRST SOUTHEAST BANKING CORP. AND THE BANKS ........... General .......................................... Services ......................................... Competition ...................................... Properties ....................................... Regulation ....................................... Management ....................................... Share Ownership .................................. Markets and Dividends ............................ Management's Discussion and Analysis of Operations and Financial Condition - Tables .... Management's Discussion and Analysis of Operations and Financial Condition ............. OPINIONS .............................................. EXPERTS ............................................... SHAREHOLDER PROPOSALS ................................. INDEX TO FIRST SOUTHEAST BANKING CORP. CONSOLIDATED FINANCIAL STATEMENTS ................................ EXHIBIT Exhibit A - Section 180.1301 et seq. of the Wisconsin Business Corporation Law SUMMARY The following is a brief summary of certain information with respect to matters to be considered at the special meeting (the "Special Meeting") of shareholders of First Southeast Banking Corp. ("First Southeast"). This summary includes information presented in connection with the proposed acquisition by Firstar Corporation ("Firstar") of all of the outstanding common stock of First Southeast, $1.00 par value ("First Southeast Common Stock"). This summary is not intended to be complete and is qualified in its entirety by reference to the more detailed information contained elsewhere in this Proxy Statement of First Southeast and Prospectus of Firstar, including the Exhibit hereto (this "Proxy Statement-Prospectus"), and the documents incorporated in this Proxy Statement-Prospectus by reference. Shareholders are urged to review carefully the entire Proxy Statement-Prospectus. Firstar Corporation and Firstar Corporation of Wisconsin: Firstar, a Wisconsin corporation whose common stock, $1.25 par value, and associated Preferred Stock Purchase Rights (collectively referred to herein as "Firstar Common Stock"), are traded on the New York Stock Exchange and the Chicago Stock Exchange, is a multi-bank holding company organized in 1929. The principal assets of Firstar are its investments in Firstar Bank Milwaukee, N.A. and 34 other banks with offices located in the states of Wisconsin, Minnesota, Illinois, Iowa and Arizona. On March 31, 1994, Firstar had consolidated total assets of $13.9 billion and stockholders' equity of $1.2 billion. Firstar's principal executive offices are located at 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 (telephone: (414) 765-4321). See "FIRSTAR CORPORATION." Additional information concerning Firstar is included in the Firstar documents incorporated herein by reference. See "FIRSTAR CORPORATION--Incorporation of Certain Information by Reference." Firstar Corporation of Wisconsin ("FCW"), a Wisconsin corporation and a wholly owned subsidiary of Firstar, is a multi-bank holding company. The principal assets of FCW are its investments in Firstar's 18 banks with offices located in Wisconsin. FCW's principal executive offices are located at 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 (telephone: (414) 765-5848). First Southeast Banking Corp.: First Southeast, a Wisconsin corporation, is a bank holding company. On March 31, 1994, First Southeast had consolidated total assets of $422.3 million and stockholders' equity of $30.8 million. First Southeast's principal executive offices are located at 303 Center Street, Lake Geneva, Wisconsin 53147 (telephone (414) 248-9116). First Southeast, together with bank directors, owns all of the 240,000 issued and outstanding shares of common stock of First Bank Southeast, N.A. ("First Bank Southeast"), a national bank which is headquartered in Milwaukee, Wisconsin, and 81,478 of the 83,000 issued and outstanding shares of common stock of First Bank Southeast of Lake Geneva, N.A. ("First Bank Lake Geneva," and, together with First Bank Southeast, the "Banks"), a national bank which is headquartered in Lake Geneva, Wisconsin. See "FIRST SOUTHEAST BANKING CORP. AND THE BANKS." The Proposed Merger: Firstar, First Southeast and FCW have entered into an Agreement and Plan of Reorganization dated as of February 10, 1994 (the "Reorganization Agreement") and a related Plan of Merger dated as of February 10, 1994 (the "Plan of Merger" and, together with the Reorganization Agreement, the "Merger Agreements"), providing, among other things, for the merger (the "Merger") of First Southeast with and into FCW, as a result of which Firstar will directly own 100% of the stock of the surviving corporation, FCW, and indirectly own all of the issued and outstanding shares of common stock of the Banks. See "THE PROPOSED MERGER." Subject to certain limitations and dissenters' rights provided by law and certain adjustments set forth in the Merger Agreements which relate to changes in Firstar Common Stock, upon consummation of the Merger each outstanding share of First Southeast Common Stock will be converted into the right to receive 16.91844 shares of common stock of Firstar, $1.25 par value, and associated Preferred Stock Purchase Rights (collectively referred to herein as "Firstar Common Stock," unless otherwise required by context). Upon the Merger, the rights of First Southeast shareholders will be governed by Wisconsin law and the Restated Articles of Incorporation and Bylaws of Firstar. See "THE PROPOSED MERGER--Terms." The Meeting: A special meeting of the shareholders of First Southeast (the "Special Meeting") will be held at the offices of First Southeast, 303 Center Street, Lake Geneva, Wisconsin, on August 8, 1994 at 9:00 a.m., local time. The close of business on June 22, 1994 is the record date (the "Record Date") for determining the holders of record of First Southeast Common Stock entitled to notice of and to vote at the Special Meeting and any postponement or adjournments thereof. The purpose of the Special Meeting is to consider and vote upon a proposal to approve the Merger Agreements. For additional information relating to the Special Meeting, see "MEETING INFORMATION." Vote Required: The Wisconsin Business Corporation Law requires that the Merger Agreements be approved by the affirmative vote of a majority of the outstanding shares of common stock of First Southeast. As of the Record Date, there were outstanding and entitled to vote 106,486 shares of First Southeast Common Stock, of which 105,886 were held by directors and executive officers of First Southeast. Neither Firstar nor any of its or FCW's directors or executive officers own any shares of First Southeast Common Stock. In order to induce Firstar to enter into the Merger Agreements, all the shareholders of First Southeast (the "Shareholders") have agreed to vote all of their shares of First Southeast Common Stock in favor of the Merger Agreements, pursuant to the terms of certain Voting and Stock Purchase Agreements with Firstar (the "Voting Agreements"). The Shareholders own 100% of the total outstanding shares of First Southeast Common Stock on the Record Date; thus, First Southeast is assured of approval of the Merger Agreements. The Voting Agreements also grant Firstar an option to purchase the Shareholders' First Southeast Common Stock, subject to certain conditions. See "MEETING INFORMATION--Record Date; Vote Required" and "THE PROPOSED MERGER--Voting and Stock Purchase Agreements of First Southeast's Shareholders." Recommendation of the Board of Directors: The Board of Directors of First Southeast recommends that First Southeast shareholders vote for approval of the Merger Agreements. The Board believes that the terms of the Merger Agreements are fair and that the Merger is in the best interest of First Southeast and its shareholders. In making its recommendation, the Board has not sought the advice of an independent financial advisor. See "THE PROPOSED MERGER--Background of and Reasons for the Merger; First Southeast Board Recommendation." Dissenters' Rights: Under the provisions of Wisconsin law, any shareholders of First Southeast who assert dissenters' rights will have a statutory right to demand payment of the "fair value" of their First Southeast Common Stock in cash. To perfect this right, an First Southeast shareholder must not vote such shares in favor of the Merger Agreements at the Special Meeting (this may be done by marking the proxy either to vote against the Merger Agreements or to abstain from voting thereon or by not voting at all) and must take such other action as is required by the provisions of Sections 180.1301 to 18.1331 of the Wisconsin Business Corporation Law, including delivering written notice of intent to demand the "fair value" of First Southeast Common Stock. See "THE PROPOSED MERGER--Rights of Dissenting Shareholders" and Exhibit A hereto. Certain Federal Income Tax Consequences: It is expected that the Merger will constitute a tax-free reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code (the "Code"), and, therefore, that holders of First Southeast Common Stock who receive Firstar Common Stock in the Merger will not recognize gain or loss for federal income tax purposes as a result of the Merger (except upon the receipt of cash in lieu of fractional shares of Firstar Common Stock or upon the receipt of cash pursuant to dissenting shareholders' right of appraisal). Receipt by First Southeast of an opinion of tax counsel to that effect is a condition to First Southeast's obligations under the Merger Agreements. IT IS RECOMMENDED THAT EACH FIRST SOUTHEAST SHAREHOLDER CONSULT HIS OR HER OWN TAX ADVISER CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AS WELL AS ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, BASED UPON SUCH SHAREHOLDER'S OWN PARTICULAR FACTS AND CIRCUMSTANCES. See "THE PROPOSED MERGER--Certain Federal Income Tax Consequences." Accounting Treatment: Firstar anticipates that the Merger will be accounted for as a pooling of interests. See "THE PROPOSED MERGER--Accounting Treatment of the Merger." Date of the Proposed Merger: The Merger Agreements provide that the Merger will be consummated within five business days of the satisfaction or waiver of the conditions to the Merger Agreements, including the receipt of all necessary approvals of governmental agencies and authorities and expiration of the statutory 30-day waiting period after approval by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") or on another mutually agreed upon date. It is presently anticipated that the Merger will be consummated in September or October, 1994. See "THE PROPOSED MERGER--Date of the Merger; Conditions to the Merger." Terms and Conditions of the Merger; Regulatory Approval: The Merger is conditioned upon approval by the shareholders of First Southeast and the Federal Reserve Board and upon the satisfaction of other terms and conditions of the Merger Agreements, including treatment of the Merger as a pooling of interests for accounting purposes. Firstar filed an application with the Federal Reserve Board for approval of the Merger under the Bank Holding Company Act of 1956, as amended (the "BHCA") on April 27, 1994. Comments on the application were received by the Federal Reserve Board, the Board requested additional information, and the application was technically returned. It was refiled on June 30, 1994. Firstar anticipates that the Federal Reserve Board will act on such application in August or September, 1994. There can be no assurance that the Federal Reserve Board will approve the Merger and, if the Merger is approved, there can be no assurance concerning the date of any such approval. See "THE PROPOSED MERGER--Date of the Merger; Regulatory Approval; Conditions to the Merger." Management and Operations After the Merger: Following the Merger, the successor to First Southeast and FCW will be a wholly owned subsidiary holding company of Firstar, and the Banks will be controlled by Firstar. The officers and directors of FCW prior to the Merger will continue as officers and directors of the surviving corporation. David A. Straz, Jr. ("Mr. Straz"), who is the principal shareholder of First Southeast, one of its directors, and its President, CEO and Treasurer, will be appointed to the Board of Directors of Firstar's lead bank, Firstar Bank Milwaukee, N.A. Following the Merger, Firstar and FCW intend to manage and direct the operations of the Banks as they manage and direct their present bank subsidiaries. Immediately following the date on which the Merger occurs (the "Closing Date"), one or more management representatives of Firstar will be added to the board of each Bank. Within several months of the Closing Date, Firstar and FCW intend to merge First Bank Southeast with Firstar Bank Milwaukee, N.A., merge First Bank Lake Geneva with Firstar's subsidiary, Firstar Bank Lake Geneva, N.A., close certain branches of the Banks and transfer one of First Bank Southeast's branches to Firstar Bank Lake Geneva, N.A. The dates for the bank-level branch closings, mergers and purchase and assumption transactions, which are subject to regulatory approval, have not been determined at this time. At the time of the bank-level mergers, the officers of the Banks will become officers of the surviving banks and certain Lake Geneva bank directors may be invited to join the Board of Directors of the surviving bank. See "THE PROPOSED MERGER-- Management and Operations of First Southeast After the Merger; Interests of First Southeast Management in the Merger." Waivers and Amendments to the Merger Agreements: Firstar and First Southeast may amend, modify or waive certain terms and conditions of the Merger Agreements. Any such action taken by First Southeast following a favorable vote by its shareholders may be taken only if, in the opinion of the Board of Directors of First Southeast, the action will not have a material adverse effect on the benefits intended for its shareholders. See "THE PROPOSED MERGER--Termination, Amendment and Waiver of Merger Agreements." Termination: The Merger Agreements may be terminated and the Merger may be abandoned at any time before the Closing Date (i) by mutual written consent of Firstar and First Southeast at any time before the Merger takes place, (ii) by either Firstar or First Southeast if (a) any condition set forth in Articles VII, VIII or IX of the Reorganization Agreement has not been substantially satisfied or waived in writing by October 31, 1994, (b) any warranty or representation made by the other party in the Merger Agreements is discovered to have become untrue, incomplete or misleading in any material respect, where such change has not been cured within ten business days of notice, or (c) the other party commits one or more material breaches of the Merger Agreements considering all such breaches in the aggregate, where such breach has not been cured within ten business days of notice, or (iii) by First Southeast if the average of the daily closing prices of a share of Firstar Common Stock during a specified ten trading days before the Closing Date is less than $27.00. See "THE PROPOSED MERGER--Termination, Amendment and Waiver of Merger Agreements." Interests of Certain Persons in the Merger: Directors and executive officers of First Southeast and the Bank have an interest in the Merger to the extent that it will affect their stock of First Southeast. Further, Firstar and FCW currently intend to retain the current officers of the Bank after the Merger and have agreed to ask Mr. Straz, a director and executive officer of First Southeast, to join the Board of Firstar's and FCW's subsidiary, Firstar Bank Milwaukee, N.A. See "THE PROPOSED MERGER--Management and Operations of First Southeast after the Merger; Interests of First Southeast Management in the Merger." Resales of Firstar Common Stock by Affiliates: Resales of Firstar Common Stock issued to "affiliates" of First Southeast have not been registered under applicable securities laws in connection with the Merger. Such shares may only be sold (a) under a separate registration for distribution (which Firstar has not agreed to provide), (b) pursuant to Rule 145 under the Securities Act of 1933, as amended, or (c) pursuant to some other exemption from registration. For Firstar to be able to account for the Merger as a pooling of interests, certain additional restrictions will be placed on affiliates of First Southeast and Firstar with respect to dispositions of First Southeast Common Stock and Firstar Common Stock during the period beginning 30 days before the Merger and ending when the results for at least 30 days of post-Merger combined operations have been published. See "THE PROPOSED MERGER--Resale of Firstar Common Stock." Preferred Stock Purchase Rights: Firstar has adopted a Shareholder Rights Plan, pursuant to which each share of Firstar Common Stock, including the Firstar Common Stock to be issued in the Merger, entitles its holder to one-half of a right ("Preferred Stock Purchase Right") to purchase one one-hundredth of a share of Firstar's Series C Preferred Stock under certain limited circumstances. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire Firstar without conditioning the offer on redemption of the Rights or on a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by Firstar's Board of Directors prior to the time that the Rights have become nonredeemable. See "THE PROPOSED MERGER--Certain Differences in Rights of Shareholders." Markets and Dividends: There is no established public trading market for First Southeast stock. The following table sets forth the closing price per share of Firstar Common Stock as reported on the Consolidated Tape System for NYSE stock on the dates set forth, which include February 9, 1994, the last trading day preceding public announcement of the Merger, and July 6, 1994, as well as the equivalent per share prices for First Southeast Common Stock. The equivalent per share price of First Southeast Common Stock at each specified date represents the closing price of a share of Firstar Common Stock on such date multiplied by the unadjusted Merger conversion factor of 16.91844. See "THE PROPOSED MERGER--Terms." Equivalent First Firstar Southeast Common Per Share Stock Price Market Value Per Share at: December 31, 1993 $30.75 $520.24 February 9, 1994 $30.75 $520.24 March 31, 1994 $33.00 $558.31 July 6, 1994 $34.50 $583.69 Because the market price of Firstar Common Stock is subject to fluctuation and the conversion ratio is fixed, the market value of the shares of Firstar Common Stock that holders of First Southeast Common Stock will receive in the Merger may increase or decrease prior to the Merger. First Southeast shareholders are advised to obtain current market quotations for Firstar Common Stock. In 1992, First Southeast paid dividends of $9.35 per share; in 1993 no dividends were paid; in 1994 prior to execution of the Merger Agreements, First Southeast paid dividends of $9.35 per share. Between execution of the Merger Agreements and the Closing Date, First Southeast can pay aggregate cash dividends in amounts not to exceed the cash dividends that shareholders of First Southeast would have received from Firstar had they owned 1,801,577 shares of Firstar Common Stock after February 15, 1994. There can be no assurance as to the amount of future dividends on First Southeast Common Stock, because the dividend policy of First Southeast is subject to the discretion of the Board of Directors of First Southeast, cash needs and general business conditions. SELECTED CONSOLIDATED FINANCIAL DATA OF FIRSTAR - ----------------------------------------------------------------------------- The following table sets forth in summary form certain consolidated financial data of Firstar. This summary should be read in conjunction with the financial review and consolidated financial statements included in the documents incorporated by reference in this Proxy Statement-Prospectus.
Three Months Ended March 31 Years Ended December 31 ------------------ ------------------------------------------------ 1994 1993 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- -------- -------- Income Summary (Thousands of dollars) Net interest revenue $144,015 $139,752 $568,056 $539,152 $480,596 $429,954 $413,102 Provision for loan losses 2,958 6,334 24,567 44,821 50,276 49,161 52,362 -------- -------- -------- -------- -------- -------- -------- Net interest revenue after loan loss provision 141,057 133,418 543,489 494,331 430,320 380,793 360,740 Other operating revenue 83,113 79,325 342,265 300,767 272,535 248,301 225,521 Other operating expense 144,203 141,739 587,744 557,566 515,536 464,800 429,508 -------- -------- -------- -------- -------- -------- -------- Income before income taxes & extraordinary item 79,967 71,004 298,010 237,532 187,319 164,294 156,753 Provision for income tax 26,745 20,978 93,716 71,547 52,988 46,837 45,618 -------- -------- -------- -------- -------- -------- -------- Net income $ 53,222 $ 50,026 $204,294 $165,985 $134,331 $117,457 $111,135 ======== ======== ======== ======== ======== ======== ======== Per common share: Net income $ 0.83 $ 0.78 $ 3.15 $ 2.62 $ 2.14 $ 1.82 $ 1.72 Dividends 0.26 0.22 1.00 0.80 .705 .635 .545 Selected Period-End Balances (Millions of dollars) Total assets $ 13,908 $ 12,880 $ 13,794 $ 13,169 $ 12,309 $ 12,020 $ 11,163 Loans 9,000 8,107 8,984 8,111 7,545 7,346 6,871 Deposits 10,771 10,518 11,164 10,884 10,063 9,721 8,931 Long-term debt 126 132 126 158 144 185 166 Stockholders' equity 1,190 1,092 1,156 1,048 916 844 790 Selected Financial Ratios Net income as a % of average assets 1.62 % 1.61 % 1.59 % 1.36 % 1.16 % 1.06 % 1.07 % Net income as a % of average common equity 18.37 19.48 18.61 17.43 15.85 14.83 15.65 Net interest margin % 5.11 5.21 5.21 5.27 5.00 4.76 4.88 Total capital to risk-adjusted assets 13.57 13.80 13.18 13.20 11.92 11.94 12.09 Nonperforming assets as a % of period-end loans and other real estate 0.89 1.14 0.72 1.09 1.43 1.87 1.61 Reserve for loan losses as a % of period-end loans 1.95 2.12 1.95 2.08 2.00 1.83 1.69 Net charge-offs as a % of average loans 0.11 0.21 0.25 0.43 0.47 0.48 0.66
SELECTED CONSOLIDATED FINANCIAL DATA OF FIRST SOUTHEAST - ------------------------------------------------------------------------------ The following table sets forth in summary form certain consolidated financial data of First Southeast. This summary should be read in conjunction with Management's Discussion and Analysis and consolidated financial statements included in this Proxy Statement-Prospectus.
