MERGER REPORT OF EESTI UHISPANK AND TALLINNA PANK Tallinn 22nd April 1998 General The management boards of AS Eesti Uhispank (hereinafter Uhispank) and AS Tallinna Pank (hereinafter Tallinna Pank) have signed the merger agreement according to which Tallinna Pank will be merged with Eesti Uhispank. As a result of the merger a financial institution with the total assets of 16 billion kroons is created, whereas the assets of the bank being acquired and the assets of the acquiring bank as of 31st December 1997 sum up to 12.5 billion kroons. The sum of the share capitals of Eesti Uhispank and Tallinna Pank as of 31st December 1997 amounted to 0.4 billion kroons and equity to 1.1 billion kroons. Taking into account the successful offering of shares carried out in the first quarter of 1998 by Eesti Uhispank, the share capital of the merged banks has increased to total 0.5 billion kroons and equity to 1.8 billion kroons. The equity of the merged banks is the largest among all commercial banks in the Baltic states. High capitalisation provides good outlooks to the new financial group for future growth. The estimated reliability standards of the merged banks as at the end of 1997 are the following: liquidity ratio "37.4%; capital adequacy 10.9%. As the result of the" share issue carried out by Eesti Uhispank in March and of the subordinated loan in the amount of 80 million kroons assumed by Tallinna Pank in the beginning of the same year, the liquidity ration of the merged banks increased to 47.9% and the capital adequacy to 16.8%, which exceed considerably the minimum requirement established by the Bank of Estonia (35% and 10% respectively) and are adequately high to secure smooth merger of the two banks. The bank has enough funds to make necessary investments and cover the first hand costs related to reorganisation. Adequate liquidity of the bank secures smooth movement of transfers. Merger by exchange of shares The merger of Tallinna Pank with Eesti Uhispank will be carried out by means of exchange of shares such that the shareholders of Tallinna Pank will acquire 9,726,444 shares in Eesti Uhispank pro rata with their participation in the share capital of Tallinna Pank. Each share of Tallinna Pank with nominal value of 10 kroons will be exchanged for 0.42 shares of Eesti Uhispank with a nominal value of 10 kroons. To carry out the exchange of shares Eesti Uhispank will issue 9,726,444 new shares. Upon the moment of exchange the shareholders of Tallinna Pank hold all in all 23,158,2081 shares of Tallinna Pank. When multiplying the foregoing number of shares by 0.42 we get 9,726,447.36, which is not an integral. According to 223 paragraphs 1 and 2 and 224 of the Commercial Code AS Eesti Uhispank may only issue an integral number of shares. According to 403 paragraph 4 of the Commercial Code the shares of the company being acquired which are held by the acquiring company or by the company being acquired itself, or by a person acting in his/her/its own name but on account of the company, are not subject to exchange and shall become invalid. Therefore, the shares of Tallinna Pank held by AS Eesti Uhispank, its subsidiaries and by any person acting in his/her name but on account of AS Eesti Uhispank and AS Tallinna Pank, will not be exchanged and such shares will become invalid. According to Article 27 section 3 of the Law on Credit Institutions AS Tallinna Pank may not purchase its own shares. Based on the foregoing, AS Eesti Uhispank, its subsidiaries and aforementioned third persons as at the moment of share exchange hold all in all eight shares of AS Tallinna Pank. The said eight shares will not be replaced and will become invalid. Therefore, 23,158,200 shares of AS Tallinna Pank will be subject to exchange for 9,726,444 shares of Uhispank at a ratio of 0.42. The foregoing amount of shares will be issued Uhispank in the course of share capital increase to be carried out in connection with the merger. As a result of the merger Tallinna Pank will terminate its activities and will be deleted from the Commercial Register. All the rights and obligations of Tallinna Pank will be transferred to Uhispank being the legal successor of Tallinna Pank. The merged banks will continue to operate under the name of Eesti Uhispank with its registered office located in the present headquarters of Uhispank at Tartu Road 13, Tallinn. In order to mark not only the changes in form but also in the content, Uhispank and Tallinna Pank want to give the new bank a new business name. Ain Hanschmidt, the present president of Uhispank, will continue as the president and chairman of the management board of the bank, who also has the duty to form the new management board and present it to the Supervisory Board of Uhispank for approval thereof. The number of members of the Supervisory Board of Uhispank will be increased by three members (after merger the Supervisory Board will have twelve