<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1994
REGISTRATION NO. 33-51429
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CORESTATES FINANCIAL CORP
(EXACT NAMES OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 6711 23-1899716
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION NO.) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
PHILADELPHIA NATIONAL BANK BUILDING
BROAD AND CHESTNUT STREETS
PHILADELPHIA, PA 19107
(215) 973-5680
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DAVID T. WALKER
DEPUTY CHIEF COUNSEL
CORESTATES FINANCIAL CORP
F.C. 1-1-22-1
P.O. BOX 7618
PHILADELPHIA, PENNSYLVANIA 19101-6187
(215) 973-5680
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
MARK J. MENTING, ESQ. DAVID J. HUGHES, ESQ.
SULLIVAN & CROMWELL SECRETARY
125 BROAD STREET CONSTELLATION BANCORP
NEW YORK, NY 10004 68 BROAD STREET
(212) 558-4000 ELIZABETH, NJ 07207
(908) 474-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after effective date of this Registration Statement and upon
consummation of the merger of Constellation Bancorp ("Constellation") with and
into the Registrant as described herein (the "Merger").
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CORESTATES FINANCIAL CORP
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION IN PROXY STATEMENT-
ITEM NUMBER FORM S-4 PROSPECTUS
- -------------------- ------------------------------------
<S> <C>
1.Forepart of Registration Statement and
Outside Front Cover Page of Forepart of Registration Statement
Prospectus........................... and Cover Page of Proxy Statement-
Prospectus
2.Inside Front and Outside Back Cover
Pages of Prospectus.................. Available Information; Incorporation
of Documents by Reference
3.Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information.. Summary
4.Terms of the Transaction............... Summary; The Merger; Pro Forma
Financial Information; Description
of CoreStates Capital Stock;
Comparison of Shareholder Rights
5.Pro Forma Financial Information........ Selected Pro Forma Consolidated
Financial Information; Pro Forma
Financial Information
6.Material Contacts with Company Being
Acquired............................. *
7.Additional Information Required for
Reoffering by Persons and Parties
Deemed to Be Underwriters............ *
8.Interests of Named Experts and Counsel. Legal Matters
9.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... *
10.Information with Respect to S-3
Registrants.......................... Summary; The Merger
11.Incorporation of Certain Information by Incorporation of Documents by
Reference............................ Reference
12.Information with Respect to S-2 or S-3
Registrants.......................... *
13.Incorporation of Certain Information by
Reference............................ *
14.Information with Respect to Registrants
Other Than S-3 or S-2 Registrants.... *
15.Information with Respect to S-3 Incorporation of Documents by
Companies............................ Reference; Summary; Comparison of
Shareholder Rights
16.Information with Respect to S-2 or S-3
Companies............................ *
17.Information with Respect to Companies
Other Than S-3 or S-2 Companies...... *
18.Information if Proxies, Consents or
Authorizations are to be Solicited... Summary; Information Regarding the
Special Meeting; The Merger
19.Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer.... *
</TABLE>
- --------
* Omitted because the item is inapplicable or the answer thereto is negative.
<PAGE>
---------------------
CONSTELLATION
BANCORP.
68 Broad Street
Elizabeth, N.J 07207
(908) 474-1000
[LOGO OF CONSTELLATION APPEARS HERE]
GEORGE R. ZOFFINGER
President
February 11, 1994
Dear Constellation Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Constellation Bancorp ("Constellation") which will be held on Wednesday, March
16, 1994 at 10:00 a.m. at the Douglass College Student Center, Corner of George
Street and Nichol Avenue, New Brunswick, New Jersey. At this meeting you will
be asked to consider and vote upon a proposal to approve an Agreement and Plan
of Merger, as amended (the "Merger Agreement"), pursuant to which Constellation
will merge with and into CoreStates Financial Corp (the "Merger"), and each
share of your Constellation common stock will be converted in a tax-free
exchange into 0.4137 (0.412 under certain circumstances) of a share of
CoreStates common stock.
The proposed Merger has been unanimously approved by your Board of Directors.
Your Board of Directors has determined that the Merger is in the best interests
of Constellation and its shareholders and recommends that you vote FOR approval
of the Merger Agreement. Your Board of Directors also recommends that you vote
FOR the proposal granting discretion to adjourn or postpone the Special Meeting
to another time and/or place for the purpose of soliciting additional proxies,
if necessary.
Consummation of the Merger is subject to certain conditions, including the
approval of the Merger Agreement by Constellation shareholders and the approval
of the Merger by various regulatory agencies.
The enclosed Notice of Special Meeting of Shareholders and Proxy Statement-
Prospectus describe the Merger and provide specific information concerning the
Special Meeting. Please read these materials carefully and consider the
information contained in them.
Directions to the Douglass College Student Center, the location of the
Special Meeting, are printed on the back cover page of the enclosed Proxy
Statement-Prospectus.
It is very important that your shares be represented at the Special Meeting,
regardless of whether you plan to attend in person. The affirmative vote of 66
2/3% of all of the outstanding shares of Constellation common stock is required
to approve the Merger Agreement. Consequently, a failure to vote will have the
same effect as a vote against the proposal. Therefore, I urge you to execute,
date and return the enclosed proxy card in the enclosed postage-paid envelope
as soon as possible to ensure that your shares will be voted at the Special
Meeting. YOU SHOULD NOT SEND IN THE CERTIFICATE FOR YOUR CONSTELLATION SHARES
AT THIS TIME.
On behalf of the Board of Directors, I urge you to vote FOR approval of the
Merger Agreement and FOR the proposal granting discretion to postpone or
adjourn the Special Meeting.
Sincerely,
George R. Zoffinger
President and Chief Executive Officer
<PAGE>
[LOGO OF CONSTELLATION APPEARS HERE]
CONSTELLATION BANCORP
68 BROAD STREET
ELIZABETH, NEW JERSEY 07207
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
February 11, 1994
Notice is hereby given that, pursuant to the call of its Directors, a Special
Meeting of Shareholders of Constellation Bancorp ("Constellation") will be held
at 10:00 a.m. on Wednesday, March 16, 1994 at the Douglass College Student
Center, Corner of George Street and Nichol Avenue, New Brunswick, New Jersey,
to consider and take action upon the following matters:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of August 2, 1993, as amended (the "Merger Agreement"),
attached as Appendix I to the accompanying Proxy Statement-Prospectus,
providing for the merger of Constellation with and into CoreStates Financial
Corp ("CoreStates") and the conversion of each outstanding share, with certain
exceptions, of common stock, no par value, of Constellation ("Constellation
Common Shares") into 0.4137 (0.412 under certain circumstances) of a share of
common stock, par value $1.00 per share, of CoreStates (the "Merger" and such
proposal, the "Merger Proposal").
2. To consider and vote upon a proposal to approve a postponement or
adjournment of the Special Meeting to another time and/or place for the purpose
of soliciting additional proxies in the event that there are not sufficient
votes at the time of the Special Meeting of Shareholders to approve the Merger
Agreement and the Merger (the "Adjournment Proposal").
3. To transact such other business as may properly come before the meeting or
any adjournment thereof.
Only shareholders of record of Constellation Common Shares at the close of
business on February 9, 1994 are entitled to receive notice of and to vote at
the meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
[SIGNATURE OF DAVID J. HUGHES
APPEARS HERE]
David J. Hughes
Secretary
Elizabeth, New Jersey
February 11, 1994
THE BOARD OF DIRECTORS OF CONSTELLATION UNANIMOUSLY RECOMMENDS THAT THE
HOLDERS OF CONSTELLATION COMMON SHARES VOTE TO APPROVE THE MERGER PROPOSAL AND
THE ADJOURNMENT PROPOSAL.
SINCE THE AFFIRMATIVE VOTE OF AT LEAST TWO-THIRDS (66 2/3%) OF THE
OUTSTANDING CONSTELLATION COMMON SHARES IS REQUIRED TO APPROVE THE MERGER, WE
URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON. THE PROXY MAY BE REVOKED PRIOR TO ITS EXERCISE IN THE MANNER
DESCRIBED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS. ANY SHAREHOLDER PRESENT
AT THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENT THEREOF, MAY REVOKE HIS OR
HER PROXY AND VOTE PERSONALLY ON THE MERGER PROPOSAL, THE ADJOURNMENT PROPOSAL
OR ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION; DATED FEBRUARY 11, 1994
(LOGO OF CONSTELLATION BANCORP (LOGO OF CORESTATES FINANCIAL CORP
APPEARS HERE) APPEARS HERE)
CONSTELLATION BANCORP CORESTATES FINANCIAL CORP
68 BROAD STREET PHILADELPHIA NATIONAL BANK BUILDING
ELIZABETH, NEW JERSEY 07202 BROAD & CHESTNUT STREETS
(908) 474-1000 PHILADELPHIA, PENNSYLVANIA 19107
215-973-3827
COMMON STOCK (PAR VALUE $1.00 PER SHARE)
This Proxy Statement-Prospectus is being furnished to the holders of common
stock, no par value, of Constellation Bancorp ("Constellation Common Shares"),
a New Jersey corporation ("Constellation"), in connection with the solicitation
of proxies by the Board of Directors of Constellation for use at the special
meeting of Constellation's shareholders to be held at the Douglass College
Student Center, Corner of George Street and Nichol Avenue, New Brunswick, New
Jersey, on Wednesday, March 16, 1994, at 10:00 a.m., and at any adjournments or
postponements thereof (the "Special Meeting").
At the Special Meeting, the shareholders of record of Constellation Common
Shares as of the close of business on February 9, 1994 will consider and vote
upon (i) a proposal (the "Merger Proposal") to approve the Agreement and Plan
of Merger, dated as of the 2nd day of August, 1993, as amended (the "Merger
Agreement"), between Constellation and CoreStates Financial Corp
("CoreStates"), a Pennsylvania corporation, pursuant to which Constellation
will merge with and into CoreStates (the "Merger") and (ii) a proposal to
approve the postponement or adjournment of the Special Meeting to another time
and/or place for the purpose of soliciting additional proxies in the event that
there are not sufficient votes at the time of the Special Meeting to approve
the Merger Agreement and the Merger (the "Adjournment Proposal"). Upon
consummation of the Merger, each outstanding Constellation Common Share (other
than shares held directly or indirectly by CoreStates, excluding shares held in
a fiduciary capacity or in satisfaction of a debt previously contracted), will
be converted into 0.4137 shares of common stock of CoreStates, par value $1.00
per share ("CoreStates Common Shares") (0.412 CoreStates Common Shares under
certain circumstances as described herein). For a description of the exchange
ratio and other aspects of the Merger Agreement, which is included as Appendix
I to this Proxy Statement-Prospectus, see "THE MERGER." This Proxy Statement-
Prospectus and the accompanying proxy cards are first being mailed to
shareholders of Constellation on or about February 14, 1994.
THE EXCHANGE RATIO SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS HAS BEEN
ADJUSTED SUBSEQUENT TO THE EXECUTION OF THE MERGER AGREEMENT AND PURSUANT TO
THE TERMS THEREOF TO REFLECT CORESTATES' 100% STOCK DIVIDEND PAID ON OCTOBER
15, 1993 TO SHAREHOLDERS OF RECORD ON SEPTEMBER 15, 1993 AND THE AGREEMENT
BETWEEN CONSTELLATION AND CORESTATES TO INCREASE THE EXCHANGE RATIO SO LONG AS
THE EFFECTIVE DATE OCCURS ON OR BEFORE MARCH 30, 1994. SEE "THE MERGER--GENERAL
DESCRIPTION; EXCHANGE RATIO."
This Proxy Statement-Prospectus also constitutes a prospectus of CoreStates
with respect to the CoreStates Common Shares issuable to Constellation's
shareholders pursuant to the Merger.
The outstanding CoreStates Common Shares are reported on the New York Stock
Exchange, Inc. (the "NYSE"). The last reported sale price of CoreStates Common
Shares on the NYSE on February 10, 1994 was $26 1/4 per share.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Proxy Statement-Prospectus is February 11, 1994.
<PAGE>
AVAILABLE INFORMATION
CoreStates and Constellation are subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement discussed below, as well as reports, proxy statements
and other information filed by CoreStates and Constellation pursuant to the
informational requirements of the Exchange Act, can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the commission: the New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048; and the Chicago Regional Office, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, the equity securities of CoreStates are listed on the NYSE, and such
reports, proxy statements and other information concerning CoreStates also
should be available for inspection at the offices of the NYSE at 20 Broad
Street, New York, New York 10005.
CoreStates has filed with the Commission a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), covering
the CoreStates Common Shares that may be issued in connection with the Merger.
This Proxy Statement-Prospectus does not contain all of the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For such
information, reference is made to the Registration Statement and the exhibits
filed as a part thereof or incorporated by reference therein.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (NOT INCLUDING
EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE IN THE INFORMATION INCORPORATED HEREIN) ARE AVAILABLE WITHOUT CHARGE
TO ANY SHAREHOLDER OF CONSTELLATION, INCLUDING ANY BENEFICIAL OWNER, UPON
WRITTEN OR ORAL REQUEST DIRECTED IN THE CASE OF CORESTATES TO THE SECRETARY OF
CORESTATES FINANCIAL CORP, CENTRE SQUARE WEST, 1500 MARKET STREET,
PHILADELPHIA, PENNSYLVANIA 19101 (TELEPHONE: (215) 973-3827) AND IN THE CASE OF
CONSTELLATION TO THE SECRETARY OF CONSTELLATION, 120 ALBANY STREET PLAZA, NEW
BRUNSWICK, NEW JERSEY 08903-0831 (TELEPHONE: (908) 843-4076). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING OF
SHAREHOLDERS OF CONSTELLATION TO WHICH THIS PROXY STATEMENT-PROSPECTUS RELATES,
ANY REQUEST SHOULD BE MADE BY MARCH 9, 1994.
No person is authorized to give information or to make any representation not
contained in this Proxy Statement-Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by CoreStates or Constellation. This Proxy Statement-Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Proxy Statement-Prospectus, or the solicitation of a
proxy, to or from any persons in any jurisdiction where it is unlawful to make
such offer or solicitation of an offer or proxy solicitation. Neither the
delivery of this Proxy Statement-Prospectus nor any distribution of the
securities made under this Proxy Statement-Prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of CoreStates or Constellation since the date of this Proxy Statement-
Prospectus.
2
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed by CoreStates with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this Proxy
Statement-Prospectus:
(1) the Annual Report on Form 10-K for the year ended December 31, 1992
(which includes portions of the 1992 Annual Report to Shareholders);
(2) the Current Reports on Form 8-K dated January 20, 1993, March 12,
1993, March 18, 1993, April 20, 1993 (as amended), July 21, 1993, August 2,
1993, October 12, 1993, October 21, 1993, November 19, 1993, December 13,
1993 and January 19, 1994;
(3) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1993, June 30, 1993 and September 30, 1993; and
(4) the description of CoreStates Common Shares contained in CoreStates'
Registration Statement on Form 8-A/A dated December 22, 1993.
The following documents previously filed by Constellation with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this Proxy
Statement-Prospectus:
(1) the Annual Report on Form 10-K for the year ended December 31, 1992
(which includes portions of the 1992 Annual Report to Shareholders);
(2) the Current Report on Form 8-K dated August 12, 1993; and
(3) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1993, June 30, 1993 and September 30, 1993 (in the case of the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993, as amended by
Form 10-Q/A).
All documents filed by CoreStates and Constellation pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the Special Meeting shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing thereof. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement-Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement-Prospectus.
All information regarding Constellation set forth herein or incorporated by
reference herein has been furnished by Constellation. All information regarding
CoreStates set forth herein or incorporated by reference herein has been
furnished by CoreStates.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF DOCUMENTS BY REFERENCE................................... 3
TABLE OF CONTENTS......................................................... 4
SUMMARY................................................................... 5
The Parties.............................................................. 5
The Special Meeting...................................................... 6
Terms of the Merger Agreement and the Exchange Ratio..................... 6
Management After the Merger.............................................. 6
Recommendation of Board of Directors; Reasons for the Merger............. 6
Opinion of Financial Adviser............................................. 6
Effective Date........................................................... 7
Termination of the Merger Agreement...................................... 7
Tax Consequences......................................................... 7
Vote Required; Record Date; Principal Shareholders....................... 8
Dissenters' Rights....................................................... 8
Regulatory Approvals..................................................... 8
Conditions............................................................... 8
Interests of Certain Persons in the Merger............................... 8
Accounting Treatment..................................................... 9
Stock Option Agreement................................................... 9
Certain Differences in Shareholders' Rights.............................. 9
Recent Developments...................................................... 10
Independence Bancorp Proposed Combination................................ 10
SELECTED FINANCIAL INFORMATION (UNAUDITED)................................ 11
MARKET VALUE OF SECURITIES................................................ 18
RECENT DEVELOPMENTS....................................................... 19
INFORMATION REGARDING THE SPECIAL MEETING................................. 23
General.................................................................. 23
Matters to be Considered at the Special Meeting.......................... 23
Record Date; Voting Rights............................................... 23
Proxies.................................................................. 24
Recommendation of The Board of Directors................................. 24
THE MERGER................................................................ 24
General Description; Exchange Ratio...................................... 25
Background of the Merger................................................. 25
Reasons for Merger....................................................... 29
Opinion of Financial Adviser............................................. 32
Stock Option Agreement................................................... 36
Operations and Management After the Merger............................... 38
Interests of Certain Persons in the Merger............................... 38
Effect on Constellation Employee Benefit Plans........................... 43
Certain Federal Income Tax Considerations................................ 43
No Dissenters' Rights of Appraisal....................................... 44
Regulatory Approvals..................................................... 44
Representations and Warranties; Conditions Precedent..................... 45
Effective Date; Effective Time; Amendments; Waiver; Termination.......... 45
Price Based Termination.................................................. 46
Operations of Constellation and CoreStates Pending the Merger............ 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
No Solicitation.......................................................... 48
Accounting Treatment..................................................... 48
Status of CoreStates Common Shares under the Federal Securities Laws;
Pooling of Interests.................................................... 48
Exchange of Certificates................................................. 49
Expenses................................................................. 50
INDEPENDENCE BANCORP PROPOSED COMBINATION................................. 50
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)............................... 52
LEGAL PROCEEDINGS......................................................... 62
CERTAIN REGULATORY CONSIDERATIONS......................................... 62
General.................................................................. 62
Capital.................................................................. 63
Regulatory Agreements.................................................... 64
Potential Enforcement Actions............................................ 65
Dividends................................................................ 65
Support of Bank Subsidiaries............................................. 66
Borrowings by Holding Companies.......................................... 66
FDICIA................................................................... 66
Miscellaneous............................................................ 68
DESCRIPTION OF CORESTATES CAPITAL STOCK................................... 69
CoreStates Capital Stock................................................. 69
CoreStates Common Shares................................................. 69
CoreStates Series Preferred Stock........................................ 69
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 71
G1neral.................................................................. 71
Authorized Capital....................................................... 71
Voting and Other Rights.................................................. 72
Amendment of Certificate or
Articles of Incorporation or
Bylaws............................ 72
Size and Classification of Board of Directors............................ 73
Removal of Directors..................................................... 73
Indemnification and Limitation of Liability.............................. 73
Shareholder Meetings..................................................... 75
Merger or Other Fundamental Transactions................................. 76
State Anti-Takeover Statutes............................................. 76
Shareholder Protection Rights Plan....................................... 78
Dissenters' Rights....................................................... 79
Dividends and Other Distributions........................................ 80
Voluntary Dissolution.................................................... 80
Preemptive Rights........................................................ 81
Preferred Stock.......................................................... 81
EXPERTS................................................................... 81
CoreStates............................................................... 81
Constellation............................................................ 81
Independence Bancorp..................................................... 81
LEGAL MATTERS............................................................. 81
APPENDIX I--Agreement and Plan of Merger
Exhibit A--Stock Option Agreement
APPENDIX II--Opinion of Keefe, Bruyette
& Woods, Inc.
</TABLE>
4
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of all
material facts regarding CoreStates, Constellation and the matters to be
considered at the Special Meeting and is qualified in all respects by the
information appearing elsewhere or incorporated by reference in this Proxy
Statement-Prospectus, the Appendices hereto and the documents referred to
herein. The exchange ratio set forth in this Proxy Statement-Prospectus has
been adjusted subsequent to the execution of the Merger Agreement and pursuant
to the terms thereof to reflect CoreStates' 100% stock dividend paid on October
15, 1993 to shareholders of record on September 15, 1993 and the agreement
between Constellation and CoreStates to increase the Exchange Ratio so long as
the Effective Date occurs on or before March 30, 1994. See "THE MERGER--General
Description; Exchange Ratio."
THE PARTIES
Constellation. Constellation Bancorp ("Constellation") is a registered bank
holding company organized in 1984. Constellation's principal subsidiary is
Constellation Bank, National Association (formerly The National State Bank,
Elizabeth, New Jersey) ("NSB" or "Constellation Bank"), a national banking
association organized in 1812, the deposits of which are insured by the Federal
Deposit Insurance Corporation's (the "FDIC") Bank Insurance Fund ("BIF") up to
applicable limits. Constellation Bank has 49 full service branch banking
offices located in a seven county area of Central New Jersey between New York
City and Philadelphia. Through Constellation Bank and its subsidiaries,
Constellation provides commercial banking services, consumer banking services,
financial and corporate services, trust services, mortgage origination
services, mortgage administration services and equipment leasing services.
Constellation Bank's assets comprise virtually all of the consolidated assets
of Constellation. At September 30, 1993, Constellation had consolidated assets,
deposits and shareholders' equity of $2.3 billion, $2.1 billion and $158
million, respectively. See "RECENT DEVELOPMENTS--Constellation." At December
31, 1992, Constellation was the sixth largest bank holding company
headquartered in New Jersey based on deposits. Constellation's principal
executive office is located at 68 Broad Street, Elizabeth, New Jersey 07207 and
its telephone number is (908) 474-1000.
CoreStates. CoreStates is a bank holding company registered under the Bank
Holding Act of 1956, as amended (the "1956 Act"), and incorporated under the
laws of Pennsylvania with executive offices at Philadelphia National Bank
Building, Broad & Chestnut Streets, Philadelphia, Pennsylvania 19107 (telephone
number 215-973-3827). At September 30, 1993, CoreStates had total consolidated
assets, deposits and shareholders' equity of $22.8 billion, $16.2 billion and
$1.9 billion, respectively, and, based on December 31, 1992 rankings of bank
holding companies, was believed to be the 30th largest bank holding company in
the United States at such date. See "RECENT DEVELOPMENTS--CoreStates."
The principal banking subsidiaries of CoreStates are: CoreStates Bank, N.A.
("CoreStates Bank"), a national banking association with executive offices
located in Philadelphia, Pennsylvania; New Jersey National Bank ("NJNB"), a
national banking association with its executive offices located in Pennington,
New Jersey; and CoreStates Bank of Delaware N.A. ("CBD"), a national banking
association with its sole office located in New Castle County, Delaware
("Banking Subsidiaries"). Through CoreStates Bank, NJNB and CBD, CoreStates is
engaged in the business of providing wholesale banking services, consumer
financial services, including retail banking, trust and investment management
services and electronic payment services.
At September 30, 1993, on a pro forma basis after giving effect to the Merger
and the Proposed Combination (each, as defined below), the percentage of total
consolidated assets and shareholders' equity of CoreStates represented by
Constellation would be 8.3% and 7.5%, respectively. For the nine months ended
September 30, 1993, on a pro forma basis after giving effect to the Merger and
the Proposed Combination, the percentage of net interest income and net income
of CoreStates represented by Constellation would be 7.6% and 4.3%,
respectively.
CoreStates is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions both
on an assisted and unassisted basis. Acquisitions that
5
<PAGE>
may be under consideration at any time include, without limitation,
acquisitions of banking organizations and thrift or savings-type associations
or their assets or liabilities or acquisitions of other financial service
companies or their assets or liabilities.
THE SPECIAL MEETING
The Special Meeting will be held on Wednesday, March 16, 1994 at 10:00 a.m.
local time. At the Special Meeting, holders of Constellation Common Shares will
be asked to consider and vote upon (i) the approval and adoption of the
Agreement and Plan of Merger, dated as of the 2nd day of August, 1993, as
amended (the "Merger Agreement"), by and between CoreStates and Constellation,
providing for the merger of Constellation with and into CoreStates (the
"Merger") and (ii) the approval of a proposal to postpone or adjourn the
Special Meeting to another time and/or place for the purpose of soliciting
additional proxies in the event that there are not enough votes at the time of
the Special Meeting to approve the Merger Agreement and the Merger (the
"Adjournment Proposal"). Constellation shareholders may conduct such other
business as may properly come before the Special Meeting, or any postponement
or adjournment thereof. As of the date of this Proxy Statement-Prospectus, the
management of Constellation is aware of no such other business.