Three Months Ended March 31 Years Ended December 31 ------------------ ---------------------------- 1994 1993 1993 1992 1991 -------- -------- -------- -------- -------- Income Summary (Thousands of dollars) Net interest revenue $ 3,876 $ 3,518 $ 15,505 $ 15,361 $ 14,626 Provision for loan losses - 1,137 4,800 600 600 -------- -------- -------- -------- -------- Net interest revenue after loan loss provision 3,876 2,381 10,705 14,761 14,026 Other operating revenue 634 743 2,844 4,774 (472) Other operating expense 3,664 3,316 15,319 14,616 13,722 -------- -------- -------- -------- -------- Income (loss) before income taxes and cumulative effect of change in accounting principle 846 (192) (1,770) 4,919 (168) Income tax expense (benefit) 214 (114) (1,061) 982 (224) -------- -------- -------- -------- -------- Income (loss) before cumulative effect of change in accounting principle 632 (78) (709) 3,937 56 Cumulative effect of change in accounting principle - 325 325 - - -------- -------- -------- -------- -------- Net income (loss) $ 632 $ 247 $ (384) $ 3,937 $ 56 ======== ======== ======== ======== ======== Per common share: Net income (loss) before cumulative effect of change in accounting principle $ 5.93 $ (0.74) $ (6.65) $ 36.97 $ 0.53 Cumulative effect of change in accounting principle - 3.05 3.05 - - Net income (loss) 5.93 2.31 (3.60) 36.97 0.53 Dividends 9.35 - - 9.35 5.53 Selected Period-End Balances (Thousands of dollars) Total assets $422,306 $413,517 $423,882 $426,715 $435,339 Loans, net 237,016 242,476 241,201 249,677 287,726 Deposits 374,285 368,367 381,859 381,696 391,634 Long-term debt 6,000 7,500 6,000 9,100 11,000 Stockholders' equity 30,809 30,781 30,250 30,634 29,692
COMPARATIVE PER COMMON SHARE DATA - --------- The following table presents selected comparative unaudited per share data for Firstar Common Stock and First Southeast Common Stock on a historical and pro forma combined basis and for First Southeast Common Stock on a pro forma equivalent basis giving effect to the Merger on a pooling-of-interests accounting basis. This information is not necessarily indicative of the results of the future operations of the combined entity or the actual results that would have occurred had the Merger been consummated prior to the periods indicated.
Quarter Ended Years Ended December 31 March 31 ------------------------- 1994 1993 1992 1991 -------- ------- ------- ------- Firstar Corporation - Historical: Net income $ 0.83 $ 3.15 $ 2.62 $ 2.14 Cash dividend declared 0.26 1.00 0.80 .705 Book value (at period end) 18.51 17.96 15.94 14.17 First Southeast Banking Corp - Historical Net income $ 5.93 $ (3.60) $ 36.97 $ 0.53 Cash dividend declared 9.35 - 9.35 5.53 Book value (at period end) 289.32 284.08 287.68 260.06 Firstar-First Southeast - Pro Forma Combined: Net income (1) $ 0.81 $ 3.06 $ 2.61 $ 2.08 Cash dividend declared(2) 0.26 1.00 0.80 .705 Book value (at period end)(3) 18.47 17.93 15.97 14.21 First Southeast Banking Corp. Common Stock - Equivalent Pro Forma Combined(4): Net income (1) $ 13.70 $ 51.77 $ 44.16 $ 35.19 Cash dividend declared 4.40 16.92 13.53 11.93 Book value (at period end) 312.48 303.35 270.19 240.41
(1) The pro forma combined net income per share (based on weighted average shares outstanding) is based upon the combined historical net income for Firstar and First Southeast reduced for dividend payments on Firstar's outstanding Series B Preferred Stock divided by the average pro forma common shares of the combined entity. (2) The pro forma combined dividends declared assume no changes in historical dividends declared per share by Firstar. (3) The pro forma combined book values per share of Firstar Common Stock are based upon the historical total common equity for Firstar and First Southeast divided by total pro forma common shares of the combined entity assuming conversion of the First Southeast Common Stock as stated in the Merger Agreements. (4) The equivalent pro forma combined income, dividends and book value per share of Firstr Southeast Common Stock represent the pro forma combined amounts multiplied by the assumed exchange ratio of 16.91844, which is based on the terms of the Merger Agreements. HISTORICAL AND PRO FORMA SELECTED FINANCIAL CONTRIBUTIONS - -- The following table sets forth certain consolidated financial data of Firstar as of and for the quarter ended March 31, 1994 and the data on a pro forma combined basis after giving effect to the acquisition of First Southeast.
First Firstar Southeast Pro Forma Historical Historical Combined ----------- ----------- ----------- For the quarter ended March 31, 1994: (thousands of dollars) Total revenue Amount $ 297,762 $ 7,188 $ 304,950 Percentage of total 97.64% 2.36% Net income Amount $ 53,222 $ 632 $ 53,854 Percentage of total 98.83% 1.17% At March 31, 1994: Total assets Amount $ 13,908,410 $ 422,306 $ 14,330,716 Percentage of total 97.05% 2.95% Stockholders' equity Amount $ 1,190,386 $ 30,809 $ 1,221,195 Percentage of total 97.48% 2.52% Shares of Common Stock Amount 64,318,011 1,801,577 66,119,588 Percentage of total 97.28% 2.72%
MEETING INFORMATION General This Proxy Statement of First Southeast and Prospectus of Firstar is being furnished in connection with the solicitation by the Board of Directors of First Southeast of proxies to be voted at the Special Meeting of shareholders of First Southeast to be held on August 8, 1994, and any adjournment thereof. The purpose of the Special Meeting and of the solicitation is (i) to obtain approval of the holders of First Southeast Common Stock of the Merger of First Southeast with and into FCW pursuant to the Merger Agreements and (ii) the transaction of such other business as may properly come before the meeting or any adjournments thereof. Each copy of this Proxy Statement-Prospectus mailed to holders of First Southeast Common Stock is accompanied by a form of proxy for use at the First Southeast Special Meeting. The Merger Agreements provide for the acquisition of First Southeast by Firstar, to be accomplished through the statutory merger of First Southeast with and into FCW. Each of the outstanding shares of First Southeast Common Stock, except shares with respect to which the holders have exercised and preserved in accordance with law their statutory dissenters' rights, will be converted into the right to receive 16.91844 shares of Firstar Common Stock. See "THE PROPOSED MERGER--Terms." This Proxy Statement-Prospectus is also furnished by Firstar to First Southeast shareholders as a prospectus in connection with the issuance by Firstar of shares of Firstar Common Stock upon consummation of the Merger. This Proxy Statement-Prospectus, the attached Notice, and the form of proxy enclosed herewith are first being mailed to shareholders on or about July 8, 1994. Date, Place and Time The First Southeast Special Meeting will be held at the offices of First Southeast, 303 Center Street, Lake Geneva, Wisconsin, on August 8, 1994, at 9:00 a.m. (local time). Record Date; Vote Required The close of business on June 22, 1994, has been fixed by the Board of Directors of First Southeast as the Record Date for the determination of shareholders entitled to notice of and to vote at the Special Meeting. On that date there were outstanding and entitled to vote 106,486 shares of First Southeast Common Stock, of which 105,886 were held by directors or executive officers of First Southeast. Neither Firstar nor any of its or FCW's directors or executive officers own any shares of First Southeast Common Stock. Each outstanding share of First Southeast stock entitles the record holder thereof to one vote on all matters to be acted upon at the Special Meeting. The affirmative vote of a majority of the issued and outstanding shares of First Southeast Common Stock entitled to vote is required to approve the Merger Agreements. In order to induce Firstar to enter into the Merger Agreements, all the shareholders of First Southeast entered into the Voting Agreements with Firstar and First Southeast. Pursuant to the Voting Agreements, all the outstanding shares of First Southeast Common Stock on the Record Date will be voted in favor of the Merger Agreements, thereby assuring approval of the Merger Agreements at the Special Meeting. The Shareholders have also agreed not to vote their shares in favor of any acquisition of First Southeast by anyone other than Firstar or its affiliates. Voting and Revocation of Proxies For the reasons described in more detail below under "THE PROPOSED MERGER--Background of and Reasons for the Merger," it is the opinion of the Board of Directors of First Southeast that the Merger is in the best interests of the holders of First Southeast Common Stock. ACCORDINGLY, THE BOARD OF DIRECTORS OF FIRST SOUTHEAST UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FIRST SOUTHEAST COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENTS. Wisconsin law affords dissenters' rights to holders of First Southeast Common Stock who object to the Merger Agreements in accordance with statutory procedures. See "THE PROPOSED MERGER--Rights of Dissenting Shareholders." All properly executed proxies not revoked will be voted at the Special Meeting in accordance with the instructions contained therein. Proxies containing no instructions will be voted "FOR" approval of the Merger Agreements. If any other matters are properly brought before the Special Meeting and submitted to a vote, all proxies will be voted in accordance with the judgment of the persons voting the proxies. Any shareholder executing and returning a proxy may revoke it by later proxy received by, or by giving written notice to, First Southeast or by attending the Special Meeting and voting in person. However, the mere presence of a holder of First Southeast Common Stock at the Special Meeting will not operate to revoke a proxy previously executed and returned. Failure to submit a proxy or to vote at the Special Meeting has the same effect as a negative vote for purposes of approving or disapproving the Merger Agreements. See "THE PROPOSED MERGER-- Rights of Dissenting Shareholders." Solicitation of Proxies The expenses incurred in connection with the solicitation of proxies for the Special Meeting will be borne by First Southeast. However, because this Proxy Statement-Prospectus constitutes part of the Registration Statement filed by Firstar under the Securities Act of 1933, Firstar will bear the expense of preparing, filing and duplicating this Proxy Statement- Prospectus. First Southeast expects to solicit proxies primarily by mail; however, directors of First Southeast who will not be specifically compensated for such services, may also solicit proxies personally or by telephone or other forms of communication. It is not anticipated that anyone will be specifically engaged to solicit proxies. THE PROPOSED MERGER The following description of the Merger is qualified in its entirety by reference to the Merger Agreements, which are incorporated by reference into this Proxy Statement-Prospectus. Background of and Reasons for the Merger For many years, First Southeast has operated as a corporation controlled by David A. Straz, Jr., First Southeast's chief executive officer, who together with two members of his family owns all of First Southeast's common stock. During that period, First Southeast took actions which the Board of Directors believed would be prudent to continue First Southeast as an independent operation, although Mr. Straz and First Southeast periodically received indications of interest from other financial institutions as to their interest in a possible combination transaction with First Southeast. Because of Mr. Straz' substantial experience in the banking field and his majority ownership of First Southeast, Mr. Straz would generally evaluate the offers to determine whether they represented an attractive opportunity. In February 1992, First Southeast entered into a conditional agreement with an unrelated bank holding company for the acquisition of First Southeast. Because certain conditions specified in the agreement were not met, the agreement was terminated in March 1992. After the termination of that agreement, Mr. Straz and First Southeast continued to receive expressions of interest in the acquisition of First Southeast by other financial institutions, including Firstar. Although First Southeast held serious discussions with several of these institutions, only the discussions with Firstar progressed to a point where Mr. Straz believed that a firm offer, acceptable to him, would likely be forthcoming. After the initial discussions with Firstar, Firstar was invited to conduct more intensive due diligence with respect to First Southeast. After that due diligence, officers of Firstar and Mr. Straz, on behalf of First Southeast, engaged in negotiations regarding the terms of a possible acquisition. Those discussions resulted in execution and announcement of the Merger Agreements in February, 1994. First Southeast Board Recommendation The First Southeast Board believes that the Merger represents an opportunity for holders of First Southeast Common Stock to exchange their shares of First Southeast Common stock at an attractive exchange ratio for a security with a greater market liquidity. The Board of Directors also believes that ownership of Firstar Common Stock presents an opportunity for future appreciation, and represents a diminution of risk because of the broader base of Firstar operations. THEREFORE, THE BOARD OF DIRECTORS OF FIRST SOUTHEAST HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS APPROVAL OF THE MERGER BY SHAREHOLDERS. In making its recommendation, the First Southeast Board has not sought the advice of an independent financial advisor. Because of the controlling interest of Mr. Straz and his family members, Mr. Straz' experience in the banking industry, and his satisfaction with the terms and conditions of the transaction, the Board does not believe that the expense of such an advisor is warranted. Terms The Merger Agreements provide that First Southeast will be merged with and into FCW, which will be the surviving corporation. Upon consummation of the Merger, all the issued and outstanding shares of First Southeast Common Stock, except any Dissenting Shares, will be acquired in exchange for Firstar Common Stock or cash in lieu of any fractional shares of Firstar Common Stock. Each of the shares of First Southeast Common Stock that are to be converted into Firstar Common Stock will be converted into the number of shares of Firstar Common Stock that is equal to the quotient produced by dividing (i) the purchase price per share, $558.31, by (ii) $33.00. Therefore, the Merger exchange ratio will be 16.91844 shares of Firstar Common Stock for each share of First Southeast Common Stock. No fractional shares of Firstar Common Stock will be issued in the Merger. Each holder of First Southeast Common Stock who would otherwise be entitled to receive a fractional share will receive cash in an amount equal to the cash value of the fraction, which cash value will be based upon the market value of Firstar Common Stock as described above. Voting and Stock Purchase Agreements of First Southeast's Shareholders The Shareholders entered into the Voting Agreements, which provide that (a) the Shareholders will vote all their shares of First Southeast Common Stock in favor of the Merger at any shareholder meeting or, if their consent is sought by First Southeast, consent to the Merger; (b) the Shareholders will not vote in favor of or consent to the acquisition of First Southeast by any party other than Firstar or its affiliates prior to the termination of the Voting Agreements; and (c) the subject shares will generally not be transferred. Each Voting Agreement also provides that Firstar has the exclusive right to purchase any or all of the shares of First Southeast Common Stock owned by each Shareholder for $558.31 per share, payable in cash, subject to any necessary regulatory approval, after any events or circumstances that lead Firstar reasonably to believe that First Southeast is likely to materially breach the Merger Agreements. The purchase price per share under the Voting Agreements is equal to the Dollar Purchase Price Per Share specified in the Merger Agreements. The Voting Agreements will terminate if the Merger Agreements terminate. Material Contacts Among Firstar and First Southeast In 1990 and 1991 First Southeast and Firstar had engaged in preliminary merger discussions but had determined not to proceed at that time. First Southeast's conditional merger agreement with an unrelated bank holding company terminated in 1992. In September 1993, Firstar and First Southeast again commenced merger discussions; these ultimately resulted in execution of the Merger Agreement. Since the commencement of these negotiations, except for the Merger Agreements and the related agreements entered into between the parties at the same time, no material contracts or other similar arrangements have been entered into between Firstar or its affiliates and First Southeast or its affiliates. Neither Firstar nor FCW nor any of their respective directors or executive officers holds directly or indirectly any shares of First Southeast Common Stock. Conduct of Business Until the Merger The Merger Agreements provide that First Southeast and Firstar will take or refrain from taking certain actions prior to the Closing Date. After execution of the Merger Agreements, First Southeast cannot pay any dividends or make any distributions on First Southeast Common Stock other than cash dividends in amounts not to exceed in the aggregate an amount equal to the cash dividends that the shareholders of First Southeast would have received from Firstar had they owned, after February 15, 1994, 1,801,577 shares of Firstar Common Stock on the record dates in such quarters for the determination of Firstar shareholders entitled to receive dividends. The Merger Agreements also provide that First Southeast will not permit the Banks to declare or pay any dividends or make any distributions on their capital stock, except cash dividends in an aggregate amount equal to the amount necessary to (i) service existing indebtedness of First Southeast, (ii) fund First Southeast's payment of cash dividends as described above, (iii) pay ordinary and necessary operating expenses of First Southeast on a basis consistent with prior years, and (iv) pay expenses expressly contemplated by the Reorganization Agreement. Under the Merger Agreements, First Southeast cannot effect any change in its capitalization or that of the Banks (except in connection with the Bank-level Merger discussed) or any change in its corporate structure or methods of accounting or tax reporting. First Southeast has also agreed not to initiate, solicit or encourage any transactions competing with the proposed Merger with FCW. The Merger Agreements also provide that First Southeast will, and will cause each of the Banks to, conduct its business in substantially the same manner as conducted prior to the date of the Merger Agreements and use its best efforts to maintain and preserve its business organization intact, retain its present employees and maintain its relationships with customers. First Southeast will not, nor will it permit the Banks to, enter into any transactions or take any other action other than in the ordinary course of business or as contemplated by the Merger Agreements, except with the prior written consent of Firstar. First Southeast and the Banks will cooperate with Firstar and FCW to effect the bank mergers and the branch transfer described in "THE PROPOSED MERGER--Management and Operations of First Southeast after the Merger; Interests of First Southeast Management in the Merger," contingent on the Closing. First Southeast, pursuant to the Merger Agreements, has agreed to withdraw its applications to the Wisconsin Commissioner of Banking for approval of the Banks' charter conversions and merger with each other. First Southeast has agreed to cooperate with Firstar and FCW in effecting the bank-level mergers and the closings of three bank branches specified in the Reorganization Agreement, after the Closing. Prior to the Closing, First Southeast and the Banks must sell their life insurance policies on Mr. Straz, First Southeast's investments in common stock of Southern Exchange Bank and Wisconsin Energy Corp., and the Banks' out-of-state loan participations. Mr. Straz or entities under his control will purchase the life insurance policies and stock of Southern Exchange Bank and may purchase the loan participations; these assets have a value of approximately $5.5 million in the aggregate. The stock of Wisconsin Energy Corp. has been sold. Firstar has agreed to indemnify First Southeast from certain damages it may incur under plant closing laws. Firstar, as the sole shareholder of FCW, has approved the Merger Agreements. Date of the Merger Under the BHCA, the Merger requires the prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). It is anticipated that the Federal Reserve Board will act on Firstar's application in August or September, 1994. The