members). The candidates for the three new members will be named by the general meeting of shareholders of Tallinna Pank. Election of the named candidates as the members of the Supervisory Board is a condition precedent to enforcement of the merger agreement. Short Overview of the Banks Eesti Uhispank was established in December 1992 and operated initially as a general partnership uniting ten small independent banks. In May 1994 the associate banks of Uhispank amalgamated into a new uniform public limited company. Early in 1997 Uhispank acquired Plhja- Eesti Pank. Although in recent years Eesti Uhispank has mainly on market in Tallinn area, it has managed to keep its leading position also in counties. With its 76 offices and bank halls Uhispank is represented in all major Estonian towns as well as in smaller settlements. In 1997 the offices that duplicated each other after acquisition of Plhja-Eesti Pank by Uhispank were closed down and amalgamated. Additional branch offices in Hiiumaa and Saaremaa were opened. Lines of credit granted by EBRD and other international financial institutions bear witness to the international recognition and reliability of the bank. Besides the Tallinn Stock Exchange the share of Uhispank has been at Helsinki Stock Exchange as well. The international auditing company Deloitte&Touche that audited the bank has rendered its opinion on the accounting records of Uhispank without any notes. In 1997 Eesti Uhispank was given a long term credit rating BBB- by the international rating agency IBCA which contributed to the reliability of the bank in the eyes of investors even more. In March Uhispank signed a strategic co-operation agreement with Latvian Unibank and Lithuanian Vilniaus Banka, the main objective of which is provision of faster, better and cost-effective services to the clients of the three banks. Uhispank considers the Baltic region and North-West Russia as its area of activity, wherefore the aforementioned co-operation agreement formed a part of the expansion plan. This year Uhispank plans to open an affiliate bank in St. Petersburg and a branch in Helsinki, Finland. The reliability of Uhispank and rightness of the strategy chosen by the management board are also proved by successful GDR issue, in the course of which Uhispank acquired auxiliary equity capital in the amount of 710 million kroons, as well as by a successful tender placed in consortium with the international investment banks ABN AMRO & Rothschild and Nomura International in the public tender organised for finding a counsel to privatisation of Eesti Telekom. Remarkable success in several privatisation processes, e.g. in privatisation of Eesti Merelaevandus, Liviko and EMEX, can be also regarded as the achievements of the bank. During the last year the bank has paid considerably more attention to its investment banking activities. Uhispank is oriented to provision of services primarily to small and medium-size enterprises and private persons. In 1997 the audited net profit of Uhispank totalled 211.2 million kroons, the balance volume amounted to 9.5 billion kroons. The return on equity ration equalled to 40.18 per cent and return on assets ratio to 3.16 per cent. Tallinna Pank was established on 28th February 1990 as a private limited company. On 20th June 1991 the shareholders decided to transform the private limited company Tallinna Pank into a public limited company. At first the bank was Tallinn-centred rendering its services primarily to the enterprises in the city. Majority of the clients of Tallinna Pank were private companies actively engaged in foreign trade. In development of its services package Tallinna Pank has paid attention to the development of international banking services. The bank is effective in the said area already today. Development of Estonian-wide office network began in 1993 with the purchase of the leading branches of Tartu Kommertspank. In 1997 the office network restructuring program was started in the course of which 6 offices on the mainland and in the April of the current year four offices in Saaremaa were closed down. Today 9 out of its 21 offices and bank halls, which together form the network of Tallinna Pank, are situated in Tallinn. The bank is represented in the largest towns and settlements in Western, Eastern and Central Estonia. 