TERMS OF THE MERGER AGREEMENT AND THE EXCHANGE RATIO
Pursuant to the Merger Agreement, Constellation will be merged with and into
CoreStates, with CoreStates as the surviving entity thereof, and CoreStates
will succeed to the business of Constellation and will continue operations
under the name CoreStates. Upon the Merger becoming effective, each outstanding
Constellation Common Share will be converted into 0.4137 (0.412 under certain
circumstances as described herein) (the "Exchange Ratio") CoreStates Common
Shares at a fixed exchange ratio. See "THE MERGER--General Description;
Exchange Ratio."
MANAGEMENT AFTER THE MERGER
Upon consummation of the Merger, Constellation will be merged with and into
CoreStates, with CoreStates as the surviving entity thereof. CoreStates'
current directors will serve as the directors of the surviving corporation
following the Merger, and the current executive officers of CoreStates will
comprise the senior management of CoreStates. See "THE MERGER--Operations and
Management After the Merger." All subsidiaries of Constellation will become
subsidiaries of CoreStates.
It is planned that after the Merger, the banking subsidiary of Constellation,
Constellation Bank, will be merged with and into NJNB, a national banking
subsidiary of CoreStates. NJNB's current directors and three directors of
Constellation will comprise the directors of NJNB. See "THE MERGER--Interests
of Certain Persons in the Merger." It is anticipated that certain officers of
Constellation Bank may be offered employment as officers of NJNB or at other
entities in the CoreStates organization.
RECOMMENDATION OF BOARD OF DIRECTORS; REASONS FOR THE MERGER
THE CONSTELLATION BOARD OF DIRECTORS (THE "CONSTELLATION BOARD") HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT CONSTELLATION'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND FOR APPROVAL OF THE
ADJOURNMENT PROPOSAL. The Constellation Board believes that the Merger will
enable holders of Constellation Common Shares to realize significant value on a
tax-free basis and also will enable shareholders to acquire a more liquid stock
in a financially stronger organization. In addition, shareholders will receive
a dividend on the CoreStates Common Shares. See "THE MERGER--Background of the
Merger" and "THE MERGER--Reasons for Merger" for information about the
negotiation of the Merger Agreement. See "THE MERGER--Interests of Certain
Persons in the Merger" for interests of certain directors and officers of
Constellation in the Merger.
OPINION OF FINANCIAL ADVISER
Keefe, Bruyette & Woods, Inc. ("Keefe") has served as financial adviser to
Constellation in connection with the Merger and rendered an oral opinion to the
Constellation Board, that, as of August 2, 1993, the
6
<PAGE>
consideration to be received by the holders of Constellation Common Shares in
the Merger was fair to the holders of Constellation Common Shares from a
financial point of view. Keefe has also delivered an opinion, dated as of the
date of this Proxy Statement-Prospectus, to the effect that the consideration
to be received by the holders of Constellation Common Shares in the Merger is
fair to the holders of Constellation Common Shares from a financial point of
view. For additional information, see "THE MERGER--Opinion of Financial
Adviser." The opinion of Keefe dated as of the date of this Proxy Statement-
Prospectus is attached as Appendix II to this Proxy Statement-Prospectus.
Shareholders are urged to read such opinion in its entirety for a description
of the procedures followed, matters considered and limitations on the review
undertaken in connection therewith.
EFFECTIVE DATE
Constellation and CoreStates have agreed that the Merger will be consummated
prior to the close of business on March 16, 1994 if the approval of the Merger
and the Merger Agreement by Constellation's shareholders occurs on March 16,
1994 and all other conditions to closing can be satisfied or are waived by such
time (the date of such consummation, the "Effective Date"). See "THE MERGER--
Effective Date; Effective Time; Amendments; Waiver; Termination."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date, either before or after its approval by the
shareholders of Constellation, by (i) mutual consent of CoreStates and
Constellation; (ii) either CoreStates or Constellation if the shareholders of
Constellation fail to approve the Merger Agreement or if there is a material
breach by the other party of any representation, warranty, covenant or
agreement in the Merger Agreement which has not been cured or is not curable
within sixty days after written notice of such breach is given to the party
causing such breach; (iii) either CoreStates or Constellation if the Merger has
not been consummated by March 31, 1994 (subject to extension in certain
circumstances); or (iv) either CoreStates or Constellation if governmental
approvals required to permit consummation of the Merger are denied or if an
order or decree is issued by a governmental authority of competent jurisdiction
permanently restraining or prohibiting consummation of the transactions
contemplated by the Merger. The occurrence of any of the events giving rise to
a right of termination under the Merger Agreement would not in and of itself
trigger the rights of CoreStates under the Option Agreement (as defined below).
The Merger Agreement also contains a provision that would have permitted
Constellation to terminate the Merger Agreement at any time during the ten-day
period commencing January 22, 1994, the fifteenth day after the receipt of the
required approval of the Merger by the Board of Governors of the Federal
Reserve System ("FRB") (the "Determination Date"), by a majority vote of the
members of the Constellation Board, if all of the following conditions had
occurred: (i) the average closing price per share of CoreStates Common Shares
over the twenty trading day pricing period prior to the Determination Date was
less than $24.28; (ii) the decline in the price of CoreStates Common Shares
exceeded by more than 15% the decline over such time period in an index
composed of a group of common stocks of other bank holding companies; and (iii)
CoreStates failed to elect to increase the Exchange Ratio as set forth in the
Merger Agreement. Because the average closing price per share of CoreStates
Common Shares over the twenty trading day pricing period prior to the
Determination Date was greater than $24.28, Constellation was not permitted to
exercise any termination rights under the provision set forth above. See "THE
MERGER--Effective Date; Effective Time; Amendments; Waiver; Termination" and
"THE MERGER--Price Based Termination."
TAX CONSEQUENCES
It is intended that the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that, accordingly, for federal income tax purposes: (i) no gain or
loss will be recognized by either CoreStates or Constellation as a result of
the Merger and (ii) no gain or loss will be recognized by holders of
Constellation Common Shares upon the receipt of
7
<PAGE>
CoreStates Common Shares in exchange for Constellation Common Shares in the
Merger, except to the extent of cash received in lieu of fractional shares.
Consummation of the Merger is conditioned upon receipt by each of CoreStates
and Constellation of an opinion of Sullivan & Cromwell, dated the Effective
Date, substantially to the foregoing effect. The tax consequences of the
proposed transaction to shareholders of Constellation are summarized under "THE
MERGER--Certain Federal Income Tax Considerations."
VOTE REQUIRED; RECORD DATE; PRINCIPAL SHAREHOLDERS
Approval of the Merger requires the affirmative vote of 66 2/3% of the
outstanding Constellation Common Shares. Approval of the Adjournment Proposal
requires the affirmative vote of a majority of the votes cast at the Special
Meeting. It is not necessary for the shareholders of CoreStates to approve the
Merger. The Constellation Board has set February 9, 1994 as the record date
(the "Record Date") for determining the shareholders entitled to notice of and
to vote at the Special Meeting. On the Record Date, there were 27,261,769
Constellation Common Shares outstanding.
As of the Record Date, Constellation's directors and executive officers and
their affiliates beneficially owned 1,601,217 Constellation Common Shares,
representing 5.9% of the outstanding Constellation Common Shares. As of the
Record Date, Constellation Bank held of record or in the name of nominees
775,021 Constellation Common Shares, representing 2.8% of the outstanding
Constellation Common Shares, in a fiduciary capacity, 279,252 of which shares
Constellation Bank had sole or shared voting authority. As of the Record Date,
CoreStates and CoreStates' directors, executive officers and subsidiaries owned
1,850 Constellation Common Shares of record, which amount included 200 shares
owned beneficially. For additional information concerning voting by
shareholders of Constellation on the proposed Merger, see "THE MERGER--General
Description; Exchange Ratio."
DISSENTERS' RIGHTS
Holders of Constellation Common Shares are not entitled to dissenters' rights
in connection with the Merger. See "THE MERGER--No Dissenters' Rights of
Appraisal."
REGULATORY APPROVALS
In order for the proposed transaction to be completed, approval of
CoreStates' acquisition of Constellation must be obtained from the FRB and the
Pennsylvania Department of Banking. The approval of the FRB was received on
January 7, 1994 and the management of CoreStates has no reason to believe that
the required approval of the Pennsylvania Department of Banking will not be
obtained.
CONDITIONS
Consummation of the Merger is subject to satisfaction or waiver of various
conditions, including compliance by Constellation and CoreStates with various
covenants, the continuing accuracy of representations and warranties, the
absence of any material adverse change in the financial condition or business
of Constellation and CoreStates and other matters.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Constellation's management and the Constellation Board may
be deemed to have interests in the Merger in addition to their interests as
shareholders of Constellation generally. These include, among other things,
provisions in the Merger Agreement relating to indemnification and agreements
made for the benefit of certain officers of Constellation Bank. The Merger
Agreement provides that three members of the Constellation Board, one of whom
shall be George R. Zoffinger, will become directors of NJNB. It is expected
that the other two members of the Constellation Board who will become directors
of NJNB will be Alvin J. Rockoff and Bruce G. Coe. Pursuant to the Merger
Agreement, CoreStates has agreed to assume Constellation Bank's obligations
under severance agreements with certain executive officers of Constellation
Bank. The following table sets forth certain benefits that the executive
officers of Constellation may receive
8
<PAGE>
as a result of the Merger. The "Total" column includes the sum of (i) the total
severance payment obligation being assumed by CoreStates pursuant to severance
agreements based upon the named executive officer's annual base salary in
effect on the date of the Proxy Statement-Prospectus and their highest annual
bonus received to date and (ii) the aggregate value of the options held by such
executive officers that will become exercisable as a result of the Merger,
based upon the value (i.e., stock price less option exercise price) of a
Constellation Common Share on July 30, 1993, the last trading day prior to the
execution of the Merger Agreement:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME SINCE TOTAL
---- --------- ----------
<S> <C> <C>
George R. Zoffinger 1991 $2,341,900*
Michael A. Marinelli 1991 601,350
Alfred L. Teti 1991 657,200
Robert M. Craig 1991 596,800
James P. McKee 1991 604,850
David J. Hughes 1984 320,450
</TABLE>
- --------
* Includes severance payment obligation being assumed by CoreStates of
$1,112,100 and aggregate value of options that will become exercisable as a
result of the Merger of $1,229,800.
Severance payments will be paid only if required pursuant to the terms of the
related severance agreements. Stock options that will become exercisable as a
result of the Merger vest pursuant to the terms of the related stock option
plan. See "THE MERGER--Interests of Certain Persons in the Merger."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a "pooling of
interests" under generally accepted accounting principles. Consummation of the
Merger is conditioned upon receipt by Constellation and CoreStates of a letter
from CoreStates' independent public accountants that the Merger may be
accounted for in such a manner. See "THE MERGER--Accounting Treatment."
STOCK OPTION AGREEMENT
At the insistence of CoreStates and as a condition to CoreStates entering
into the Merger Agreement and in consideration therefor, CoreStates and
Constellation entered into a Stock Option Agreement, dated August 2, 1993 (the
"Option Agreement"), pursuant to which CoreStates has an option (the "Option"),
upon the occurrence of certain events (none of which has yet occurred to the
best of CoreStates' and Constellation's knowledge), to purchase up to 5,300,000
Constellation Common Shares (representing approximately 19.5% of the
outstanding Constellation Common Shares), at a price of $10.375 per share,
subject to termination within certain periods. The Option Agreement may
discourage competing offers to the Merger and is intended to increase the
likelihood that the Merger will be consummated in accordance with the terms of
the Merger Agreement.
In the event that Constellation's shareholders fail to approve the Merger
Agreement, either CoreStates or Constellation may terminate the Merger
Agreement in accordance with its terms. See "THE MERGER--Effective Date;
Effective Time; Amendments; Waiver; Termination." If no Initial Triggering
Event and Subsequent Triggering Event (each, as defined in the Option
Agreement) has occurred prior to such termination or an Exercise Termination
Event (as defined in the Option Agreement), the Option Agreement will
automatically terminate at such time. If an Initial Triggering Event and
Subsequent Triggering Event does occur prior to such termination, then
CoreStates will be entitled to exercise the Option in accordance with its
terms.
A copy of the Option Agreement is attached to this Proxy Statement-Prospectus
as Exhibit A to Appendix I. See "THE MERGER--Stock Option Agreement."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
On the Effective Date, shareholders of Constellation automatically will
become shareholders of CoreStates. The rights of shareholders of CoreStates are
determined by the Pennsylvania Business
9
<PAGE>
Corporation Law and by CoreStates' articles of incorporation and by-laws. The
rights of shareholders of CoreStates differ from the rights of shareholders of
Constellation with respect to certain matters. For a summary of these
differences, see "COMPARISON OF SHAREHOLDER RIGHTS."
RECENT DEVELOPMENTS
CoreStates. CoreStates recorded net income of $85.3 million or $0.73 per
share in the fourth quarter of 1993, compared to $69.1 million or $0.59 per
share for the same period in 1992. The 23.7% increase in fourth quarter net
income per share was principally attributable to: a $7.4 million improvement in
net interest income reflecting strengthened loan demand and an increase in the
net interest margin; a $2.0 million reduction in the provision for losses on
loans, mostly due to an improving outlook for credit quality, including a 14.7%
reduction in nonperforming assets during the fourth quarter; and increases in
income from fee-based services. The net interest margin for the fourth quarter
of 1993 was 5.75%, compared to 5.72% for the prior year fourth quarter. Average
loans outstanding for the fourth quarter of 1993 were $15,948 million, up 5.4%
from the prior year. See "RECENT DEVELOPMENTS--CoreStates."
Constellation. On January 28, 1994, Constellation reported preliminary
earnings of $4.8 million for the fourth quarter of 1993, up from fourth quarter
1992 net income of $1.2 million. On a per share basis, fourth quarter 1993
preliminary earnings were $0.18 compared to net income of $0.10 for the fourth
quarter of 1992. For the year ended December 31, 1993, Constellation reported
preliminary earnings of $16.5 million or $0.61 per share compared to a net loss
of $1.7 million or $0.19 per share for 1992. All 1993 earnings information is
preliminary because it does not include any merger related charges (including
charges for a potential change in asset disposition strategy and other merger
related expenses) which may be taken in connection with the Merger.
Constellation expects it would incur a net loss for 1993 after taking such
charges as described above. See "RECENT DEVELOPMENTS--Constellation."
Independence. On January 19, 1994, Independence Bancorp, Inc.
("Independence") reported net income of $5.8 million, or primary earnings per
share of $0.50, for the fourth quarter of 1993, compared with a net loss of
$6.7 million, or a net loss of $0.60 per primary share, in the fourth quarter
of 1992. For the year ended December 31, 1993, Independence reported net income
of $22.9 million, or primary earnings per share of $1.98, compared with net
income of $11.5 million, or primary earnings per share of $1.02, for the year
ended December 31, 1992. See "INDEPENDENCE BANCORP PROPOSED COMBINATION."
INDEPENDENCE BANCORP PROPOSED COMBINATION
On November 19, 1993, CoreStates and Independence entered into a definitive
agreement pursuant to which CoreStates expects to acquire Independence in an
exchange of stock (the "Proposed Combination"). Independence is a bank holding
company whose four banking subsidiaries serve seven eastern Pennsylvania
counties through 54 community banking offices. At September 30, 1993,
Independence had total consolidated assets, deposits and shareholders' equity
of $2.6 billion, $2.2 billion and $220 million, respectively.
Under the terms of the agreement, each of Independence's approximately 12.7
million (on a fully diluted basis) shares of common stock, par value $2.50 per
share ("Independence Common Shares"), will be exchanged for (i) 1.5 CoreStates
Common Shares if the average price of CoreStates Common Shares over a pricing
period prior to the closing of the Proposed Combination is $27.00 or less, (ii)
1.45 CoreStates Common Shares if the average price of CoreStates Common Shares
over a pricing period prior to the closing of the Proposed Combination is
$28.00 or more, or (iii) a number of CoreStates Common Shares determined by
dividing $40.50 by the average price of CoreStates Common Shares over the
pricing period prior to the closing of the Proposed Combination if the price of
CoreStates Common Shares during such period falls between $27.00 and $28.00 per
share.
The pro forma financial information included in this Proxy Statement-
Prospectus has been presented to give effect to the Proposed Combination,
unless otherwise indicated. The Proposed Combination is expected to be
accounted for as a pooling of interests. The pro forma financial information
that has been presented to show the effect of the Proposed Combination assumes
that the exchange ratio for the Proposed Combination will be 1.45 CoreStates
Common Shares for each Independence Common Share, which is the exchange ratio
that would have been applicable on the date the agreement was executed.
10
<PAGE>
SELECTED FINANCIAL INFORMATION
(UNAUDITED)
The tables on pages 12 and 13 set forth selected historical financial
information for CoreStates and Constellation for each of the five years in the
period ended December 31, 1992 and the nine month periods ended September 30,
1993 and 1992. Such information has been derived from and should be read in
conjunction with the consolidated financial statements of CoreStates and
Constellation, including the respective notes thereto and management's
discussions and analyses of financial condition and results of operations
contained therein, which are incorporated by reference in this Proxy Statement-
Prospectus. The selected historical financial information for CoreStates and
Constellation for the nine month periods ended September 30, 1993 and 1992
reflect, in the opinion of the managements of CoreStates and Constellation,
respectively, all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of the consolidated operating results and
financial position of CoreStates and Constellation for such interim periods.
Results for the interim periods are not necessarily indicative of results for
the full year or any other period.
The table on page 14 sets forth selected unaudited pro forma combined
financial information giving effect to the Merger under the pooling of
interests method of accounting. For a description of the pooling of interests
accounting method with respect to the Merger, see "THE MERGER--Accounting
Treatment." The selected unaudited pro forma combined financial information
also give effect to the Proposed Combination. The Proposed Combination is
expected to be accounted for as a pooling of interests. This information is
derived from the unaudited pro forma condensed combined financial statements
appearing elsewhere herein and should be read in conjunction with those
statements. See "PRO FORMA FINANCIAL INFORMATION." The unaudited pro forma
financial information is prepared based on an Exchange Ratio in the Merger of
0.412 of a CoreStates Common Share for each Constellation Common Share and 1.45
CoreStates Common Shares for each Independence Common Share. The pro forma
condensed combined financial statements do not purport to be indicative of the
combined financial position or results or operations of future periods or
indicative of the results that actually would have been realized had the
entities been a single entity during these periods.
11
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CORESTATES FINANCIAL CORP
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME:
Interest income........ $1,133,571 $1,202,775 $1,587,360 $2,021,857 $2,272,587 $2,316,416 $1,995,247
Interest expense....... 297,008 419,646 530,314 935,464 1,214,200 1,304,927 1,046,479
Net interest income.... 836,563 783,129 1,057,046 1,086,393 1,058,387 1,011,489 948,768
Provision for losses on
loans(1).............. 75,000 92,300 119,300 190,601 327,300 306,600 122,800
Securities gains (loss-
es)................... 5,530 13,405 13,407 (17,546) 2,177 (257) 18,548
Income before cumula-
tive effect of a
change in accounting
principle............. 242,615 193,297 262,404 227,746 128,656 115,950 280,077
Cumulative effect of a
change in accounting
principle(2).......... -- (80,986) (80,986) -- -- -- --
Net income(3).......... 242,615 112,311 181,418 227,746 128,656 115,950 280,077
Dividends on preferred
stock(4)(5)........... -- -- -- -- 1,662 20,973 9,350
Net income attributable
to common shares...... 242,615 112,311 181,418 227,746 126,994 94,977 270,727
PER COMMON SHARE(6):
Income before cumula-
tive effect of a
change in accounting
principle(2).......... 2.07 1.68 2.27 2.00 1.11 0.83 2.35
Net income(3).......... 2.07 0.97 1.57 2.00 1.11 0.83 2.35
Cash dividends de-
clared(7)............. 0.84 0.75 1.02 0.97 0.96 0.87 0.77 1/4
Book value............. 15.82 14.28 14.58 14.00 12.74 12.75 12.60
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET
(AVERAGE BALANCES):
Total assets........... $ 22,791 $ 22,181 $ 22,349 $ 23,049 $ 23,625 $ 23,659 $ 22,220
Loans, net of unearned
income................ 15,471 15,396 15,330 16,812 17,863 16,931 15,376
Allowance for possible
loan losses........... 340 343 340 382 299 362 326
Deposits............... 16,365 16,510 16,612 16,619 16,199 16,260 15,637
Long-term debt......... 1,311 1,197 1,211 1,075 734 722 773
Common shareholders'
equity................ 1,783 1,591 1,614 1,522 1,526 1,561 1,344
Total shareholders' eq-
uity(4)(5)............ 1,783 1,591 1,614 1,522 1,543 1,661 1,467
AVERAGE COMMON SHARES
OUTSTANDING............ 117,335 115,322 115,600 113,624 113,956 114,850 115,034
PERIOD-END COMMON SHARES
OUTSTANDING............ 117,521 116,114 116,830 114,182 113,314 114,500 114,956
SELECTED RATIOS:
Return on average total
assets(8)............. 1.42% 1.16% 1.17% 0.99% 0.54% 0.40% 1.22%
Return on average com-
mon
shareholders' equi-
ty(8)................. 18.19% 16.23% 16.26% 14.96% 8.32% 6.08% 20.14%
Return on average total
shareholders'
equity(8)............. 18.19% 16.23% 16.26% 14.96% 8.34% 6.98% 19.09%
Average shareholders'
equity to average
assets................ 7.82% 7.17% 7.22% 6.60% 6.53% 7.02% 6.60%
Allowance for possible
loan losses to loans
(period-end).......... 2.15% 2.13% 2.08% 2.21% 2.31% 2.88% 2.17%
Non-performing assets
to total loans plus
other real estate
owned (period-end).... 1.85% 2.86% 2.49% 3.07% 2.55% 2.02% 2.15%
</TABLE>
See footnotes to selected financial information on pages 15 and 16.
12
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CONSTELLATION BANCORP
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
--------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY
OF OPERATIONS:
Interest income...... $ 116,970 $ 134,868 $175,391 $232,616 $276,680 $292,235 $240,845
Interest expense..... 42,002 70,872 89,087 151,141 168,163 172,441 135,699
Net interest income.. 74,968 63,996 86,304 81,475 108,517 119,794 105,146
Provision for losses
on loans............ 7,500 8,500 10,000 81,995 97,344 15,566 8,285
Securities gains
(losses)............ 36 1,633 1,678 3,371 31 418 566
Net income (loss)(3). 11,656 (2,846) (1,691) (88,722) (61,771) 26,942 25,261
PER COMMON SHARE:
Net income (loss)(3). 0.43 (0.35) (0.19) (10.82) (7.66) 3.40 3.29
Cash dividends de-
clared ............. -- -- -- -- 1.44 1.34 1.16
Book value........... 5.82 9.48 5.39 9.79 20.52 29.81 22.76
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET
(AVERAGE BALANCES):
Total assets......... $ 2,364 $ 2,624 $ 2,584 $ 2,986 $ 3,063 $ 3,001 $ 2,783
Loans, net of un-
earned income....... 1,740 1,836 1,822 2,058 2,226 2,132 1,939
Allowance for possi-
ble loan losses..... 82 95 93 105 36 20 16
Deposits............. 2,190 2,501 2,461 2,793 2,710 2,596 2,428
Long-term debt....... -- 18 17 20 20 20 20
Common shareholders'
equity(9)........... 151 83 84 114 234 203 167
Total shareholders'
equity.............. 151 83 84 114 234 203 167
AVERAGE COMMON SHARES
OUTSTANDING(9)....... 27,182 8,187 9,065 8,200 8,067 7,923 7,690
PERIOD-END COMMON
SHARES OUTSTAND-
ING(9)............... 27,234 8,184 27,132 8,207 8,173 8,010 7,752
SELECTED RATIOS:
Return on average to-
tal assets(8)....... 0.66% (0.15)% (0.07)% (2.97)% (2.02)% 0.90% 0.91%
Return on average
common shareholders'
equity(8)........... 10.29% (4.61)% (2.01)% (77.94)% (26.44)% 13.25% 15.10%
Return on average to-
tal shareholders'
equity(8)........... 10.29% (4.61)% (2.01)% (77.94)% (26.44)% 13.25% 15.10%
Average shareholders'
equity to average
assets.............. 6.40% 3.15% 3.26% 3.81% 7.63% 6.78% 6.01%
Allowance for
possible loan losses
to loans
(period-end)........ 4.28% 4.92% 4.84% 5.11% 3.69% 1.17% 0.92%
Non-performing assets
to total loans plus
other real estate
owned (period-end).. 8.26% 12.21% 11.43% 13.14% 8.41% 2.17% 0.39%
</TABLE>
See footnotes to selected financial information on pages 15 and 16.