Merger cannot take effect before the 30th calendar day or, absent an extension granted by the Federal Reserve Board, later than three months following the date of approval by the Federal Reserve Board. See "THE PROPOSED MERGER--Conditions to the Merger; Regulatory Approval." Under the Merger Agreements, the Merger will occur within five days of satisfaction of all of the conditions to the Merger, including the expiration of the statutory waiting period after Federal Reserve Board approval, or on such date as Firstar and First Southeast may both agree to, and will take effect upon the date FCW and First Southeast file Articles of Merger with the Wisconsin Secretary of State. It is anticipated that the Closing Date will be in September or October, 1994. Conditions to the Merger The Merger Agreements provide that consummation of the Merger is subject to certain conditions unless waived to the extent waiver is permitted by applicable law. Such conditions include the following, which are all the material conditions: a. The Merger Agreements must have been approved by the requisite vote of the holders of a majority of the issued and outstanding shares of First Southeast Common Stock and holders of no more than 5% of the issued and outstanding shares of First Southeast Common Stock shall have asserted Dissenter's Rights. See "MEETING INFORMATION--Record Date; Vote Required" and "THE PROPOSED MERGER--Voting and Stock Purchase Agreements of First Southeast's Shareholders." b. The Firstar Common Stock to be issued in the Merger must have been qualified or exempted under all applicable state securities laws and there must have been no stop order issued that suspends the effectiveness of the Registration Statement of which this Proxy Statement-Prospectus is a part. c. The Merger must have been approved by the Federal Reserve Board. See "THE PROPOSED MERGER--Date of the Merger; Regulatory Approval." d. There must not have been any material adverse change in the financial condition, assets, liabilities, prospects, results of operation or business of First Southeast or either Bank from February 10, 1994, to the Closing Date. e. Continued accuracy of representations and warranties by Firstar and First Southeast regarding, among other things, the organization of the parties, financial statements, capitalization, pending and threatened litigation, enforceability of the Merger Agreements, compliance with law, and tax matters. f. As of the Closing Date, (a) there must not be any litigation that was not disclosed prior to execution of the Merger Agreements, pending or overtly threatened before any court or other governmental agency by the federal or any state government seeking to restrain or prohibit the Merger, and (b) there must not be any litigation that was not disclosed prior to the execution of the Merger Agreements, pending or overtly threatened nor any liability or claim asserted against First Southeast or either Bank that might result in a material adverse change in its financial condition, results of operations or business prospects. g. Any review or examination of the financial condition of First Southeast by Firstar and/or KPMG Peat Marwick must not have disclosed material breaches of the Merger Agreements. h. Firstar must have received confirmation from KPMG Peat Marwick, its certified public accountants, approving the accounting treatment of the Merger as a pooling of interests. See "THE PROPOSED MERGER--Accounting Treatment of the Merger." i. Firstar shall have had the opportunity to conduct an audit of any First Southeast employee benefit plans. j. As of the Closing Date, the allowance for loan losses of each of the Banks must not be less than an amount equal to 2.0% of its gross loans outstanding. k. Firstar and FCW, on the one hand, and First Southeast, on the other hand, shall each have received opinions from Foley & Lardner that the Merger will be treated as a tax-free reorganization under the Code. See "THE PROPOSED MERGER--Certain Federal Income Tax Consequences." l. It is a condition to Firstar's obligation to close that the Federal Reserve Bank of Chicago shall have agreed that a formal agreement and a Memorandum of Understanding regulating First Southeast shall not apply to Firstar or FCW after the Closing. Firstar has requested such an agreement by the Federal Reserve Bank of Chicago. See "THE PROPOSED MERGER--Regulatory Approvals." m. Firstar shall have had an opportunity to conduct environmental audits of the Banks' real property. It is anticipated that all of the foregoing conditions will be met. In addition, unless waived, each party's obligation to effect the Merger is subject to performance by the other party of its obligations under the Merger Agreements and the receipt of certain certificates from the other party and legal opinions. See "THE PROPOSED MERGER--Conduct of Business Until the Merger." Regulatory Approval The Merger is subject to prior approval by the Federal Reserve Board under the BHCA, which requires that the Federal Reserve Board take into consideration the financial and managerial resources and future prospects of the respective institutions and the convenience and needs of the communities to be served. The BHCA prohibits the Federal Reserve Board from approving the Merger if it would result in a monopoly or 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 if its effect in any section of the country may be substantially to lessen competition or to tend to create a monopoly, or if it would in any other manner be a restraint of trade, unless the Federal Reserve Board finds that the anticompetitive effects of the Merger 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. The Federal Reserve Board has the authority to deny an application if it concludes that the combined organization would have an inadequate capital position. Under the BHCA, the Merger may not be consummated until the 30th day following the date of Federal Reserve Board approval, during which time the United States Department of Justice may challenge the Merger on antitrust grounds. The commencement of an antitrust action would stay the effectiveness of the Federal Reserve Board's approval unless a court specifically orders otherwise. The BHCA provides for the publication of notice and public comment on the applications and authorizes the regulatory agency to permit interested parties to intervene in the proceedings. Firstar and FCW submitted an application for filing with the Federal Reserve Bank of Chicago on April 27, 1994. Comment on the application have been received by the Federal Reserve Board, and it has requested additional information. The application was returned "so that the required information may be inserted." Firstar refiled the application on June 30, and expects that it will be accepted in July. In conjunction with the application for approval of Merger, Firstar submitted a written request that the Federal Reserve Bank of Chicago agree that the agreement among the Reserve Bank, First Southeast and Mr. Straz dated August 14, 1984 (the "Formal Agreement"), and the Memorandum of Understanding between the Reserve Bank and First Southeast dated November 6, 1991 (the "MOU"), will not apply to Firstar or FCW after the Closing. Firstar has had discussions with a representative of the Reserve Bank who stated that the requested termination of the Formal Agreement and the MOU is likely to be granted. There can be no assurance that the Federal Reserve Board will approve the Merger, and if the Merger is approved, there can be no assurance as to the date of such approval. There can likewise be no assurance that the Department of Justice will not challenge the Merger or, if such a challenge is made, as to the result thereof. Finally, there can be no assurance that the requested formal approval of the Federal Reserve Bank of Chicago of termination of the Formal Agreement and the MOU on the Closing Date will be granted. Termination, Amendment and Waiver of Merger Agreements Firstar and First Southeast may each waive, as to the other, performance of any of the obligations and compliance with any of the covenants or conditions of the Merger Agreements (other than items (a), (b) and (c) in the "Conditions to the Merger" section above) and may amend or modify the Merger Agreements. Any such action by First Southeast taken following a favorable vote on or consent to the Merger by its shareholders may be taken only if, in the opinion of the Board of Directors of First Southeast, the action would not have a material adverse effect on the benefits intended for its shareholders under the Merger Agreements. The Merger Agreements may be terminated and the Merger abandoned by the mutual written consent of the Board of Directors of First Southeast and the Board of Directors or Interstate Banking and Acquisitions Committee of Firstar at any time prior to the Closing Date. In addition, the Merger may be abandoned by (a) either First Southeast or Firstar if (i) any condition set forth in Articles VII, VIII or IX of the Reorganization Agreement has not been substantially satisfied or waived in writing by October 31, 1994, (ii) any warranty or representation made by the other party in the Merger Agreements is discovered to have become untrue, incomplete or misleading, where any such breach is likely to have a material adverse impact on the other party and is not cured within ten business days of notice, (iii) the other party commits one or more material breaches of the Merger Agreements considering all such breaches in the aggregate, where such breach has not been cured within ten business days of notice, or (b) First Southeast if the average composite closing prices per share of Firstar Common Stock on the New York Stock Exchange and the Chicago Stock Exchange on the ten consecutive trading days immediately preceding the Closing Date is less than $27.00. The obligations of each party to keep confidential information received from the other under the Merger Agreements, to coordinate the public release of information about the Merger, and to pay its respective fees and expenses, survive the termination of the Merger Agreements. If the proposed Merger does not take place, other than by reason of a breach by any party to the Merger Agreements, there will be no liability on the part of First Southeast or Firstar except that (a) each party will pay its own fees and expenses incurred in connection with the preparation and performance of the Merger Agreements, (b) in connection with the preparation and filing of the Registration Statement and compliance with state securities laws, Firstar will bear the cost of preparation, filing and duplication of the Registration Statement, (c) Firstar will reimburse First Southeast and the Banks for any out-of-pocket fees and expenses they incurred at the request and direction of Firstar, as specified in the Reorganization Agreement, and (d) First Southeast agrees to reimburse Firstar for the costs of the environmental audits discussed in "THE PROPOSED MERGER--Conditions to the Merger." In the event of termination of the Merger Agreements caused by (a) willful breach of any agreement or covenant contained therein, (b) any material misrepresentation or breach of warranty, which was known to be a misrepresentation or breach of warranty by First Southeast or Firstar on February 10, 1994, or (c) the failure of any condition precedent to the consummation of the Merger which has failed because the non-terminating party did not exercise good faith and best efforts toward the fulfillment of such condition; then the terminating party shall be entitled to all its legal and equitable remedies. Management and Operations of First Southeast after the Merger; Interests of First Southeast Management in the Merger The Merger Agreements provide that, on the Closing Date, First Southeast will be merged with and into FCW. The surviving entity will be FCW and the separate corporate existence of First Southeast will terminate. As a result of the Merger, the surviving corporation will be wholly owned by Firstar, and the Banks, which are now owned by First Southeast, will be controlled by Firstar. The officers and directors of FCW immediately prior to the Merger will continue as the officers and directors of the surviving corporation following the Merger. Following the Merger, Firstar and FCW will manage and direct the operations of the Banks as they manage and direct their present bank subsidiaries. Immediately following the Closing Date, one or more management representatives of Firstar will be added to the Boards of the Banks. Within a few months of the Closing Date, Firstar and FCW intend to a) merge First Bank Southeast with FCW's subsidiary, Firstar Bank Milwaukee, N.A., b) merge First Bank Lake Geneva with FCW's subsidiary, Firstar Bank Lake Geneva, N.A., c) close three Bank branches (transferring the loans and deposits to other Firstar branches), and d) transfer one of First Bank Southeast's former branches to Firstar Bank Lake Geneva, N.A. Pursuant to the proposed Agreement to Merge between First Bank Lake Geneva and Firstar Bank Lake Geneva, N.A., Firstar will offer to purchase all of the outstanding minority shares of First Bank Lake Geneva for at least $287.27 in cash per share. The dates for the bank-level mergers, branch closings and purchase and assumption, which are subject to regulatory approval, have not been determined at this time. At the time of the bank-level mergers and purchase and assumption, the officers of the Banks will become officers of the surviving banks. Firstar and Firstar Bank Milwaukee, N.A. have agreed, in a letter to Mr. Straz dated February 10, 1994, to cause him to be appointed to the Board of Directors of Firstar Bank Milwaukee as soon as reasonably practicable following the Closing Date. It is presently anticipated that there will be no other changes in management or other principal relationships for Firstar, FCW, First Southeast or the Banks that will result from this transaction. Firstar, when reasonably practicable following the Closing Date, intends to cause coverage under the Firstar Corporation Pension Plan and the Firstar Corporation Thrift and Sharing Plan to be extended to eligible employees of the Bank. Certain Federal Income Tax Consequences Firstar and First Southeast expect that the Merger will be treated as a tax-free reorganization and that for federal income tax purposes no gain or loss will be recognized by any First Southeast shareholder upon receipt of Firstar Common Stock pursuant to the Merger (except upon the receipt of cash in lieu of fractional shares of Firstar Common Stock). This discussion of tax consequences of the Merger assumes that none of the Shareholders will exercise dissenters' rights. The Internal Revenue Service has not been asked to rule upon the tax consequences of the Merger and such request will not be made. Instead, Firstar and First Southeast will rely upon the opinion of Foley & Lardner, their joint tax counsel, as to certain federal income tax consequences of the Merger. The opinion of Foley & Lardner is based entirely upon the Code, regulations now in effect thereunder, current administrative rulings and practice, and judicial authority, all of which are subject to change. Unlike a ruling from the Service, an opinion of counsel is not binding on the Service and there can be no assurance, and none is hereby given, that the Service will not take a position contrary to one or more positions reflected herein or that the opinion will be upheld by the courts if challenged by the Service. EACH HOLDER OF FIRST SOUTHEAST COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISORS AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER. Based upon the opinion of Foley & Lardner, which in turn is based upon various representations and subject to various assumptions and qualifications, the following federal income tax consequences to the First Southeast shareholders will result from the Merger: (i) Provided that the Merger of First Southeast with and into FCW qualifies as a statutory merger under applicable law, the Merger will qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code, and First Southeast, Firstar and FCW 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 the holders of First Southeast Common Stock upon the exchange of First Southeast Common Stock solely for Firstar Common Stock pursuant to the Merger. (iii) The First Southeast shareholder's basis in the Firstar Common Stock received in the exchange (including any fractional share interest to which he or she may be entitled) will be the same as the basis of the First Southeast Common Stock surrendered. (iv) The holding period of the First Southeast Common Stock received by a shareholder of First Southeast pursuant to the Merger will include the period during which the First Southeast Common Stock surrendered was held, provided that the First Southeast Common Stock surrendered was a capital asset on the date of the Merger. (v) A First Southeast shareholder receiving cash in lieu of fractional share interests of First Southeast Common Stock in the Merger will be treated as if he or she actually received such fractional share interests which were subsequently redeemed by Firstar. The cash a First Southeast shareholder receives will be treated as having been received as full payment in exchange for stock redeemed as provided in Section 302(a) of the Code. The foregoing is only a general description of certain anticipated federal income tax consequences of the Merger without regard to the particular facts and circumstances of the tax situation of each shareholder of First Southeast. It does not discuss all of the consequences that may be relevant to First Southeast shareholders entitled to special treatment under the Code (such as insurance companies, dealers in securities, exempt organizations or foreign persons). The summary set forth above does not purport to be a complete analysis of all potential tax effects of the transactions contemplated by the Merger Agreements or the Merger itself. No information is provided herein with respect to the tax consequences, if any, of the Merger under state, local or foreign tax laws. Certain Differences in Rights of Shareholders Firstar and First Southeast are both incorporated under the laws of the State of Wisconsin and, accordingly, the rights of both groups of shareholders are governed by Wisconsin law, as well as such corporations' respective Articles of Incorporation and Bylaws. Upon consummation of the Merger, First Southeast shareholders will become Firstar shareholders and their rights will be governed by Wisconsin law and Firstar's Articles of Incorporation and Bylaws. Although it is impractical to note all of the differences between statutory and other rights of Firstar shareholders and First Southeast shareholders, certain material differences are summarized below. Takeover Statutes. Wisconsin law regulates a broad range of "business combinations" between a Wisconsin corporation with registered stock, such as Firstar, and an "interested stockholder." Wisconsin law defines a "business combination" as including a merger or a share exchange, sale of assets, issuance of stock or rights to purchase stock and certain related party transactions. An "interested stockholder" is defined as a person who beneficially owns, directly or indirectly, 10% of the outstanding voting stock of a corporation or who is an affiliate or associate of the corporation and beneficially owned 10% of the voting stock within the last three years. In certain cases, Wisconsin law prohibits a corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder, unless the board of directors approved the business combination or the acquisition of the stock prior to the acquisition date. In such cases, business combinations after the three-year restricted period are permitted only if (i) the business combination is approved by a majority of the outstanding voting stock not owned by the interested stockholder and (ii) the consideration to be received by shareholders meets certain requirements of the statute with respect to form and amount. Under Section 180.1143(1) of the Wisconsin Business Corporation Law, the restrictions on business combinations do not apply to companies like First Southeast which do not have voting stock registered or traded on a national securities exchange or registered under the Exchange Act. Section 180.1150 of the Wisconsin Business Corporation Law provides that in particular circumstances the voting of shares of a Wisconsin "issuing public corporation" (a Wisconsin corporation which has at least 100 Wisconsin resident shareholders, 500 or more shareholders of record and total assets exceeding $1 million) held by any person in excess of 20% of the voting power is limited to 10% of the full voting power of such excess shares. Full voting power may be restored under Section 180.1150 if a majority of the voting power of shares represented at a meeting, including those held by the party seeking restoration, are voted in favor of such restoration. Firstar is, and First Southeast is not, an "issuing public corporation" under