84 per cent of the clients' deposits have been deposited in Tallinn, 9 per cent in Western and 7 per cent in Central and Eastern Estonia. Late in 1992 Tallinna Pank started to pay more attention to private persons' market and worked out a wide-range service package for private persons. In development of its service package Tallinna Pank is oriented to working out of technological banking services and one of the first Estonian banks to issue debit cards and installed functioning ATMs. In August 1995 started issuing of Euro/Master credit cards. The technological banking "service package ""Ekspresspank"" consisting of bank cards," and ATMs, telephone and online banking was introduced in spring 1996. In July 1997 new payment card of Tallinna Pank was taken in active use, and the bank simultaneously started issuing international credit card VISA Classic in addition to Eurocard MasterCard. In addition to traditional banking activity Tallinna Pank has paid much attention to the development of the bank's affiliate and ancillary companies as well as of the entire group. The objective is to develop a financial group embracing the Baltic states. In December 1996 Tallinna Pank bought 20% of the shares in Saules Banka being the ninth largest bank in Latvia. In October 1997 Tallinna Bank acquired a 80% participation in the share capital of Saules Banka and an agreement for the purchase of a 100% share has been made. As at the end of 1997 Saules Banka was the seventh largest bank in Latvia. The group of Tallinna Pank consists of leasing companies in Estonia, Latvia and Lithuania, securities mediation and brokerage companies in Latvia and Lithuania, as well as funds and stock management company Tallinna Panga Varahalduse AS. Through Saules Banka the Tallinna Pank Group is also represented in Moscow, Alma-Ata and Kiev. In addition to the foregoing the insurance company Leks, having its subsidiaries and related companies in Estonia and other Baltic states, belongs to the group of Tallinna Pank. From June 1997 to January 1998 the bank was assisted by the consultants of the international consultation company McKinsey&Co to improve the efficiency of the bank and to develop the structure of the corporate group. The shares of Tallinna Pank have been listed in Tallinn Stock Exchange since the beginning of the activity of the Exchange. Opening of lines of credit by EBRD and other foreign bank bears witness to the international recognition of the bank. In 1997 the audited profit of Tallinna Pank totalled 38 million kroons and the profit of the Group 55 million kroons. The capital adequacy ratio of the bank was 10.3%. Taking into account the new subordinated loan assumed from the EBRD in the beginning of January, the capital adequacy ratio of the bank as of January 1998 was 13.23%. Tallinna Pank has been audited by the auditing company KPMG Estonia. The auditor's opinions rendered on the bank have been without any notes. Economic Reasons and Results of Merger The leaders of Uhispank and Tallinna Pank perceive their social responsibility in carrying out the merger process and in management of the bank thereafter, for the bank covering almost one third of the Estonian banking market will substantially influence the economic growth and monetary stability of Estonia in future. The merger of Tallinna Pank and Uhispank will be based on the strengths of both banks in order to achieve: growth of clients' satisfaction with the quality of services offered by the banks, and thereby secure its "market position and expand the market share;" protection of the interests of bank owners and the increase of the bank's profitability by means of more efficient use of resources and cutting the expenditures. The merger of Uhispank and Tallinna Pank will create premises for achieving those aims and securing the position of Uhispank as a potent universal bank that has balanced office network, top level personnel, standardised technological systems and reliability both on Estonian as well as international banking market. The surviving bank will unite the experience of Tallinna Pank in attending the middle-sized private companies with international business interests and the strengths of Uhispank in providing services to corporate clients and state agencies. The orientation of Tallinna Pank to offering infotechnological services and the extensive office network of Uhispank also add value to the surviving bank. The surviving bank will base the development of action strategy of the financial group under creation on the principles of innovation, quality and effective structuring of activities. The strategic position of the surviving bank in Estonia is, besides absolute growth (market share of 31%), also more balanced than in the two banks separately. The evaluated market share of the bank in different regions of Estonia divides as follows: - Tallinn and Northern Estonia 25% - Southern Estonia 33% - Eastern Estonia 19% - Western Estonia 37% These market shares allow greater uniformity of the current marketing policies. The experience in the sphere of international banking will remain a priority also in the merged bank. In international spectrum the merged bank defines the Baltic region as its home market, where it is already represented. North -Western Russia and the Ukraine are also important markets. The primary goal in the near future is to commence with the offering of banking services in these regions. Geographical expansion is primarily due to the objective of meeting the clients' needs in such