13
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION ALL TRANSACTIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME:
Interest income........ $1,384,879 $1,488,526 $1,961,838 $2,485,277 $2,799,141 $2,870,616 $2,482,410
Interest expense....... 393,028 560,219 709,360 1,212,367 1,532,735 1,641,239 1,343,516
Net interest income.... 991,851 928,307 1,252,478 1,272,910 1,266,406 1,229,377 1,138,894
Provision for losses on
loans(1).............. 91,555 112,484 160,250 291,261 437,860 327,181 137,619
Securities gains (loss-
es)................... 5,461 14,767 13,805 (13,868) 2,412 (8,743) (13,495)
Income before
cumulative effect of a
change in accounting
principle............. 268,551 204,528 268,134 180,317 105,200 158,296 301,694
Cumulative effect of a
change in accounting
principle(2).......... -- (84,946) (84,946) -- -- -- --
Net income(3).......... 268,551 119,582 183,188 180,317 105,200 158,296 301,694
Dividends on preferred
stock (4)(5).......... -- -- -- -- 1,662 20,973 9,350
Net income attributable
to common shares...... 268,551 119,582 183,188 180,317 103,538 137,323 292,344
PER COMMON SHARE(6):
Income before
cumulative effect of a
change in accounting
principle(2).......... 1.85 1.52 1.98 1.36 0.78 1.03 2.20
Net income(3).......... 1.85 0.89 1.35 1.36 0.78 1.03 2.20
Cash dividends de-
clared(7)............. 0.84 0.75 1.02 0.97 0.96 0.87 0.77 1/4
Book value............. 14.56 14.68 14.59 14.46 13.83 14.18 13.57
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET
(AVERAGE BALANCES):
Total assets........... $ 27,779 $ 27,414 $ 27,560 $ 28,646 $ 29,318 $ 29,380 $ 27,890
Loans, net of unearned
income................ 18,886 18,902 18,817 20,524 21,751 20,745 18,835
Allowance for possible
loan losses........... 458 467 463 513 358 405 362
Deposits............... 20,712 21,204 21,267 21,616 21,091 21,080 20,304
Long-term debt......... 1,431 1,295 1,313 1,169 825 799 853
Common shareholders'
equity(9)(10)......... 2,147 1,881 1,911 1,833 1,955 1,950 1,695
Total shareholders' eq-
uity(4)(5)............ 2,147 1,881 1,911 1,833 1,972 2,050 1,818
AVERAGE COMMON SHARES
OUTSTANDING(9)......... 145,206 134,950 135,628 133,021 133,257 133,805 132,770
PERIOD-END COMMON SHARES
OUTSTANDING(9)......... 145,400 135,736 144,380 133,602 132,559 133,772 133,120
SELECTED RATIOS:
Return on average total
assets(8)............. 1.29% 1.00% 0.97% 0.63% 0.35% 0.47% 1.05%
Return on average
common shareholders'
equity(8)............. 16.72% 14.52% 14.03% 9.84% 5.30% 7.04% 17.25%
Return on average total
shareholders'
equity(8)............. 16.72% 14.52% 14.03% 9.84% 5.33% 7.72% 16.60%
Average shareholders'
equity to average
assets................ 7.73% 6.86% 6.93% 6.40% 6.73% 6.98% 6.52%
Allowance for possible
loan losses to loans
(period-end).......... 3.01% 2.37% 2.34% 2.44% 2.38% 2.58% 1.97%
Non-performing assets
to total loans plus
other real estate
owned (period-end).... 2.54% 3.83% 3.52% 4.11% 3.08% 1.93% 1.82%
</TABLE>
See footnotes to selected financial information on pages 15 and 16.
14
<PAGE>
FOOTNOTES TO SELECTED FINANCIAL INFORMATION
(1) Included in the provision for losses on loans were additions to the
allowance for possible losses on loans to less developed countries ("LDC")
of $195 million and $24 million for 1989 and 1988, respectively. The
provision for losses on loans in 1990 included a $220 million provision in
the fourth quarter of that year made in response to declining real estate
values and deteriorating economic conditions.
(2) Effective January 1, 1992, CoreStates adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("FAS 106"). FAS 106 requires that employers
accrue the costs associated with providing postretirement benefits during
the active service periods of employees, rather than the previously
accepted accounting practice of recognizing these costs on a pay-as-you-go
basis. As permitted under FAS 106, CoreStates elected to recognize
immediately a one-time, non-cash charge equal to the January 1, 1992
transitional liability of $122.7 million, $81.0 million after-tax, as the
cumulative effect of a change in accounting principle.
Constellation adopted FAS 106 on January 1, 1993, the date required under
that statement. Constellation elected not to recognize immediately its $6.0
million transitional liability, but to amortize that liability over 20
years. As permitted under FAS 106 and pooling of interests accounting, the
pro forma financial information is prepared as if Constellation adopted FAS
106 effective January 1, 1992 and immediately recognized the $6.0 million,
$4.0 million after-tax, transitional liability.
The impact of FAS 106 on Independence is immaterial.
(3) In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS 109"), which has superseded FAS 96. Although FAS 109 was not required
to be adopted until the first quarter of 1993, in the first quarter of 1992
CoreStates retroactively adopted FAS 109 as of January 1, 1987.
Constellation adopted FAS 109 on January 1, 1993. However, the pro forma
financial information is prepared as if CoreStates and Constellation
retroactively adopted FAS 109 as of January 1, 1987 on a combined basis.
The impact of retroactively applying FAS 109 to Constellation has the
following effects on pro forma net income and period-end common
shareholders' equity (in thousands, except per share):
<TABLE>
<CAPTION>
INCREASE
(DECREASE) CUMULATIVE
IN NET INCOME INCREASE (DECREASE)
------------------ IN COMMON
AMOUNT PER SHARE SHAREHOLDERS' EQUITY
------- --------- --------------------
<S> <C> <C> <C>
Nine months ended September 30,
1993.............................. $(2,922) $(0.02) $42,078
Year ended:
December 31, 1992................ 702 0.01 45,000
December 31, 1991................ 23,602 0.20 44,298
December 31, 1990................ 21,746 0.19 20,696
December 31, 1989................ -- -- (1,050)
December 31, 1988................ -- -- (1,050)
</TABLE>
Independence prospectively adopted FAS 109 on January 1, 1992, recognizing
a cumulative benefit of $4.4 million as the cumulative effect of a change
in accounting principle. However, the pro forma financial information is
prepared as if Independence retroactively adopted FAS 109 as of January 1,
1987. The impact of retroactively applying FAS 109 to Independence has the
following effects on pro forma net income and period-end common
shareholders' equity (in thousands, except per share):
<TABLE>
<CAPTION>
INCREASE (DECREASE) CUMULATIVE
IN NET INCOME INCREASE (DECREASE)
--------------------- IN COMMON
AMOUNT PER SHARE SHAREHOLDERS' EQUITY
---------- --------- --------------------
<S> <C> <C> <C>
Nine months ended September 30,
1993.......................... -- -- --
Year ended:
December 31, 1992............ $(4,378) $(0.03) --
December 31, 1991............ (1,265) (0.01) $4,378
December 31, 1990............ (533) * 5,643
December 31, 1989............ (613) * 6,176
December 31, 1988............ 6,789 0.05 6,789
</TABLE>
--------
* Decrease less than $.01 per share.
15
<PAGE>
(4) On May 3, 1988, CoreStates called for redemption all outstanding shares of
its Series A Preferred Stock, $25 stated value. The redemption price was
$25.75 per share.
(5) During the third quarter of 1989, First Pennsylvania Corporation ("FPC"),
acquired by CoreStates on March 5, 1990, paid to Marine Midland Banks, Inc.
("Marine Midland"), the sole holder of FPC's Series D Preferred Stock, a
$12.7 million special dividend. This special dividend was paid in
connection with the termination of a previous merger agreement with Marine
Midland. On March 5, 1990, all outstanding Series D Preferred Shares were
redeemed at their $100 per share stated value plus accrued regular
dividends.
(6) Restated to reflect the impact of CoreStates' 100% stock dividend declared
on August 17, 1993 and paid on October 15, 1993 to shareholders of record
on September 15, 1993 (the "Stock Dividend"). CoreStates, Constellation,
Independence and pro forma earnings per common share for the nine months
ended September 30, 1993 and 1992 and for the years ended December 31,
1992, 1991 and 1990 were based on weighted average common shares
outstanding as dilution from potentially dilutive common stock equivalents
was less than 3% for each period.
(7) Cash dividends declared per share for the respective periods prior to
CoreStates' acquisition of FPC, First Peoples Corporation (on September 3,
1992), Constellation and Independence assume that CoreStates would have
declared cash dividends per share equal to the cash dividends per share
actually declared by CoreStates.
(8) Return on average total assets and return on average common shareholders'
equity are calculated on income from continuing operations, net of income
taxes, after total preferred dividends. Return on average total
shareholders' equity is calculated on income from continuing operations,
net of income taxes. The interim data is calculated on an annualized basis
for purposes of comparability with full year data.
(9) On December 18, 1992, Constellation completed the sale of 13.3 million
Constellation Common Shares in a rights offering to existing shareholders
and the sale of 5.5 million additional Constellation Common Shares to
various standby purchasers for an aggregate net increase in shareholders'
equity of $67.5 million.
(10) While Constellation has utilized a long term workout strategy for all of
its assets in the belief that value could be maximized over time,
CoreStates' strategy is to seek to dispose of certain assets via bulk
sale, individual credit direct negotiation or foreclosure in an
accelerated manner. It is CoreStates' philosophy that this change
maximizes the total value of the Merger and allows the ongoing institution
to concentrate upon new franchise initiatives and revenue generation. In
CoreStates' experience, a strategy that involves the accelerated
resolution of problem assets has been more economical than a long-term
work out approach. It has been CoreStates' experience that the costs of
working out assets as well as other carrying costs typically outweigh any
improvement in an asset's realized value. Furthermore, resources and
management time and attention are diverted from building the business and
creating long-term franchise value. CoreStates currently estimates that in
connection with the change in strategic direction and to conform
Constellation's loan, accrual and reserve policies to those of CoreStates,
it will take an addition to the allowance for possible loan losses of
approximately $107.0 million and an addition to the reserve against other
real estate owned ("OREO") of approximately $38.0 million. Accordingly,
pro forma common shareholders' equity at September 30, 1993 has been
reduced by $94.3 million, the after-tax effect of the estimated
provisions. CoreStates currently estimates that the assets related to
$134.5 million of the $145.0 million in estimated aggregate provisions
will be disposed of within eighteen months of the Effective Date. The
carrying value of these assets is approximately $340 million and the
estimated provisions represent 40% of this amount. It is also estimated
that the conforming adjustments, mostly related to consumer lending
charge-off policies, will comprise approximately $10.5 million of the
aggregate $145.0 million in estimated provisions. Pro forma common
shareholders' equity at September 30, 1993 also reflects charges of
approximately $27.6 million, after the related tax effects, which include
expenses directly attributable to the Merger, and certain other costs and
expenses.
Pro forma shareholders' equity at September 30, 1993 has also been reduced by
$35.2 million, the combined after-tax effect of additions to Independence's
allowance for possible loan losses and reserve against OREO of $25.0 million
and $5.0 million, respectively, for CoreStates' planned strategic
initiatives regarding Independence's problem assets, and charges of
approximately $24.2 million, which include expenses directly related to the
Proposed Combination. CoreStates currently estimates that the assets related
to the $30.0 million in estimated aggregate provisions will be disposed of
within eighteen months of the effective date of the Proposed Combination.
The carrying value of these assets is approximately $120 million and the
estimated provisions represent 25% of this amount.
16
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table presents book value per common share, cash dividends
declared per share and net income per share: (i) on an historical basis for
CoreStates and Constellation; (ii) on a pro forma basis for CoreStates, giving
effect to the Merger, assuming the Merger had been effective for all periods
presented; (iii) on a pro forma basis for CoreStates assuming the Merger and
the Proposed Combination had been effective for all periods presented; (iv) on
a pro forma equivalent basis per common share for Constellation, assuming that
the Merger had been effective for all periods presented; and (v) on a pro forma
equivalent basis per Constellation Common Share, assuming that the Merger and
the Proposed Combination had been effective for all periods presented. Pro
forma per share amounts are based on an exchange ratio of 0.412 of a CoreStates
Common Share for each Constellation Common Share and 1.45 CoreStates Common
Shares for each Independence Common Share.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1993 1992
------------- ------------
<S> <C> <C>
PER COMMON SHARE
BOOK VALUE:
CoreStates(1):
Historical book value per share.................... $15.82 $14.58
CoreStates & Constellation pro forma book value per
share............................................. 15.02 14.77
All transactions pro forma book value per share.... 14.56 14.59
Constellation:
Historical book value per share.................... 5.82 5.39
Pro forma equivalent book value per share(1)(2):
CoreStates and Constellation...................... 6.19 6.09
All transactions.................................. 6.00 6.01
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------------
1993 1992 1991 1990
------------- ---- ---- ----
<S> <C> <C> <C> <C>
CASH DIVIDENDS DECLARED:
CoreStates(1):
Historical cash dividends per share(3).... $0.84 $1.02 $ 0.97 $0.96
CoreStates & Constellation pro forma cash
dividends per share(4)................... 0.84 1.02 0.97 0.96
All transactions pro forma cash dividends
per share(4)............................. 0.84 1.02 0.97 0.96
Constellation:
Historical cash dividends per share....... -- -- -- 1.44
Pro forma equivalent cash dividends per
share(1)(2).............................. 0.35 0.42 0.40 0.40
NET INCOME:
CoreStates(1):
Historical earnings per share(5).......... 2.07 2.27 2.00 1.11
CoreStates & Constellation pro forma earn-
ings per share(5)........................ 1.96 2.19 1.39 0.74
All transactions pro forma net income per
share(5)................................. 1.85 1.98 1.36 0.78
Constellation:
Historical earnings (losses) per share.... 0.43 (0.19) (10.82) (7.66)
Pro forma equivalent earnings per
share(1)(2)(5):
CoreStates and Constellation............. 0.81 0.90 0.57 0.30
All transactions......................... 0.76 0.82 0.56 0.32
</TABLE>
- --------
(1) Restated to reflect the impact of the Stock Dividend.
(2) Constellation pro forma equivalent per share data is computed by
multiplying CoreStates' pro forma per share data (giving effect to the
Merger or both the Merger and the Proposed Combination, as applicable) by
the 0.412 Exchange Ratio.
(3) On August 17, 1993, CoreStates increased the quarterly dividend rate on
CoreStates Common Shares from 54 cents per share to 60 cents per share
before the Stock Dividend. Adjusted to reflect the impact of the Stock
Dividend, the current quarterly dividend rate is 30 cents per CoreStates
Common Share.
(4) Pro forma amounts assume that CoreStates would have declared cash dividends
per share equal to its historical cash dividend per share declared.
(5) Based on income before cumulative effect of a change in accounting
principle.
17
<PAGE>
MARKET VALUE OF SECURITIES
CoreStates Common Shares are traded on the NYSE under the symbol "CFL." Until
December 28, 1993, CoreStates Common Shares were traded in the over-the-counter
market and the price quotations were reported on the NASDAQ National Market
System. Constellation Common Shares are traded in the over-the-counter market
and price quotations are reported on the NASDAQ National Market System under
the symbol "CSTL". The table below sets forth, for the periods indicated, the
high and low sales prices for CoreStates Common Shares as reported on the New
York Stock Exchange, Inc. (the "NYSE") or as quoted on the NASDAQ National
Market System, as applicable, and the cash dividends declared per share
(retroactively adjusted for the Stock Dividend), and the high and low sales
prices for Constellation Common Shares as quoted by the NASDAQ National Market
System. Constellation has not declared any cash dividends since 1990. For
information concerning restrictions on Constellation's ability to declare
dividends, see "CERTAIN REGULATORY CONSIDERATIONS" and Note 17 of
Constellation's Notes to Year-End Consolidated Financial Statements.
<TABLE>
<CAPTION>
CORESTATES CONSTELLATION
---------------------------- ----------------
DIVIDEND
HIGH LOW DECLARED HIGH LOW
--------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
First Quarter.................. $25 3/16 $21 15/16 $0.25 $ 7 1/8 $2
Second Quarter................. 27 21 0.25 7 1/4 3 1/4
Third Quarter.................. 28 5/16 23 5/8 0.25 7 1/2 3 5/16
Fourth Quarter................. 28 15/16 24 1/16 0.27 5 7/16 3 5/8
Year ended December 31, 1993:
First Quarter.................. 29 3/4 26 3/8 0.27 8 3/4 4 3/4
Second Quarter................. 30 3/16 25 1/8 0.27 9 6 7/8
Third Quarter.................. 29 13/16 26 3/4 0.30 11 1/4 8 3/8
Fourth Quarter................. 29 3/4 25 3/8 0.30 11 1/2 9 7/8
Year ended December 31, 1994:
First Quarter (through February
10, 1994)..................... 26 5/8 25 3/4 0.30 10 7/8 10 3/8
</TABLE>
The last sale price of CoreStates Common Shares (retroactively adjusted for
the Stock Dividend) and Constellation Common Shares as quoted on the NASDAQ
National Market System as reported by the consolidated trading system on July
30, 1993, the last trading day preceding public announcement of the execution
of the Merger Agreement, and the last sale price of CoreStates Common Shares as
reported on the NYSE and the last sale price of Constellation Common Shares as
quoted on the NASDAQ National Market System as reported by the consolidated
trading system on February 10, 1994, a day shortly prior to the mailing of this
Proxy Statement-Prospectus is set forth below. The equivalent Constellation
Common Share market value of a CoreStates Common Share is based on the Exchange
Ratio of 0.4137.
<TABLE>
<CAPTION>
CORESTATES CONSTELLATION
COMMON SHARES COMMON SHARES
------------- ---------------------
HISTORICAL HISTORICAL EQUIVALENT
------------- ---------- ----------
<S> <C> <C> <C>
July 30, 1993............................... $28 9/16 $10 3/8 $11.82
February 10, 1994........................... 26 1/4 10 3/4 10.86
</TABLE>
Shareholders are advised to obtain current market quotations for CoreStates
Common Shares and Constellation Common Shares. Since the Exchange Ratio is
fixed, Constellation shareholders are not assured of receiving a specific
market value of CoreStates Common Shares at the Effective Date. The market
price of Constellation Common Shares at the Effective Date may be higher or
lower than the market price at the time the Merger Agreement was executed, at
the date of mailing this Proxy Statement-Prospectus or at the time of the
Special Meeting.
18
<PAGE>
RECENT DEVELOPMENTS
CORESTATES
CoreStates recorded net income of $85.3 million or $0.73 per share in the
fourth quarter of 1993, compared to $69.1 million or $0.59 per share for the
same period in 1992.
The 23.7% increase in fourth quarter net income per share was principally
attributable to: a $7.4 million improvement in net interest income reflecting
strengthened loan demand and an increase in the net interest margin; a $2.0
million reduction in the provision for losses on loans, mostly due to an
improving outlook for credit quality, including a 14.7% reduction in non-
performing assets during the fourth quarter; and increases in income from fee-
based services. The net interest margin for the fourth quarter of 1993 was
5.75%, compared to 5.72% for the prior year fourth quarter. Average loans
outstanding for the fourth quarter of 1993 were $15,948 million, up 5.4% from
the prior year.
Total non-interest income for the fourth quarter of 1993 decreased $27.0
million from the prior year fourth quarter mostly due to the late 1992
restructuring of CoreStates' consumer electronic payment services business into
Electronic Payment Services, Inc. ("EPS"), a joint venture formed with three
other banking companies. Included in non-interest income for the fourth quarter
of 1993 was $2.5 million for dividends on EPS preferred stock and CoreStates'
31% equity share in fourth quarter net income of EPS. The prior year fourth
quarter included fee income from the electronic payment services business and a
pre-tax gain of $41.1 million, $25.7 million after tax, resulting from the
formation of EPS.
Excluding the impact of securities gains and the formation of EPS, non-
interest income for the fourth quarter of 1993 grew 16% over the fourth quarter
of 1992. The improvement in income from fee-based services was mostly due to:
an increase in service charges on deposits of $4.1 million, or 11.0%,
reflecting volume increases and commercial and correspondent customers'
decisions to pay fees for banking services in place of maintaining deposit
balances; an increase in trust income of $5.4 million, or 31.2%, due to growth
in assets and related fees in the Personal Trust, Investment Services and
Employee Benefits areas; and an increase in fees for international services of
$1.3 million, or 8.1%, principally due to increased volume from new foreign
branches opened over the past year. Also contributing to the growth in non-
interest income was the inclusion of $4.6 million of fees earned by Financial
Telesis, a third-party provider of lockbox processing and data management
services, which was acquired by CoreStates on December 31, 1992.
Non-financial expenses for the fourth quarter of 1993 totaled $266.4 million,
a decrease of $37.1 million from the fourth quarter of 1992. Comparability of
fourth quarter 1993 and 1992 expenses was impacted by: the formation of the EPS
joint venture; the acquisition of Financial Telesis; and certain significant
expenses recorded in the fourth quarter of 1992, including $16.2 million for
systems enhancements and operations consolidations, $7.4 million of expenses
associated with personnel related initiatives; and $4.5 million for
streamlining business operations. Excluding the impact of EPS, Financial
Telesis and the significant expenses in the fourth quarter of 1992, total non-
financial expenses increased less than 3% for the fourth quarter of 1993.
Non-performing assets declined 14.7% in the fourth quarter of 1993 to $252
million or 1.5% of loans plus OREO and 1.1% of assets at December 31, 1993. The
consolidated provision for loan losses was $25 million at December 31, 1993,
compared to $27 million at December 31, 1992. Net loan charge-offs were $21.4
million in the fourth quarter of 1993, compared to $32.2 million in the fourth
quarter of 1992.
Consolidated total assets at 1993 year end were $23.7 billion, substantially
unchanged from 1992 year end. The December 31, 1993 tier 1 capital ratio, total
capital ratio and tier 1 leverage ratio at 9.3%, 13.7% and 8.2%, respectively,
were well in excess of regulatory guidelines.
The following is unaudited consolidated financial information for CoreStates
and its subsidiaries for the three-month periods ended December 31, 1993 and
1992 and the years ended December 31, 1993 and 1992.
19
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER YEAR ENDED
31, DECEMBER 31,
----------------- ------------------------
1993 1992 1993 1992
-------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Selected income data:
Net interest income............ $281,338 $273,917 $1,117,901 $1,057,046
Provision for losses on loans.. 25,000 27,000 100,000 119,300
Income before cumulative effect
of a change in
accounting principle.......... 85,312 69,107 327,927 262,404
Net income..................... 85,312 69,107 314,917(a) 181,418(b)
Per share (c):
Income before cumulative effect
of a change in
accounting principle.......... 0.73 0.59 2.80 2.27
Net income..................... 0.73 0.59 2.69 1.57
</TABLE>
- --------
(a) Reflects the adoption of Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" ("FAS 112"). As
required under FAS 112, CoreStates recognized the January 1, 1993
transitional liability of $20.0 million pre-tax, $13.0 million after-tax, as
the cumulative effect of a change in accounting principle in the first
quarter of 1993.
(b) Reflects the adoption of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
("FAS 106"). As permitted under FAS 106, CoreStates elected to recognize
immediately the January 1, 1992 transitional liability of $122.7 million pre-
tax, $81.0 million after-tax, as the cumulative effect of a change in
accounting principle in the first quarter of 1992.
(c) Per share data has been restated as appropriate to reflect the impact of
the Stock Dividend.
CONSTELLATION
General. On January 28, 1994, Constellation reported preliminary earnings of
$4.8 million for the fourth quarter of 1993, up from fourth quarter 1992 net
income of $1.2 million. On a per share basis, fourth quarter 1993 preliminary
earnings were $0.18 compared to net income of $0.10 for the fourth quarter of
1992. For the year ended December 31, 1993, Constellation reported preliminary
earnings of $16.5 million or $0.61 per share compared to a net loss of $1.7
million or $0.19 per share for 1992. Total average shares outstanding were 27.2
million for the fourth quarter of 1993, compared to 11.7 million for the fourth
quarter of 1992. All 1993 earnings information is preliminary because it does
not include any merger related charges (including charges for a potential
change in asset disposition strategy and other merger related expenses) which
may be taken in connection with the Merger. Constellation expects it would
incur a net loss for 1993 after taking such charges as described above.
Asset Quality. Non-performing loans, which include all loans on a non-accrual
status, including non-accrual loans that are troubled debt restructurings,
declined $3.6 million or 4.9% during the fourth quarter of 1993 to $69.6
million from $73.2 million at the end of the third quarter of 1993 and were
down $46.2 million or 39.9% from a year earlier. Other real estate owned/In-
substance foreclosures ("OREO") totaled $69.6 million at quarter-end compared
to $73.7 million at the end of the third quarter of 1993 before reserves. Total
non-performing assets, net of a $1.4 million reserve for OREO, were $137.8
million at December 31, 1993, down $7.7 million or 5.3% compared to $145.5
million, net of a $1.3 million reserve for OREO, at September 30, 1993.
Compared to the fourth quarter of 1992, total non-performing assets, net of the
OREO reserve, have declined $74.3 million or 35.0%.