Wisconsin law. In addition, Section 180.1132 of the Wisconsin Business Corporation Law sets forth certain fair price provisions which govern mergers and share exchanges with, or sales of substantially all a Wisconsin issuing public corporation's assets to, a 10% shareholder, mandating that any such transaction meet one of two requirements. The first requirement is that the transaction be approved by 80% of all shareholders and two-thirds of "disinterested" shareholders, which generally exclude the 10% shareholder. The second requirement is the payment of a statutory fair price, which is intended to insure that shareholders in the second step merger, share exchange or asset sale receive at least what shareholders received in the first step. Further, Section 180.1134 of the Wisconsin Business Corporation Law requires shareholder approval for certain transactions in the context of a tender offer or similar action for in excess of 50% of a Wisconsin issuing public corporation's stock. Shareholder approval is required for the acquisition of more than 5% of the corporation's stock at a price above market value, unless the corporation makes an equal offer to acquire all shares. Shareholder approval is also required for the sale or option of assets which amount to at least 10% of the market value of the corporation, but this requirement does not apply if the corporation meets certain minimum outside director standards. Preferred Stock. The Restated Articles of Incorporation of Firstar authorize the Board of Directors of Firstar to issue up to 2,500,000 shares of preferred stock, $1.00 par value. The Board of Directors may establish the relative rights and preferences of preferred stock issued in the future without shareholder action and issue such stock in series. As of the date hereof, Firstar has reserved 600,000 shares of Series C Preferred Stock for issuance upon exercise of the Preferred Stock Purchase Rights, as further described below. First Southeast has no authorized shares of Preferred Stock and, accordingly, the rights of holders of First Southeast Common Stock to receive dividends or payment in the event of voluntary or involuntary dissolution, liquidation or winding up of First Southeast are not subject to the prior satisfaction of the rights of any other shareholders. Directors. The Board of Directors of Firstar is divided into three classes as nearly equal in number as possible, with the directors in each class serving for staggered three-year terms. At each annual meeting of Firstar's shareholders, the successors to the class of directors whose term expires at the time of such meeting are elected by a majority of the votes cast, assuming a quorum is present. A director of Firstar may be removed, with or without cause, only by the affirmative vote of not less than 75% of the then issued and outstanding shares taken at a special meeting of shareholders called for that purpose. All the directors of First Southeast are elected at the annual meeting of shareholders by the majority of the votes cast, assuming a quorum is present. A director of First Southeast may be removed, with or without cause, by the affirmative vote of the holders of a majority of the then issued and outstanding stock of First Southeast cast at a special meeting of shareholders called for that purpose. Dissenters' Rights. Under Wisconsin law, dissenting shareholders generally are entitled to receive payment of the fair value of any of their shares in connection with a merger, consolidation or sale of substantially all of the assets of a corporation, other than in the regular course of business. However, no dissenters' rights are available to any class of stock listed on a national securities exchange or quoted on NASDAQ on the applicable record date. Because Firstar Common Stock is listed on the New York Stock Exchange, Firstar's shareholders do not have rights of appraisal. Because First Southeast Common Stock is not listed on a national securities exchange or quoted on NASDAQ, First Southeast's shareholders have the statutory appraisal rights described. See "THE PROPOSED MERGER--Rights of Dissenting Shareholders" and Exhibit A hereto. Preferred Stock Purchase Rights. Firstar has adopted a Shareholder Rights Plan, pursuant to which each share of Firstar Common Stock entitles its holder to one-half of a Preferred Stock Purchase Right. Under certain conditions, each Preferred Stock Purchase Right entitles the holder to purchase one one-hundredth of a share of Firstar's Series C Preferred Stock at a price of $85, subject to adjustment. Recipients of Firstar Common Stock in connection with the Merger will also receive one Preferred Stock Purchase Right per share of Firstar Common Stock. The description of the terms of the Preferred Stock Purchase Rights are set forth in a Rights Agreement dated as of January 19, 1989 (the "Rights Agreement") between Firstar and Firstar Trust Company, as Rights Agent. The description of the Preferred Stock Purchase Rights contained herein is qualified in its entirety by reference to the Rights Agreement. The rights will only be exercisable if a person or group has acquired, or announced an intention to acquire, 20% or more of the outstanding shares of Firstar Common Stock. Under certain circumstances, including the existence of a 20% acquiring party, each holder of a Preferred Stock Purchase Right, other than the acquiring party, will be entitled to purchase at the exercise price Firstar Common Stock having a market value of two times the exercise price. In the event of the acquisition of Firstar by another company subsequent to a party acquiring 20% or more of Firstar Common Stock, each holder of a Preferred Stock Purchase Right is entitled to receive the acquiring company's common shares having a market value of two times the exercise price. The rights may be redeemed at a price of $.01 per right prior to the existence of a 20% acquiring party, and thereafter, may be exchanged for one common share per right prior to the existence of a 50% acquiring party. The Preferred Stock Purchase Rights will expire on January 19, 1999. The rights do not have voting or dividend rights, and until they become exercisable, have no dilutive effect on the earnings of Firstar. Under the rights plan, the Board of Directors of Firstar may reduce the thresholds applicable to the rights from 20% to not less than 10%. First Southeast does not have a shareholder rights plan. Accounting Treatment of the Merger It is anticipated that the acquisition of First Southeast will be treated as a "pooling of interests" for accounting purposes. Accordingly, under generally accepted accounting principles, the assets and liabilities of First Southeast will be recorded in the financial statements of Firstar at their carrying values as of the Closing Date. See "THE PROPOSED MERGER--Conditions to the Merger." Resale of Firstar Common Stock The shares of Firstar Common Stock to be issued in the Merger to holders of First Southeast Common Stock have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and thus could be freely traded if there were any holders of First Southeast Common Stock, who are not "affiliates" of First Southeast (and are not affiliates of Firstar at the time of the proposed resale). All three shareholders of First Southeast are affiliates of First Southeast. Pursuant to the Merger Agreements, Firstar has received a written undertaking from each affiliate of First Southeast to the effect that (a) the affiliate will not sell or dispose of Firstar Common Stock acquired by such affiliate in the Merger, except (i) under a separate registration for distribution (which Firstar has not agreed to provide), or (ii) pursuant to Rule 145 promulgated under the Securities Act, or (iii) pursuant to some other exemption from registration; and (b) the affiliate will not otherwise dispose of the Firstar Common Stock or otherwise reduce his or her risk relative to the Firstar Common Stock prior to the publication by Firstar of an earnings statement covering at least 30 days of combined operations after the Closing Date. Rights of Dissenting Shareholders Under the provisions of Section 180.1301 et seq. of the Wisconsin Business Corporation Law, a copy of which is attached to this Proxy Statement-Prospectus as Exhibit A, any holder of record or beneficial shareholder of First Southeast Common Stock has the statutory right to dissent from the Merger and obtain payment of the fair value of his or her shares in cash. However, each of the shareholders of First Southeast has contractually agreed with Firstar to vote in favor of the Merger. See "THE PROPOSED MERGER--Voting and Stock Purchase Agreements of First Southeast's Shareholders." Any holder electing to exercise his or her statutory dissenters' rights in breach of the Voting Agreements must deliver written notice of his or her intent to demand payment for his or her shares to First Southeast and not vote in favor of the Merger Agreements. Such notice must be delivered to First Southeast before the vote on the Merger Agreements is taken. A shareholder may object as to less than all of the shares registered in his name subject to the provisions of Section 180.1303 of the Wisconsin Business Corporation Law. A PROXY OR VOTE AGAINST THE MERGER AGREEMENTS WILL NOT, OF ITSELF, BE REGARDED AS A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS. Within 10 days of the Merger, FCW will give a written dissenters' notice to each dissenting shareholder who has made demand in accordance with Section 180.1321(1), containing a form for demanding payment, a statement indicating where the holder must send the payment demand, an explanation of the extent to which the transfer of shares will be restricted after the payment demand is received and a date by which the payment demand must be received by First Southeast. A holder to whom a dissenters' notice is sent, must demand payment in writing and certify whether he or she acquired beneficial ownership of the shares before the date specified in the dissenters' notice. As soon as the Merger is effected or upon receipt of a demand for payment, whichever is later, FCW will pay each holder who has complied with the provisions of Section 180.1301 et seq. the amount that the corporation estimates to be the fair value of the holder's shares, plus accrued interest. Such payment will be accompanied by a copy of FCW's latest available financial statement, a statement of the corporation's estimate of the fair value of the shares, an explanation of how the interest was calculated, a statement of the dissenter's right to demand payment under Section 180.1328 of the Wisconsin Business Corporation Law if he or she is dissatisfied with the payment and a copy of Sections 180.1301 to 180.1331 of the Wisconsin Business Corporation Law. FCW may elect to withhold the payment required by Section 180.1325 from a dissenter unless the dissenter was the beneficial owner of the shares before the date specified in the dissenter's notice under Section 180.1322(2)(c) as the date of the first announcement to news media or to shareholders of the terms of the Merger. To the extent FCW makes such an election, it must estimate the fair value of the shares, plus accrued interest and pay that amount to each dissenter who agrees to accept it in full satisfaction of his or her demand. FCW will send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated and a statement of the dissenter's right to demand payment under Section 180.1328 if the dissenter is dissatisfied with the offer. Any dissenter may notify the corporation of his or her estimate of the fair value of his or her shares and demand payment of such estimate less any payment received from the corporation or reject the corporation's payment or offer of payment for any one of the following reasons: the dissenter believes that the amount paid or offered by the corporation is less than the fair value of his or her shares or that the accrued interest is incorrectly calculated; the corporation fails to make the payment within 60 days after the date for demanding payment set out in the dissenters' notice; or First Southeast fails to effect the Merger and does not return the deposited shares within 60 days of the date set for demand of payment. In the event any holder of First Southeast Common Stock fails to comply strictly with the applicable statutory requirements, he or she will be bound by the terms of the Merger Agreements and will not be entitled to payment for his or her shares under such statute. If a shareholder complies strictly with the applicable statutory requirements to perfect a dissent, he or she will be entitled to payment under Section 180.1301 et seq. of the Wisconsin Business Corporation Law but will be subject to contractual liability for breach of his or her Voting Agreement with Firstar. Any holder of First Southeast Common Stock who wishes to object to the Merger and demand payment for his or her shares of First Southeast Common Stock should consider consulting his or her own legal advisor. Since an executed proxy relating to First Southeast Common Stock on which no voting direction is made will be voted at the Special Meeting in favor of the Merger Agreements, an objecting shareholder who wishes to have his or her shares of First Southeast Common Stock represented by proxy at the Special Meeting but preserve his or her rights of appraisal must mark his proxy either to vote against the Merger Agreements or to abstain from voting thereon, make the required objection and demand, and make the required submission of stock certificates as described herein. The foregoing, while a summary of all material provisions of Section 180.1301 et seq. of the Wisconsin Business Corporation Law, is qualified in its entirety by reference to the text of such statutory provision, which is set forth in Exhibit A hereto. FIRSTAR CORPORATION General Firstar is a registered bank holding company incorporated in Wisconsin in 1929. Firstar is the largest bank holding company headquartered in Wisconsin. Firstar's 18 bank subsidiaries in Wisconsin had total assets of $9.7 billion at March 31, 1994. Its eleven Iowa banks, four Illinois banks and one Minnesota bank had total assets of approximately $2.5 billion, $949 million and $1.1 billion, respectively, as of March 31, 1994. Firstar has one bank in Phoenix, Arizona, with total assets of $99 million. Firstar's principal subsidiary, Firstar Bank Milwaukee, N.A., had total assets of $5.7 billion, which represented 41 percent of Firstar's consolidated assets at March 31, 1994, and is the largest commercial bank in Wisconsin. Firstar provides banking services throughout Wisconsin and Iowa and in the Chicago, Minneapolis-St. Paul and Phoenix metropolitan areas. Its Wisconsin bank subsidiaries operate in 112 locations, with offices in eight of the ten largest metropolitan population centers of the state, including 45 offices in the Milwaukee metropolitan area. Its Iowa bank subsidiaries operate in 42 locations; its Illinois bank subsidiaries in 15 locations; its Minnesota bank subsidiary in 24 locations; and its Arizona bank in three locations; and a trust subsidiary in Florida in two locations. Firstar's bank subsidiaries provide a broad range of financial services for companies based in Wisconsin, Iowa, Illinois and Minnesota, national business organizations, governmental entities and individuals. These commercial and consumer banking activities include accepting demand, time and savings deposits; making both secured and unsecured business and personal loans; and issuing and servicing credit cards. The bank subsidiaries also engage in correspondent banking and provide trust and investment services to individual and corporate customers. Firstar Bank Milwaukee, N.A., Firstar Bank Cedar Rapids, N.A. and Firstar Bank Madison, N.A. also conduct international banking services consisting of foreign trade financing, issuance and confirmation of letters of credit, funds collection and foreign exchange transactions. Nonbank subsidiaries provide retail brokerage services, trust and investment services, residential mortgage banking activities, title insurance, business insurance, consumer and credit related insurance, and corporate computer and operational services. At March 31, 1994, Firstar and its subsidiaries employed 7,376 full-time and 2,125 part-time employees, of which approximately 943 full-time employees are represented by a union under a collective bargaining agreement that expires on August 31, 1996. Management considers its relations with its employees to be good. Competition Banking and bank-related services is a highly competitive business. Firstar's subsidiaries compete primarily in Wisconsin and the Midwestern United States. Firstar and its subsidiaries have numerous competitors, some of which are larger and have greater financial resources. Firstar competes with other commercial banks and financial intermediaries, such as savings banks, savings and loan associations, credit unions, mortgage companies, leasing companies and a variety of financial services and advisory companies located throughout the country. Supervision Firstar's business activities as a bank holding company are regulated by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended, which imposes various requirements and restrictions on its operations. The activities of Firstar and those of its banking and nonbanking subsidiaries are limited to the business of banking and activities closely related or incidental to banking. The business of banking is highly regulated, and there are various requirements and restrictions in the laws of the United States and the states in which the subsidiary banks operate, including the requirement to maintain reserves against deposits and adequate capital to support their operations, restrictions on the nature and amount of loans which may be made by the banks, restrictions relating to investment (including loans to and investments in affiliates), branching and other activities of the banks. Firstar's subsidiary banks with a national charter are supervised and examined by the Comptroller of the Currency. The subsidiary banks with a state charter are supervised and examined by their respective state banking agencies and either by the Federal Reserve if a member bank of the Federal Reserve or by the FDIC if a nonmember. All of the Firstar subsidiary banks are also subject to examination by the Federal Deposit Insurance Corporation. In recent years Congress has enacted significant legislation which has substantially changed the federal deposit insurance system and the regulatory environment in which depository institutions and their holding companies operate. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990 and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") have significantly increased the enforcement powers of the federal regulatory agencies having supervisory authority over Firstar and its subsidiaries. Certain parts of such legislation, most notably those which increase deposit insurance assessments and authorize further increases to recapitalize the bank deposit insurance fund, increase the cost of doing business for depository institutions and their holding companies. FIRREA also provides that all commonly controlled FDIC insured depository institutions may be held liable for any loss incurred by the FDIC resulting from a failure of, or any assistance given by the FDIC, to any of such commonly controlled institutions. Federal regulatory agencies have implemented provisions of FDICIA with respect to taking prompt corrective action when a depository institution's capital falls to certain levels. Under the new rules, five capital categories have been established which range from "critically undercapitalized" to "well capitalized." Failure of a depository institution to maintain a capital level within the top two categories will result in specific actions from the federal regulatory agencies. These actions could include the inability to pay dividends, restricting new business activity, prohibiting bank acquisitions, asset growth limitations and other restrictions on a case by case basis. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. Changes to such monetary policies have had a significant effect on operating results of financial institutions in the past and are expected to have such an effect in the future; however, the effect of possible future changes in such policies on the business and operations of Firstar cannot be determined. The following table sets out the risk-based capital position of both Firstar Corporation and each of Firstar's bank subsidiaries as of March 31, 1994. Both Firstar and all of the subsidiaries exceeded the risk-based capital requirements as of such date. Firstar Corporation Bank Subsidiaries Risk-Based Capital Ratios March 31, 1994 Tier 1 Total Capital Capital Minimum Statutory Requirement 4.00% 8.00% Firstar Corporation 11.48% 13.57% Firstar Bank Milwaukee, N.A. 9.96 11.84 Firstar Bank Appleton 9.94 10.99 Firstar Bank Eau Claire, N.A. 10.81 12.07 Firstar Bank Fond du Lac, N.A. 10.68 11.94 Firstar Bank Grantsburg, N.A. 16.15 17.41 Firstar Bank Green Bay 11.34 12.60 Firstar Bank Lake Geneva, N.A. 14.63 15.89 Firstar Bank Madison, N.A. 12.49 13.74 Firstar Bank Manitowoc 12.05 13.31 Firstar Bank Minocqua 16.10 17.37 Firstar Bank Oshkosh, N.A. 9.96 11.21 Firstar Bank Portage 17.55 18.81 Firstar Bank Racine 14.50 15.76 Firstar Bank Rice Lake, N.A. 13.34 14.59 Firstar Bank Sheboygan, N.A. 10.02 11.28 Firstar Bank Wausau, N.A. 15.36 16.64 Firstar Bank Wisconsin Rapids, N.A. 13.69 14.94 Firstar Bank Ames 12.14 13.40 Firstar Bank Burlington, N.A. 12.55 13.81 Firstar Bank Cedar Falls 9.50 10.75 Firstar Bank Cedar Rapids, N.A. 9.93 11.18 Firstar Bank Council Bluffs 10.46 11.71 Firstar Bank Davenport, N.A. 10.67 11.93 Firstar Bank Des Moines, N.A. 11.60 12.85 Firstar Bank Mount Pleasant 11.66 12.91 Firstar Bank Ottumwa 12.78 14.03 Firstar Bank Red Oak, N.A. 12.86 14.05 Firstar Bank Sioux City, N.A. 9.25 10.46 Firstar Bank of Minnesota, N.A. 13.41 14.67 Firstar Bank DuPage 14.94 17.27 Firstar Bank North Shore 14.90 16.20 Firstar Bank Park Forest 12.11 16.15 Firstar Bank West, N.A. 13.41 13.36 Firstar Metropolitan Bank & Trust 17.64 18.87 Other Acquisitions and Transactions Since the enactment of interstate banking statutes in 1986 by Wisconsin, Minnesota and Illinois, Firstar has actively acquired banks within that three-state area. Following the January 1, 1991 effective date of the interstate banking statute in Iowa, Firstar completed the acquisition of eleven banks in that state. Firstar has also acquired one bank in Arizona, primarily to offer trust services to customers in that state. Firstar anticipates that it will acquire additional banks in the Midwest region in the future. Firstar may pay cash or issue common stock, debt securities, preferred stock or combinations of the foregoing in connection with any such acquisitions. Firstar also will continue to monitor external markets and may raise additional capital as needed and when financially attractive by issuing common stock, debt securities, preferred stock or combinations of the foregoing. Recent Development On June 9, 1994 Firstar issued a press release in which it announced that it expected to take a second quarter 1994 charge against earnings of approximately $22 million, or $13 million on an after-tax basis. This would result in a reduction in net income of 20 cents per share. Firstar earned net income of $53.2 million, or 83 cents per share, in the first quarter of 1994 and $204.3 million, or $3.15 per share, in 1993. The expected charge relates to unfunded overdrafts totaling $22 million resulting from a series of check transactions by two commercial customers, who are affiliated with each other (the "Customers"). The Customers have filed for bankruptcy and Firstar is unable to determine what amount, if any, it might recover to reduce the overdrafts. Firstar also has outstanding commercial loans to the Customers totaling approximately $3.8 million which it believes are secured by inventory, equipment, receivables and assets. On June 27, 1994 a purported class action lawsuit was filed in the United States District Court in Iowa alleging that Firstar improperly set off proceeds belonging to the plaintiffs to reduce the amount of the overdrafts owing to Firstar by the Customers. The plaintiffs also allege that Firstar interfered with contracts between the plaintiffs and the Customers and took certain other actions which damaged the plaintiffs. The lawsuit seeks recovery of actual and punitive damages of unspecified amounts from Firstar. Incorporation of Certain Information by Reference Additional information concerning Firstar, including certain financial information, information regarding voting securities of Firstar and principal holders thereof, and information concerning directors and executive officers of Firstar, is included in the documents filed by Firstar with the Commission under the Exchange Act. FIRST SOUTHEAST BANKING CORP. AND THE BANKS General First Southeast Banking Corp. ("First Southeast"), a Wisconsin corporation, is a bank holding company registered under the federal Bank Holding Company Act of 1956, as amended. First Southeast was formed as a Wisconsin corporation in 1974 to acquire and hold shares of a predecessor bank of First Bank Southeast of Lake Geneva, N.A. (f/k/a First National Bank of Lake Geneva) ("First Bank Lake Geneva"). In 1981, First Southeast acquired the first predecessor bank of First Bank Southeast, N.A. ("First Bank Southeast"), which was previously owned by First Southeast's principal shareholder. First Bank Southeast is headquartered in Milwaukee, Wisconsin, and operates 13 full-service offices. Of these offices, five are in Kenosha County, seven in Racine County and one in Milwaukee County, all in southeastern Wisconsin. The market area of First Bank Southeast is generally approximated by counties in which it maintains offices and immediately surrounding areas. First Bank Southeast is the product of the mergers of five predecessor banks, which were acquired by First Bank Southeast or its principal shareholder from 1969 through 1987. First Bank Southeast is wholly-owned by First Southeast, except for First Bank Southeast directors' qualifying shares which First Bank Southeast has the right to acquire. First Bank Lake Geneva is headquartered in Lake Geneva, Wisconsin, and operates ten full-service offices, of which six are in Walworth County and four are in western Kenosha County, all in Wisconsin. The market area for First Bank Lake Geneva is Walworth County and western Kenosha County, Wisconsin, and the immediately surrounding areas. First Bank Lake Geneva is the product of the mergers of four predecessor banks, which were acquired by First Southeast or its principal shareholders from 1970 through 1987. First Bank Lake Geneva is 98.2% owned by First Southeast, including 0.7% owned by First Bank Lake Geneva directors as directors' qualifying shares which First Southeast has the right to acquire. The remaining 1.8% of First Bank Lake Geneva's capital stock is owned by 45 shareholders. Services First Southeast's subsidiary banks provide a wide range of commercial and consumer banking services within their markets. The Banks provide various types of loans, including business loans, long and short term residential and commercial real estate mortgage loans, and consumer lending. Agricultural loans are part of First Bank Southeast's portfolio. The Banks also provide a full range of deposit products, including checking and savings accounts, certificates of deposits and money market accounts and instruments. The Banks also offer other financial-related services, including safe deposit boxes, investment and brokerage services. Competition The subsidiary banks of First Southeast encounter substantial competition from other commercial banks which maintain offices in their market areas. Southeastern Wisconsin markets are highly competitive. Most communities in which the Banks maintain offices have at least one (and, in most cases, many) other commercial banks which maintain full-service offices there. In addition to competition from commercial banks, the banks compete with savings and loan associations, savings banks, credit unions and other providers of financial services which maintain offices in their communities, and many of which offer substantially the same services as the subsidiary banks. In addition, many other providers of financial services, such as insurance companies, securities brokerage firms and investment management firms also offer competition for many of the particular services provided by the banks. Properties First Southeast's offices are located at 303 Center Street, Lake Geneva, Wisconsin 53147, in a facility owned by First Bank Lake Geneva. First Bank Southeast owns ten of its facilities and leases the remaining three facilities. First Bank Lake Geneva owns all ten of its facilities. Regulation First Southeast, as a bank holding company, and First Bank Southeast and First Bank Lake Geneva, as national banks, are subject to substantial regulation under federal law. Such regulation and supervision is substantially similar to that to which Firstar is subject. See "FIRSTAR CORPORATION--Supervision" above. Management Directors The following table sets forth information regarding the directors of First Southeast. The directors are elected annually. Director Name Principal Occupation Since David A. Straz, Jr. Banker; President of First 1977 (1) Southeast; Chairman of First Bank Southeast and First Bank Lake Geneva David A. Straz Vice President of First Southeast 1977 (1) and First Bank Southeast ________________________ (1) David A. Straz, Jr. is the son of David A. Straz Executive Officers The following table set forth information as to the executive officers of First Southeast. The executive officers are elected annually by First Southeast's Board of Directors. The table also sets forth information as to certain key executive officers of First Bank Southeast First Bank Lake Geneva. Officer Name Office(s) Since David A. Straz, Jr. * President (CEO) and Treasurer; 1969** Chairman of First Bank Southeast and First Bank Lake Geneva David A. Straz* Vice President and Secretary 1977 Thomas E. Daniels President (CEO) of First Bank 1992 Southeast Robert Fahey President (CEO) of First Bank 1993 Lake Geneva At December 31, 1993, First Southeast and its subsidiaries had 285 full-time equivalent employees. ________________________ * Designates executive officers of First Southeast ** Includes service as officer of a predecessor of one of the Banks Share Ownership The following table sets forth information as to the shares of First Southeast Common Stock which are owned by the directors of First Southeast and by the directors and executive officers of First Southeast as a group. There are no other persons who own more than 5% of First Southeast's common stock. Name Number of Shares Percent David A. Straz, Jr. (1) 102,807 96.6% David A. Straz (2) 3,079 2.9% Directors and Executive Officers as a Group (2) 105,886 99.5% ________________________ (1) Mr. Straz, Jr.'s address is 540 Gulf Boulevard, Belleair Shore, Florida 34635. (2) Excludes 600 shares beneficially owned by the spouse of Mr. Straz. Markets and Dividends At May 31, 1994, First Southeast had three shareholders of record. Because of the closely-held nature of First Southeast securities, there has not been any market with respect to shares of First Southeast Common Stock. Management of First Southeast is unaware of any transactions in First Southeast Common Stock since 1990. The following table presents the annual dividend payments per share of First Southeast Common Stock: Calendar Year Dividends Paid Per Share 1991 $5.53 1992 $9.35 1993 $0.00 1994 (through May 31) $9.35 First Southeast Banking Corp. Composition of Loans
March 31, December 31, -1994- -1993- -1992- -1991- Amount Percent Amount Percent Amount Percent Amount Percent (dollars in thousands) Commercial 113,222 46.7% 117,879 47.8% 124,926 49.4% 149,246 51.9% Real estate 1-4 family first mortgage 75,561 31.2% 77,027 31.2% 86,540 34.2% 99,345 34.5% Other real estate mortgage 41,183 17.0% 38,310 15.5% 28,713 11.4% 23,198 8.1% Installment and other 12,476 5.1% 13,360 5.4% 12,671 5.0% 15,937 5.5% 242,442 100.0% 246,576 100.0% 252,850 100.0% 287,726 100.0%
First Southeast Banking Corp. Summary of Loan Loss Experience
Three Months Ended March 31, Year Ended December 31, 1994 1993 1992 1991 Balance at beginning of period 5,375 3,173 3,246 3,093 Charge-offs: Commercial 8 1,744 685 394 Real estate 4 813 64 3 Installment 6 53 66 57 Credit card 4 49 40 40 Total charge-offs 22 2,659 855 494 Loan recoveries: Commercial 63 31 154 3 Real estate 0 0 0 0 Installment 8 22 13 37 Credit card 2 8 15 7 Total recoveries 73 61 182 47 Net loan charge-offs -51 2,598 673 447 Provision for loan losses 0 4,800 600 600 Balance at end of year 5,426 5,375 3,173 3,246 Ratio of net charge-offs to average loans outstanding during the period -0.02% 1.04% 0.25% 0.15% Allowance for loan losses to period-end loans 2.24% 2.18% 1.25% 1.13%
FIRST SOUTHEAST BANKING CORP. CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS NET INTEREST MARGIN AND RATE ANALYSIS
Year ended December 31, 1993 Year Ended December 31, 1992 Avg Balance Income/Expense Yield Avg Balance Income/Expense Yield ----------- -------------- ----- ----------- -------------- ----- Interest Earning Assets: Federal fund sold and other short-term investments 16,313,383 211,121 1.29% 14,706,426 250,158 1.70% Taxable investment securities 73,887,739 4,845,241 6.56% 68,987,596 6,193,365 8.98% Nontaxable investment securities 38,792,061 1,816,230 4.68% 30,131,117 1,130,478 3.75% Loans 249,712,858 20,401,249 8.17% 270,288,024 23,919,650 8.85% ___________ __________ _____ ___________ __________ _____ Average Earning Assets 378,706,040 27,273,841 7.20% 384,113,161 31,493,651 8.20% ___________ __________ _____ ___________ __________ _____ Interest Bearing Liabilities: Time deposits 270,703,355 11,387,557 4.21% 281,683,834 15,336,769 5.44% Securities sold under repurchase agreements 657,500 13,821 2.10% 713,000 35,940 5.04% Long-term debt 7,296,000 367,290 5.03% 10,045,000 759,872 7.56% ___________ __________ _____ ___________ __________ _____ Avg int bearing 278,656,855 11,768,668 4.22% 292,441,834 16,132,581 5.52% ___________ __________ _____ ___________ __________ _____ Net interest/margin 15,505,173 4.09% 15,361,070 4.00% ========== ===== ========== ===== Year ended December 31, 1991 Avg Balance Income/Expense Yield ----------- -------------- ----- Interest Earning Assets: Federal fund sold and other short-term investments 5,975,000 269,130 4.50% Taxable investment securities 69,841,392 6,521,694 9.34% Nontaxable investment securities 23,942,970 1,209,223 5.05% Loans 302,058,726 30,399,223 10.06% ___________ __________ _____ Average Earning Assets 401,818,088 38,399,270 9.56% ___________ __________ _____ Interest Bearing Liabilities: Time deposits 297,679,366 22,041,803 7.40% Securities sold under repurchase agreements 5,487,000 396,982 7.23% Long-term debt 10,000,000 1,334,139 13.34% ___________ __________ _____ Avg int bearing 313,166,366 23,772,924 7.59% ___________ __________ _____ Net interest/margin 14,626,346 3.64% ========== ===== Three Months Three Months Ended March 31, 1994 Ended March 31, 1993 Avg Balance Income/Expense Yield Avg Balance Income/Expense Yield ----------- -------------- ----- ----------- -------------- ----- Interest Earning Assets: Federal fund sold and other short-term investments 12,708,947 74,032 2.36% 10,879,637 69,400 2.59% Taxable investment securities 80,840,253 1,130,291 5.67% 74,014,496 1,280,906 7.02% Nontaxable investment securities 39,099,875 407,947 4.23% 37,797,013 424,428 4.55% Loans 244,508,939 4,942,059 8.20% 249,546,557 4,900,771 7.96% ___________ __________ _____ ___________ __________ _____ Average Earning Assets 377,158,014 6,554,329 7.05% 372,237,702 6,675,505 7.27% ___________ __________ _____ ___________ __________ _____ Interest Bearing Liabilities: Time deposits 267,294,036 2,573,512 3.90% 273,752,339 3,050,919 4.51% Securities sold under repurchase agreements 3,586,500 36,569 4.14% 1,250,000 12,259 3.98% Long-term debt 6,000,000 68,278 4.62% 8,300,000 94,156 4.60% ___________ __________ _____ ___________ __________ _____ Avg int bearing 276,880,536 2,678,359 3.92% 283,302,339 3,157,334 4.52% ___________ __________ _____ ___________ __________ _____ Net interest/margin 3,875,970 4.17% 3,518,171 3.83% ========== ===== ========== =====
First Southeast Banking Corp. Non-performing Assets
March 31 December 31, -------- ----------------------------- 1994 1993 1992 1991 ----- ----- ----- ------ Nonaccrual loans 5,267 4,298 7,682 6,861 Loans past due 90 days or more 41 85 250 2,792 ----- ----- ----- ------ Total non-performing loans 5,308 4,383 7,932 9,653 Other real estate owned 1,078 1,142 1,516 811 ----- ----- ----- ------ Total non-performing assets 6,386 5,525 9,448 10,464 ===== ===== ===== ====== Nonperforming assets as a percentage of: Loans and other real estate 2.62% 2.23% 3.71% 3.63% Total assets 1.52% 1.30% 2.21% 2.40%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES GENERAL The following discussion and analysis provides information regarding the historical results of operations and financial condition of First Southeast Banking Corp. and subsidiaries (First Southeast) for the three months ended March 31, 1994 and 1993 and for the years ended December 31, 1993, 1992 and 1991. This discussion and analysis should be read in conjunction with the related consolidated financial statements and notes thereto and the other financial information included herein. THREE MONTHS ENDED MARCH 31, 1994 COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1993 Results of Operations For the three months ended March 31, 1994, net income increased from the same period in 1993 by $385,000 to $632,000. Excluding the impact of adopting Statement of Financial Accounting Standards No. 109 (SFAS 109) in 1993 discussed below, income before the cumulative effect of change in accounting principle increased $710,000. Net Interest Revenue Net interest revenue increased by $358,000 or 10.2% to $3,876,000 principally from a decrease in rates paid on deposits from an average of 4.51% to 3.90% and an increase in net average earning assets of $11,342,000. These changes were partially offset by a decline in rates earned on average interest earning assets from 7.27% to 7.05%. Provision for Loan Losses The amount charged to provision for loan losses is based on management's evaluation of the loan portfolio. Management determines the adequacy of the allowance for loan losses based on past loan loss experience, current economic conditions, composition of the loan portfolio and the potential for future loss. First Southeast provided $1,138,000 in provisions for loan losses in 1993 while no provisions were made in 1994. The decrease in such provisions between 1993 and 1994 reflects, to some extent, a decrease in total nonperforming loans at March 31, 1994 from a year earlier and a decrease in loans outstanding at March 31, 1994 from December 31, 1993. Nonperforming loans totalled $5,308,000 at March 31, 1994 and $9,385,000 at March 31, 1993. The allowance for loan losses stood at 2.24% of loans as of March 31, 1994 as compared with 2.18% at December 31, 1993 and 1.25% at March 31, 1993. The increase in the allowance as a percentage of loans primarily reflects additional provisions made throughout 1993 and net recoveries of $51,000 in the three months ended March 31, 1994 compared with net charge-offs of $543,000 in the same period of 1993. Other Operating Revenue and Expenses Other operating revenue decreased $109,000, or 14.7%, to $634,000 from 1993 to 1994. This decline primarily relates to proceeds of $175,000 from settlement of a lawsuit in 1993, offset by increases in trust and investment management fees as a result of increased trust assets under management from which fees are derived, service charges and higher mortgage banking revenue in 1994 resulting from gains on loans sold to Freddie Mac. Other operating expenses increased $348,000 or 10.5% to $3,664,000. Included in the increase in other operating expenses were increases in supervisory examination expenses by $69,000 resulting from an examination in the current period, $94,000 in processing and other losses, and $58,000 in occupancy and maintenance costs due principally from depreciation on additions and increased expenses of snow removal which occurred in 1994. Income Taxes Income tax expense was $214,000 as compared to a benefit of $114,000 in 1993. The increase is due to the corresponding increase in income before income taxes and the cumulative effect of the adoption of SFAS 109. Financial Condition Total assets of $422,306,000 at March 31, 1994 decreased slightly from $423,882,000 at December 31, 1993. During the same period, total deposits fell $7,574,000, or 2%, to $374,285,000. Most of this decrease occurred primarily within non interest-bearing accounts. Capital Total stockholders' equity decreased from $30,250,000 to $30,809,000 at March 31, 1994 resulting from year to date income and adoption of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." The increase was partially offset by the payment of a common stock dividend of $996,000. SFAS 115 revises the accounting for investments in debt and equity securities with readily determinable fair values. SFAS 115 requires that securities available for sale, as defined in the statement, be reported at fair value, with unrealized gains or losses excluded from earnings and reported as a separate component of stockholders' equity. This accounting differs from First Southeast's policy in 1993 under which such securities were accounted for at the lower of amortized cost or market, with unrealized losses, if any, included in earnings. First Southeast adopted SFAS 115 on January 1, 1994. Adoption of SFAS 115 resulted in an increase of stockholders' equity of approximately $1,173,000 after providing for deferred taxes. During the period, an increase in the interest rate environment resulted in a corresponding decrease in the market value of securities available-for-sale. The total amount of net appreciation on securities available-for-sale at March 31, 1994 totalled $922,000, net of deferred taxes. Capital requirements set by federal regulatory agencies establish minimum capital levels for First Bank Southeast N.A. and First Bank Southeast of Lake Geneva, N.A., subsidiaries of First Southeast. These guidelines require minimum Tier I capital of 4%, a Tier I leverage ratio of 3% and total risk-based capital of 8% of risk-weighted assets. The subsidiary banks and First Southeast, on a consolidated basis, are in compliance with all such minimum capital guidelines. Liquidity The management of assets and liabilities provides for the availability of funds to meet loan commitments, deposit withdrawals and other maturing liabilities. Liquidity to service these requirements is generated from maturing short and long term assets, internally generated earnings and from new deposits and borrowings. Management of First Southeast has tended to rely on the maturity structure of loans, investments available for sale, and transactions in federal funds to meet liquidity needs. First Southeast does not rely on brokered deposits as a source of liquidity. First Southeast's liquidity management is not only as of a point in time, but also involves the future estimated needs of the market area served by First Southeast. First Southeast has maintained a high liquidity ratio of rate sensitive assets to rate sensitive liabilities in recent years. Such ratio has ranged between 128% and 136% between 1990 and 1994, and at the same time, the ratio of total loans to total deposits has ranged between 65% and 74%. Recent Accounting Development The Financial Accounting Standards Board (FASB) recently issued SFAS 114, "Accounting by Creditors for Impairment of a Loan." SFAS 114, which for First Southeast is effective for 1995 financial reporting, specifies the methodology to be used by creditors in establishing valuation allowances for impaired loans. The adoption of SFAS 114 is not expected to have a material effect on First Southeast. 