areas which are important for their business activities. We see the economic interests of our clients grow beyond the boundaries of Estonia and consider it our duty to be there for them when we are needed. On the operative level, the merger of banks will contribute to the decrease of costs and improve the quality of both the services rendered and of the personnel, by merging the network of offices and functional structures of the main offices in parallel and compiling them on the basis of the best employees of both banks. An important source of retrenchment is the amalgamation of the office networks. Twelve of the present branches of Tallinna Pank overlap geographically with the eleven offices of Uhispank. Merging the network of offices will allow considerable reduction of expenditures without impairing the client service. As regards the offices, first and foremost, the management and administration will be merged, which will reduce management costs and enable to concentrate on the technological merger of the banks. Both banks use the NBS data processing system. The technological standardisation of the banks will create a basis of the merger of the client servicing as well as assembling the offices into joint facilities if necessary. Therefore, in addition to the reduction in management costs, retrenchment in all other administrative costs is foreseen. Economising is achievable in respect to transfer-, information- and bank technology-, communication-, management-, advertising-, consultation- , control- and other types of expenditure. A merged and optimised investment program raises the efficiency of use of the resources by development of the network of offices, technology and labour. One of the crucial advantages of the merged bank is the merged know-how. Eesti Uhispank numbered 1127 and Tallinna Pank 461 employees at the end of 1997. The estimated labour demand of the merged bank shall be approximately 1300 workers. The banks declare that in compiling the merged structure units with labour they shall proceed from the principle of equality and not of the ratios of the merging and the merged units. This shall enable the renewed Uhispank to involve the best specialists from both sides and thus raise on one hand the quality of the labour and the efficiency of its use, which will create on the other hand a basis for a quantitative retrenchment on the personnel part. Such consolidation of personnel shall be characteristic to both the ordinary employees of the banks as well as on the level of top specialists and management. At the same time our expanded human and proprietary resources and the distribution network shall give us the opportunity to vigorously implement new projects in our home- and neighbouring markets. The distribution network of the merged bank shall be strengthened substantially primarily because of the differences between banks and small overlaps in different fields of banking business. Two banks supplement each other in all major fields of banking business. In addition, supplementary skills of both organisations in different areas of activity may be indicated: - the activity of Uhispank in traditional banking "outside of Tallinn and in servicing major clients;" - the strength of Tallinna Pank in servicing corporate clients active in money- and capital markets, foreign banks and foreign activities as well as servicing the Tallinn retail market. Considering the above, as well as the strategic compatibility of Uhispank and Tallinna Pank, the estimated savings from the merger constitute approximately 70 million kroons annually. Reaching this level of retrenchment is attainable within six (6) months following the restructuring of technological, procedural and organisational systems and the final merger. Although the main objective of the merger is the increase in the efficiency of the work of the bank, the first stage of the merger shall unavoidably entail costs, caused by payment of redundancy monies to the employees, reorganisation of the work of the banks, and due to other factors. The approximate estimate of the expenditure related to the merger is about 25 million kroons. Nevertheless, it is estimated that the profits of the merged bank will be 20 % in excess of the summed profits of the two separate banks. The merger agreement signed by the boards of directors of Uhispank and Tallinna Pank, must be approved by the general meetings of both banks, which are gathered in May, 1998. The merger agreement approved by the shareholders shall be submitted, together with an application for permit, to the Bank of Estonia. Merger Agreement and the Merger Proceeding from paragraph 1 of 30 of the Law on Credit Institutions, one form of reorganisation of a credit institution is a merger. According to paragraph 1 of 391 of the Commercial Code, a business undertaking (disappearing company) may merge with another business undertaking (constituent company). The