The provision for loan losses was $2.5 million for the fourth quarter of
1993, compared to $2.5 million for the previous quarter and $1.5 million for
the fourth quarter of 1992. Net charge-offs in the fourth quarter were $4.6
million, representing 1.10% of average loans on an annualized basis, down from
net charge-offs of
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$9.4 million or 2.17% of average loans on an annualized basis in the third
quarter of 1993 and up from $4.1 million or 0.91% of average loans on an
annualized basis in the prior year's fourth quarter. Charge-offs during the
fourth quarter of 1993 declined as compared to the third quarter of 1993 and
fourth quarter of 1992. Net charge-offs for the fourth quarter of 1993 were
slightly lower as a result of higher recoveries during that period.
At December 31, 1993, the allowance for loan losses totaled $70.2 million,
compared to $72.4 million at September 30, 1993 and $85.1 million at December
31, 1992, and represented 4.22% of loans, compared to 4.28% at September 30,
1993 and 4.84% at December 31, 1992. The ratio of the reserve to non-performing
loans was 101% at December 31, 1993 as compared to 99% at September 30, 1993
and 74% at December 31, 1992.
Net Interest Income. Taxable equivalent net interest income was $26.0 million
for the fourth quarter of 1993, down slightly from $26.3 million in the third
quarter of 1993 and up $3.4 million from the $22.6 million earned in the fourth
quarter of 1992. The net interest margin was 4.89%, as compared to 4.91% and
4.04% from the third quarter of 1993 and fourth quarter of 1992, respectively.
The continued strength in the net interest margin was the result of a low
interest rate environment and an increase in net interest earning assets.
Average net earning assets of $321 million during the fourth quarter of 1993
increased from $301 million and $225 million during the third quarter of 1993
and fourth quarter of 1992, respectively. Total average earning assets in the
fourth quarter of 1993 of $2.1 billion equaled the previous quarter and were
down $0.1 billion from $2.2 billion in the fourth quarter of 1992. The decline
in average earning assets resulted from reductions in loans outstanding and
U.S. treasury and U.S. government securities offset by increased short-term
investments.
Non-Interest Income. Non-interest income in the fourth quarter of 1993 was
$8.6 million, compared to $12.2 million for the third quarter of 1993 and $9.1
million in the fourth quarter of 1992. The fourth quarter of 1993 as compared
to the third quarter of 1993 reflected lower gains on sales of OREO, lower
profits from the mortgage securitization and sale activities which benefitted
from the sharp decline in long-term interest rates during the third quarter of
1993, reduced levels of service fees on deposit accounts and lower mortgage
origination and servicing fees. Fourth quarter of 1992 results included higher
levels of mortgage origination and servicing fees, service fees on deposit
accounts and gains on sales of OREO offset by lower gains on sales of
mortgages.
Service fees on deposit accounts were $2.4 million in the fourth quarter of
1993, a decrease of $0.1 million from the third quarter of 1993 and down from
$2.7 million in the fourth quarter of 1992, primarily due to continued run-off
of deposits as a result of the low rate environment. Trust income was $0.8
million in the fourth quarter of 1993 as compared to $0.9 million in the third
quarter of 1993 and $0.7 million in the fourth quarter of 1992. Mortgage
origination and servicing fees, other service fees and other income totaled
$5.4 million in the fourth quarter of 1993 as compared to the previous
quarter's $8.8 million and $5.6 million for the fourth quarter of 1992. The
reduction of mortgage origination and servicing fees, other service fees and
other income in the fourth quarter of 1993 as compared to the third quarter of
1993 resulted primarily from lower levels of mortgage sales and related gain on
sales of mortgages of $2.3 million, lower gains on sales of OREO of $0.9
million and lower fees on escrow deposits of $0.1 million. The decrease in the
fourth quarter of 1993 as compared to the fourth quarter of 1992 resulted
primarily from a decrease of $0.9 million on mortgage origination and servicing
fees offset by an increase in gains on sales of mortgages of $0.8 million.
Non-Interest Expense. Non-interest expense totaled $26.8 million in the
fourth quarter of 1993 down from $29.6 million in the third quarter of 1993 and
$28.7 million in the fourth quarter of 1992. The fourth quarter of 1993
included a $2.7 million provision for OREO, as compared to $3.8 million for the
third quarter of 1993 and $0.8 million for the fourth quarter of 1992. The
third quarter of 1993 and fourth quarter of 1992 also included additional
provisions for purchase mortgage servicing rights ("PMSRs") due to higher
levels of mortgage loan prepayments during those periods.
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Salaries and benefits expense in the fourth quarter of 1993 was $9.9 million,
compared to $10.2 million in the third quarter of 1993 and $11.1 million in the
fourth quarter of 1992. At December 31, 1993 full time equivalent staff totaled
1,013 compared to 1,105 at December 31, 1992.
Operating expenses related to occupancy and equipment costs were down for the
fourth quarter of 1993 at $3.3 million from $3.6 million and $4.0 million for
the quarters ending September 30, 1993 and December 31, 1992, respectively.
Excluding the OREO provision, all other operating expenses totaled $10.9
million in the fourth quarter of 1993, as compared to $12.0 million for the
third quarter of 1993 and $12.7 million for the fourth quarter of 1992. The
decrease between the fourth quarter and third quarter of 1993 resulted
primarily from a reduction of $0.6 million of additional write-offs needed in
the fourth quarter of 1993 for PMSRs and a decrease of $0.2 million in non-
performing asset related expenses. The decrease in all other operating expenses
during the fourth quarter of 1993 as compared to the fourth quarter of 1992 was
primarily due to decreases in amortization of PMSRs and other intangibles of
$1.0 million, legal fees of $1.0 million and restructuring charges of $0.7
million, offset by higher non-performing asset related expenses of $0.8
million.
Balance Sheet Trends and Capital. At December 31, 1993, Constellation had
total assets of $2.3 billion, unchanged from September 30, 1993 and down $0.1
billion from December 31, 1992. Total deposits at December 31, 1993 of $2.1
billion were unchanged from September 30, 1993 and down $0.2 billion from
December 31, 1992. Loans at December 31, 1993 were $1.7 billion, unchanged from
September 30, 1993 and down $0.1 billion from December 31, 1992. Total equity
capital at December 31, 1993 was $166.5 million. At December 31, 1993,
Constellation implemented FAS 115, "Accounting for Certain Investments in Debt
and Equity Securities." As a result, Constellation classified approximately
$133 million of investment securities as securities available for sale and
recorded an unrealized gain net of taxes of $3.5 million on securities
available for sale to shareholders' equity. Under regulatory guidelines, at
December 31, 1993, Constellation's total capital to risk-adjusted assets ratio
was approximately 11.33%; Tier 1 capital to risk-adjusted assets ratio was
approximately 10.04% and the Tier 1 capital leverage ratio was approximately
6.95%. At December 31, 1993, Constellation Bank's total capital to risk-
adjusted assets ratio was approximately 10.85%, Tier 1 risk-adjusted assets
ratio was approximately 9.56% and Tier 1 capital leverage ratio, based on
period-end assets, was approximately 6.71%. Constellation and Constellation
Bank are in full compliance with all applicable regulatory capital
requirements.
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INFORMATION REGARDING THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus is being furnished to the holders of
Constellation Common Shares in connection with the solicitation of proxies by
the Board of Directors of Constellation for use at the Special Meeting of
Shareholders to be held on Wednesday, March 16, 1994, at the Douglass College
Student Center, Corner of George Street and Nichol Avenue, New Brunswick, New
Jersey at 10:00 a.m. local time, and at any adjournments thereof (the "Special
Meeting").
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, shareholders of Constellation will be asked to
consider and vote upon (i) a proposal recommended by the Board of Directors to
approve and adopt the Agreement and Plan of Merger, dated as of August 2, 1993,
as amended (the "Merger Agreement"), between Constellation and CoreStates. The
Merger Agreement provides for the merger of Constellation with and into
CoreStates, with CoreStates as the surviving corporation (the "Merger") and
(ii) a proposal recommended by the Constellation Board to approve the
postponement or adjournment of the Special Meeting to another time and/or place
for the purpose of soliciting additional proxies in the event that there are
not sufficient votes at the time of the Special Meeting to approve the Merger
Agreement and the Merger (the "Adjournment Proposal"). Shareholders of
Constellation will receive for each Constellation Common Share, 0.4137 (0.412
under certain circumstances, as described below) of a CoreStates Common Share.
There will be no change in the CoreStates Common Shares outstanding immediately
prior to the Merger as a result of the Merger. See "THE MERGER--General
Description; Exchange Ratio."
RECORD DATE; VOTING RIGHTS
Constellation's Board of Directors (the "Constellation Board") has fixed
February 9, 1994 as the record date for the determination of Constellation
shareholders entitled to notice of and to vote at the Special Meeting (the
"Record Date"). Accordingly, only holders of record of Constellation Common
Shares at the close of business on such date will be entitled to vote at the
Special Meeting. At the close of business on the Record Date, there were
27,261,769 Constellation Common Shares outstanding, each of which is entitled
to one vote on each matter properly submitted to a vote at the Special Meeting.
On the Record Date, there were approximately 3,936 holders of record of
Constellation Common Shares. Pursuant to Constellation's certificate of
incorporation, as amended ("Constellation's Certificate of Incorporation"), the
affirmative vote of 66 2/3% of the outstanding Constellation Common Shares is
required to approve the Merger Agreement. Approval of the Adjournment Proposal
requires the affirmative vote of a majority of the votes cast at the Special
Meeting. Broker non-votes and abstentions will have the same effect as a
negative vote with respect to the proposal to approve the Merger Agreement.
If a quorum is not obtained, or if fewer Constellation Common Shares are
voted in favor of approval of the Merger than the number required for approval,
it is expected that, if a majority of the proxies voted with respect to the
Adjournment Proposal have been voted in favor of the Adjournment Proposal, the
Special Meeting will be postponed or adjourned for the purpose of allowing
additional time for obtaining additional proxies or votes, and, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies which have theretofore effectively
been revoked or withdrawn).
As of the Record Date, Constellation's directors and executive officers and
their affiliates beneficially owned 1,601,217 Constellation Common Shares,
representing 5.9% of the outstanding Constellation Common Shares. As of the
Record Date, Constellation Bank held of record or in the name of nominees
775,021 Constellation Common Shares representing 2.8% of the outstanding
Constellation Common Shares, in a fiduciary capacity, 279,252 of which shares
Constellation Bank has sole or shared voting authority. As of the Record Date,
CoreStates and CoreStates' directors, executive officers and subsidiaries owned
1,850 Constellation Common Shares of record, which amount included 200 shares
owned beneficially. All such persons have informed Constellation that they
intend to vote their Constellation Common Shares in favor of the Merger.
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PROXIES
All Constellation Common Shares entitled to vote at the Special Meeting which
are represented by properly executed proxies received prior to or at the
Special Meeting and not revoked will be voted in accordance with instructions
indicated in such proxies. If no instructions are indicated on properly
executed proxies, Constellation Common Shares represented by proxies solicited
by the Constellation Board will be voted "FOR" approval of the Merger
Agreement, the Adjournment Proposal and otherwise in the discretion of proxy
holders as to any other matter which may come before the Special Meeting or any
adjournment or postponement thereof.
Shareholders of Constellation executing and returning a proxy have the power
to revoke it at any time before it is voted by delivering a written revocation
to the Secretary of Constellation. Shareholders of Constellation may also
revoke a proxy by executing a later dated proxy and returning such later dated
proxy to the Secretary of Constellation. Attendance at the Special Meeting will
not by itself constitute revocation of a proxy. However, a shareholder
attending the Special Meeting may revoke a proxy by notifying the Secretary of
Constellation in writing prior to the voting of such proxy and may then vote in
person if the shareholder desires to do so.
The Constellation Board knows of no business which will be presented for
consideration at the Special Meeting other than the matters described in this
Proxy Statement-Prospectus. If, however, other matters are duly brought before
the Special Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have the discretion to vote or act thereon according
to their best judgment.
The cost of soliciting the proxies to which this Proxy Statement-Prospectus
relates will be borne by Constellation. In addition to the use of the mails,
proxies may be solicited by officers and other employees of Constellation and
its subsidiaries by personal meetings or telephone, for which no additional
compensation will be paid. Constellation will reimburse brokers or other
persons holding shares in their names or in the names of their nominees for
out-of-pocket expenses in mailing proxy soliciting materials to beneficial
owners of Constellation Common Shares. Constellation has retained Morrow & Co.,
Inc., New York, New York to assist in the solicitation of proxies from brokers
and nominees for a fee of approximately $7,000 plus expenses.
HOLDERS OF CONSTELLATION COMMON SHARES ARE REQUESTED PROMPTLY TO SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID, ADDRESSED
ENVELOPE.
HOLDERS OF CONSTELLATION COMMON SHARES SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CONSTELLATION BELIEVES THAT THE MERGER ISIN THE
BEST INTERESTS OF CONSTELLATION AND ITS SHAREHOLDERS AND, ACCORDINGLY,
RECOMMENDS THAT HOLDERS OF CONSTELLATION COMMON SHARES VOTE "FOR" APPROVAL OF
THE MERGER AGREEMENT AND THE ADJOURNMENT PROPOSAL. See "THE MERGER--Reasons for
Merger."
THE MERGER
The following information, insofar as it relates to matters contained in the
Merger Agreement and the Option Agreement (as defined below), is qualified in
its entirety by reference to the Merger Agreement and the Option Agreement
which are incorporated herein by reference and attached hereto as Appendix I
and Exhibit A to Appendix I, respectively. Constellation shareholders are urged
to read the Merger Agreement and the Option Agreement carefully.
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GENERAL DESCRIPTION; EXCHANGE RATIO
The terms of the Merger are set forth in the Merger Agreement, which was
executed and delivered on August 2, 1993. The Merger Agreement provides that on
the date that the Merger is effective, Constellation shall be merged with and
into CoreStates, with CoreStates as the surviving corporation. In the Merger,
shareholders of Constellation will receive, for each Constellation Common
Share, 0.4137 (0.412 under certain circumstances, as described below) of a
CoreStates Common Share. Such fraction is referred to in this Proxy Statement-
Prospectus as the "Exchange Ratio." The specific exchange ratio provided for in
the Merger Agreement was 0.206. The Exchange Ratio set forth herein reflects an
adjustment for the Stock Dividend paid on October 15, 1993 and the agreement
between Constellation and CoreStates to increase the Exchange Ratio to 0.4137
CoreStates Common Shares for each Constellation Common Share so long as the
Effective Date occurs on or before March 30, 1994, as set forth below. There
will be no change in the CoreStates Common Shares outstanding immediately prior
to the Merger as a result of the Merger.
The Merger Agreement provides that in the event that, prior to the Effective
Date, CoreStates issues a dividend in CoreStates Common Shares, then an
appropriate adjustment will be made to the number of CoreStates Common Shares
to be received for each Constellation Common Share in the Merger. The Stock
Dividend resulted in a holder of CoreStates Common Shares holding two shares
for every one share previously held. Accordingly, the initial 0.206 exchange
ratio was adjusted by multiplying it by two to represent the fact that after
giving effect to the Stock Dividend twice as many CoreStates Common Shares
would be outstanding. The Exchange Ratio to be received for each Constellation
Common Share in the Merger, as set forth in the preceding paragraph and
elsewhere in this Proxy Statement-Prospectus, has been adjusted for the Stock
Dividend paid on October 15, 1993.
On February 8, 1994, CoreStates modified the Exchange Ratio from 0.412
CoreStates Common Shares for each Constellation Common Share to 0.4137
CoreStates Common Shares for each Constellation Common Share so long as the
Effective Date occurs on or before March 30, 1994. The modification is intended
to reflect a partial dividend for the first quarter of 1994. Holders of
Constellation Common Shares will not receive the CoreStates' first quarter
dividend. If the Effective Date occurs on or after March 31, 1994, the Exchange
Ratio shall be 0.412 CoreStates Common Shares for each Constellation Common
Share. If the Effective Date does not occur on or before March 31, 1994, a
majority of the Board of Directors of Constellation or CoreStates may terminate
the Merger Agreement, unless the failure to so consummate by such time is due
to a breach of any representation, warranty or covenant contained in the Merger
Agreement by the party seeking to terminate. See "THE MERGER--Effective Date;
Effective Time; Amendments; Waiver; Termination."
The determination of the Exchange Ratio resulted from arm's-length
negotiations between CoreStates and Constellation.
No fractional shares will be issued in the Merger. Each Constellation
shareholder will receive cash in lieu of any fraction of a CoreStates Common
Share.
BACKGROUND OF THE MERGER
As a result of a weakening economy in New Jersey, Constellation's exposure to
deteriorating real estate markets, volatile real estate markets and declining
real estate values, Constellation experienced a severe decline in its financial
condition and results of operations and a sharp increase in non-performing
assets during 1990. During 1990, Constellation incurred a net loss of $61.8
million, or $7.66 per share, which reduced its shareholders' equity from $238.8
million, or $29.81 per share, at December 31, 1989 to $167.7 million, or $20.52
per share, at December 31, 1990. This loss reflected a provision for loan
losses of $97.3
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million, $65.3 million of which was added in the fourth quarter of 1990, in
contrast to a provision for loan losses of $15.6 million for fiscal year 1989.
During 1990, Constellation's non-performing assets increased from $48.3 million
to $188.7 million.
These negative trends continued into 1991. In the first quarter of 1991,
Constellation's non-performing assets increased from $188.7 million to $217.6
million and Constellation incurred a net loss of $61.8 million, or $7.56 per
share, which reflected a provision for loan losses of $63.5 million. These
first quarter events further reduced Constellation's shareholders' equity from
$167.7 million at December 31, 1990 to $106.2 million at March 31, 1991. The
capital ratios of Constellation and NSB experienced a commensurate decline, as
the leverage, tier 1 risk-based capital and total risk-based capital ratios of
Constellation declined to 3.29%, 4.76% and 6.55%, respectively, and those of
NSB to 0.96%, 1.79% and 3.59%, respectively, at March 31, 1991. Except for
Constellation's tier 1 risk-based capital ratio, these ratios were
significantly below the general minimum capital requirements imposed by the FRB
and the Office of the Comptroller of the Currency ("OCC") at such date. In
addition, in the first quarter of 1991 Constellation suspended the payment of
dividends on its Constellation Common Shares.
In response to the trend of financial deterioration, in April 1991 the
Constellation Board, in consultation with the OCC, determined that
Constellation's strategic objectives would best be served by a new management
perspective. At that time, the Constellation Board accepted the resignation of
John J. Connolly, the President and Chief Executive Officer of Constellation
and NSB, and appointed Joel D. Siegel as President and Chief Executive Officer
of Constellation and NSB on a full-time interim basis pending the search and
selection of a permanent successor. Mr. Siegel remained president and chief
executive officer of Constellation and NSB until December of 1991 when George
R. Zoffinger was chosen to become the President and Chief Executive Officer of
Constellation and NSB. Before joining Constellation, Mr. Zoffinger served as
New Jersey State Commissioner for Commerce and Economic Development from 1990
to 1991 and prior to 1990 in various capacities with First Fidelity
Bancorporation, including Executive Vice President.
Although Constellation recorded a net loss of $88.7 million, or $10.82 per
share, for all of 1991, it began to institute and undergo significant changes
to its operations, business focus and activities during the latter part of 1991
and continuing into 1992. These changes included (i) entering into a Consent
Order between NSB and the OCC and a Written Agreement between Constellation and
the Federal Reserve Bank of New York ("FRBNY"), which imposed on Constellation
and NSB significant and material operating restrictions and required each to
take various remedial steps to restore its financial condition and results of
operations, including raising substantial amounts of additional capital, (ii)
the replacement of virtually all members of senior management including in the
restructuring of management, lending administration, operations and staffing
areas, (iii) a refocusing of its product and market orientation from an
emphasis on commercial lending to retail banking and consumer and residential
mortgage lending and (iv) a plan to raise additional equity capital so that
Constellation and NSB would both satisfy all applicable capital requirements.
During the spring, summer and early fall of 1992, Constellation pursued
various capital raising alternatives and explored its strategic alternatives.
In September of 1992, Constellation announced that it was considering raising
approximately $70 million in new capital through a rights offering to existing
shareholders and other transactions in order to increase its and NSB's capital
ratios to required minimums and retire Constellation's outstanding
indebtedness. In November of 1992, Constellation formally announced the
decision to proceed with such a rights offering and other transactions, which
were consummated in December of 1992. As a result, Constellation's
shareholders' equity increased by approximately $67.5 million and Constellation
and NSB achieved compliance with applicable regulatory capital requirements by
December 31, 1992.
In connection with the Constellation Board's consideration of its strategic
alternatives and as part of the proposed rights offering process, several bank
holding companies were contacted by Keefe, Constellation's investment banker
and financial adviser, to determine whether any of such bank holding companies
were
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interested in participating in the proposed rights offering as a standby
purchaser or were otherwise interested in pursuing a strategic transaction with
Constellation. CoreStates, as well as the other bank holding companies
described below, were so contacted. As a result of this contact, CoreStates
signed a confidentiality agreement with Constellation in July of 1992 and was
provided certain non-public information regarding Constellation. After a review
of such information, CoreStates indicated that it would be interested in
acquiring Constellation for consideration consisting of CoreStates Common
Shares and a security with a value that would be contingent upon the
performance over a period of time of Constellation's non-performing assets. In
connection with the foregoing, CoreStates conducted due diligence on
Constellation and its representatives met with Mr. Zoffinger and other
representatives of Constellation and representatives of Keefe to discuss the
possibility of CoreStates acquiring Constellation on such basis. These
discussions were terminated in November of 1992 when the Constellation Board
determined to pursue the rights offering option after determining that this
alternative was preferable at that time. One of the other two bank holding
companies referred to below, as well as others, also executed confidentiality
agreements and received non-public information but did not pursue a transaction
with Constellation. The Other Interested Party (as defined below) did not
execute a confidentiality agreement or receive non-public information.
Subsequent to the completion of the rights offering, Constellation received
informal indications of interest from several bank holding companies with
respect to the acquisition of Constellation, including an indication of
interest from CoreStates. In March of 1993, Mr. Zoffinger and other executive
officers of Constellation met with certain executive officers of CoreStates to
discuss, among other things, the progress that Constellation had made since the
completion of the rights offering.
As a result of Constellation's improved financial performance and condition
and the indications of interest previously received, the Constellation Board
met on May 17, 1993 with its financial adviser, Keefe, and Constellation's
legal advisors to initiate the consideration of the strategic alternatives
available to Constellation, including a possible sale of Constellation. During
this meeting, the Constellation Board requested Keefe to begin to explore the
alternatives available to Constellation, but no definitive decision was made by
the Constellation Board among the strategic alternatives. Although
Constellation's financial condition had improved, its level of non-performing
assets was still high.
Subsequent to May 17, 1993, Mr. Zoffinger continued to receive indications of
interest from a number of bank holding companies, including CoreStates and the
two other bank holding companies referred to below, regarding the possibility
of acquiring Constellation. Mr. Zoffinger met, accompanied by representatives
of Keefe, with representatives of the bank holding companies that had expressed
the most serious interest in a possible transaction. On July 14, 1993, the
Constellation Board held a telephonic meeting at which the indications of
interests that had been received and the process by which Constellation might
be sold were reviewed. Based upon the level of interest expressed by each of
such banking holding companies and a determination of each such bank holding
company's capacity to effect an acquisition, Constellation scheduled due
diligence with CoreStates and the other two bank holding companies referred to
below.
On July 21, 1993, the Constellation Board met in a regularly scheduled
meeting and, among other things, further reviewed the status of the indications
of interest, the progress of the due diligence by the interested parties and
the possible process by which Constellation might be sold. At this meeting, the
Constellation Board authorized Keefe to solicit offers for the acquisition of
Constellation from CoreStates and the other two bank holding companies. In
making the solicitation, each party was provided with a proposed form of merger
agreement and requested to indicate changes. Subsequent to the receipt of
responses from such bank holding companies, Constellation, with the assistance
of Keefe and Constellation's legal advisors, conducted further negotiations
with such three bank holding companies. On July 28, 1993 the Constellation
Board met, and reviewed the status of the negotiations. Thereafter,
Constellation, with the assistance of Keefe and Constellation's legal advisors,
continued to conduct negotiations and, in anticipation of a Board meeting on
the evening of August 1, 1993, requested that each interested party submit its
best and final proposal prior to such meeting. As a result of such request,
Constellation received a proposal from CoreStates and one of the other two bank
holding companies completing due diligence (the "Other Interested Party").