1993 COMPARED WITH 1992 AND 1991 Results of Operations For the year ended December 31, 1993, net loss was ($384,000), a decrease of $4,321,000 from 1992. Net income in 1993 included the cumulative effect of change in accounting principle of adopting SFAS 109 amounting to $325,000. Excluding this item, income before cumulative effect of change in accounting principle decreased $4,646,000 to ($709,000) in 1992. For the year ended December 31, 1992, net income was $3,937,000, an increase of $3,881,000 from $56,000 a year earlier. Net Interest Revenue Net interest revenue increased by $144,000 or 0.9% to $15,505,000 in 1993. Although First Southeast experienced decreases in both interest earning assets and interest bearing liabilities, the decline in total interest bearing liabilities was larger between years resulting in reduced interest expense. This was accompanied by an overall decrease in interest rates with a more rapid decrease in interest rates on deposits and borrowed funds than on interest earning assets. Average interest earning assets fell $5,407,000 to $378,706,000. Average rates on interest earning assets declined from 8.20% to 7.20% during the same timeframe. Interest bearing liabilities decreased $13,785,000 to $278,657,000. Average rates paid on such balances fell from 5.52% to 4.22%. Net interest revenue increased by $735,000 or 5% to $15,361,000 in 1992. This increase was attributable to an overall decrease in interest rates paid on deposits and borrowed funds. The average rate paid on such interest bearing liabilities declined from 7.79% to 5.52% between 1991 and 1992; the average rate on interest earning assets decreased from 9.56% to 8.20% during the same period. Provision for Loan Losses The amount charged to provision for loan losses is based on management's evaluation of the loan portfolio. Management determines the adequacy of the allowance for loan losses based on past loan loss experience, current economic conditions, composition of the loan portfolio and the potential for future loss. The provision for loan losses increased from $600,000 in 1992 to $4,800,051 in 1993 in recognition of certain identified credit concerns, increased charge-offs, levels of nonperforming loans above First Southeast's peer group, and management's decision to increase the allowance for loan losses to a level which is believed to be in line with peer group averages. The provision for loan losses was unchanged at $600,000 between 1992 and 1991. Other Operating Revenue And Expenses Other operating revenue decreased by $1,930,000 to $2,844,000 in 1993. Such decrease was primarily due to $2,151,000 in gains recognized on securities in 1992. Securities gains totalled $49,000 in 1993. Management of First Southeast opted to sell securities in 1992 to recognize significant appreciation and utilize certain tax carryforwards from the previous year. Excluding the impact of these security transactions, other operating revenue increased 6.5% or $172,000 to $2,795,000 in 1993. Such increase was attributable to approximately $71,000 in additional trust and investment management fees as a result of increased trust assets under management from which fees are derived, and mortgage banking revenue of $66,000 including mortgage servicing fees, loan origination fees and gains on loan sales which collectively rose due to increased volume in response to low interest rates. Other operating revenue increased by $5,245,000 to $4,774,000 in 1992. Such increase was primarily due securities gains of $2,150,000 recognized in 1992 when losses of $2,930,000 were realized in 1991. Excluding security transactions, other operating revenue increased $164,000 or 6.7% to $2,623,000 in 1992. Such increase in other operating revenue was due to additional mortgage banking revenue resulting from servicing and loan origination fees and increased fee levels assessed to deposit customers. Other operating expenses increased by $703,000 or 4.8% to $15,319,000 in 1993 due to a net increase of $885,000 of expense related to foreclosed properties resulting from additional writedowns and costs incurred to dispose of selected properties, offset by a $205,000 decrease in legal and collection costs consistent with a decrease in nonperforming loans. Other operating expenses increased $843,000 or 6.1% to $14,615,000 in 1992 due to increases in salaries and employee benefits of $315,000 which relates to normal increases in compensation and staffing levels; other real estate expense of $318,000 resulting from increased writedowns and costs to dispose of selected properties compared to the year earlier, $259,000 related to legal and collection expenses associated with the levels of nonperforming loans, and $194,000 attributed to increased occupancy costs due to higher rental expenses, real estate taxes and insurance costs. The increase in other operating expenses was partially offset by a decrease in miscellaneous expense, which included costs related to a claim settlement which occurred in 1991. Income Taxes SFAS 109, "Accounting for Income Taxes," was issued by the FASB in February 1992 and required a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. First Southeast adopted SFAS 109 in 1993 without restating prior years' financial statements. The adoption of SFAS 109 resulted in the recognition of a reduction in 1993 net loss by $325,000, as the cumulative effect of the change in accounting. Financial Condition At December 31, 1993, total assets of $423,882,000 declined slightly from $426,715,000 a year earlier. During 1993, total loans decreased $6,275,000, or 2.5%, which was offset by increases in investment securities. Total deposits remained substantially unchanged from a year earlier. The balance of the long-term debt decreased $3,100,000 between 1992 and 1993 to $6,000,000 as a result of principal paydowns. Capital Total stockholders' equity decreased $384,000 to $30,250,000 from 1992 to 1993 as a result of First Southeast's net loss. Stockholders' equity increased $2,942,000 from 1991 to 1992, primarily to a retention of earnings, after payment of common stock dividends. OPINIONS Certain legal matters in connection with the Merger will be passed upon for First Southeast by Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, and for Firstar by Howard H. Hopwood III, Esq., Senior Vice President and General Counsel of Firstar. Mr. Hopwood is a full-time employee of Firstar and at March 31, 1994, directly or beneficially owned approximately 20,049 shares of Firstar Common Stock. He also holds 34,800 options to acquire Firstar Common Stock under Firstar's 1988 Incentive Stock Plan. EXPERTS The consolidated financial statements of Firstar and subsidiaries as of December 31, 1993 and 1992, and for each of the years in the three- year period ended December 31, 1993, incorporated by reference herein and elsewhere in the registration statement have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG Peat Marwick, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of First Southeast as of and for the year ended December 31, 1993, included herein and elsewhere in the registration statement have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of First Southeast as of December 31, 1992, and for each of the years in the two-year period ended December 31, 1992, included herein and elsewhere in the registration statement have been included herein and in the registration statement in reliance upon the report of James M. Harmon & Co., Ltd., independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. SHAREHOLDER PROPOSALS If the Merger Agreements are approved, shareholders of First Southeast will become shareholders of Firstar on the Closing Date. Firstar welcomes comments or suggestions from its shareholders. Firstar shareholders may submit proposals for formal consideration at the 1995 annual meeting to Firstar at the principal executive offices of Firstar, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, prior to the close of business on November 29, 1994. Firstar's Bylaws establish advance notice procedures as to (1) business to be brought before an annual meeting of shareholders other than by or at the direction of the Board of Directors, (2) the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors and (3) the request to call a special meeting of the shareholders. Any shareholder who wishes to take such action should obtain a copy of these Bylaws and may do so by written request addressed to the Secretary of Firstar at the principal executive offices of Firstar. INDEX TO FIRST SOUTHEAST BANKING CORP. CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements: KPMG Peat Marwick Independent Auditor's Report ......... F-1 James M. Harmon & Co., Ltd. Independent Auditor's Report .................................... F-2 Consolidated Balance Sheets as of December 31, 1993 and 1992 ....................................... F-3 Consolidated Statements of Income for Each of the Three Years in the Period Ended December 31, 1993 ... F-4 Consolidated Statements of Changes in Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 1993 ...................... F-5 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 1993 ... F-7 Notes to Consolidated Financial Statements ............. F-9 Unaudited Interim Financial Statements Condensed Consolidated Balance Sheet ................ F-30 Condensed Consolidated Statements of Operations ..... F-31 Consolidated Statements of Cash Flows ............... F-32 Notes to Condensed Consolidated Financial Statements. F-33 Independent Auditors' Report Board of Directors First Southeast Banking Corp.: We have audited the accompanying consolidated balance sheet of First Southeast Banking Corp. and subsidiaries (Corporation) as of December 31, 1993 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Southeast Banking Corp. and subsidiaries at December 31, 1993 and the results of their operations and their cash flows for the year ended December 31,1993, in conformity with generally accepted accounting principles. As discussed in note 8 to the consolidated financial statements, the Corporation adopted the provisions of Statement of Financial Accounting Standard 109 Accounting for Income Taxes in 1993. February 4, 1994 INDEPENDENT AUDITORS' REPORT March 8, 1993 To the Board of Directors First Southeast Banking Corp. and subsidiaries We have audited the accompanying consolidated balance sheet of First Southeast Banking Corp. and subsidiaries (Corporation) as of December 31, 1992, and the related consolidated statements of operations, stockholder's equity, and cash flows for each of the years in the two-year period ended December 31, 1992. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Southeast Banking Corp. and subsidiaries at December 31, 1992, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1992 in conformity with generally accepted accounting principles. JAMES M. HARMON & CO., LTD. Certified Public Accountants /s/ James M. Harmon, CPA James M. Harmon, CPA FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1993 and 1992
Assets 1993 1992 Cash and due from banks $ 27,414,914 29,282,632 Federal funds sold 10,100,000 10,150,000 Other short-term investments 5,063,914 7,312,851 Securities held for sale (market value of $70,719,000 in 1993) (note 2) 68,619,058 - Investment securities (market value of $50,069,850 in 1993 and $109,841,850 in 1992) (note 2) 49,282,903 107,457,637 Loans (note 3) 246,575,508 252,850,208 Allowance for loan losses (note 4) 5,374,578 3,173,125 Loans, net 241,200,930 249,677,083 Bank premises and equipment, net (note 5) 12,148,704 11,027,704 Foreclosed properties 1,142,427 1,516,031 Goodwill, net of amortization of $2,288,542 and $2,007,850 2,083,996 2,364,688 Accrued interest receivable and other assets (note 8) 6,824,836 7,925,947 Total assets $ 423,881,682 426,714,573 Liabilities and Stockholders' Equity Deposits: Demand $ 114,986,821 107,161,280 Time (note 6) 266,872,021 274,534,688 Total deposits 381,858,842 381,695,968 Securities sold under repurchase agreements (note 2) 985,000 330,000 Long-term debt (note 7) 6,000,000 9,100,000 Other liabilities 4,474,602 4,555,536 Total liabilities 393,318,444 395,681,504 Minority interest 312,832 399,126 Stockholders' equity (notes 9 and 11): Common stock, $1 par value; 200,000 shares authorized; 119,633 shares issued 119,633 119,633 Additional paid-in capital 12,613,397 12,613,397 Retained earnings 19,927,652 20,311,189 Treasury stock 13,147 shares at cost (2,410,276) (2,410,276) Total stockholders' equity 30,250,406 30,633,943 Commitments and contingent liabilities (notes 5, 13, 14, 15 and 16) Total liabilities and stockholders' equity $ 423,881,682 426,714,573 See accompanying notes to consolidated financial statements.
FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1993, 1992 and 1991
1993 1992 1991 Interest revenue: Loans $ 20,401,249 23,919,650 30,399,223 Securities: Taxable 4,845,241 6,193,365 6,521,694 Tax-exempt 1,816,230 1,130,478 1,209,223 Federal funds sold and other short-term investments 211,121 250,158 269,130 Total interest revenue 27,273,841 31,493,651 38,399,270 Interest expense: Deposits (note 6) 11,387,557 15,336,769 22,041,803 Securities sold under repurchase agreements 13,821 35,940 396,982 Long-term debt 367,290 759,872 1,334,139 Total interest expense 11,768,668 16,132,581 23,772,924 Net interest revenue 15,505,173 15,361,070 14,626,346 Provision for loan losses (note 4) 4,800,051 600,000 600,000 Net interest revenue after provision for loan losses 10,705,122 14,761,070 14,026,346 Other operating revenue: Service charges on deposit accounts 1,949,507 1,919,771 1,894,502 Securities gains (losses) 49,335 2,150,779 (2,930,256) Trust and investment management fees 249,000 178,000 163,000 Mortgage banking revenue 166,365 100,684 51,812 Other 429,870 424,554 349,253 Total other operating revenue 2,844,077 4,773,788 (471,689) Other operating expenses: Salaries 5,840,042 5,671,046 5,380,721 Foreclosed properties, net 1,589,787 705,085 387,535 Net occupancy expense 1,452,843 1,422,425 1,584,870 Employee benefits 1,112,509 1,254,128 1,229,291 Legal and professional fees 1,070,602 1,042,589 1,028,712 FDIC insurance expense 895,071 865,950 830,915 Equipment expense 503,423 512,092 499,280 Other 2,854,459 3,142,243 2,780,887 Total other operating expense 15,318,736 14,615,558 13,722,211 Income (loss) before income taxes and cumulative effect of change in accounting principle(1,769,537) 4,919,300 (167,554) Income tax expense (benefit) (note 8) (1,061,000) 982,000 (224,000) Income (loss) before cumulative effect of change in accounting principle (708,537) 3,937,300 56,446 Cumulative effect on prior years of adoption of Statement of Financial Accounting Standard No. 109 325,000 - - Net income (loss) $ (383,537) 3,937,300 56,446 Income (loss) per common share: Income (loss) before cumulative effect of change in accounting principle (6.65) 36.97 .53 Cumulative effect on prior years of adoption of Statement of Financial Accounting Standard No. 109 3.05 - - Net income (loss) $ (3.60) 36.97 .53 See accompanying notes to consolidated financial statements.
FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Year ended December 31, 1993, 1992 and 1991
Allowance for Additional net unrealized Common paid-in Retained Treasury loss on marketable stock capital earnings stock equity securities Total Balance at December 31, 1990 $ 119,633 12,613,397 17,901,955 (2,180,981) (1,384,025) 27,069,979 Net income - - 56,446 - - 56,446 Dividends declared - - (588,868) - - (588,868) Purchase of treasury stock - - - (229,295) - (229,295) Change in net unrealized loss on marketable equity securities - - - - 1,384,025 1,384,025 Balance at December 31, 1991 119,633 12,613,397 17,369,533 (2,410,276) - 27,692,287 Net income - - 3,937,300 - - 3,937,300 Dividends declared - - (995,644) - - (995,644) Balance at December 31, 1992 119,633 12,613,397 20,311,189 (2,410,276) - 30,633,943 Net loss - - (383,537) - - (383,537) Balance at December 31, 1993 $ 119,633 12,613,397 19,927,652 (2,410,276) - 30,250,406 See accompanying notes to consolidated financial statements.
FIRST SOUTHEAST BANKING CORP.AND SUBSIDIARIES Consolidated Statements of Cash Flows Year ended December 31, 1993, 1992 and 1991
1993 1992 1991 Cash flows from operating activities: Net income (loss) $ (383,537) 3,937,300 56,446 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 4,800,051 600,000 600,000 Depreciation, amortization, and accretion, net 1,444,306 686,021 680,000 Amortization of premiums on investment securities, net 370,977 255,560 (32,850) Securities (gains) losses (49,335) (2,150,779) 2,930,256 Deferred income taxes (1,353,000) (106,000) 16,000 Cumulative effect of change in accounting principle (325,000) - - Loss on bank premises and foreclosed properties 1,061,852 220,216 83,207 Net increase in loans held for sale (277,200) (156,600) - Decrease in minority interest 86,294 132,163 6,997 Decrease (increase) in accrued interest receivable and other assets 2,779,109 (3,532,090) (1,236,003) Increase (decrease) in other liabilities (80,934) 638,742 (5,529,031) Net cash provided by (used in) operating activities 8,073,583 524,533 (2,424,978) Cash flows from investing activities: Proceeds from sale of investments 2,713,661 64,215,582 21,479,339 Proceeds from maturity of investments 31,494,396 25,185,294 28,708,484 Purchase of investment securities (45,174,692) (100,227,707) (52,744,249) Decrease in loans 1,702,653 38,386,786 25,943,404 Proceeds from sales of premises and equipment 30,466 367,620 11,266 Purchases of premises and equipment (2,370,352) (1,120,049) (351,726) Proceeds from disposition of foreclosed properties 1,645,756 803,574 3,966,230 Net cash provided by (used in) investing activities (9,958,112) 27,611,100 27,012,748
FIRST SOUTHEAST BANKING CORP.AND SUBSIDIARIES Consolidated Statement of Cash Flows, Continued
1993 1992 1991 Cash flows from financing activities: Net increase (decrease) in deposits $ 162,874 (9,937,766) (11,384,882) Net increase (decrease) in securities sold under repurchase agreements and federal funds purchased 655,000 (766,000) (8,782,000) Increase (decrease) of borrowings (3,100,000) (1,900,000) 2,000,000 Cash dividends paid - (995,644) (588,868) Purchase of treasury stock - - (229,295) Net cash used in financing activities (2,282,126) (13,599,410) (18,985,045) Net increase (decrease) in cash and cash equivalents (4,166,655) 14,536,223 5,602,725 Cash and cash equivalents: Beginning of year 46,745,483 32,209,260 26,606,535 End of year $ 42,578,828 46,745,483 32,209,260 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 11,932,563 16,132,581 23,772,924 Income taxes 584,256 151,493 488,730 Supplemental schedule of noncash investing and financing activities not described in the notes to the consolidated financial statements: Loans receivable satisfied through foreclosure or acquisition of deeds in lieu of foreclosure $ 2,428,000 1,023,000 6,314,000 Financing of sales of certain foreclosed properties 1,015,000 427,000 2,639,000 See accompanying notes to consolidated financial statements.
FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1993 and 1992 (1) Summary of Significant Accounting Policies First Southeast Banking Corp. (Corporation) provides banking services to individual and corporate customers through its wholly-owned subsidiary, First Bank Southeast, National Association, and its 97% owned subsidiary, First Bank Southeast of Lake Geneva, National Association (collectively "Banks"). Minority interest in income (loss) of subsidiaries is included other operating expense and was not material to any year presented. The Corporation and the Banks are subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The accounting policies and principles followed by the Corporation and the Banks which materially affect the determination of financial position, results of operations and cash flows are summarized below: (a) Principles of Consolidation and Presentation The consolidated financial statements have been prepared in conformity with generally accepted accounting principles, and general practice within the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Investment Securities Securities include those held-for-sale and those held for investment. Those classified as securities held-for-sale are carried at the lower of amortized cost or market, determined on an aggregate basis. Investment securities are those which management has the ability and intent to hold to maturity, and are carried at amortized cost. Cost has been adjusted for amortization of premiums and accretion of discounts using the straight-line method. Investment securities would be written-down to market value in the event that an impairment of value that is other than temporary should become evident. Gains and losses on sales of securities are computed on the basis of specific identification of securities sold. (c) Loans Loans are carried at the principal amounts outstanding. Unearned interest on discounted loans is recognized as income using the sum-of-the-months' digits method. Interest income is accrued on all non-discounted loans by applying the contractual interest rate on to the amount outstanding, except where serious doubt exists as to the collectibility of the loan, in which case the accrual of interest ceases. Loans origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the contractual life of the loan as an adjustment of the related loans' yields. Mortgage loans held for sale are valued at the lower of aggregate cost or market. The market value of loans held for sale is determined by the price of actual commitments to sell in the secondary market. (d) Allowance for Loan Losses A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties held as collateral for loans.The allowance of loan losses is established by charges to the provision for loan losses. Loan losses are recognized through charges to the allowance. Subsequent recoveries are added to the reserve. The allowance for loan losses is maintained at a level adequate to provide for potential loan losses through charges to operating expense. The allowance is based upon past loan loss experience and other factors which, in management's judgment, deserve current recognition in estimating loan losses. Such other factors considered by management include growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans and economic conditions. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for losses on loans. Such agencies may require the recognition of additions to the allowance based on their judgments about information available to them at the time of their examination. (e) Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. (f) Foreclosed Properties Foreclosed properties represent property acquired through foreclosure or acquisition of deed in lieu of foreclosure on loans for which the borrowers have defaulted as to the payment of principal and interest. Foreclosed properties are carried at the lower of the carrying value of the related loan or fair value less the estimated costs to sell the property. Initial valuation adjustments, if any, are charged to the allowance for loan losses. Subsequent revaluations of properties which indicate reduced value are charged to expense. Revenues and expenditures related to holding and operating foreclosed properties are included in other operating expenses. (g) Goodwill Goodwill is amortized over fifteen years using the straight-line method. (h) Income Taxes Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 109 (Statement 109), Accounting for Income Taxes. Statement 109 requires a change from the deferred method of accounting for income taxes to the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Corporation has reported the cumulative effect of the change in the method of accounting for income taxes in the 1993 consolidated statement of operations. (i) Earnings Per Share Income (loss) per common share is based on the weighted average number of shares outstanding during each year. (j) Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash, amounts due from banks, federal funds sold and all other highly liquid debt instruments with a maturity at date of acquisition of three months or less. The Corporation's bank subsidiaries are required to maintain noninterest-bearing deposits on hand or with the Federal Reserve Bank. At December 31, 1993 and 1992, those required reserves were satisfied by currency and coin holdings. (k) Other Proposed Accounting Changes In May 1993, the FASB issued Statement 114, Accounting by Creditors for Impairment of a Loan. Statement 114 standardizes how creditors should recognize losses on impaired loans. Statement 114 specifically excludes residential mortgage loans, consumer installment loans, loans measured at fair value or at the lower of cost or fair value and leases from the scope of the statement. Loans covered within the scope of Statement 114 are considered impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The extent to which a loan is impaired will be determined based on the present value of expected future cash flows discounted at the loan's effective rate, except that a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Statement 114 is effective for financial statements for fiscal years beginning after December 15, 1994. Statement 114 is expected to be adopted in the first fiscal quarter in the year ending December 31, 1995. The Corporation does not anticipate that adoption will result in any material effect on operating results or financial position. In May 1993, the FASB issued Statement 115, Accounting for Certain Investments in Debt and Equity Securities. Statement 115 requires the classification of debt and equity securities into one of three categories. These categories include securities held-to-maturity and securities available-for-sale. Securities classified as held-to-maturity are measured at amortized cost. Securities classified as available-for-sale are carried at fair value and unrealized holding gains and losses are excluded from earnings and reported as a separate component of equity. Adoption of Statement 115 effective January 1, 1994 resulted in an increase of stockholders' equity of approximately $1,173,000 after consideration of tax effects. (l) Reclassifications Certain amounts for prior years have been reclassified to conform to the 1993 presentation. (2) Securities (a) Securities Held for Sale The amortized cost and estimated market values of securities held for sale at December 31, 1993 are as follows:
Gross Gross Estimated Amortized unrealized unrealized market cost gains losses value U.S. Treasury securities and obli- gations of U.S. Government agencies and corporations $ 15,519,887 183,929 (19,816) 15,684,000 Mortgage-backed securities 32,011,518 366,711 (31,229) 32,347,000 Corporate securities 21,087,653 1,621,040 (20,693) 22,688,000 Totals $ 68,619,058 2,171,680 (71,738) 70,719,000
The amortized cost and estimated market value of securities held for sale at December 31, 1993 by contractual maturity is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated Amortized market cost value Due in one year or less $ 6,721,161 6,787,000 Due after one year through five years 23,129,333 23,412,000 Due after five years through ten years 5,848,596 6,001,000 35,699,090 36,200,000 Equity securities 908,450 2,172,000 Mortgage-backed securities 32,011,518 32,347,000 $ 68,619,058 70,719,000 (b) Investment Securities The amortized cost and estimated market values of investment securities at December 31, 1993 and 1992 are as follows:
1993 Gross Gross Estimated Amortized unrealized unrealized market cost gains losses value Obligations of states and political subdivisions $ 39,429,846 843,663 (2,509) 40,271,000 Collateralized mortgage obligations 9,242,207 - (54,207) 9,188,000 Other securities 610,850 - - 610,850 Totals $ 49,282,903 843,663 (56,716) 50,069,850
1992 Gross Gross Estimated Amortized unrealized unrealized market cost gains losses value U.S. Treasury securities and obligations of U.S. Government corpora- tions and agencies $ 3,922,049 951 - 3,923,000 Obligations of states and political subdivisions 38,154,275 570,627 (309,902) 38,415,000 Collateralized mortgage obligations 869,934 - (1,934) 868,000 Mortgage-backed securities 39,506,513 625,973 (187,486) 39,945,000 Corporate securities 24,394,016 1,764,588 (78,604) 26,080,000 Other securities 610,850 - - 610,850 Totals $107,457,637 2,962,139 (577,926) 109,841,850
The amortized cost and estimated market value of investment securities at December 31, 1993, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized market cost value Due in one year or less $ 7,528,351 7,562,000 Due after one year through five years 22,329,035 22,803,000 Due after five years through ten years 9,572,460 9,906,000 Due after ten years 9,242,207 9,188,000 Equity securities 610,850 610,850 $ 49,282,903 50,069,850
Gross gains realized on sales of investment securities totaled $202,335, $2,199,790 and $609,335 during 1993, 1992 and 1991, respectively. Gross losses realized on sales of investment securities totaled $685,732 and $3,702,766 during 1992 and 1991, respectively. Securities with carrying values aggregating approximately $8,580,000 and $9,612,000 at December 31, 1993 and 1992, respectively, are pledged to secure public or trust deposits, securities sold under repurchase agreements and for other purposes as required by law. (3) Loans Loans classified by type at December 31, 1993 and 1992 are as follows: 1993 1992 Commercial and municipal $ 117,879,194 124,925,672 Real estate mortgage 115,336,562 115,252,750 Installment and other 13,359,752 12,671,786 $ 246,575,508 252,850,208 Mortgage loans serviced for other investors approximate $33,280,000, $19,478,000 and $9,800,000, as of December 31, 1993, 1992 and 1991, respectively. Included in loans are mortgage loans held for sale of approximately $433,800, and $156,600, as of December 31, 1993 and 1992, respectively. Nonaccrual and past due loans at December 1993 and 1992 are as follows: 1993 1992 Nonaccrual $ 4,298,000 7,682,000 Past due 90 days or more, still accruing 85,000 250,000 The effect of nonperforming loans on interest revenue is as follows: 1993 Interest at original contract rate $ 540,000 Interest collected 87,000 Net reduction of interest revenue $ 453,000 In the ordinary course of business, the Banks originate loans to related parties, which include directors, executive officers, and associates of such persons. Loans to these individuals are made on substantially the same terms as comparable transactions with other persons and do not involve more than the normal risk of collectibility. Loan activity of related parties for 1993 is summarized as follows: Balance, December 31, 1992 $ 1,566,000 Originations and renewals 729,000 Repayments (767,000) Balance, December 31, 1993 $ 1,528,000 (4) Allowance for Loan Losses An analysis of the allowance for loan losses is as follows: 1993 1992 1991 Balance, beginning of year $ 3,173,125 3,246,468 3,093,005 Provision charged to expense 4,800,051 600,000 600,000 Recoveries of loans previously charged-off 60,321 182,064 47,456 Loans charged-off (2,658,919) (855,407) (493,993) Balance, end of year $ 5,374,578 3,173,125 3,246,468 (5) Premises and Equipment Premises and equipment at December 31, 1993 and 1992 are summarized as follows: 1993 1992 Land and improvements $ 1,983,337 1,983,337 Buildings 10,129,565 9,922,452 Furniture, fixtures and leasehold improvements 6,967,319 5,491,590 19,080,221 17,397,379 Less accumulated depreciation and amortization 6,931,517 6,369,675 $ 12,148,704 11,027,704 The Corporation has agreements for rental of certain premises and equipment. Under the terms of these agreements the Corporation has future non-cancelable minimum lease payments as follows: Year ending December 31, Amount 1994 $ 196,000 1995 196,000 1996 169,000 1997 138,000 1998 and after 670,000 $ 1,369,000 Rent expense under these leases was approximately $207,000, $276,000 and $220,000 in 1993, 1992 and 1991, respectively. (6) Deposits Time deposits include approximately $19,127,000 and $19,756,000 of certificates of deposit of $100,000 or more at December 31, 1993 and 1992. Interest expense on certificates of deposit of $100,000 or more approximated $704,000, $1,386,000 and $1,246,000 in 1993, 1992 and 1991, respectively. (7) Long-term Debt Long-term debt consists of a term note whose outstanding balance is due July 1, 1997, payable to LaSalle National Bank, N.A. (LaSalle), Chicago, Illinois bearing interest at LaSalle's prime rate or London inter bank offered rate (LIBOR) plus 1.2%. The note is collateralized by the stock of First Bank Southeast of Lake Geneva, N.A. and the personal guarantee of a stockholder of the Corporation. The Corporation is restricted from incurring additional indebtedness without the prior approval of the Federal Reserve Board. 1993 1992 Maximum month-end balance $ 9,100,000 10,000,000 Average balance 7,296,000 10,045,000 December 31 balance 6,000,000 9,100,000 Interest rate at December 31 4.45% 5.17% (8) Income Taxes Income tax expense (benefit) in the consolidated statements of operations consists of the following: Federal State Total Year ended December 31, 1993 Current $ 292,000 - 292,000 Deferred (1,353,000) - (1,353,000) (1,061,000) - (1,061,000) Year ended December 31, 1992 Current $ 1,088,000 - 1,088,000 Deferred (106,000) - (106,000) $ 982,000 - 982,000 Year ended December 31, 1991 Current $ (289,000) 49,000 (240,000) Deferred 16,000 - 16,000 $ (273,000) 49,000 (224,000) Income tax expense (benefit) differs from the amounts computed by applying the U.S. federal income tax rate (34%) to income (loss) before income taxes and the cumulative effect of change in accounting principle. A reconciliation to actual tax expense follows: 1993 1992 1991 Tax expense (benefit) at statutory rate $ (602,000) 1,673,000 (57,000) Tax-exempt income, net of disallowance (548,000) (367,000) (471,000) Goodwill amortization 120,000 105,000 105,000 State income taxes - - 32,000 Capital loss carry over - (195,000) 195,000 Other, net (31,000) (234,000) (28,000) Income tax expense (benefit) $(1,061,000) 982,000 (224,000) As discussed in Note 1(h) the Corporation adopted Statement 109 in 1993 without restating prior years' financial statements. The adoption of Statement 109 resulted in the recognition of an increase in 1993 net income of $325,000, as the cumulative effect of the change in accounting. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 1993 are presented below: 1993 Deferred tax assets: Loans, principally due to allowance for losses $ 2,285,000 Foreclosed properties 315,000 State net operating loss carryforwards 1,471,000 Other 571,000 Deferred tax assets 4,642,000 Valuation allowance (1,967,600) 2,674,400 Deferred tax liabilities: Premises and equipment, principally due to differences in depreciation (485,000) Net deferred tax asset $ 2,189,400 At January 1, 1993, the balance of the valuation allowance approximated $1,265,000. Such reserve increased in 1993 primarily due to increases in state net operating loss carry forwards, and the state tax effect of temporary differences.Included in other assets are deferred income tax assets of $2,189,400 at December 31, 1993 and $511,400 at December 31, 1992. At December 31, 1993, the Corporation and its subsidiaries have available alternative minimum tax carryforwards of $255,000 which are carried forward indefinitely and state tax net operating loss carryforwards of approximately $18,615,000, which begin to expire 1996 through 2008. (9) Payment of Dividends The Corporation relies partially on cash dividends received from the subsidiary banks to fund its operating and dividend requirements. The declaration and payment of cash dividends by the subsidiary banks to the Corporation is restricted by certain statutory and regulatory limitations. These restrictions limit cash dividends to current year net profits, as defined, plus retained net profits from the past two years. At December 31, 1993, each of the subsidiary banks is precluded from paying a dividend to the Corporation without prior approval from the office of the Comptroller of the Currency. (10) Employee Benefit Plans The Corporation has a defined contribution plan which covers substantially all employees. Contributions are made to the plan on behalf of each participant in the amount of 5.25% of each participant's compensation plus 4.3% of each participant's excess compensation, as defined for such plan years. Plan expense was approximately $360,000, $346,000 and $330,000 in 1993, 1992 and 1991, respectively. (11) Capital The Corporation and the Banks are subject to regulatory capital guidelines. These guidelines require minimum Tier I capital of 3% of total assets and 4% of risk weighted assets, and total capital equal to 8% of risk-weighted assets. The Corporation and the Banks are in compliance with all minimum capital guidelines. (12) Leases The Corporation leases space in one of its buildings to tenants. Noncancelable operating leases for such office space expire at various dates over the next five years. Future minimum payments receivable under noncancelable operating leases as of December 31, 1993 are: Year 1994 $ 141,000 1995 77,000 1996 42,000 1997 15,000 1998 15,000 $ 290,000 Gross rental income in 1993, 1992 and 1991 was approximately $183,000, $139,000 and 167,000, respectively. (13) Financial Instruments With Off-Balance Sheet Risk The subsidiary banks are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements. The contract amounts of those instruments reflect the extent of involvement the banks have in particular classes of financial instruments. The banks' exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The banks use the same credit policies in making commitments and conditional obligations as they do for instruments reflected in the consolidated financial statements. A summary of significant off-balance sheet financial commitments at December 31, 1993 and 1992 is as follows: Financial instruments whose contract amounts represent credit risk 1993 1992 Commitments to extend credit $ 24,964,000 21,168,000 Credit card lines 4,079,000 4,172,000 Standby letters of credit 1,476,000 1,291,000 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's credit worthiness is evaluated on a case-by-case basis. The amount of collateral obtained if deemed necessary is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, income-producing commercial properties and negotiable securities. Credit card lines are unsecured agreements to extend credit. Such commitments are reviewed periodically, at which time the commitments may be maintained, increased, decreased or canceled, depending upon an evaluation of the customer's creditworthiness and other considerations. Standby letters of credit are conditional commitments issued by the subsidiary banks to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In some cases marketable securities are pledged as collateral supporting those commitments. (14) Regulatory and Other Commitments The Corporation operates under a Memorandum of Understanding (MOU) with the Federal Reserve Bank of Chicago. Specifically the Corporation and its board of directors agreed to a number of requirements. Under the MOU, the Corporation shall not declare or pay any dividends subsequent to 1992 nor increase its borrowings or incur any debt without the prior written approval of the Federal Reserve Bank. The Corporation is subject to various legal actions and proceedings in the normal course of business, some of which involve substantial claims for compensatory or punitive damages. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe that the final outcome will have a material adverse effect on the financial condition of the Corporation. (15) Fair Value of Financial Instruments Statement of Financial Accounting Standards 107, Disclosures about Fair Value of Financial Instruments (Statements 107), requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized in the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. The Corporation does not routinely measure the market value of certain of its financial instruments because such measurements represent point-in-time estimates of value. It is not the intent of the Corporation to liquidate and therefore realize the difference between market value and carrying value, and even if it were, there is no assurance that the estimated market values could be realized. Thus the information presented may not be relevant to predicting the Corporation's future earnings or cash flows. The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments: Cash and cash equivalents - The carrying amounts of these assets are reported in the consolidated balance sheets at approximately their fair values. Securities available for sale and investment securities - Fair values for these assets are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans - For variable-rate mortgage loans that reprice regularly and have not experienced a significant change in credit risk, fair values are based on carrying values. The fair value of fixed-rate residential mortgage loans held for investment, commercial real estate loans, multi-family residential property mortgage loans, consumer loans and commercial loans are estimated using discounted cash flow analyses. The rates utilized for discounting are the interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. For residential construction loans, fair values are based on carrying values due to the short-term nature of the loans. The fair value of mortgage loan servicing rights for loans originated by the banks has not been determined and is not presented below. These rights, which consist of the banks' contractual right to service loans for others, represent a future income producing intangible asset that could be realized immediately be selling the rights to another institution. The value of those rights, except to the extent that purchased mortgage servicing rights exist, is not reflected in the Corporation's consolidated balance sheets. Deposits - The fair values disclosed for demand accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying value amounts). The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit. Borrowings - The fair value of the Corporation's long-term borrowings approximate the carrying value due to the interest rates floating at market interest rates. Off-Balance Sheet Items - The fair value of unused and open ended consumer lines of credit was estimated using fees currently being charged and does not include the value that relates to estimated cash flows from new loans generated from existing lines of credit. The fair value of commitments to extend credit was estimated using fees currently charged to enter into such agreements. The fair value of commitments to sell loans is based on the current market rates for such loans. The estimated fair values of the Corporation's off-balance sheet items (note 13), are not material and therefore are not included in the following schedule. The carrying amounts and fair values of the Corporation's financial instruments consist of the following at December 31, 1993 and 1992:
1993 1992 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and cash equivalents $ 42,578,828 42,578,828 49,745,483 49,745,483 Securities available for sale 68,619,058 70,719,000 - - Investment securities 49,282,903 50,069,850 107,457,637 109,841,513 Loans, net 241,200,930 244,618,959 249,677,083 250,266,663 Financial liabilities: Deposits: Demand accounts 114,986,821 114,986,821 107,161,282 107,161,282 Time accounts 266,872,021 265,431,996 274,534,688 276,446,612 Securities sold under repurchase agreements 985,000 985,000 330,000 330,000 Borrowings 6,000,000 6,000,000 9,100,000 9,100,000
(16) Proposed Acquisition by Firstar Corporation On February 10, 1994, the Corporation entered into a definitive agreement with Firstar Corporation (Firstar) to exchange all outstanding shares of common stock of the Corporation for common stock of Firstar. The definitive agreement is subject to stockholder and regulatory approval. (17) First Southeast Banking Corp. (Parent Company Only) Financial Information Condensed Balance Sheet December 31, 1993 1992 Cash $ 1,803,985 63,463 Due from subsidiaries 326,478 184,725 Investment in subsidiaries 31,596,377 34,099,927 Investment securities (market value of $1,264,000 and $1,548,000) 908,450 1,293,213 Goodwill, net of amortization 1,290,961 1,478,229 Other 1,155,347 2,822,466 $ 37,081,598 39,942,023 Liabilities and Stockholders' Equity Note payable $ 6,000,000 9,100,000 Other 831,192 208,080 Stockholders' equity 30,250,406 30,633,943 $ 37,081,598 39,942,023 Condensed Statements of Operations 1993 1992 1991 Revenue: Dividends received from Banks $ 2,651,870 2,402,436 2,628,220 Other dividend and interest income 82,403 141,291 105,565 Securities gain (losses) 40,391 1,439,728 (3,268,763) Other 65,941 69,335 42,284 Total revenue 2,840,605 4,052,790 (492,694) Expenses: Interest 367,290 759,872 1,334,139 Goodwill amortization 187,267 187,267 187,267 Other 288,189 182,790 215,825 Total expenses 842,746 1,129,929 1,737,231 Income (loss) before income taxes and equity in undistributed net income (loss) of Banks 1,997,859 2,922,861 (2,229,925) Income tax benefit 190,672 3,550 1,326,513 Income (loss) before equity in undistributed net income (loss) of Banks 2,188,531 2,926,411 (903,412) Equity in undistributed net income (loss) of Banks (2,572,068) 1,010,889 959,858 Net income (loss) $ (383,537) 3,937,300 56,446