disappearing company shall be deemed to be terminated. Proceeding from paragraph 1 of 33 of the Law on Credit Institutions, one or many credit institutions may merge with other credit institutions with the consent of the Bank of Estonia. The basis for the merger is a written merger agreement. In accordance with paragraph 4 of 392 of the Commercial Code such an agreement must be certified by notary public. Proceeding from paragraph 1 of 31 of the Law on Credit Institutions and subparagraph 8 of paragraph 1 of 298 and 397 and 421 of the Commercial Code, the merger of the credit institutions and the merger agreement must be approved by the general meeting of both the disappearing and constituent companies. The merger decisions must have at least 2/3 of votes represented at the meeting in favour of the decision. Proceeding from the above, the merger of Uhispank and Tallinna Pank shall take place upon the consent of the Bank of Estonia and on the basis of a merger agreement certified by notary public, which has been (1) audited by an auditor who has compiled a written report regarding the results of the audit and (2) which has been approved by general meetings of both credit institutions. Paragraph 3 of 33 of the Law on Credit Institutions and paragraph 1 of 392 of the Commercial Code stipulate the mandatory terms and conditions of the merger agreement. Uhispank and Tallinna Pank has reached an agreement and there is stipulated in the merger agreement all mandatory terms and conditions of a merger agreement as required by law. For the undertaking of the merger the due representatives of Uhispank and Tallinna Pank shall conclude a merger agreement which shall be certified by notary public. Therefrom, the auditors of Deloitte&Touche and KPMG Estonia shall carry out an audit on the merger agreement. The auditors of the aforementioned firms shall compile a written report concerning the results of the audit. Therefrom, at least one month prior to the general meetings decisive to the merger, the management boards of Uhispank and Tallinna Pank shall make at least the merger agreement, the annual and activities reports of the merging credit institutions for the last three (3) fiscal years, the present merger report and the auditor's reports available to the shareholders at the place of location of the respective credit institutions. The extraordinary general meeting of the shareholders of Uhispank and Tallinna Pank shall decide upon the merger after hearing the explanation of the management board and the opinion of the council. Simultaneously with the merger decision, the increase of share capital has to be decided as well as shall other possible questions on the agenda. The general meeting of Uhispank shall decide the increase of the share capital with regard to the amount necessary for the exchange of shares of Tallinna Pank for the shares of Uhispank on the basis of the exchange ratio as stipulated in the merger agreement. According to preliminary agreements, Tallinna Pank is obligated to issue 978426 (nine hundred seventy eight thousand four hundred twenty six) shares as a directed placement to the Dutch financial institutions FMO. This directed placement is necessary for the acquisition of the shares of Latvian credit institution Saules Banka from FMO. Tallinna Pank, Uhispank and Dutch financial institution FMO have agreed that the named directed placement shall be carried out by Uhispank after due performance of the merger, since carrying out the named placement by Tallinna Pank would slow down the merger process. For this purpose after the merger the general meeting of Uhispank shall in due course decide the increase of the share capital and the closed issue of 410939 shares to Dutch credit institution FMO. The shares to be issued must carry pari passu rights with the existing shares of Uhispank. The merger agreement approved by the general meetings shall be submitted to the Bank of Estonia along with the application for a permit. Following the issuing of the permit by the bank of Estonia, the operating license of Tallinna Pank shall be terminated and in relation to the merger, the bank shall be deleted from the commercial register. The merger of Uhispank and Tallinna Pank shall be entered into the commercial register on the basis of the applications by the management boards of these two credit institutions. Upon registration of the merger of Uhispank and Tallinna Pank with the commercial register, the shares of Tallinna Pank shall be considered as replaced with the shares of Uhispank in accordance with the exchange rate stipulated in the merger agreement. Shares of Tallinna Pank owned by Uhispank or in the ownership of a person acting in his/her/its own name but on the account of the merging credit institutions, shall not be replaced and they shall become invalid. In the process of replacement of shares relevant entries shall be made in the share register