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<PAGE>
The CoreStates proposal ("CoreStates Proposal") provided that all of the
Constellation Common Shares would be exchanged for CoreStates Common Shares in
a tax-free transaction that would be accounted for as
a pooling of interests. The Exchange Ratio would be 0.412 (adjusted for the
Stock Dividend, but not the increase in the Exchange Ratio described under "THE
MERGER--General Description; Exchange Ratio.") of a CoreStates Common Share for
each Constellation Common Share. Based on the CoreStates Common Share closing
price of $28.56 on July 30, 1993 (adjusted for the Stock Dividend), the last
trading day prior to the August 1, 1993 Constellation Board meeting, 0.412 of a
CoreStates Common Share had a market value of $11.77. Under the CoreStates
Proposal the exchange ratio was fixed and would not be adjusted for any change
in the market price of CoreStates Common Shares. In addition, under the
CoreStates Proposal, Constellation would have the right to terminate the Merger
Agreement in the event that the market price of CoreStates Common Shares over a
pricing period prior to closing declined by more than 15% from the CoreStates
Common Share price at the time of the signing of the Merger Agreement and such
decline exceeded by more than 15% the percentage decline over the same pricing
period from the time of the signing of the Merger Agreement of an index of
common stocks of various bank holding companies unless CoreStates increased the
exchange ratio. The CoreStates Proposal also provided certain severance
benefits to employees of Constellation who might lose their jobs as a result of
the Merger. In addition, the CoreStates Proposal had all required corporate
authorizations, CoreStates had relatively few outstanding changes that it
required be made to the proposed form of Merger Agreement and CoreStates
indicated that it was ready to execute the Merger Agreement within hours after
the Constellation Board meeting. The CoreStates Proposal required Constellation
to issue to CoreStates an option to purchase under certain circumstances
Constellation Common Shares in an amount up to 19.9% of the outstanding
Constellation Common Shares. The CoreStates Proposal also by its terms expired
at midnight on August 1, 1993.
The Other Interested Party's proposal (the "Other Interested Party's
Proposal") also consisted of a tax-free all-common stock transaction accounted
for as a pooling of interests with an exchange ratio that, based on the closing
price per share of the Other Interested Party's common stock on July 30, 1993,
the last trading day prior to the August 1, 1993 Constellation Board meeting,
represented a market value virtually identical to the market value under the
CoreStates Proposal. The exchange ratio, however, under the Other Interested
Party's Proposal, would automatically be reduced in the event that the Other
Interested Party's common stock increased in market value over a pricing period
prior to closing so that, based on such market value, holders of Constellation
Common Shares would not receive on a per share basis Other Interested Party
common stock with a value in excess of $15.50. The exchange ratio, however,
would automatically be increased on a substantially similar basis if the Other
Interested Party's common stock declined so that holders of Constellation
Common Shares would not receive on a per share basis Other Interested Party
common stock with a value below $8.50. Constellation would not, however, have
any right to terminate the Merger Agreement for any such decline under the
Other Interested Party's Proposal. The Other Interested Party's Proposal also
required a 19.9% stock option. The Other Interested Party's Proposal was
subject to the approval of its Board of Directors and the Other Interested
Party appeared to have more substantial changes that it required be made to the
proposed form of Merger Agreement than CoreStates. The Other Interested Party's
Proposal also contained a proposal for severance benefits less favorable than
under the CoreStates Proposal.
On the evening of August 1, 1993, a special meeting of the Constellation
Board was held, with representatives of Keefe and Constellation's legal
advisors in attendance, to consider the CoreStates Proposal and the Other
Interested Party's Proposal. Keefe made a presentation on the financial aspects
of the proposals.
After an extensive discussion, the Constellation Board determined, based upon
consideration of the various factors discussed below, that the CoreStates
Proposal was superior to the Other Interested Party's Proposal. Keefe rendered
its oral opinion that, as of such date, the consideration to be received in the
Merger was fair to the holders of Constellation Common Shares from a financial
point of view. Based upon that review and opinion, the Constellation Board
determined that it could best enhance shareholder value and provide service to
its customers and communities by accepting the CoreStates Proposal. All
Constellation
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directors present voted in favor of the Merger. The two directors who were not
present subsequently have endorsed the Merger.
The Constellation Board was considering the possibility of a sale of
Constellation as one of the various strategic alternatives available to
Constellation since it initiated its consideration of its strategic
alternatives in May of 1993. In addition, as described above, from May of 1993,
the Constellation Board took various actions to explore such strategic
alternatives. A definitive determination, however, to sell Constellation was
not made until the August 1, 1993 Constellation Board meeting and then only
after the consideration of the factors described below, including the value of
the consideration contained in the CoreStates Proposal. The three parties that
performed due diligence were each informed prior to such meeting that it was
possible that a definitive decision would be made regarding the sale of
Constellation at such Constellation Board meeting and that, in light of the
negotiations that had occurred, it was unlikely that any further bidding
opportunities would be provided and, therefore, they were requested to provide
their "best" offer.
REASONS FOR MERGER
Constellation.
THE CONSTELLATION BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF CONSTELLATION AND ITS
SHAREHOLDERS. THE CONSTELLATION BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF CONSTELLATION COMMON SHARES VOTE FOR THE ADOPTION AND APPROVAL OF
THE MERGER AGREEMENT. The Constellation Board believes that the Merger will
enable holders of Constellation Common Shares to realize significant value on a
tax-free basis and also will enable shareholders to acquire a more liquid stock
in a financially stronger organization. In addition, the shareholders would
receive a dividend on the CoreStates Common Shares. See "THE MERGER--Background
of the Merger" and "--Opinion of Financial Adviser."
In reaching its determination that the Merger Agreement is in the best
interests of Constellation and holders of Constellation Common Shares, the
Constellation Board considered a number of factors, both from a short-term and
a long-term perspective, including, without limitation, the following:
(i) The Constellation Board's familiarity with and review of
Constellation's business, financial condition, results of operations and
prospects, including, but not limited to, its level of non-performing
assets, the quality of its loan portfolio and its potential growth,
development, productivity and profitability;
(ii) The current and prospective environment in which Constellation
operates, including national and local economic conditions, the continued
weakness in the New Jersey real estate markets, the competitive environment
for banks and other financial institutions generally, the increased
regulatory burden on financial institutions generally and the trend toward
consolidation in the financial services industry;
(iii) The Constellation Board's review with its legal and financial
advisers of alternatives to the Merger (including the alternatives of
remaining independent and growing internally, remaining independent for a
period of time and then selling the company and a "merger of equals" type
transaction with a banking organization of similar size), the range of
possible values to holders of Constellation Common Shares obtainable
through implementation of such alternatives and the timing and likelihood
of actually receiving such values;
(iv) The Constellation Board's review with its legal and financial
advisers of the results of discussions with possible affiliation partners
for Constellation;
(v) The expectation that the Merger will provide holders of Constellation
Common Shares with the opportunity to receive a substantial premium over
the recent market prices for their shares and that the Merger will be tax-
free for federal income tax purposes to Constellation and its shareholders
(other than in respect of cash paid in lieu of fractional shares) and will
be accounted for under the pooling of interests
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method of accounting and, therefore, will not give rise to goodwill (see
"Certain Federal Income Tax Considerations" and "Accounting Treatment");
(vi) The review by the Constellation Board with its legal and financial
advisers of the provisions of the Merger Agreement and the Option
Agreement;
(vii) Information concerning the business, financial condition, results
of operations and prospects of CoreStates and the Other Interested Party,
the recent performance of CoreStates Common Stock and the common stock of
the Other Interested Party and the pro forma impact of the acquisition of
Constellation on each of CoreStates and the Other Interested Party;
(viii) The financial and other significant terms of the CoreStates
Proposal compared to those of the Other Interested Party's Proposal,
including the provision in the Other Interested Party's Proposal that would
limit the market value of the consideration for Constellation Common Shares
to $15.50 based on the Other Interested Party's common stock over a pricing
period at or near the closing by means of a reduction in the exchange ratio
and the absence of any such limit in the CoreStates Proposal;
(ix) The CoreStates Proposal having all requisite corporate
authorizations and fewer outstanding contractual changes and CoreStates
being in a position to execute a definitive Merger Agreement shortly after
the acceptance of its offer, while the Other Interested Party's Proposal
was subject to subsequent Constellation Board authorization, and the
resolution of some substantial changes to the proposed form of Merger
Agreement;
(x) The oral presentation by Keefe and the oral opinion of Keefe that the
consideration to be received by holders of Constellation Common Shares is
fair to the holders of Constellation Common Shares from a financial point
of view (see "Opinion of Financial Adviser");
(xi) The more substantial severance and severance type benefits for
employees contained in the CoreStates Proposal compared to those in the
Other Interested Party's Proposal; and
(xii) The expectation that CoreStates will continue to provide quality
service to the communities and customers served by Constellation.
The Constellation Board did not assign any specific or relative weights to
the factors under consideration. The Constellation Board's analysis of these
factors, however, addressed two major issues. The first issue was whether a
sale of Constellation was appropriate at such time in light of available sale
opportunities and other strategic alternatives. The second issue was that if
Constellation was to be sold, what was the best reasonably available and
acceptable sale opportunity.
Notwithstanding that the Constellation Board had concluded that Constellation
had made substantial progress in resolving the extremely serious financial and
managerial problems that first arose in 1990 and that Constellation had very
favorable prospects as a stand alone banking organization, in analyzing
Constellation's business, financial condition, results of operations and
prospects, the current and prospective environment in which it operates and its
strategic alternatives as described above in items (i), (ii) and (iii), the
Constellation Board concluded that Constellation faced various challenges and
restraints and a variety of risks. The challenges and restraints included,
among others: (i) the limited scope of its existing business (and related
products and services) which consisted primarily of a relatively new retail
banking effort and a middle market and real estate commercial lending business;
(ii) the growth prospects in such business in light of existing economic
conditions and competition; (iii) its size; and (iv) its capability to continue
to generate increasing levels of revenue. The risks facing Constellation that
the Constellation Board analyzed and considered included the risks resulting
from a high level of non-performing assets and monitored loans, operational
risk, the risk of continued weakness in the economy and relevant real estate
markets, competitive risk and regulatory risk. In light of such challenges and
restraints and risks and the level of value obtainable as evidenced by the
CoreStates Proposal and the Other Interested Party's Proposal as described
above, the Constellation Board concluded that the sale of Constellation at such
time at the level of values obtainable was a more favorable alternative to the
alternatives to a sale as described in item (iii) above of remaining
independent and growing internally, remaining independent for a period of time
and then selling and a
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"merger of equals" type of transaction. Accordingly, and in light of the
substantial financial benefit to Constellation's shareholders from a
transaction such as the Merger as described in item (v) above and Keefe's
advice and ability to render a fairness opinion regarding such a transaction,
the Constellation Board concluded at such time that a sale of Constellation at
such time was the most favorable strategic alternative available and in the
best interests of Constellation and its shareholders.
Having concluded at such time that a sale of Constellation was in the best
interests of Constellation and its shareholders, the Constellation Board
analyzed and compared the CoreStates Proposal and the Other Interested Party's
Proposal based on the factors set forth in items (vi) through (xii) above.
Although the Constellation Board considered the current value of the two
proposals to be substantially similar, it determined that the CoreStates
Proposal was superior for a variety of reasons, including: (i) the absence of a
limit on the exchange ratio which existed in the Other Interested Party's
Proposal; (ii) the ability to terminate the merger agreement provided for in
the CoreStates Proposal in the event of a certain decline in the market value
of the CoreStates Common Shares; (iii) the CoreStates Proposal having all
requisite corporate authorizations and fewer outstanding contractual changes
and CoreStates being in a position to enter into the Merger Agreement shortly
after the acceptance of the offer, whereas the Other Interested Party's
Proposal had a variety of contingencies and uncertainties; and (iv) the
CoreStates Proposal being more favorable in terms of employees and the
communities that Constellation served.
CoreStates.
The CoreStates Board of Directors approved the Merger Agreement and the
Option Agreement and determined that the Merger and the issuance of CoreStates
Common Shares pursuant thereto to be in the best interests of CoreStates and
its shareholders.
In reaching its determination to approve the Merger Agreement, the CoreStates
Board of Directors considered a number of factors, including, without
limitation, the following:
(i) a review of Constellation, including a presentation by CoreStates
management regarding its due diligence review of Constellation, including
the asset quality of its loan portfolio, operations, earnings and financial
condition on an historical, prospective and pro forma basis, as well as the
opportunities for both cost savings and revenue enhancements that are
expected to result from the Merger and the respective contributions the
parties would bring to the combined institution;
(ii) a review of the advice of management and legal counsel regarding the
terms of the Merger Agreement and the Option Agreement;
(iii) CoreStates' existing position in New Jersey and its desire to
strengthen and expand its presence in that state, particularly in the
markets broadly served through the Constellation franchise; and
(iv) the expectation that the Merger will be tax-free for federal income
tax purposes to CoreStates and its shareholders and that the Merger will
likely be accounted for under the pooling of interests method of accounting
and, therefore, will not give rise to intangible assets.
The CoreStates Board of Directors also considered the initial per share
dilution and decline in earnings per share of CoreStates Common Shares in
considering the strategic significance of the acquisition of the Constellation
franchise and the expectation that the transaction would result in a positive
contribution to CoreStates' earnings per share in the second full year after
the Effective Date through revenue enhancements and the ability to eliminate
approximately 35% of Constellation's expense base. The CoreStates Board of
Directors also considered the increase in loan loss provision on a pro forma
basis, the initial negative effect on CoreStates' return on assets, return on
equity, allowance for possible loan losses and non-performing assets to total
loans plus OREO. The CoreStates' Board of Directors also considered the planned
credit actions (as more fully described in footnote 2 on page 54) would ensure
that loan loss reserves would be adequate given CoreStates' asset management
strategy, subsequent provisioning could be effected on a more normalized basis,
and that a bulk sale of problem assets would further improve CoreStates' pro
forma asset quality measures. Constellation's historical earnings reflected the
impact of its credit problems, the time and energy required by management to
address those problems and the operating and capital constraints which it faced
and, therefore, did not provide a complete picture of Constellation Bank's
earnings and growth potential. Greater
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consideration was given to the transaction's prospective impact on CoreStates'
earnings per share after taking into account planned credit actions, cost
savings and revenue enhancements. Much of the analytical focus was on
Constellation's prospective economic value to CoreStates' shareholders. The
premium offered by CoreStates incorporated Constellation's prospective economic
value to CoreStates' shareholders, after giving effect to planned credit
adjustments, cost savings and revenue enhancements.
The CoreStates Board of Directors did not assign any specific or relative
weight to the factors under its consideration.
OPINION OF FINANCIAL ADVISER
General. Pursuant to an engagement letter dated as of July 12, 1993 (the
"Keefe Engagement Letter"), the Constellation Board retained Keefe to render
financial advisory and investment banking services to Constellation in
connection with a possible sale of Constellation (the "Transaction").
Keefe is a recognized investment banking firm and as part of its investment
banking business is continually engaged in the valuation of bank and bank
holding company securities in connection with acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for various other purposes. As specialists in
the securities of banking companies, Keefe has experience in, and knowledge of,
the valuation of banking enterprises. The Constellation Board selected Keefe on
the basis of its ability to evaluate the fairness of the Exchange Ratio, from a
financial point of view, as set forth in the Merger Agreement, its
qualifications, its previous experience and its reputation in the banking and
investment communities. Keefe has acted exclusively for the Constellation Board
in rendering its fairness opinion and will receive a fee from Constellation for
its services.
Keefe has rendered a written opinion to the Constellation Board, dated as of
the date of this Proxy Statement-Prospectus, to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of view, to the
holders of the Constellation Common Shares. The full text of Keefe's opinion is
attached as Appendix II to this Proxy Statement-Prospectus and is incorporated
herein by reference. The description of the opinion set forth herein is
qualified in its entirety by reference to Appendix II. Constellation
shareholders are urged to read the opinion in its entirety for a description of
the procedures followed, assumptions made, matters considered, and
qualifications and limitations on the review undertaken, by Keefe in connection
therewith.
Keefe's written opinion attached as Appendix II to this Proxy Statement-
Prospectus is based upon the Exchange Ratio of 0.4137 CoreStates Common Shares
for each Constellation Common Share, which is applicable so long as the
Effective Date occurs on or before March 30, 1994, as well as the Exchange
Ratio of 0.412 CoreStates Common Shares for each Constellation Common Share,
which will be applicable thereafter. The oral opinion delivered to the
Constellation Board on August 1, 1993 was based upon the Exchange Ratio of
0.412 CoreStates Common Shares for each Constellation Common Share, which was
the Exchange Ratio set forth in the Merger Agreement, adjusted to give effect
to the Stock Dividend. Keefe's written opinion attached as Appendix II to this
Proxy Statement-Prospectus and the oral opinion delivered to the Constellation
Board on August 1, 1993 are to the effect that, as of such date, the Exchange
Ratio is fair, from a financial point of view, to the holders of Constellation
Common Shares.
Keefe's opinion is directed only to the Exchange Ratio and does not
constitute a recommendation to any Constellation shareholder as to how such
shareholder should vote at the Special Meeting.
In connection with its opinion, Keefe reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of Constellation
and CoreStates, including, among other things, (i) the Merger Agreement and
related Option Agreement, (ii) the Registration Statement (including this Proxy
Statement-Prospectus for the Special Meeting dated February 11, 1994), (iii)
Annual Reports to Shareholders and Annual Reports on Form 10-K for the three
years ended December 31, 1992 of Constellation and CoreStates; (iv) certain
interim reports to shareholders and Quarterly Reports on Form 10-Q of
Constellation and CoreStates and certain other communications from
Constellation and CoreStates to their respective shareholders, such as press
releases and letters to shareholders; (v) other financial information
concerning the businesses and operations of Constellation and CoreStates
furnished to Keefe by Constellation and
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CoreStates for purposes of its analysis, including certain internal financial
analyses and forecasts for Constellation and CoreStates prepared by the senior
management of Constellation and CoreStates; (vi) certain publicly available
information concerning the trading of, and the trading market for,
Constellation Common Shares and CoreStates Common Shares; and (vii) certain
publicly available information with respect to banking companies and the nature
and terms of certain other transactions that Keefe considered relevant to its
inquiry. In addition, Keefe held discussions with senior management of
Constellation and CoreStates concerning their past and current operations,
financial condition and prospects, and results of regulatory examinations.
In conducting its review and arriving at its opinion, Keefe relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and Keefe did not attempt
independently to verify such information. Keefe relied upon the management of
Constellation and of CoreStates as to the reasonableness and achievability of
the financial and operating forecasts and projections (and the assumptions and
bases therefor) provided to it, and assumed that such forecasts and projections
reflect the best currently available estimates and judgments of such
managements and that such forecasts and projections will be realized in the
amounts and in the time periods currently estimated by such managements. Keefe
also assumed, without independent verification, the aggregate allowances for
loan losses for Constellation and CoreStates as set forth in such financial
statements and projections to be adequate to cover such losses. Keefe did not
make or obtain any evaluation or appraisals of the property of Constellation or
CoreStates, nor did Keefe examine any individual loan credit files. Keefe was
informed by Constellation and assumed for purposes of its opinion that the
Merger will be recorded as a pooling of interests under generally accepted
accounting principles.
Keefe considered such financial and other factors as it deemed appropriate
under the circumstances, including, among others, the following: (i) the
historical and current financial position and results of operations of
Constellation and CoreStates; (ii) the assets and liabilities of Constellation
and CoreStates; and (iii) the nature and terms of certain other merger
transactions involving banks and bank holding companies. Keefe also took into
account Keefe's assessment of general economic, market and financial conditions
and Keefe's experience in other transactions, as well as Keefe's experience in
securities valuation and Keefe's knowledge of the banking industry generally.
Keefe's opinion is necessarily based upon conditions as they existed and can be
evaluated on the date of the aforementioned fairness opinion and the
information made available to Keefe through the date of the fairness opinion.
Prior to rendering its written opinion, Keefe rendered an oral opinion to the
Constellation Board on August 1, 1993, to the effect that, as of such date, the
Exchange Ratio of 0.412 was fair, from a financial point of view, to the
holders of Constellation Common Shares. Set forth below is a brief summary of
selected analyses prepared by Keefe in connection with its oral opinion
adjusted for the CoreStates Stock Dividend, but not the increase in the
Exchange Ratio described under "THE MERGER--General Description; Exchange
Ratio."
Analysis of the CoreStates Proposal. Keefe reviewed certain historical
financial information for Constellation and CoreStates and calculated the
imputed value of the CoreStates Proposal to holders of Constellation Common
Shares. This analysis showed a value of $11.77 (the "Transaction Value") per
Constellation Common Share based upon the Exchange Ratio of 0.412 and the
closing price of CoreStates Common Shares on July 30, 1993 of $28.5625 per
share (in each case as adjusted to give effect to the Stock Dividend).
Keefe also calculated the multiple which the Exchange Ratio, based on a
Transaction Value of $11.77 per share, reflected of (i) the market price of the
Constellation Common Shares of $7.50 (based upon average last sale prices
recorded during the month of April 1993), (ii) Constellation's March 31, 1993
book value per share of $5.48, (iii) Constellation's 1993 estimated earnings
per share of $0.45 (based on Keefe's published estimate), and (iv)
Constellation's 1994 estimated earnings per share of $0.75 (based on Keefe's
published estimate). The Transaction Value to April 1993 market value
represented a 60% premium, the Transaction Value to March 31, 1993 book value
multiple was 219%, the Transaction Value to 1993 estimated earnings multiple
was 26.2 times and the Transaction Value to 1994 estimated earnings multiple
was 15.7 times.
Analysis of "Acquired Peer Group." Keefe compared the financial performance
of Constellation based on various financial measures of earnings performance,
capital adequacy and asset quality, to that of a group
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of bank holding companies that were acquired in recent transactions, including
First Eastern Corp., Commonwealth Bancshares Corp., National Community Banks,
Inc., First Pennsylvania Corporation, Peoples Westchester Savings Bank,
Multibank Financial Corp. and Equimark Corp. This analysis showed, among other
things, that the group had preannouncement price to trailing 12-month earnings
ratios from 8.7 to 32.8 with an average of 20.9 compared to Constellation's
ratio of 16.5 as of July 30, 1993, preannouncement price to book value ratios
from 1.23 to 2.5 with an average of 2.05 compared to a 1.34 ratio for
Constellation as of July 30, 1993, equity to asset ratios of 4.81% to 9.25%
with an average of 6.79% compared to Constellation's ratio of 6.22% as of March
31, 1993, nonperforming assets to assets ratios of 1.37% to 4.78% with an
average of 3.08% compared to Constellation's ratio of 8.01% as of March 31,
1993, and loan loss reserve to nonperforming loans ratios from 33% to 105% with
an average of 75% compared to Constellation's ratio of 85% as of March 31,
1993.
Keefe compared the financial performance of CoreStates based on various
financial measures of performance and dividend yield to that of a peer group of
bank holding companies that are active or potential acquirors of banks in
Constellation's region including The Bank of New York Company, Inc., First
Fidelity Bancorporation, Chemical Banking Corp., The Chase Manhattan Corp.,
Fleet Financial Group, Inc., Meridian Bancorp, Inc., Summit Bancorporation and
UJB Financial Corp. This analysis showed, among other things, that using
financial data as of March 31, 1993 and market data as of July 27, 1993,
CoreStates had a price-to-book value multiple of 1.94 times compared to a range
of multiples from 1.01 times to 1.80 times for the peer group, a price-to-
earnings multiple based on 1994 estimated earnings of 10.27 times compared to a
range of 6.99 times to 11.81 times for the peer group and a dividend yield of
3.72% compared to a range of 2.42% to 4.13% for the peer group.
Analysis of Selected Merger Transactions. Keefe reviewed certain financial
data relating to seven bank merger transactions which had occurred since
January 1990. The selection of bank mergers included the following transactions
(acquiror/acquiree): PNC Bank Corp./First Eastern Corp., Meridian Bancorp
Inc./Commonwealth Bancshares Corp., The Bank of New York Company, Inc./National
Community Banks, Inc., CoreStates Financial Corp/First Pennsylvania
Corporation, First Fidelity Bancorporation/Peoples Westchester Savings Bank,
Bank of Boston Corp./Multibank Financial Corp. and Integra Financial
Corp./Equimark Corp. In each case, Keefe calculated the price as a multiple to
current earnings, book value, preannouncement market price and projected next
year earnings. For this analysis, it was assumed that the CoreStates Proposal
represented approximately $11.77 per CoreStates Common Share for each
Constellation Common Share. In the selected transactions, the calculations
yielded a range of (i) price to this year's earnings multiples of 11.9 to
132.5, with an average of 44.8 compared with a multiple of 16.5 for the
CoreStates Proposal; (ii) price to next year's earnings multiples of 13.3 to
22.1, with an average of 18.0 compared with a multiple of 16.0 for the
CoreStates Proposal; (iii) price to book value multiples of 1.23 to 2.87 (which
2.87 multiple would have been 2.07 after giving effect to certain FAS 109
benefits), with an average of 2.08 (which multiple would have been 2.00 after
giving effect to certain FAS 109 benefits) compared with a multiple of 2.19
associated with the CoreStates Proposal; and (iv) price to preannouncement
market price multiples of 1.02 to 1.56, with an average of 1.30 compared with a
multiple of 1.60 (based on the April 1993 average market price of Constellation
Common Shares) associated with the CoreStates Proposal.
No company or transaction used in the above analysis as a comparison is
identical to Constellation, CoreStates or the contemplated transaction.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which they are
being compared.