Condensed Statements of Cash Flows 1993 1992 1991 Cash flows from operating activities: Net income (loss) $ (383,537) 3,937,300 56,446 Adjustments to reconcile net income to net cash provided by operating activities: Securities (gains) losses (40,391) (1,439,728) 1,384,025 Amortization 187,267 187,267 187,267 Decrease (increase) in other assets 1,540,798 (1,565,731) 615,412 Increase (decrease) in other liabilities 623,112 208,080 (4,414,522) Equity in undistributed (net income) loss of Banks 2,572,068 (1,010,889) (959,858) Net cash provided by (used in) operating activities4,499,317 316,299 (3,131,230) Cash flows from investing activities: Proceeds from sales of investments 425,154 2,352,664 2,308,719 Purchase of common stock in Banks (83,949) (150,280) (15,566) Net cash used in investing activities 341,205 2,202,384 2,293,153 Cash flows from financing activities: Net increase (decrease) in borrowed funds (3,100,000) (1,900,000) 2,000,000 Dividends paid - (995,644) (588,868) Purchase of treasury stock - - (229,295) Net cash provided by (used in)financing activities(3,100,000) (2,895,644) 1,181,837 Net increase (decrease)in cashand cash equivalents 1,740,522 (376,961) 343,760 Cash and cash equivalents at beginning of year 63,463 440,424 96,664 Cash and cash equivalents at end of year $ 1,803,985 63,463 440,424 Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 367,290 759,872 1,334,139
The Corporation and the Banks utilize the services of an aviation service of which the owner is a stockholder and director of the Corporation. Fees paid to the aviation service during 1993, 1992 and 1991 totaled approximately $33,000, $46,000 and $142,000, respectively. FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheet March 31, 1994 (Unaudited) Assets Cash and due from banks $ 29,312,227 Federal funds sold 9,000,000 Securities available-for-sale 76,177,111 Securities held-to-maturity (market value of $47,059,000) 47,015,768 Loans 242,442,370 Allowance for loan losses (5,426,043) Loans, net 237,016,327 Premises and equipment, net 13,072,070 Foreclosed properties 1,077,976 Goodwill, net of amortization of $2,358,716 2,013,822 Accrued interest receivable and other assets 7,620,591 Total assets $ 422,305,892 Liabilities and Stockholders' Equity Deposits: Demand $ 106,568,807 Time 267,716,051 Total deposits 374,284,858 Securities sold under repurchase agreements (note 3) 6,188,000 Long-term debt 6,000,000 Other liabilities 4,701,434 Total liabilities 391,174,292 Minority interest 322,667 Stockholders' equity: Common stock, $1 par value; 200,000 shares authorized; 119,633 shares iss 119,633 Additional paid-in capital 12,613,397 Retained earnings 19,563,967 Appreciation on securities available-for-sale, net of deferred taxes 922,212 Treasury stock, 13,147 shares at cost (2,410,276) Total stockholders' equity 30,808,933 Total liabilities and stockholders' equity $ 422,305,892 See accompanying notes to unaudited condensed consolidated financial statements. FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Operations Three Months ended March 31, 1994 and 1993 (Unaudited) 1994 1993 Interest revenue: Loans $ 4,942,059 4,900,771 Investment securities: Taxable 1,130,291 1,280,906 Tax-exempt 407,947 424,428 Other 74,032 69,400 Total interest revenue 6,554,329 6,675,505 Interest expense: Deposits 2,573,512 3,050,919 Securities sold under repurchase agreements 36,569 12,259 Long-term debt 68,278 94,156 Total interest expense 2,678,359 3,157,334 Net interest revenue 3,875,970 3,518,171 Provision for loan losses - 1,137,512 Net interest revenue after provision for loan losses 3,875,970 2,380,659 Other revenue: Service charges 470,676 453,234 Trust and investment management fees 62,000 44,000 Mortgage banking revenue 31,725 25,169 Other 69,532 220,775 Total other revenue 633,933 743,178 Other expenses: Salaries and employee benefits 1,788,321 1,741,253 Other 1,875,622 1,574,644 Total other expenses 3,663,943 3,315,897 Income (loss) before income tax expense and cumulative effect of change in accounting principle 845,960 (192,060) Income tax expense (benefit) 214,000 (114,000) Income (loss) before cumulative effect of change in accounting principle 631,960 (78,060) Cumulative effect on prior years of adoption of Statement of Financial Accounting Standards No. 109 - 325,000 Net income $ 631,960 246,940 Income (loss) per common share: Income (loss) before cumulative effect of change in accounting principle $ 5.93 (0.74) Cumulative effect on prior years of adoption of Statement of Financial Accounting Standards No. 109 - 3.05 Net income $ 5.93 2.31 See accompanying notes to unaudited condensed consolidated financial statements. FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Three Months ended March 31, 1994 and 1993 (Unaudited) 1994 1993 Cash flows from operating activities: Net income $ 631,960 246,940 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and accretion, net 229,136 204,074 Provision for loan losses - 1,137,512 Cumulative effect of change in accounting principle - (325,000) Minority interest 9,835 56,332 Decrease (increase) in accrued interest receivable (795,755) 2,510,145 and other assets Decrease in accrued expenses and other liabilities (248,246) (519,088) Net cash provided by operating activities (173,070) 3,310,915 Cash flows from investing activities: Net decrease in loans 4,184,603 6,063,845 Purchases of premises and equipment, net (1,081,983) (1,834,391) Purchase of investment securities, net of maturities (3,893,628) (8,707,743) Net change in foreclosed properties 64,451 (1,150,198) Net cash used in investing activities (726,557 (5,628,487) Cash flows from financing activities: Net decrease in deposits (7,573,984) (13,008,670) Net increase in securities sold under repurchase agreements 5,203,000 1,840,000 Repayment of long-term debt - (1,600,000) Cash dividends paid (995,645) - Net cash provided by (used in) financing activities (3,366,629) (12,768,670) Net decrease in cash and cash equivalents (4,266,256) (15,086,242) Cash and cash equivalents: Beginning of year 42,745,483 46,745,483 End of year $ 38,312,227 31,659,241 See accompanying notes to unaudited condensed consolidated financial statements. FIRST SOUTHEAST BANKING CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements March 31, 1994 and 1993 (Unaudited) (1) General The accounting and reporting policies of First Southeast Banking Corp. and subsidiaries (First Southeast) conform to generally accepted accounting principles and to general practices within the banking industry. Significant accounting principles used by First Southeast are summarized in Note 1 to the 1993 consolidated financial statements. The condensed consolidated financial statements reflect adjustments, all of which are of a normal recurring nature, and, in the opinion of management, necessary for a fair statement of results for the interim periods. The operating results for the three months ended March 31, 1994 are not necessarily indicative of the results which may be expected for the entire year. The accompanying condensed consolidated financial statements should be read in conjunction with First Southeast's 1993 consolidated financial statements and related notes. (2) Allowance for Loan Losses An analysis of the allowance for loan losses for the three months ended March 31, 1994 and 1993 is as follows: 1994 1993 Balance, beginning of period $ 5,374,578 3,173,125 Provision charged to expense - 1,137,512 Recoveries of loans previously charged-off 73,465 15,080 Loans charged-off (22,000) (558,537) Balance, end of period $ 5,426,043 3,767,180 (3) Nonperforming Loans Nonperforming loans as of March 31, 1994 and 1993 are summarized as follows: 1994 1993 Nonperforming loans $ 5,308,000 9,385,000 (4) Long-term Debt Long-term debt consists of a term note payable to LaSalle National Bank, N.A. (LaSalle), Chicago, Illinois. Such note, with interest payable at LaSalle's prime rate or the LIBOR plus 1.2%, is collateralized by the stock of First Bank Southeast of Lake Geneva, N.A. and the personal guarantee of a stockholder of First Southeast and is due July 1, 1997. First Southeast is restricted from incurring additional indebtedness without prior approval of the Federal Reserve Board. EXHIBIT A WISCONSIN STATUTES CHAPTER 180. BUSINESS CORPORATIONS SUBCHAPTER XIII. DISSENTERS' RIGHTS Wis. Stat. | 180.1301 (1993) 180.1301 Definitions In ss. 180.1301 to 180.1331: (1) "Beneficial shareholder" means a person who is a beneficial owner of shares held by a nominee as the shareholder. (1m) "Business combination" has the meaning given in s. 180.1130 (3). (2) "Corporation" means the issuer corporation or, if the corporate action giving rise to dissenters' rights under s. 180.1302 is a merger or share exchange that has been effectuated, the surviving domestic corporation or foreign corporation of the merger or the acquiring domestic corporation or foreign corporation of the share exchange. (3) "Dissenter" means a shareholder or beneficial shareholder who is entitled to dissent from corporate action under s. 180.1302 and who exercises that right when and in the manner required by ss. 180.1320 to 180.1328. (4) "Fair value", with respect to a dissenter's shares other than in a business combination, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. "Fair value", with respect to a dissenter's shares in a business combination, means market value, as defined in s. 180.1130 (9) (a) 1 to 4. (5) "Interest" means interest from the effectuation date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all of the circumstances. (6) "Issuer corporation" means a domestic corporation that is the issuer of the shares held by a dissenter before the corporate action. HISTORY: 1989 a. 303; 1991 a. 16. Wis. Stat. | 180.1302 (1993) 180.1302 Right to dissent (1) Except as provided in sub. (4) and s. 180.1008 (3), a shareholder or beneficial shareholder may dissent from, and obtain payment of the fair value of his or her shares in the event of, any of the following corporate actions: (a) Consummation of a plan of merger to which the issuer corporation is a party if any of the following applies: 1. Shareholder approval is required for the merger by s. 180.1103 or by the articles of incorporation. 2. The issuer corporation is a subsidiary that is merged with its parent under s. 180.1104. (b) Consummation of a plan of share exchange if the issuer corporation's shares will be acquired, and the shareholder or the shareholder holding shares on behalf of the beneficial shareholder is entitled to vote on the plan. (c) Consummation of a sale or exchange of all, or substantially all, of the property of the issuer corporation other than in the usual and regular course of business, including a sale in dissolution, but not including any of the following: 1. A sale pursuant to court order. 2. A sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale. (d) Except as provided in sub. (2), any other corporate action taken pursuant to a shareholder vote to the extent that the articles of incorporation, bylaws or a resolution of the board of directors provides that the voting or nonvoting shareholder or beneficial shareholder may dissent and obtain payment for his or her shares. (2) Except as provided in sub. (4) and s. 180.1008 (3), the articles of incorporation may allow a shareholder or beneficial shareholder to dissent from an amendment of the articles of incorporation and obtain payment of the fair value of his or her shares if the amendment materially and adversely affects rights in respect of a dissenter's shares because it does any of the following: (a) Alters or abolishes a preferential right of the shares. (b) Creates, alters or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares. (c) Alters or abolishes a preemptive right of the holder of shares to acquire shares or other securities. (d) Excludes or limits the right of the shares to vote on any matter or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights. (e) Reduces the number of shares owned by the shareholder or beneficial shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under s. 180.0604. (3) Notwithstanding sub. (1) (a) to (c), if the issuer corporation is a statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of the statutory close corporation may dissent from a corporate action and obtain payment of the fair value of his or her shares, to the extent permitted under sub. (1) (d) or (2) or s. 180.1803, 180.1813 (1) (d) or (2) (b), 180.1815 (3) or 180.1829 (1) (c). (4) Except in a business combination or unless the articles of incorporation provide otherwise, subs. (1) and (2) do not apply to the holders of shares of any class or series if the shares of the class or series are registered on a national securities exchange or quoted on the national association of securities dealers, inc., automated quotations system on the record date fixed to determine the shareholders entitled to notice of a shareholders meeting at which shareholders are to vote on the proposed corporate action. (5) Except as provided in s. 180.1833, a shareholder or beneficial shareholder entitled to dissent and obtain payment for his or her shares under ss. 180.1301 to 180.1331 may not challenge the corporate action creating his or her entitlement unless the action is unlawful or fraudulent with respect to the shareholder, beneficial shareholder or issuer corporation. HISTORY: 1989 a. 303; 1991 a. 16. Wis. Stat. | 180.1303 (1993) 180.1303 Dissent by shareholders and beneficial shareholders (1) A shareholder may assert dissenters' rights as to fewer than all of the shares registered in his or her name only if the shareholder dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he or she asserts dissenters' rights. The rights of a shareholder who under this subsection asserts dissenters' rights as to fewer than all of the shares registered in his or her name are determined as if the shares as to which he or she dissents and his or her other shares were registered in the names of different shareholders. (2) A beneficial shareholder may assert dissenters' rights as to shares held on his or her behalf only if the beneficial shareholder does all of the following: (a) Submits to the corporation the shareholder's written consent to the dissent not later than the time that the beneficial shareholder asserts dissenters' rights. (b) Submits the consent under par. (a) with respect to all shares of which he or she is the beneficial shareholder. HISTORY: 1989 a. 303. Wis. Stat. | 180.1320 (1993) 180.1320 Notice of dissenters' rights (1) If proposed corporate action creating dissenters' rights under s. 180.1302 is submitted to a vote at a shareholders' meeting, the meeting notice shall state that shareholders and beneficial shareholders are or may be entitled to assert dissenters' rights under ss. 180.1301 to 180.1331 and shall be accompanied by a copy of those sections. (2) If corporate action creating dissenters' rights under s. 180.1302 is authorized without a vote of shareholders, the corporation shall notify, in writing and in accordance with s. 180.0141, all shareholders entitled to assert dissenters' rights that the action was authorized and send them the dissenters' notice described in s. 180.1322. HISTORY: 1989 a. 303. Wis. Stat. | 180.1321 (1993) 180.1321 Notice of intent to demand payment (1) If proposed corporate action creating dissenters' rights under s. 180.1302 is submitted to a vote at a shareholders' meeting, a shareholder or beneficial shareholder who wishes to assert dissenters' rights shall do all of the following: (a) Deliver to the issuer corporation before the vote is taken written notice that complies with s. 180.0141 of the shareholder's or beneficial shareholder's intent to demand payment for his or her shares if the proposed action is effectuated. (b) Not vote his or her shares in favor of the proposed action. (2) A shareholder or beneficial shareholder who fails to satisfy sub. (1) is not entitled to payment for his or her shares under ss. 180.1301 to 180.1331. HISTORY: 1989 a. 303. Wis. Stat. | 180.1322 (1993) 180.1322 Dissenters' notice (1) If proposed corporate action creating dissenters' rights under s. 180.1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders and beneficial shareholders who satisfied s. 180.1321. (2) The dissenters' notice shall be sent no later than 10 days after the corporate action is authorized at a shareholders' meeting or without a vote of shareholders, whichever is applicable. The dissenters' notice shall comply with s. 180.0141 and shall include or have attached all of the following: (a) A statement indicating where the shareholder or beneficial shareholder must send the payment demand and where and when certificates for certificated shares must be deposited. (b) For holders of uncertificated shares, an explanation of the extent to which transfer of the shares will be restricted after the payment demand is received. (c) A form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and that requires the shareholder or beneficial shareholder asserting dissenters' rights to certify whether he or she acquired beneficial ownership of the shares before that date. (d) A date by which the corporation must receive the payment demand, which may not be fewer than 30 days nor more than 60 days after the date on which the dissenters' notice is delivered. (e) A copy of ss. 180.1301 to 180.1331. HISTORY: 1989 a. 303. Wis. Stat. | 180.1323 (1993) 180.1323 Duty to demand payment (1) A shareholder or beneficial shareholder who is sent a dissenters' notice described in s. 180.1322, or a beneficial shareholder whose shares are held by a nominee who is sent a dissenters' notice described in s. 180.1322, must demand payment in writing and certify whether he or she acquired beneficial ownership of the shares before the date specified in the dissenters' notice under s. 180.1322 (2) (c). A shareholder or beneficial shareholder with certificated shares must also deposit his or her certificates in accordance with the terms of the notice. (2) A shareholder or beneficial shareholder with certificated shares who demands payment and deposits his or her share certificates under sub. (1) retains all other rights of a shareholder or beneficial shareholder until these rights are canceled or modified by the effectuation of the corporate action. (3) A shareholder or beneficial shareholder with certificated or uncertificated shares who does not demand payment by the date set in the dissenters' notice, or a shareholder or beneficial shareholder with certificated shares who does not deposit his or her share certificates where required and by the date set in the dissenters' notice, is not entitled to payment for his or her shares under ss. 180.1301 to 180.1331. HISTORY: 1989 a. 303. Wis. Stat. | 180.1324 (1993) 180.1324 Restrictions on uncertificated shares (1) The issuer corporation may restrict the transfer of uncertificated shares from the date that the demand for payment for those shares is received until the corporate action is effectuated or the restrictions released under s. 180.1326. (2) The shareholder or beneficial shareholder who asserts dissenters' rights as to uncertificated shares retains all of the rights of a shareholder or beneficial shareholder, other than those restricted under sub. (1), until these rights are canceled or modified by the effectuation of the corporate action. HISTORY: 1989 a. 303. Wis. Stat. | 180.1325 (1993) 180.1325 Payment (1) Except as provided in s. 180.1327, as soon as the corporate action is effectuated or upon receipt of a payment demand, whichever is later, the corporation shall pay each shareholder or beneficial shareholder who has complied with s. 180.1323 the amount that the corporation estimates to be the fair value of his or her shares, plus accrued interest. (2) The payment shall be accompanied by all of the following: (a) The corporation's latest available financial statements, audited and including footnote disclosure if available, but including not less than a balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year and the latest available interim financial statements, if any. (b) A statement of the corporation's estimate of the fair value of the shares. (c) An explanation of how the interest was calculated. (d) A statement of the dissenter's right to demand payment under s. 180.1328 if the dissenter is dissatisfied with the payment. (e) A copy of ss. 180.1301 to 180.1331. HISTORY: 1989 a. 303. Wis. Stat. | 180.1326 (1993) 180.1326 Failure to take action (1) If an issuer corporation does not effectuate the corporate action within 60 days after the date set under s. 180.1322 for demanding payment, the issuer corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (2) If after returning deposited certificates and releasing transfer restrictions, the issuer corporation effectuates the corporate action, the corporation shall deliver a new dissenters' notice under s. 180.1322 and repeat the payment demand procedure. HISTORY: 1989 a. 303. Wis. Stat. | 180.1327 (1993) 180.1327 After-acquired shares (1) A corporation may elect to withhold payment required by s. 180.1325 from a dissenter unless the dissenter was the beneficial owner of the shares before the date specified in the dissenters' notice under s. 180.1322 (2) (c) as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action. (2) To the extent that the corporation elects to withhold payment under sub. (1) after effectuating the corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his or her demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under s. 180.1328 if the dissenter is dissatisfied with the offer. HISTORY: 1989 a. 303. Wis. Stat. | 180.1328 (1993) 180.1328 Procedure if dissenter dissatisfied with payment or offer (1) A dissenter may, in the manner provided in sub. (2), notify the corporation of the dissenter's estimate of the fair value of his or her shares and amount of interest due, and demand payment of his or her estimate, less any payment received under s. 180.1325, or reject the offer under s. 180.1327 and demand payment of the fair value of his or her shares and interest due, if any of the following applies: (a) The dissenter believes that the amount paid under s. 180.1325 or offered under s. 180.1327 is less than the fair value of his or her shares or that the interest due is incorrectly calculated. (b) The corporation fails to make payment under s. 180.1325 within 60 days after the date set under s. 180.1322 for demanding payment. (c) The issuer corporation, having failed to effectuate the corporate action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set under s. 180.1322 for demanding payment. (2) A dissenter waives his or her right to demand payment under this section unless the dissenter notifies the corporation of his or her demand under sub. (1) in writing within 30 days after the corporation made or offered payment for his or her shares. The notice shall comply with s. 180.0141. HISTORY: 1989 a. 303. Wis. Stat. | 180.1330 (1993) 180.1330 Court action (1) If a demand for payment under s. 180.1328 remains unsettled, the corporation shall bring a special proceeding within 60 days after receiving the payment demand under s. 180.1328 and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not bring the special proceeding within the 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (2) The corporation shall bring the special proceeding in the circuit court for the county where its principal office or, if none in this state, its registered office is located. If the corporation is a foreign corporation without a registered office in this state, it shall bring the special proceeding in the county in this state in which was located the registered office of the issuer corporation that merged with or whose shares were acquired by the foreign corporation. (3) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the special proceeding. Each party to the special proceeding shall be served with a copy of the petition as provided in s. 801.14. (4) The jurisdiction of the court in which the special proceeding is brought under sub. (2) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. An appraiser has the power described in the order appointing him or her or in any amendment to the order. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (5) Each dissenter made a party to the special proceeding is entitled to judgment for any of the following: (a) The amount, if any, by which the court finds the fair value of his or her shares, plus interest, exceeds the amount paid by the corporation. (b) The fair value, plus accrued interest, of his or her shares acquired on or after the date specified in the dissenter's notice under s. 180.1322 (2) (c), for which the corporation elected to withhold payment under s. 180.1327. HISTORY: 1989 a. 303. Wis. Stat. | 180.1331 (1993) 180.1331 Court costs and counsel fees (1) (a) Notwithstanding ss. 814.01 to 814.04, the court in a special proceeding brought under s. 180.1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court and shall assess the costs against the corporation, except as provided in par. (b). (b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs against all or some of the dissenters, in amounts that the court finds to be equitable, to the extent that the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment under s. 180.1328. (2) The parties shall bear their own expenses of the proceeding, except that, notwithstanding ss. 814.01 to 814.04, the court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts that the court finds to be equitable, as follows: (a) Against the corporation and in favor of any dissenter if the court finds that the corporation did not substantially comply with ss. 180.1320 to 180.1328. (b) Against the corporation or against a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by this chapter. (3) Notwithstanding ss. 814.01 to 814.04, if the court finds that the services of counsel and experts for any dissenter were of substantial benefit to other dissenters similarly situated, the court may award to these counsel and experts reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. HISTORY: 1989 a. 303. -----END PRIVACY-ENHANCED MESSAGE-----