of Uhispank. In replacing the shares, the """Rules"" enacted by the Estonian Central Depository for" "Securities AS and the ""Rules and Regulations"" enacted by" AS Tallinn Stock Exchange will be taken into account. The replacement of shares shall be carried out by the relevant entries in the securities accounts of the shareholders of Tallinna Pank. The entries shall be performed by the Estonian Central Depository for Securities AS on the basis of the request of the surviving credit institution and relevant document as issued by the commercial registrar. In replacing the shares, a possibility has to be borne in mind that the number of shares in the possession of the shareholder of Tallinna Pank shall not enable him to receive an integral number of shares of Uhispank in accordance with the ratio stipulated in the merger agreement. The smallest integral number of shares of Tallinna Pank giving an integral number of shares of Uhispank is 50. This means that the owner of 50 shares of Tallinna Pank shall receive 21 shares of Uhispank in exchange. The management board of Tallinna Pank recommends that the shareholders of Tallinna Pank should keep in their ownership or obtain prior to the exchange of the shares or by the date of the exchange at the latest such a number of shares of Tallinna Pank as to enable an exchange to an integral number of shares of Uhispank. The suggested number of shares is 50 (fifty) or a larger integral number (e.g. 100, 150, 200), which upon multiplication with 0.42 shall give an integral number. The management boards of the merging credit institutions shall timely inform shareholders and the public if necessary of the date the exchange of the shares shall take place. Proceeding from paragraph 1 of 223 of the Commercial Code, the nominal value of a share is 10 kroons. A share with a smaller nominal value than 10 kroons is null and void. According to 224 of the Commercial Code a share is indivisible. Therefore, if the number of the shares of Tallinna Pank in the possession of a shareholder does not enable him to exchange them to an integral number of shares of Uhispank, a person cannot directly acquire a certain part of the share of Uhispank (a decimal fraction of the share), as a share is indivisible. Direct acquisition means receipt or creation of absolute ownership (fee simple), which is not tenancy in common (common ownership). For instance, a person has 52 shares of Tallinna Pank in his possession. In accordance to the merger agreement such a person would receive 21,84 shares of Uhispank in exchange. Proceeding from the Commercial Code, the person shall receive 21 shares of Uhispank. A question arises, what is to become of the 0.84 fraction of the share of Uhispank. There are at least three possibilities to solve the problem: (1) the surviving Uhispank compensates the decimal fractions of the shares, (2) the shareholder himself performs a respective supplementary monetary "payment; or (3) the equivalent shares of Uhispank" corresponding to the decimal fractions shall transfer the joint ownership of those persons, the shares of Tallinna Pank which they owned did not enable them to exchange those shares for an integral number of shares of Uhispank. "(1) As specified in the ""General part"" of the current" report, in connection with the merger, Uhispank shall issue 9726444 registered shares. As the exchange of the shares shall take place after the registration of the merger in the Commercial Register but the matter of increase of the share capital has to be decided prior to submission of an application to the Commercial Register, which shall be the basis of the merger entry, the number of the issued shares of Uhispank has to be certain by the time the aforementioned decision is made. In the course of exchanging the shares, it might become clear that certain shares of Tallinna Pank are replaced by a fraction of an Uhispank share. Let us suppose, that thus a complex of fractions of shares of Uhispank is created, which as a whole comprises one or a greater integral number of shares of Uhispank. If the merged Uhispank would undertake the monetary compensation of such unexchanged shares of Uhispank directly to the respective shareholders of Tallinna Pank, then some of the issued shares of Uhispank would be left unexchanged during the course of the merger. Proceeding from paragraph 4 of 27 and 285 of the Commercial Code, neither the surviving Uhispank nor its subsidiaries cannot buy neither their own nor the mother company Uhispank's shares. Thus, the status of the unexchanged shares of Uhispank would remain unclear. (2) The rights of the shareholders during the merger should be guarantied by the approval of the merger agreement and deciding of other matters related to the merger at the general meeting of the shareholders. There should not be created a situation where the existence of the rights of a shareholder depends on whether a