Contribution Analysis. Keefe analyzed the relative contribution of each of
Constellation and CoreStates to certain balance sheet and income statement
items, including assets, common equity and 1994 estimated earnings. Keefe then
compared the ownership percentages of the combined company implied by the
relative contributions of such balance sheet and income statement items, with
an approximately 8.7% ownership percentage for Constellation shareholders
resulting from the Exchange Ratio of 0.412 contained in the CoreStates
Proposal. The contribution analysis showed that under the CoreStates Proposal,
Constellation would contribute approximately 6% of the combined assets, 4% of
the combined common equity and 3% of the estimated 1994 earnings of the two
companies (before cost savings).
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Discounted Cash Flow Analysis. Keefe estimated the present value of the
future streams of after-tax cash flows that Constellation could produce through
1996. The analysis was based on several assumptions, including no dividend
payments through 1994, a $0.25 dividend per share in 1995 (a 20% payout ratio),
a $0.62 dividend in 1996 (a 40% payout ratio), an earnings per share of $1.55
in 1996 and a book value per share of $8.64 in 1996. A terminal value was
calculated for 1996 by multiplying Constellation's projected 1997 earnings by a
price to earnings multiple of 16 times and a price to book value multiple of
2.0 times, chosen to reflect possible acquisition premiums. The terminal values
were then discounted to present value using a 16% discount rate chosen to
reflect an assumed required rate of return of prospective buyers of
Constellation Common Shares. This discounted terminal valuation analysis
indicated a reference range of between $10.12 and $11.64 per share of
Constellation Common Shares.
Keefe also provided a sensitivity analysis showing the range of discounted
values that would result if discount rates ranging from 12% to 20% were
utilized and a terminal price-to-earnings multiple of 14 times to 18 times, and
terminal book value multiples of 1.60 times to 2.40 times, were applied. This
analysis showed a range of values based upon the terminal price earnings
multiples of $8.06 to $12.56 and a range of values based upon the terminal book
value multiples of $8.52 to $15.39.
Keefe compared these values to the potential value provided to Constellation
shareholders in the Merger. This analysis was based upon varying assumptions
concerning required reserve levels, earnings growth rates and exit multiples,
which assumptions are themselves based upon many factors and assumptions, many
of which are beyond the control of Constellation and CoreStates. This analysis
also assumed that Constellation shareholders received CoreStates stock at the
proposed exchange ratio, held the stock and received the appropriate CoreStates
dividend (reinvested at 5% per annum) and sold CoreStates stock into the open
market at year-end 1996. This analysis showed a range of value for
Constellation shareholders of $9.89 to $16.20.
As indicated below, this analysis is not necessarily indicative of actual
values or actual future results and does not purport to reflect the prices at
which any securities may trade at the present time or at any time in the
future.
Merger Impact Analysis. Keefe illustrated the earnings dilution that would be
incurred by CoreStates based upon the proposed exchange ratio. The analysis
showed that CoreStates would incur approximately 2.7% dilution in earnings per
share based upon 1994 estimated earnings. This analysis also showed that
CoreStates would have to eliminate approximately 23% of Constellation's non-
interest expense in 1994 in order to eliminate any earnings per share dilution.
Exchange Ratio Impact. Keefe also illustrated the immediate impact the 0.412
exchange ratio would have on each Constellation Common Share's underlying
earnings, book value and dividends. The analysis compared Constellation's stand
alone 1994 earnings per share estimate of $0.75 to approximately $1.12 earnings
estimate per Constellation Common Share if exchanged into CoreStates Common
Shares (based on Keefe's estimate of $2.78 per share for CoreStates). The
change in earnings per share estimate represented an approximately 50%
increase. Keefe's analysis also showed that the 0.412 exchange ratio would
increase the stated March 31, 1993 book value per share from $5.48 to
approximately $6.05, or an increase of about 10% per Constellation shareholder,
based upon ownership in CoreStates. Keefe's analysis noted that CoreStates paid
a dividend in excess of $1.00 per share, as compared with no dividend per
Constellation Common Share and with no contemplation by Constellation that
dividends would be paid in the near future.
The summary contained herein provides a summary description of analyses
prepared by Keefe in connection with its oral opinion. The summary does not
purport to be a complete description of the analyses performed by Keefe in
connection with the rendering of its oral fairness opinion. The preparation of
a fairness opinion is not necessarily susceptible to partial analysis or
summary description. Keefe believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or selecting part or all of the
above summary, without considering all factors and analyses, would create an
incomplete view of the process underlying the analyses set forth in the Keefe
presentations and opinions. The ranges of valuations resulting from any
particular analysis
35
<PAGE>
described above should not be taken to be Keefe's view of the actual value of
Constellation or CoreStates. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis
was given more weight than any other analyses.
In performing its analyses, Keefe made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Constellation or CoreStates.
The analyses performed by Keefe are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable
than suggested by such analyses. The analyses do not purport to be appraisals
or to reflect the prices at which a company might actually be sold or the
prices at which any securities may trade at the present time or at any time in
the future. In addition, as described above, Keefe's opinion and presentation
to the Constellation Board is just one of many factors taken into consideration
by the Constellation Board.
Pursuant to the Keefe Engagement Letter, Constellation agreed to pay Keefe a
cash fee of $250,000 concurrently with the first to be executed of an agreement
in principle or a definitive agreement contemplating the consummation of a
Transaction and a cash fee of $250,000 promptly after the mailing of any proxy
statement in connection with the Transaction. Finally, Constellation has agreed
to pay Keefe at the time of closing a cash fee ("Contingent Fee") equal to
0.90% of the market value of the aggregate consideration offered in the
Transaction. Based on the Transaction Value, such Contingent Fee would be
approximately $3,000,000. The fees paid prior to the Contingent Fee payment
will be credited against the Contingent Fee. Constellation has also agreed to
indemnity Keefe against certain liabilities. Keefe also received a fee for
financial services rendered to Constellation in December of 1992 in connection
with a restructuring which included a debt-to-equity conversion and a rights
offering with standby purchasers and Keefe acting as standby underwriter. Keefe
received aggregate fees and reimbursement of expenses of $2,207,252 for the
aforementioned December of 1992 services.
STOCK OPTION AGREEMENT
At the insistence of CoreStates and as a condition to CoreStates entering
into the Merger Agreement and in consideration therefor, Constellation and
CoreStates entered into a Stock Option Agreement (the "Option Agreement")
entitling CoreStates, under certain circumstances, to purchase from
Constellation up to 5,300,000 Constellation Common Shares (the "Option
Shares"), representing approximately 19.5% of the outstanding Constellation
Common Shares, at an exercise price of $10.375 per share, subject to
termination within certain periods, in cash (the "Option").
CoreStates or any other holder or holders of the Option (collectively, the
"Holder") may exercise the Option, in whole or in part, subject to applicable
law and regulatory restrictions, if both an "Initial Triggering Event" and a
"Subsequent Triggering Event" have occurred prior to the occurrence of an
"Exercise Termination Event." The term "Initial Triggering Event" is defined as
the occurrence of any of the following events:
(i) Constellation or Constellation Bank, without having received
CoreStates' prior written consent, enters into an agreement to engage in an
Acquisition Transaction with any person other than CoreStates or any
CoreStates subsidiary or the Constellation Board recommends that the
shareholders of Constellation approve or accept any Acquisition Transaction
other than as contemplated by the Merger Agreement. "Acquisition
Transaction" means (x) a merger or consolidation, or any similar
transaction, involving Constellation or Constellation Bank, (y) a purchase,
lease or other acquisition of all or substantially all of the assets of
Constellation or Constellation Bank, or (z) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 20% or more of the voting power of Constellation or
Constellation Bank;
(ii) Any person other than CoreStates, any CoreStates subsidiary or any
Constellation subsidiary acting in a fiduciary capacity acquires beneficial
ownership or the right to acquire beneficial ownership of 20% or more of
the outstanding Constellation Common Shares;
36
<PAGE>
(iii) Any person other than CoreStates or any CoreStates subsidiary makes
a bona fide proposal to Constellation or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(iv) After a third party makes a proposal to Constellation or its
shareholders to engage in an Acquisition Transaction, Constellation
breaches specified provisions of the Merger Agreement and such breach
entitles CoreStates to terminate the Merger Agreement and is not cured
prior to the date that CoreStates sends notice of its exercise of the
Option; or
(v) Any person other than CoreStates or any CoreStates subsidiary, and
other than in connection with a transaction to which CoreStates has given
its prior written consent, files an application or notice with the FRB or
other federal or state bank regulatory authority, which application or
notice has been accepted for processing, for approval to engage in an
Acquisition Transaction.
"Subsequent Triggering Event" is defined as either (i) the acquisition by any
person or group of beneficial ownership of 25% or more the then outstanding
Constellation Common Shares or (ii) the occurrence of an Initial Triggering
Event described in clause (i) above, except that the percentage reference in
subclause (z) thereof shall be 25%.
"Exercise Termination Event" is defined as the following events: (i) the
Effective Time (as defined below) of the Merger; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event; or (iii) the passage of
nine months after termination of the Merger Agreement if such termination
follows the occurrence of an Initial Triggering Event (provided that if an
Initial Triggering Event continues or occurs beyond such termination, the
Exercise Termination Event shall be nine months from the expiration of the Last
Triggering Event but in no event more than twelve months after such
termination). The "Last Triggering Event" shall mean the last Initial
Triggering Event to occur.
Under applicable law and in connection with the Option Agreement, CoreStates
may be required to obtain the prior approval of the FRB prior to acquiring 5%
or more of the issued and outstanding Constellation Common Shares. Certain
other regulatory approvals may also be required before such an acquisition
could be completed.
After a Subsequent Triggering Event that occurs prior to an Exercise
Termination Event, CoreStates (on behalf of itself or any subsequent Holder)
may demand that Constellation promptly prepare, file and keep current a shelf
registration statement under the Securities Act covering Constellation Common
Shares issued or issuable pursuant to the Option and use its reasonable efforts
to cause such registration statement to become effective and remain current in
order to permit the disposition of the Option Shares. CoreStates is entitled to
two such registration statements.
Neither Constellation nor CoreStates may assign any of its respective rights
and obligations under the Option Agreement or the Option to any other person
without the other party's written consent, except that if a Subsequent
Triggering Event occurs prior to an Exercise Termination Event, CoreStates may
assign in whole or in part its rights and obligations thereunder within 30 days
following such Subsequent Triggering Event. Until 30 days after the FRB
approves an application by CoreStates to acquire the Option Shares, CoreStates
may not assign its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one party acquires
the right to purchase in excess of 2% of the voting shares of Constellation,
(iii) an assignment to a single party for the purpose of conducting a widely
dispersed public distribution on CoreStates's behalf or (iv) any other manner
approved by the FRB.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to an
Exercise Termination Event, at the request of the holder, Constellation will be
obligated to repurchase the Option and any Option Shares theretofore purchased
pursuant to the Option at a price determined as set forth in the Option
Agreement.
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<PAGE>
The Option Agreement provides that in the event that prior to an Exercise
Termination Event, Constellation enters into an agreement (i) to consolidate
with or merge into any entity other than CoreStates or one of its subsidiaries
and will not be the continuing or surviving corporation of such consolidation
or merger, (ii) to permit any entity other than CoreStates or one of its
subsidiaries to merge into Constellation with Constellation as the continuing
or surviving corporation, but, in connection therewith, the then outstanding
Constellation Common Shares are changed into or exchanged for securities of any
other person or cash or any other property, or the then outstanding
Constellation Common Shares after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company or (iii) to sell
or transfer all or substantially all of its assets to any entity other than
CoreStates or one of its subsidiaries, then, the agreement governing such
transaction must provide that the Option will be converted into or exchanged
for an option (a "Substitute Option") to purchase shares of common stock of, at
the Holder's election, either the continuing or surviving corporation of a
merger or a consolidation or the transferee of all or substantially all of
Constellation's assets. The number of shares subject to the Substitute Option
and the exercise price per share will be determined in accordance with a
formula in the Option Agreement. To the extent possible, the Substitute Option
will contain other terms and conditions that are the same as those in the
Option.
In the event that Constellation's shareholders fail to approve the Merger
Agreement, either CoreStates or Constellation may terminate the Merger
Agreement in accordance with its terms. See "--Effective Date; Effective Time;
Amendments; Waiver; Termination." If no Initial Triggering Event and Subsequent
Triggering Event has occurred prior to such termination or an Exercise
Termination Event, the Option Agreement will automatically terminate at such
time. If an Initial Triggering Event and Subsequent Triggering Event do occur
prior to such termination, then CoreStates will be entitled to exercise the
Option in accordance with its terms.
A copy of the Option Agreement is attached as Exhibit A to the Merger
Agreement and included in Appendix I to this Proxy Statement-Prospectus.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
Upon consummation of the Merger, Constellation will be merged with and into
CoreStates, with CoreStates as the surviving entity thereto. CoreStates'
current directors will serve as the directors of the surviving corporation
following the Merger, and the current executive officers of CoreStates will
comprise the senior management of CoreStates. All subsidiaries of Constellation
will become subsidiaries of CoreStates.
It is planned that after the Merger, the banking subsidiary of Constellation,
Constellation Bank, will be merged with and into New Jersey National Bank, a
national banking subsidiary of CoreStates located in Pennington, New Jersey
("NJNB"). The Merger must be approved by the OCC. An application for such
approval has been filed.
Information concerning the directors and executive officers of CoreStates is
included in the CoreStates 1993 Annual Meeting Proxy Statement and the
CoreStates 1992 Annual Report on Form 10-K which are incorporated herein by
reference. See "INCORPORATION OF DOCUMENTS BY REFERENCE."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Constellation's management and the Constellation Board may
be deemed to have interests in the Merger in addition to their interests, if
any, as shareholders of Constellation generally. The Constellation Board was
aware of these factors and considered them, among other matters, in approving
the Merger Agreement and the transactions contemplated thereby.
Election to Board of Directors. The Merger Agreement provides that three
members of the Constellation Board, one of whom shall be George R. Zoffinger,
will become directors of NJNB. It is expected that the
38
<PAGE>
other two members of the Constellation Board who will become directors of NJNB
will be Alvin J. Rockoff and Bruce G. Coe. In addition, it is expected that
after the consummation of the Merger, Mr. Zoffinger will become Chairman of the
Board of NJNB. Mr. Zoffinger will receive no additional compensation for his
service as a director of NJNB. As a director who is also an officer of
Constellation and Constellation Bank, Mr. Zoffinger receives no additional
compensation as a director of Constellation and Constellation Bank. As
directors of NJNB, Messrs. Rockoff and Coe will be entitled to directors' fees
consisting of an annual retainer of $7,500 and a $750 per meeting fee. As
directors of Constellation and Constellation Bank, Messrs. Rockoff and Coe
receive (i) an annual retainer of $5,000 from Constellation and a fee of $500
for each Constellation Board meeting and (ii) an annual retainer of $4,000 from
Constellation Bank and a fee of $500 for each Constellation Bank Board of
Directors meeting. It is expected that the compensation of Messrs. Rockoff and
Coe as directors of NJNB will be substantially less than their compensation as
directors of Constellation and Constellation Bank.
Indemnification. CoreStates has agreed, among other things, to (i) indemnify
and advance costs and expenses (including reasonable attorney's fees,
disbursements and expenses) and hold harmless each present and former director
and officer of Constellation or its subsidiaries against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, settlements or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising within six years of the Effective Time
and out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Constellation would have been permitted under
New Jersey law and its Certificate of Incorporation or By-laws to indemnify
such person (and also advance expenses as incurred to the fullest extent
permitted under applicable law provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification) and (ii) for a
period of three years following the Effective Time, subject to certain cost-
based limitations, use reasonable efforts to cause to be maintained in effect
the current policies of directors' and officers' liability insurance maintained
by Constellation (or policies containing terms which are substantially no less
advantageous) with respect to claims arising from facts or events which
occurred before the Effective Time.
Severance Agreements. Pursuant to the Merger Agreement, CoreStates has agreed
to assume Constellation Bank's obligations under severance agreements with the
following seven executive officers (the "Executive Agreements"): George R.
Zoffinger, President and Chief Executive Officer of Constellation and
Constellation Bank, Michael A. Marinelli, Executive Vice President and Chief
Financial Officer of Constellation and Constellation Bank, Robert M. Craig,
Executive Vice President of Constellation and Constellation Bank, David J.
Hughes, Secretary of Constellation and Executive Vice President and Secretary
of Constellation Bank, James P. McKee, Executive Vice President of
Constellation and Constellation Bank, and Alfred L. Teti, Executive Vice
President of Constellation and Constellation Bank. The Executive Agreements
provide for a severance payment equal to the amount (or two times the amount in
the case of Mr. Zoffinger) of the executive's (x) annual base salary in effect
just prior to the time of the change in control of Constellation plus (y)
highest annual bonus received by the executive from Constellation Bank prior to
the time of the change in control of Constellation. A severance payment is
triggered if the executive terminates his employment for "good reason" or if
CoreStates terminates the executive's employment without "cause", in either
case within 24 months following a change in control of Constellation Bank. The
Merger will constitute such a change in control. Based on their annual base
salaries in effect as of the date of this Proxy Statement-Prospectus and their
highest annual bonuses received to date (which in all cases are the bonuses
paid in 1993), the executive officers of Constellation would be entitled to the
severance payments set forth below opposite their names:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER SEVERANCE
NAME SINCE PAYMENT
---- --------- ----------
<S> <C> <C>
George R. Zoffinger.................................. 1991 $1,112,100
Michael A. Marinelli................................. 1991 203,850
Alfred L. Teti....................................... 1991 259,700
Robert M. Craig...................................... 1991 199,300
James P. McKee....................................... 1991 207,350
David J. Hughes...................................... 1984 171,350
</TABLE>
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<PAGE>
The Executive Agreements also provide for the continuation of certain benefits.
See "Executive Incentive Compensation Plans."
The receipt of any severance payment by any such executive officer under an
Executive Agreement will be in lieu of any severance obligation Constellation
or Constellation Bank may have under any other agreement, including the
employment agreements described below.
Employment Agreements. CoreStates has agreed to honor without modification
all contracts, agreements and commitments of Constellation or any of its
subsidiaries authorized by Constellation or any of its subsidiaries prior to
date of the Merger Agreement which apply to any current or former employee or
current or former director of Constellation or any of its subsidiaries,
including employment agreements with Messrs. Zoffinger, Marinelli, Craig and
Teti.
Mr. Zoffinger's employment agreement provides for a salary of $312,000 a year
and an annual bonus at the sole discretion of the Boards of Directors of
Constellation and Constellation Bank. The agreement expires December 31, 1994
unless sooner terminated upon Mr. Zoffinger's death or continuous disability
for a period of six months. If Mr. Zoffinger's employment is terminated prior
to December 31, 1994, he will be entitled to receive his salary through the
date of termination. Upon the occurrence of certain events, Mr. Zoffinger will
also be entitled to receive from Constellation a severance payment of $300,000,
which shall be due and payable simultaneously with the occurrence thereof.
Mr. Marinelli's employment agreement provides for a salary of $125,000 a year
and an annual bonus at the sole discretion of the Boards of Directors of
Constellation and Constellation Bank. If Mr. Marinelli's employment is
terminated for reasons other than cause, the agreement provides that he is
entitled to receive severance payments for a period of six months following
termination.
Mr. Craig's employment agreement provides for a salary of $120,000 a year and
an annual bonus at the sole discretion of the Boards of Directors of
Constellation and Constellation Bank. If Mr. Craig's employment is terminated
for reasons other than cause, the agreement provides that he is entitled to
receive severance payments for a period of six months following termination.
Mr. Teti's employment agreement provides for a salary of $162,000 a year and
an annual bonus at the sole discretion of the Board of Directors of
Constellation Bank. The term of the agreement commenced March 20, 1992 for a
period of two years, which term will automatically be extended unless sooner
terminated upon Mr. Teti's death or continuous disability for a period of three
months or upon thirty days' written notice of intention to terminate. If Mr.
Teti's employment is terminated for reasons other than resignation, death,
disability or cause, the agreement provides that he is entitled to receive
severance payments for a period of six months following termination.
Stock Option Plans. Constellation maintains a 1987 Stock Incentive
Compensation Plan (the "1987 Plan"), 1989 Stock Incentive Compensation Plan
(the "1989 Plan"), the Stock Option Plan for Outside Directors of New Brunswick
Savings Bank and 1992 Stock Option and Stock Appreciation Right Plan (the "1992
Plan"). Pursuant to Constellation's stock option plans, 742,234 options to
purchase Constellation Common Shares were outstanding as of the date of this
Proxy Statement-Prospectus. Of these outstanding stock options, 169,001 stock
options were exercisable by their terms as of the date of this Proxy Statement-
Prospectus. Pursuant to the terms of certain outstanding options issued under
the 1987 Plan and the 1992 Plan, 495,374 stock options become exercisable upon
a change of control of Constellation.
In connection with the Merger, Constellation stock options will be converted
into options to purchase CoreStates Common Shares on the same terms and
conditions as are in effect immediately prior to the Merger, based upon the
Exchange Ratio. See "Effect on Constellation Employee Benefit Plans" below.
Certain Constellation stock options issued under the 1987 Plan and the stock
options issued under the 1992 Plan that are not otherwise exercisable will
become exercisable at the time of the Merger pursuant to provisions providing
for immediate exercise upon the occurrence of a change of control, such as the
Merger, will become exercisable at the time of such conversion.
The following table sets forth (i) the number of options held by each of
Constellation's executive officers, (ii) the number of options held by such
executive officers that will become exercisable as a result of the
40
<PAGE>
Merger, (iii) the weighted average exercise price for such exercisable options
held by each of Constellation's executive officers, and (iv) the aggregate
value of such exercisable options based upon the value (i.e., stock price less
option exercise price) of a Constellation Common Share on July 30, 1993, the
last trading day prior to the execution of the Merger Agreement:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXECUTIVE EXERCISE
OFFICER OPTIONS OPTIONS PRICE PER AGGREGATE
NAME SINCE HELD EXERCISABLE SHARE VALUE
---- --------- ------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
George R. Zoffinger.......... 1991 173,334 173,334 $3.28 $1,229,800
Michael A. Marinelli......... 1991 70,000 60,000 3.75 397,500
Alfred L. Teti............... 1991 72,500 60,000 3.75 397,500
Robert M. Craig.............. 1991 70,000 60,000 3.75 397,500
James P. McKee............... 1991 70,000 60,000 3.75 397,500
David J. Hughes.............. 1984 49,000 22,500 3.75 149,100
</TABLE>
Executive Advisory Board. CoreStates has agreed to cause all of the members
of the Constellation Board and Constellation Bank's Board of Directors who are
nominated by Constellation and are willing to so serve to be elected or
appointed as members of a newly formed executive advisory board, which will
advise CoreStates on deposit and lending activities in Constellation's former
market area. The executive advisory board will meet once every calendar quarter
and terminate on the second anniversary of the Effective Time. CoreStates may
elect, at its sole option, to continue the executive advisory board in
existence after the second anniversary date of the Effective Time. Each member
of the executive advisory board will receive $750 for each meeting of the
executive advisory board that such director attends.
Director Retainer Agreements. Constellation and Constellation Bank have
entered into retainer agreements with each of Elliot Cohen, Louis T. DiFazio
and Alvin J. Rockoff, directors of Constellation and Constellation Bank. The
retainer agreements provide for compensation in the event that such person is
removed from his position as a director of Constellation. These agreements were
entered into in 1989 in connection with Constellation's acquisition of New
Brunswick Savings Bank. Under the retainer agreements, each such individual
would be entitled to a severance payment under his retainer agreement of
approximately $19,000 upon consummation of the Merger.
Deferred Compensation Programs for Directors. Certain directors of
Constellation and Constellation Bank have previously deferred directors fees
under the Constellation Bancorp Deferred Compensation Program, the
Constellation Bank Deferred Compensation Program and the New Brunswick Savings
Bank Deferred Compensation Program. Under the terms of the programs, accounts
reflecting the deferred amounts are maintained for each director deferring fees
and such accounts accrue interest or earnings based on either Constellation
Bank's 60-day certificate of deposit rate or the value of "phantom" units of
Constellation Common Shares.
In connection with the Merger, each of the foregoing programs will be amended
to provide that the programs shall terminate on the Effective Date and that
each participant shall promptly be paid the value as of the Effective Date of
such participant's account in cash. The value of each "phantom" unit of
Constellation Common Shares held in such account will for purposes of such
payment be equal to the Exchange Ratio multiplied by the average of the high
and low reported sales prices of CoreStates Common Shares on the Effective
Date. The amendments have been or will be made to terminate the plans for the
purpose of avoiding the administrative time and expense related thereto. As
described above, amounts payable reflect previously deferred directors fees and
the accrued interest or earnings thereon and do not reflect any special or
additional payments as a result of the Merger.
Executive Incentive Compensation Plans. During 1993, Constellation Bank
maintained the 1993 Executive Variable Compensation Plan (the "1993 Incentive
Plan") pursuant to which certain officers of Constellation Bank were granted
cash bonus awards for 1993. Set forth below are the arrangements with
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<PAGE>
respect to the 1993 Incentive Plan as agreed by Constellation and CoreStates.
The arrangements with respect to the 1993 Incentive Plan described below
provided for in the Merger Agreement did not result, and are not expected to
result, in any of Messrs. Zoffinger, Marinelli, Craig, Hughes, McKee or Teti
receiving any amount in excess of what such person would have otherwise
received for 1993 had the Merger Agreement not been entered into with
CoreStates or any other party.
Under the arrangements as agreed to by Constellation and CoreStates,
Constellation Bank would maintain the 1993 Incentive Plan through December 31,
1993 or, if the Effective Date was earlier than December 31, 1993, through the
Effective Date. If the Effective Date was after December 31, 1993,
Constellation Bank would establish a plan for cash bonus awards similar to the
1993 Incentive Plan for 1994 (the "1994 Incentive Plan"), which has been
established. In the event that the Effective Date was prior to December 31,
1993, Constellation Bank would pay cash bonus awards for 1993 under the 1993
Incentive Plan a short period of time before the Effective Date and such cash
bonus awards would be calculated by pro-rating the award goals and criteria,
but not the corresponding full year potential cash bonus award amounts, for
each participant based on the number of days that had elapsed in 1993.
Notwithstanding any term of the 1993 Incentive Plan to the contrary,
Constellation Bank expected that, if the Effective Date was after December 31,
1993, it would pay cash bonus awards for 1993 pursuant to the 1993 Incentive
Plan shortly prior to December 31, 1993 based on Constellation Bank's estimate
at such time of the satisfaction of the award goals and criteria. The maximum
amount payable pursuant to the 1993 Incentive Plan was $787,000 (which was paid
out). In addition to the foregoing, Constellation Bank retained the discretion
to award discretionary cash bonus awards for performance for 1993 at the time
the foregoing cash bonus awards were paid under the 1993 Incentive Plan in an
additional amount up to $250,000. If the Effective Date was after December 31,
1993, Constellation Bank would establish the 1994 Incentive Plan similar to the
1993 Incentive Plan to remain in effect until the Effective Date and to pay
cash bonus awards thereunder for performance prior to the Effective Time in an
aggregate amount not to exceed an amount equal to $70,000 multiplied by the
number of whole or partial months in 1994 prior to the Effective Date.
The executive officers of Constellation received the incentive awards set
forth opposite their names below under the 1993 Incentive Plan:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER INCENTIVE
NAME SINCE AWARD
---- --------- ---------
<S> <C> <C>
George R. Zoffinger................................... 1991 $202,200
Michael A. Marinelli.................................. 1991 60,750
Alfred L. Teti........................................ 1991 77,400
Robert M. Craig....................................... 1991 59,400
James P. McKee........................................ 1991 62,550
David J. Hughes....................................... 1984 51,750
</TABLE>
The executive officers of Constellation may receive awards under the 1994
Incentive Plan that they may otherwise not have received had the Merger
Agreement not been entered into with CoreStates or any other party.
Retirement Program for Directors. Constellation and Constellation Bank
maintain a Directors' Retirement Program. Under the Directors' Retirement
Program, a director of Constellation or Constellation Bank whose benefits are
vested is entitled to receive an annual retirement benefit of $10,000,
beginning at the time such director reaches the mandatory retirement age of 72,
unless such director has retired prior to reaching age 72, in which case the
director is entitled to receive retirement benefits under the Directors'
Retirement Program at the later of age 70 or the time of such director's
retirement. Benefits under the Directors' Retirement Program vest after five
years of service on any of the Constellation Board, Constellation Bank's Board
of Directors or New Brunswick Savings Bank's Board of Directors. As of the date
of this Proxy Statement-Prospectus, all of the existing directors of
Constellation and Constellation Bank, except for Mr.
42
<PAGE>
Zoffinger, were vested under the Directors' Retirement Program and will receive
such benefits in accordance with the program.
EFFECT ON CONSTELLATION EMPLOYEE BENEFIT PLANS
CoreStates has agreed to, and to cause its subsidiaries to, honor without
modification, all contracts, agreements and commitments of Constellation or any
of its subsidiaries prior to the date of the Merger Agreement which apply to
any current or former employee or current or former director of Constellation
or any of its subsidiaries, including without limitation, the Executive
Agreements and similar arrangements with ten other officers of Constellation
Bank. CoreStates has also agreed to, and to cause its subsidiaries to, provide
to officers and employees of Constellation who become or remain regular (full-
time) employees of CoreStates or any of its subsidiaries employee benefits no
less favorable than those provided by CoreStates and its subsidiaries to their
similarly situated officers or employees. Any employee of Constellation or any
of its subsidiaries who becomes a participant in any employee benefit plan,
program, policy, or arrangement of CoreStates shall be given credit under such
plan, program, policy, or arrangement for all service (prior to becoming such a
participant) with Constellation or any of its subsidiaries for purposes of
eligibility and vesting.
At the Effective Time, each outstanding and unexercised option to purchase
shares of Constellation Common Shares issued pursuant to Constellation's stock
option plans will be converted into an option to purchase CoreStates Common
Shares on the same terms and conditions as are in effect immediately prior to
the Merger as adjusted as set forth below. Each such option that is converted
shall be converted into an option to purchase such number of CoreStates Common
Shares at such exercise price as is determined as provided below:
(i) the number of shares of CoreStates Common Shares to be subject to the
new option shall be equal to the product of (A) the number of
Constellation's Common Shares subject to the original option and (B) the
Exchange Ratio, the product being rounded, if necessary, up or down, to the
nearest whole share; and
(ii) the exercise price per share of CoreStates Common Shares under the
new option shall be equal to (A) the exercise price per share of
Constellation Common Shares under the original option divided by (B) the
Exchange Ratio, rounded, if necessary, up or down, to the nearest cent.
CoreStates has agreed that if the employment of any employee of Constellation
or any of its subsidiaries is terminated after the Merger and such employee has
options to purchase Constellation Common Shares that are not exercisable at the
Effective Time, such employee will be permitted to exercise the option to
purchase CoreStates Common Shares received in respect thereof for a 30-day
period after the time at which such options would have otherwise become
exercisable if such employee had remained employed by CoreStates or any of its
subsidiaries notwithstanding the terms of any plan, grant or agreement relating
to such option.
CoreStates will provide a severance program for employees of Constellation
and Constellation Bank hired prior to the date the Merger Agreement was
executed and who are displaced as a result of the Merger on or after the
Effective Time. Under the severance program, Constellation and Constellation
Bank employees whose jobs are eliminated and who do not receive a bona fide job
offer from CoreStates will receive separation and contingency pay subject to
certain minimum and maximum amounts, based on salary levels and length of
service. CoreStates will also provide inplacement and outplacement assistance
to displaced employees and may offer retention bonuses to key individuals
considered critical in the integration process.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The federal income tax discussion set forth below is included for general
information only. It may not be applicable to certain classes of taxpayers,
including insurance companies, securities dealers, financial
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institutions, foreign persons and persons who acquired Constellation Common
Shares pursuant to the exercise of employee stock options or rights or
otherwise as compensation. Constellation shareholders are urged to consult
their own tax adviser as to the specific tax consequences to them of the
Merger, including the applicability and effect of federal, state, local and
other tax laws.
General. It is intended that the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that, accordingly, for federal income tax purposes:
(i) no gain or loss will be recognized by either CoreStates or Constellation as
a result of the Merger; (ii) no gain or loss will be recognized by holders of
Constellation Common Shares upon the receipt of CoreStates Common Shares in
exchange for Constellation Common Shares in the Merger, except as discussed
below with respect to cash received in lieu of a fractional share interest in
CoreStates Common Shares; (iii) the aggregate adjusted tax basis of the
CoreStates Common Shares to be received by the holders of Constellation Common
Shares in the Merger will be the same as the aggregate adjusted tax basis in
Constellation Common Shares surrendered in exchange therefor (reduced by any
amount allocable to fractional share interests for which cash is to be
received); and (iv) the holding period of the CoreStates Common Shares to be
received by the holders of Constellation Common Shares in the Merger will
include the holding period of Constellation Common Shares surrendered in
exchange therefor, provided that such Constellation Common Shares are held as
capital assets at the Effective Time.
Consummation of the Merger is conditioned upon receipt by each of CoreStates
and Constellation of an opinion of Sullivan & Cromwell, dated the Effective
Date, substantially to the foregoing effect. Such an opinion of Sullivan &
Cromwell, counsel to Constellation, dated the date of this Proxy Statement-
Prospectus, has been filed as an exhibit to the Registration Statement of which
this Proxy Statement-Prospectus is a part.
Consequences of Receipt of Cash in Lieu of Fractional Shares. A holder of
Constellation Common Shares who receives cash in the Merger in lieu of a
fractional share interest in CoreStates Common Shares will be treated for
federal income tax purposes as having received cash in redemption of such
fractional share interest. Assuming the shares are held as a capital asset, the
receipt of such cash should result in capital gain or loss, in an amount equal
to the difference between the amount of cash received and the portion of such
shareholder's adjusted tax basis in Constellation Common Shares allocable to
the fractional share interest. Such capital gain or loss will be long-term
capital gain or loss if the holding period for the fractional CoreStates Common
Shares deemed to be received and then redeemed is more than one year.
NO DISSENTERS' RIGHTS OF APPRAISAL
Pursuant to Section 14A:11-1 of the New Jersey Business Corporation Act,
holders of Constellation Common Shares will not have any dissenters' rights of
appraisal in connection with the Merger.
REGULATORY APPROVALS
Consummation of the Merger is conditioned on the approval of the Merger by
the FRB under the Bank Holding Company Act of 1956, as amended (the "1956
Act"). This approval was received on January 7, 1994. The 1956 Act provides
that a transaction approved by the FRB generally may not be consummated until
30 days after FRB approval. This waiting period has elapsed.
The approval of the Pennsylvania Department of Banking must also be obtained
before the Merger can be consummated. The Pennsylvania Department of Banking is
required to approve or disapprove a proposed acquisition within 60 days after
receipt of an application or within 30 days after receipt of additional
information submitted in response to a request by the Department. The
Pennsylvania Department of Banking must evaluate factors similar to those
considered by the FRB in determining whether to approve the Merger. An
application has been submitted seeking the approval of the Pennsylvania
Department of Banking.
THE MANAGEMENT OF CORESTATES HAS NO REASON TO BELIEVE THAT THE REQUIRED
APPROVAL OF THE PENNSYLVANIA DEPARTMENT OF BANKING WILL NOT BE OBTAINED. THERE
CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL
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BE OBTAINED, AND, IF THE MERGER IS APPROVED, THERE CAN BE NO ASSURANCE AS TO
THE DATE OF SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT SUCH APPROVAL
WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH CAUSES SUCH APPROVAL TO FAIL
TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT AND DESCRIBED BELOW
UNDER "REPRESENTATIONS AND WARRANTIES; CONDITIONS PRECEDENT". THERE CAN
LIKEWISE BE NO ASSURANCE THAT THE U.S. DEPARTMENT OF JUSTICE WILL NOT OBJECT TO
THE MERGER.
REPRESENTATIONS AND WARRANTIES; CONDITIONS PRECEDENT
The Merger Agreement contains representations and warranties by the parties
regarding, among other things, CoreStates' and Constellation's organization,
financial statements, capitalization, pending and threatened litigation and
enforceability of the Merger Agreement. These representations and warranties
will not survive the Effective Date.
The obligations of CoreStates and Constellation to consummate the Merger are
subject to the satisfaction, or, where permissible, waiver of the following
conditions, among others: (i) approval and adoption of the Merger Agreement by
the requisite vote of Constellation's shareholders; (ii) receipt of the
necessary approvals by the FRB under the 1956 Act and the Pennsylvania
Department of Banking and the expiration of any applicable waiting periods;
(iii) the absence of any proceeding, pending or threatened, to suspend the
effectiveness of the Registration Statement of which this Proxy Statement-
Prospectus forms a part; (iv) the receipt by CoreStates and Constellation of a
letter from CoreStates' independent public accountants to the effect that the
Merger will qualify for pooling of interests accounting treatment if closed and
consummated in accordance with the Merger Agreement; (v) the receipt of
satisfactory "agreed upon procedures" letters from the independent public
accountants of CoreStates and Constellation; (vi) the receipt by the
Constellation Board of a letter from Keefe, in form and substance satisfactory
to Constellation and dated the date on which the Securities and Exchange
Commission has declared the Registration Statement effective, in which Keefe
expresses its opinion that the consideration to be received by Constellation's
shareholders is fair from a financial point of view; and (vii) the absence of
any injunction restraining or prohibiting consummation of the Merger.
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
Agreement, the accuracy of the representations and warranties of the other
party contained therein and the receipt of certain certificates from the other
party.
EFFECTIVE DATE; EFFECTIVE TIME; AMENDMENTS; WAIVER; TERMINATION
The Merger Agreement provides that on the third business day after the
expiration of all applicable waiting periods in connection with approvals of
governmental authorities (see "Regulatory Approvals" above) and all conditions
to the consummation of the Merger are satisfied or waived, or on such earlier
or later date as may be agreed by Constellation and CoreStates, Constellation
and CoreStates will file Articles of Merger with the Department of State of the
Commonwealth of Pennsylvania and a Certificate of Merger with the Secretary of
State of the State of New Jersey. The Merger will become effective upon such
filing or on such date (which may not be later than such third business day) as
may be specified in such Articles or Certificate of Merger. The date of such
filing or such later effective date is the "Effective Date" of the Merger. The
"Effective Time" of the Merger is such time of effectiveness on the Effective
Date, which may be agreed by the parties. Pursuant to the Merger Agreement,
Constellation and CoreStates have agreed that the Merger will be consummated
prior to the close of business on March 16, 1994 if the approval of the Merger
and the Merger Agreement by Constellation's shareholders occurs on March 16,
1994 and all other conditions to closing can be satisfied or are waived by such
time.
Constellation and CoreStates may amend, modify or waive any term or condition
of the Merger Agreement by action taken on behalf of their respective Boards of
Directors, at any time before or after approval of the Merger by the
shareholders of the Constellation; provided, however, that after such approval
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no such amendment or modification, without further shareholder approval, shall
reduce the amount or change the form and amount of the consideration payable
pursuant to the Merger Agreement.
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date either before or after approval by the shareholders
of Constellation, by (i) mutual consent of CoreStates and Constellation if the
Board of Directors of each so determines by vote of a majority of its members;
(ii) a majority vote of the Board of Directors of either Constellation or
CoreStates, in the event of the failure of the shareholders of Constellation to
approve the Merger Agreement or a material breach by the other party to the
Merger Agreement of any representation, warranty, covenant or agreement
contained in the Merger Agreement which is not cured or not curable within 60
days after written notice of such breach is given to the party committing such
breach by the other party; (iii) Constellation or CoreStates by written notice
to the other party if either (x) any approval, consent or waiver of a
governmental authority required to permit consummation of the transactions
contemplated by the Merger Agreement is denied or (y) any governmental
authority of competent jurisdiction shall have issued a final, unappealable
order enjoining or otherwise prohibiting consummation of the transactions
contemplated by the Merger Agreement; (iv) a majority of the Board of Directors
of either Constellation or CoreStates, in the event that the Merger is not
consummated by March 31, 1994, unless the failure to so consummate by such time
is due to the breach of any representation, warranty or covenant contained in
the Merger Agreement by the party seeking to terminate.
PRICE BASED TERMINATION
The Merger Agreement contains a provision that would have permitted
Constellation to terminate the Merger Agreement at any time during the ten-day
period commencing January 22, 1994, the fifteenth day after the receipt of the
required approval of the Merger by the FRB (the "Determination Date"), by a
majority vote of the members of the Constellation Board, if all of the
following conditions had occurred: (i) the average closing price per share of
CoreStates Common Shares over the twenty trading day pricing period prior to
the Determination Date was less than $24.28; (ii) the decline in the price of
CoreStates Common Shares exceeded by more than 15% the decline over such time
period in an index composed of a group of common stocks of other bank holding
companies; and (iii) CoreStates failed to elect to increase the Exchange Ratio
as set forth in the Merger Agreement. Because the average closing price per
share of CoreStates Common Shares over the twenty trading day pricing period
prior to the Determination Date was greater than $24.28, Constellation was not
permitted to exercise any termination rights under the provision set forth
above.
OPERATIONS OF CONSTELLATION AND CORESTATES PENDING THE MERGER
The Merger Agreement contains certain restrictions on the conduct of
Constellation's business prior to the Effective Time of the Merger. In
particular, except as expressly provided in the Merger Agreement, prior to the
Effective Time, Constellation will, and will cause its subsidiaries to, (i)
conduct its business in the usual, regular and ordinary course consistent with
past practice, (ii) use its best efforts to maintain and preserve intact its
business organization, employees and advantageous business relationships and
retain the services of its officers and key employees, and (iii) take no action
which would adversely affect or delay the ability of the parties to obtain any
necessary approvals, consents or waivers of any governmental authority required
for the transactions contemplated in the Merger Agreement or to perform its
covenants and agreements on a timely basis under the Merger Agreement. In
addition, the Merger Agreement prohibits Constellation and any of its
subsidiaries from engaging in certain transactions without the prior written
consent of CoreStates. Specifically, without such consent, Constellation may
not: (i) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee, endorse
or otherwise as an accommodation become responsible for the obligations of any
other individual, corporation or other entity, or make any loan or advance;
(ii) adjust, split, combine or reclassify any capital stock; make, declare or
pay any dividend or make any other distribution on, or directly or indirectly
redeem, purchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares of
its capital stock, or grant any stock appreciation rights or grant any
individual,
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corporation or other entity any right to acquire any shares of its capital
stock except pursuant to the Constellation Rights Agreement (as defined below)
and except for dividends paid by any of the wholly-owned subsidiaries of
Constellation to Constellation or any of its wholly-owned subsidiaries; or
issue any additional shares of capital stock except pursuant to (x) the
exercise of stock options outstanding as of the date hereof or (y) the
Constellation Rights Agreement; (iii) other than in the ordinary course of
business consistent with past practice, sell, transfer, mortgage, encumber or
otherwise dispose of any of its material properties or assets to any
individual, corporation or other entity other than a direct or indirect wholly
owned subsidiary of Constellation, or cancel, release or assign any
indebtedness of any such person or any claims held by any such person, except
in the ordinary course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of the Merger Agreement; (iv)
other than in the ordinary course of business consistent with past practice,
make any material investment either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other individual, corporation or other entity other than a
wholly-owned subsidiary of Constellation; (v) other than in the ordinary course
of business consistent with past practice, enter into or terminate any material
contract or agreement, or make any change in any of its material leases or
contracts, other than renewals of contracts and leases without material adverse
changes of terms; (vi) except as may be required by law, increase in any manner
the compensation or fringe benefits of any of its employees (other than
increases not greater than 6% over the current level of compensation and in
accordance with past practice) or pay any pension or retirement allowance not
required by any existing plan or agreement to any such employees, or become a
party to, amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee (other than with respect to new employees in the
ordinary course of business), or adopt, amend or modify any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit
agreements, trusts, plans, funds, employee stock ownership, consulting,
severance or fringe benefit plan, formal or informal, written or oral, or other
arrangements for the benefit or welfare of any director, officer or employee;
(vii) other than in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding involving any liability of
Constellation or any of its subsidiaries for material money damages or
restrictions upon the operations of Constellation or any of its subsidiaries;
(viii) modify in any material respect the manner in which it and its
subsidiaries have heretofore conducted or accounted for their business; (ix)
except as contemplated by the Merger Agreement, amend its articles of
incorporation, its by-laws or the Constellation Rights Agreement; (x) elect or
appoint any new director or officer of Constellation or any of its
subsidiaries; or (xi) agree to, or make any commitment to, take any of the
foregoing actions.
The Merger Agreement also provides that without the prior written consent of
Constellation, CoreStates will not declare or pay any extraordinary or special
dividend on the CoreStates Common Shares or take any action that would (i)
delay or adversely affect in any material respect the ability of Constellation
or CoreStates to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated hereby or
(ii) adversely affect its ability to perform its covenants and agreements on a
timely basis under the Merger Agreement. CoreStates declared the Stock Dividend
on August 17, 1993, payable on October 15, 1993 to shareholders of record on
September 15, 1993.
Modification of Certain Constellation Policies. The Merger Agreement provides
that, notwithstanding that Constellation believes that it has established all
reserves and taken all provisions for possible loan losses required by
generally accepted accounting principles and applicable laws, rules and
regulations, Constellation and CoreStates will consult and cooperate with each
other with respect to (i) conforming Constellation's loan, accrual and reserve
policies to those policies of CoreStates to the extent appropriate, (ii) new
extensions of credit or material revisions to existing terms of credits by
Constellation Bank in each case where the aggregate exposure exceeds $1,000,000
and (iii) conforming the composition of the investment portfolio and overall
asset/liability management position of Constellation and Constellation Bank to
the extent appropriate.
In addition, the Merger Agreement provides that Constellation and CoreStates
will consult and cooperate with each other with respect to determining
appropriate accruals, reserves and charges to establish
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and take in respect of excess facilities and equipment capacity, severance
costs, litigation matters, write-off or write-down of various assets and other
appropriate accounting adjustments taking into account CoreStates' plan of
integration and the Merger. The Merger Agreement requires Constellation to use
its best efforts to (i) establish and take such reserves and accruals as
CoreStates shall request to conform, on a mutually satisfactory basis,
Constellation's loan, accrual and reserve policies to CoreStates' policies,
(ii) establish and take such accruals, reserves and charges in order to
implement such policies in respect of excess facilities and equipment capacity,
severance costs, litigation matters, write-off or write-down of various assets
and other appropriate accounting adjustments, and (iii) recognize for financial
accounting purposes such expenses of the Merger and restructuring charges
related to or to be incurred in connection with the Merger; provided, however,
that (a) Constellation shall not be obligated to take any such action unless
and until CoreStates specifies its request in writing and acknowledges that all
conditions to its obligations to consummate the Merger have been waived or
satisfied and (b) Constellation acknowledges that the conditions to its
obligation to consummate the Merger have been satisfied or waived by
Constellation. Pursuant to the foregoing, Constellation will not be obligated
to take any such action that is inconsistent with (i) any requirement
applicable to Constellation or Constellation Bank by any bank regulatory agency
or (ii) generally accepted accounting principles.
NO SOLICITATION
Constellation has agreed in the Merger Agreement that (i) neither it nor any
of its subsidiaries nor any of their respective officers, employees, or
directors (including Constellation and its subsidiaries, "Restricted Parties")
will, directly or indirectly, solicit or encourage any inquiries or proposals
with respect to a business combination, tender offer, exchange offer, merger,
consolidation, recapitalization or similar transaction regarding any purchase
of all or a substantial portion of the assets of, or any equity interest in,
Constellation or any of its subsidiaries (an "Acquisition Proposal") and (ii)
except as may be legally required for the discharge by the Constellation Board
of its fiduciary duties, a Restricted Party will not itself, or otherwise
authorize, permit or instruct Constellation's investment bankers or other third
parties, to solicit or encourage an Acquisition Proposal or cooperate, discuss
or negotiate with, or furnish non-public information concerning the Company or
any of its subsidiaries to, any person in connection with, or otherwise
facilitate, an Acquisition Proposal.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by Constellation
and CoreStates of a letter from Ernst & Young, CoreStates' independent
accountants, to the effect that the Merger qualifies for "pooling of interests"
accounting treatment if consummated in accordance with the terms of the Merger
Agreement. Under the pooling of interests method of accounting, the historical
basis of the assets, liabilities and shareholders' equity of Constellation and
CoreStates will be combined at the Effective Date and carried forward at their
previously recorded amounts and no goodwill or intangible assets will be
created. CoreStates will include in its Consolidated Statement of Income the
consolidated income of Constellation, as modified for intercompany
transactions, for the entire fiscal year and quarterly period of Constellation
in which the Effective Date occurs and will combine and restate as its income
for prior periods the reported consolidated income of Constellation for prior
periods, as modified for intercompany transactions.
All unaudited pro forma financial information contained in this Proxy
Statement-Prospectus has been prepared using the pooling of interests method to
account for the Merger. See "PRO FORMA FINANCIAL INFORMATION."
STATUS OF CORESTATES COMMON SHARES UNDER THE FEDERAL SECURITIES LAWS; POOLING
OF INTERESTS
The CoreStates Common Shares issuable in connection with the Merger have been
registered under the Securities Act. Accordingly, there will be no restrictions
upon the resale or transfer of such shares by shareholders of Constellation
except for those shareholders who are deemed to be "affiliates" of
Constellation
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as such term is used in Rule 144 and Rule 145 under the Securities Act. With
respect to those shareholders who may be deemed to be affiliates of
Constellation, Rule 144 and Rule 145 place certain restrictions on the transfer
of CoreStates Common Shares which may be received by them pursuant to the
Merger. As a condition to consummation of the Merger, each person who may be
deemed to be an affiliate of Constellation will be required to deliver a letter
under which the affiliate agrees not to sell, transfer or otherwise dispose of
the Constellation Common Shares or CoreStates Common Shares, as applicable,
except (i) in compliance with the applicable provisions of the Securities Act
and the rules and regulations promulgated thereunder and (ii) during the period
ending 30 days prior to the Merger and recommencing at the time of publication
of financial results covering at least 30 days of combined operations of
CoreStates and Constellation.