shareholder is able to take certain action or conclude certain agreements. In case a shareholder of Tallinna Pank, who is left during the exchange of shares, with a number of shares of Tallinna Pank, which does not enable exchange against one share of Uhispank, is made to face "a choice whether to ""give up"" such part of his shares of" Tallinna Pank or to make additional expenses for the acquisition of shares enabling him to change his shares against an integral number of Uhispank shares, than this is obviously unfair towards the shareholder. In addition, in case of the possibility to allow additional payments, it is impossible to determine the number of shares of Uhispank to be issued and exchanged by way of enlargement of the share capital. This is caused due to a fact that at the time of deciding the enlargement of the share capital, it is unknown how many shareholders of Tallinna Pank possess such a number of shares of Tallinna Pank to make the exchange to a integral number of shares of Uhispank uneven. Therefrom, the scope of the additional payments remains unclear as does the number of shares to be issued by Uhispank. (3) The Commercial Code does not prohibit the tenancy in common (common ownership) of a share by two or more persons. According to 286 paragraph 1, a share may be jointly held by several persons. Proceeding from paragraph 3 of 70 of the Law on Property Act, a tenancy in common (common ownership) is ownership in legal shares of a shared property belonging to two or more persons. Therefore, the aforementioned decimal fractions of the shares of Uhispank may be given into the common tenancy (common ownership) of those persons, whose number of shares of Tallinna Pank did not permit to gain an integral number of shares of Uhispank in the exchange process. Continuing with the example started on page 12, let us suppose that another shareholder of Tallinna Pank had 48 shares of Tallinna Pank. In the result of the exchange he would have received 20.16 shares of Uhispank, but he receives 20. The remaining 0.84 and 0,16 fractions of the first and second shareholders of the share of Uhispank shall constitute one whole, i.e. one share of Uhispank. The respective two shareholders shall become the joint owners of the share, whereas the intangible part belonging to the shareholder first mentioned shall comprise 84/100 (eighty four hundredths) and to the second 16/100 (sixteen hundredths). Most probably the situation will occur where more than one share of Uhispank will transfer into the tenancy in common (joint ownership) with the replacement of shares (bundle of shares). To clear up such situation, lets assume that each of the 100 shareholders of Tallinna Pank have 0.5 shares of Tallinna Pank which have remained unexchanged. In that case each such shareholder of Tallinna Pank acquires a legal share equalling to 1/100 of the total common ownership of bundle of shares of 21 shares of Uhispank, if the exchange ratio is 0.42 shares of Uhispank for one share of Tallinna Pank. As the replacement of the shares shall be undertaken proceeding from the shares (the exchange ratio is determined proceeding from the shares) and not from definite shareholders, the shares - bundle of shares that remained unexchanged for an integral number of shares of Uhispank shall become joint ownership of those shareholders of Tallinna Pank, the shares in whose ownership did not enable them to acquire an integral number of shares of Uhispank in the course of the exchange. A co-owner may freely transfer its legal share in a bundle of shares. A co-owner has the right to demand separation of the co-owner's legal share from a bundle of shares as a one or more share of Uhispank, if the legal share of this co-owner equals to one or more shares of Uhispank being a part of bundle of shares. According to the 286 paragraph 3 of the Commercial Code the co-owners have to appoint one joint representative in order to exercise the rights of shareholders whose name and shall be entered to the share register in addition to those of the shareholders in case of registered shares. Therefore, for better management of shares of Uhispank in co-ownership it is legal and probably also necessary to authorise one or several co-owners or a third person to conclude transactions with shares or to exercise the shareholder's rights. Conclusion The management boards Uhispank and Tallinna Pank are in the position that according to the clarifications given in the present report the merger of the named credit institutions is economically and legally justified. According to the aforementioned we propose to the general meetings of Uhispank and Tallinna Pank to approve the merger agreement concluded between the named credit institutions and adopt other resolutions necessary to carry out the merger. Ain Hanschmidt Head of board of directors of AS Eesti Uhispank Rait Lukas Head og board of directors of AS Tallinna Pank