This Proxy Statement-Prospectus does not cover resales of CoreStates Common
Shares received by any person who may be deemed to be an affiliate of
Constellation. Persons who may be deemed to be affiliates of Constellation
generally include individuals who, or entities which, directly or indirectly
control, are controlled by or are under common control with Constellation and
would include certain officers and directors of Constellation as well as
principal shareholders of Constellation.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, an Exchange Agent to be
appointed by CoreStates will mail to all persons who held Constellation Common
Shares immediately prior to the Effective Time a letter of transmittal,
together with instructions on how to effect the exchange of certificates
representing such shares for certificates representing CoreStates Common Shares
as provided by the Merger Agreement. HOLDERS OF CONSTELLATION COMMON SHARES
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE INSTRUCTIONS FROM THE
EXCHANGE AGENT. Upon receiving these instructions, each holder of an
outstanding certificate, which prior to the Effective Time represented
Constellation Common Shares, should surrender such certificate to the Exchange
Agent and each such holder will be entitled on such surrender to receive in
exchange therefor certificates representing CoreStates Common Shares in
accordance with the Exchange Ratio provided in the Merger Agreement and a check
representing the amount of cash in lieu of any fractional shares, plus unpaid
dividends and distributions, if any, each holder has the right to receive. All
CoreStates Common Shares issued in connection with the Merger will be deemed
issued as of the Effective Time. Whenever the Record Date for a dividend or
other distribution with respect to CoreStates Common Shares is at or after the
Effective Time, the declaration will include dividends or other distributions
on all CoreStates Common Shares issuable pursuant to the Merger; provided that
after the 90th day following the Effective Date no dividend or other
distribution declared will be paid to the holder of any unsurrendered
certificate with respect to the CoreStates Common Shares represented thereby
until the holder of such certificate duly surrenders such certificate to the
Exchange Agent. Following such surrender the holder will be paid, without
interest, (i) at the time of surrender, the amount of the dividends or other
distributions having a record date after the Effective Time theretofore payable
and not yet paid and (ii) at the appropriate payment date, the amount of
dividends or other distributions having a record date after the Effective Time
but prior to surrender, and a payment date subsequent to surrender. Former
holders of Constellation Common Shares will be entitled to exercise all rights
of holders of CoreStates Common Shares, except the right to receive dividends
or distributions, without having to surrender their stock certificates for
exchange. For a period of 90 days after the Effective Date holders of
Constellation Common Shares will be entitled to vote as holders of CoreStates
Common Shares notwithstanding that certificates representing Constellation
Common Shares shall not have been exchanged.
As of the Effective Time, CoreStates will deposit with the Exchange Agent
certificates representing CoreStates Common Shares and the cash in lieu of
fractional shares, together with any dividends or distributions with respect
thereto, to be issued and paid pursuant to the Merger. Any portion of the
deposit that remains unclaimed by holders of Constellation Common Shares for
six months after the Effective Time shall be repaid to CoreStates. If
outstanding certificates for Constellation Common Shares are not surrendered or
payment is not claimed prior to the date on which such payments would otherwise
escheat to or become
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the property of any governmental unit or agency, the unclaimed items shall, to
the extent permitted by abandoned property and any other applicable law, become
the property of CoreStates, free and clear of all claims or interests. Neither
CoreStates, the Exchange Agent or any other person shall be liable to any
former holder of Constellation Common Shares for any amount delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
EXPENSES
The Merger Agreement provides, in general, that CoreStates and Constellation
will each pay its own expenses incurred in connection with the Merger other
than printing expenses, which will be shared equally by CoreStates and
Constellation.
INDEPENDENCE BANCORP PROPOSED COMBINATION
On November 19, 1993, CoreStates and Independence Bancorp, Inc.
("Independence") entered into a definitive agreement pursuant to which
CoreStates expects to acquire Independence in an exchange for stock (the
"Proposed Combination"). Independence is a bank holding company whose four
banking subsidiaries serve seven eastern Pennsylvania counties through 54
community banking offices. At September 30, 1993, Independence had total
consolidated assets, deposits and shareholders' equity of $2.6 billion, $2.2
billion and $220 million, respectively.
Under the terms of the agreement, each of the approximately 12.7 million (on
a fully diluted basis) Independence Common Shares will be exchanged for (i) 1.5
CoreStates Common Shares if the average price of CoreStates Common Shares over
a pricing period prior to the closing of the Proposed Combination is $27.00 or
less, (ii) 1.45 CoreStates Common Shares if the average price of CoreStates
Common Shares over a pricing period prior to the closing of the Proposed
Combination is $28.00 or more, or (iii) a number of CoreStates Common Shares
determined by dividing $40.50 by the average price of CoreStates Common Shares
over the pricing period prior to the closing of the Proposed Combination if the
price of CoreStates Common Shares during such period falls between $27.00 and
$28.00 per share.
ASSET QUALITY
Nonperforming Assets. Independence's nonperforming assets consist of
nonaccrual loans, restructured loans and holdings of other real estate owned.
Loans are placed on nonaccrual status when management determines uncertainty of
interest collection exists, but payment of principal is not impaired. When
uncertainty of collection of principal exists, the asset is written down to its
net realizable value. Total nonperforming loans were $38.0 million at December
31, 1993 compared to $53.8 million at December 31, 1992 and $44.3 million at
December 31, 1991. Total nonaccrual loans were $20.3 million at December 31,
1993 compared to $30.3 million at December 31, 1992 and $27.7 million at
December 31, 1991. Nonaccrual loans consisted principally of commercial and
commercial mortgage loans. Restructured loans are those that have been formally
renegotiated due to the financial weakness of the borrower. Total restructured
loans were $1.6 million at December 31, 1993 compared with $5.6 million at
December 31, 1992. Independence had no restructured loans at December 31, 1991.
Other real estate owned was $16.1 million, $17.9 million and $16.5 million,
respectively, at December 31, 1993, 1992 and 1991. In addition, potential
problem loans were $23.9 million at December 31, 1992 and $35.2 million at
year-end 1991. Potential problem loans are loans in which management has
serious doubts as to the ability of the borrower to comply with the present
loan repayment terms.
Net Charge-Offs. Net charge-offs were $12.8 million in 1993 compared with
$24.3 million in 1992 and $15.3 million in 1991. The 1993 level of net charge-
offs represents 0.76% of average loans in 1993 compared with 1.46% of average
loans in 1992 and 0.92% of average loans in 1991. The higher level of net
charge-offs
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in 1992 was primarily due to the deterioration of several large commercial
credits in the fourth quarter. Commercial loan net charge-offs were $7.6
million in the nine months ended September 30, 1993 compared with commercial
loan net charge-offs of $6.6 million in the nine months ended September 30,
1992. Commercial loan net charge-offs were $21.0 million in 1992 and $10.4
million in 1991. Commercial mortgage loan net charge-offs were $785,000 in the
nine months ended September 30, 1993 compared with $621,000 in the nine months
ended September 30, 1992. Commercial mortgage loan net charge-offs were $1.2
million in 1992 compared with $102,000 in 1991. Construction loan net charge-
offs were $621,000 in the nine months ended September 30, 1993 compared with
commercial loan net charge-offs of $614,000 in the nine months ended September
30, 1992. Construction loan net charge-offs were $809,000 in 1992 and $1.2
million in 1991. Installment loan net charge-offs were $764,000 in the nine
months ended September 30, 1993 compared with $693,000 in the nine months ended
September 30, 1992. Installment loan net charge-offs were $917,000 in 1992 and
$2.2 million in 1991.
Allowance For Possible Loan Losses. Independence reviews the adequacy of its
allowance for possible loan losses each quarter through a detailed analysis of
various factors. Consideration is given, among others, to growth and diversity
in the loan portfolio, historical loan loss experience, identified credit
problems and their exposure determined in conjunction with loan review
personnel, peer group comparisons, and current and anticipated economic
conditions that may affect borrowers' ability to pay. At December 31, 1993,
Independence's allowance for possible loan losses was $33.1 million, or 1.96%
of total period-end loans and 150.7% of nonperforming loans. This compared with
an allowance of $34.6 million, or 2.09% of total period-end loans and 96.5% of
nonperforming loans, at December 31, 1992, and an allowance of $27.0 million,
or 1.63% of total period-end loans and 115.9% of nonperforming loans, at
December 31, 1991.
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PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma condensed combined financial statements
reflect the Merger and the Proposed Combination under the application of the
pooling of interests method of accounting. Under this method of accounting, the
historical book values of the assets, liabilities and shareholders' equity of
Constellation and Independence, as reported on their respective Consolidated
Balance Sheets, will be carried over onto the Consolidated Balance Sheet of
CoreStates and no goodwill or other intangible assets will be created.
CoreStates will include in its Consolidated Statements of Income the
consolidated results of operations of Constellation and Independence for the
entire fiscal year in which the Effective Date of each transaction occurs and
will combine and restate as its results of operations for prior periods to
include the reported consolidated results of operations of Constellation and
Independence for prior periods. See "INDEPENDENCE BANCORP PROPOSED
COMBINATION." The Pro Forma Statements of Income for the years ended December
31, 1992, 1991 and 1990 and the nine months ended September 30, 1993 and 1992
include adjustments which reflect retroactive adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109)
on a combined basis, as of January 1, 1987. See footnote (4) to the Pro Forma
Condensed Combined Statements of Income.
This pro forma financial information is based on the estimates and
assumptions set forth in the notes to such statements. The pro forma
adjustments made in connection with the development of the pro forma
information are preliminary and have been made solely for purposes of
developing such pro forma information as necessary to comply with the
disclosure requirements of the Commission. Where applicable, the pro forma
adjustments have been separately tax effected at the following statutory tax
rates: 1993--35%; and 1992--34%. The pro forma information has been prepared
using the historical consolidated financial statements and notes thereto, which
are incorporated herein by reference. The unaudited pro forma condensed
combined financial statements do not purport to be indicative of the combined
financial position or results of operations of future periods or indicative of
the results that actually would have been realized had the entities been a
single entity during these periods.
On December 17, 1993, CoreStates consummated the purchase of Inter Community
Bancorp ("Inter Community"), a New Jersey bank holding company, with $133
million in assets and $110 million in deposits at the time of its acquisition.
The effects of the Inter Community acquisition are not included in the pro
forma financial information because the Inter Community acquisition is not
material to the Pro Forma Condensed Combined Balance Sheet or to the Pro Forma
Condensed Combined Statements of Income.
The Merger Agreement provides for an Exchange Ratio of 0.412 of a CoreStates
Common Share for each Constellation Common Share, which has been increased to
0.4137 CoreStates Common Shares for each Constellation Common Share so long as
the Effective Date occurs on or before March 30, 1994. See "THE MERGER--General
Description; Exchange Ratio." The accompanying unaudited pro forma financial
information reflects an equivalent per Constellation Common Share value at an
Exchange Ratio of 0.412. The accompanying unaudited pro forma financial
information also reflects an equivalent per Independence Common Share value of
1.45 CoreStates Common Shares for each Independence Common Share.
Pro forma cash dividends declared for the periods presented assume that
CoreStates would have declared cash dividends per share equal to the cash
dividends per share declared by CoreStates prior to September 30, 1993.
52
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES
CORESTATES INDEPENDENCE AND CORESTATES CONSTELLATION
AND BANCORP AND PRO FORMA INDEPENDENCE AND BANCORP AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA SUBSIDIARIES SUBSIDIARIES
------------ ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks............. $ 2,080,698 $ 116,762 $ (63,527)(1) $ 2,133,933 $ 2,080,698 $ 117,429
Time deposits..... 1,087,804 34,877 1,122,681 1,087,804 300
Investment
securities........ 2,790,056 621,081 3,411,137 2,790,056 251,265
Loans, net of
unearned
discounts......... 15,901,454 1,721,122 17,622,576 15,901,454 1,689,009
Allowance for loan
losses............ (341,221) (33,736) (25,000)(3) (399,957) (341,221) (72,355)
Federal funds sold
and securities
purchased under
agreements to
resell............ 35,894 49,600 (12,500)(1) 72,994 35,894 140,500
Trading account
securities........ 3,991 3,991 3,991
Due from customers
on acceptances.... 461,061 461,061 461,061
Premises and
equipment and
other assets...... 823,082 93,787 13,970 (3)(6) 930,839 823,082 150,539
----------- ---------- --------- ----------- ----------- ----------
Total assets.... $22,842,819 $2,603,493 $ (87,057) $25,359,255 $22,842,819 $2,276,687
=========== ========== ========= =========== =========== ==========
LIABILITIES
Deposits:
Domestic:
Non-interest
bearing......... $ 5,605,801 $ 355,879 $ (63,527)(1) $ 5,898,153 $ 5,605,801 $ 307,141
Interest
bearing......... 9,811,443 1,799,707 11,611,150 9,811,443 1,785,859
Overseas branches
and subsidiaries. 819,655 819,655 819,655
----------- ---------- --------- ----------- ----------- ----------
Total deposits.. 16,236,899 2,155,586 (63,527) 18,328,958 16,236,899 2,093,000
Funds borrowed.... 2,076,655 67,875 (12,500)(1) 2,132,030 2,076,655 10,646
Bank acceptances
outstanding....... 469,168 469,168 469,168
Other liabilities. 1,020,672 26,123 24,200 (6) 1,070,995 1,020,672 14,608
Long-term debt.... 1,180,679 134,285 1,314,964 1,180,679
----------- ---------- --------- ----------- ----------- ----------
Total
liabilities..... 20,984,073 2,383,869 (51,827) 23,316,115 20,984,073 2,118,254
----------- ---------- --------- ----------- ----------- ----------
SHAREHOLDERS'
EQUITY
Common stock...... 117,858 29,104 (12,445)(10) 134,135 117,858(7) 136,171
(382)(12)
Capital surplus... 509,992 90,512 12,445 (10) 611,762 509,992(7) 45,886
(1,187)(12)
Retained earnings. 1,238,234 102,398 (821)(12) 1,304,581 1,238,234 (23,624)
(35,230)(3)(6)
Treasury stock.... (7,338) (2,390) 2,390 (12) (7,338) (7,338)
----------- ---------- --------- ----------- ----------- ----------
Total
shareholders'
equity.......... 1,858,746 219,624 (35,230) 2,043,140 1,858,746 158,433
----------- ---------- --------- ----------- ----------- ----------
Total
liabilities and
shareholders'
equity.......... $22,842,819 $2,603,493 $ (87,057) $25,359,255 $22,842,819 $2,276,687
=========== ========== ========= =========== =========== ==========
Book value per
share(11)......... $15.82 $19.12 $15.23 $15.82 $5.82
====== ====== ====== ====== =====
<CAPTION>
CORESTATES PRO FORMA
AND COMBINED
PRO FORMA CONSTELLATION ALL
ADJUSTMENTS PRO FORMA TRANSACTIONS
----------------------- ------------- ----------------
<S> <C> <C> <C>
ASSETS
Cash and due from
banks............. $ 2,198,127 $ 2,251,362
Time deposits..... $ (300)(1) 1,087,804 1,122,681
Investment
securities........ 3,041,321 3,662,402
Loans, net of
unearned
discounts......... 17,590,463 19,311,585 (4)
Allowance for loan
losses............ (107,000)(2) (520,576) (579,312)(4)
Federal funds sold
and securities
purchased under
agreements to
resell............ (15,000)(1) 161,394 198,494
Trading account
securities........ 3,991 3,991
Due from customers
on acceptances.... 461,061 461,061
Premises and
equipment and
other assets...... 56,868 (2)(5)(7)(8) 1,030,489 1,138,246
--------- ----------- -----------
Total assets.... $ (65,432) $25,054,074 $27,570,510
========= ============ ===========
LIABILITIES
Deposits:
Domestic:
Non-interest
bearing......... $ 5,912,942 $ 6,205,294
Interest
bearing......... $ (300)(1) 11,597,002 13,396,709
Overseas branches
and subsidiaries. 819,655 819,655
--------- ----------- -----------
Total deposits.. (300) 18,329,599 20,421,658
Funds borrowed.... (15,000)(1) 2,072,301 2,127,676
Bank acceptances
outstanding....... 469,168 469,168
Other liabilities. 33,871 (5)(8) 1,069,151 1,119,474
Long-term debt.... 1,180,679 1,314,964
--------- ----------- -----------
Total
liabilities..... 18,571 23,120,898 25,452,940
--------- ----------- -----------
SHAREHOLDERS'
EQUITY
Common stock...... (124,951)(9) 129,078 145,355
Capital surplus... 124,951 (9) 680,829 782,599
Retained earnings. (84,003)(2)(5)(7)(8) 1,130,607 1,196,954
Treasury stock.... (7,338) (7,338)
--------- ----------- -----------
Total
shareholders'
equity.......... (84,003) 1,933,176 2,117,570
--------- ----------- -----------
Total
liabilities and
shareholders'
equity.......... $ (65,432) $25,054,074 $27,570,510
========= ============ ===========
Book value per
share(11)......... $15.02 $14.56
====== ======
</TABLE>
See footnotes to the Pro Forma Condensed Combined Balance Sheet on page 54.
53
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(1) Elimination of intercompany deposits and Federal funds transaction.
(2) While Constellation has utilized a long-term work out strategy for all of
its assets in the belief that value could be maximized over time,
CoreStates' strategy is to seek to dispose of certain assets via bulk
sale, individual credit direct negotiation or foreclosure, in an
accelerated manner. It is CoreStates' philosophy that this change
maximizes the total value of the Merger and allows the ongoing institution
to concentrate upon new franchise initiatives and revenue generation. In
CoreStates' experience, a strategy that involves the accelerated
resolution of problem assets has been more economical than a long-term
work out approach. It has been CoreStates' experience that the costs of
working out assets as well as other carrying costs typically outweigh any
improvement in an asset's realized value. Furthermore, resources and
management time and attention are diverted away from building the business
and creating long-term franchise value. CoreStates currently estimates
that in connection with the change in strategic direction and to conform
Constellation's loan, accrual and reserve policies to those of CoreStates,
it will take an addition to the allowance for possible loan losses of
approximately $107.0 million and an addition to the reserve against other
real estate owned ("OREO") of approximately $38.0 million. Accordingly,
pro forma common shareholders' equity has been reduced by $94.3 million,
the after-tax effect of the estimated provisions. CoreStates currently
estimates that the assets related to $134.5 million of the $145.0 million
in estimated aggregate provisions will be disposed of within eighteen
months of the Effective Date. The carrying value of these assets is
approximately $340 million and the estimated provisions represent 40% of
this amount. It is also estimated that the conforming adjustments, mostly
related to consumer lending charge-off policies, will comprise
approximately $10.5 million of the aggregate $145.0 million in estimated
provisions.
(3) In connection with CoreStates' planned strategic initiatives regarding
Independence's problem assets, CoreStates currently estimates that with
regard to the Proposed Combination it will take a $25.0 million addition
to Independence's allowance for possible loan losses and a $5.0 million
addition to Independence's reserve against OREO. Accordingly, pro forma
common shareholders' equity has been reduced by $19.5 million, the after-
tax effect of the estimated provisions. CoreStates currently estimates
that the assets related to the $30.0 million in estimated aggregate
provisions will be disposed of within eighteen months of the effective
date of the Proposed Combination. The carrying value of these assets is
approximately $120 million and the estimated provisions represent 25% of
this amount.
(4) The following asset quality and allowance for loan losses coverage ratios
as of September 30, 1993 are presented on a pro forma combined basis
considering the impacts of the change in strategy and conforming
adjustments discussed in notes (2) and (3) above (in thousands):
<TABLE>
<S> <C>
Non-performing loans............................................ $398,196
OREO............................................................ 109,892
--------
Total non-performing assets..................................... $508,088
========
Selected Ratios:
Non-performing loans to total loans............................ 2.08%
Allowance for possible loan losses to non-performing loans..... 129.79%
Allowance for possible loan losses to total loans.............. 2.69%
Non-performing assets to total loans plus OREO................. 2.63%
</TABLE>
(5) Reflects charges of approximately $42.5 million, $27.6 million after the
related tax effects, which include expenses directly attributable to the
Merger, and certain other costs and expenses.
(6) Reflects charges of approximately $24.2 million, $15.7 million after the
related tax effects, which include expenses directly attributable to the
Proposed Combination.
(7) Reflects the $42.1 million cumulative benefit of applying FAS 109 as if
both CoreStates and Constellation had retroactively adopted FAS 109 on a
combined basis. See footnote 4 on page 60.
(8) Reflects the pro forma adoption by Constellation of the FAS 106
transitional liability of $6.0 million, $4.0 million after-tax, effective
January 1, 1992. See footnote 3 on page 60.
(9) Reflects the conversion of 27.234 million outstanding Constellation Common
Shares on September 30, 1993 into 11.220 million CoreStates Common Shares.
(10) Reflects the conversion of 11.489 million outstanding Independence Common
Shares on September 30, 1993 into 16.659 million CoreStates Common Shares.
(11) Reflects the impact of the Stock Dividend.
(12) Reflects the cancellation of 153 thousand Independence Common Shares held
as treasury stock.
54
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES
CORESTATES INDEPENDENCE AND CORESTATES CONSTELLATION
AND BANCORP AND PRO FORMA INDEPENDENCE AND BANCORP AND PRO FORMA
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS(1) PRO FORMA SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS(1)
------------ ------------ -------------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees
on loans......... $ 977,371 $106,907 $1,084,278 $ 977,371 $101,660
Interest on in-
vestment securi-
ties............. 121,317 25,847 $ (82)(2) 147,082 121,317 12,758
Interest on time
deposits in
banks............ 33,066 951 34,017 33,066 7 $ (7)(2)
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 1,777 786 (45)(2) 2,518 1,777 2,545 (19)(2)
Other interest
income........... 40 40 40
--------- -------- ----- ---------- --------- -------- -------
Total interest
income.......... 1,133,571 134,491 (127) 1,267,935 1,133,571 116,970 (26)
--------- -------- ----- ---------- --------- -------- -------
INTEREST EXPENSE
Interest on de-
posits........... 202,453 45,806 248,259 202,453 41,872 (7)(2)
Interest on funds
borrowed......... 46,078 2,288 (45)(2) 48,321 46,078 130 (19)(2)
Interest on long-
term debt........ 48,477 6,077 (82)(2) 54,472 48,477
--------- -------- ----- ---------- --------- -------- -------
Total interest
expense......... 297,008 54,171 (127) 351,052 297,008 42,002 (26)
--------- -------- ----- ---------- --------- -------- -------
Net interest in-
come............. 836,563 80,320 0 916,883 836,563 74,968
Provision for
losses on loans.. 75,000 9,055 84,055 75,000 7,500
--------- -------- ----- ---------- --------- -------- -------
Net interest in-
come after provi-
sion for losses
on loans......... 761,563 71,265 832,828 761,563 67,468
--------- -------- ----- ---------- --------- -------- -------
NON-INTEREST IN-
COME
Service charges
on deposit ac-
counts........... 119,412 6,527 125,939 119,412 7,780
Trust income..... 71,441 3,324 74,765 71,441 2,229
Fees for interna-
tional services.. 50,890 50,890 50,890 705
Debit and credit
card fees........ 42,492 1,739 44,231 42,492 1,272
Securities gains
(losses)......... 5,530 (105) 5,425 5,530 36
Other operating
income........... 80,753 10,590 91,343 80,753 20,987
--------- -------- ----- ---------- --------- -------- -------
Total non-inter-
est income...... 370,518 22,075 392,593 370,518 33,009
--------- -------- ----- ---------- --------- -------- -------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits..... 403,359 34,368 437,727 403,359 30,977 (225)(3)
Net occupancy.... 74,831 5,029 79,860 74,831 6,737
Equipment ex-
penses........... 47,074 4,492 51,566 47,074 4,275
Other operating
expenses......... 241,738 26,196 267,934 241,738 46,355
--------- -------- ----- ---------- --------- -------- -------
Total non-finan-
cial expenses... 767,002 70,085 837,087 767,002 88,344 (225)
--------- -------- ----- ---------- --------- -------- -------
Income before in-
come taxes....... 365,079 23,255 388,334 365,079 12,133 225
Provision for in-
come taxes....... 122,464 6,199 128,663 122,464 477 3,001 (3)(4)
--------- -------- ----- ---------- --------- -------- -------
Net income....... $ 242,615 $ 17,056 $ 0 $ 259,671 $ 242,615 $ 11,656 $(2,776)
========= ======== ===== ========== ========= ======== =======
Average common
shares outstand-
ing.............. 117,335 11,498 134,007 117,335 27,182
PER COMMON SHARE
DATA(5)
Net income....... $2.07 $1.48 $1.94 $2.07 $0.43
Cash dividends
declared......... $0.84 $0.87 $0.84 $0.84
<CAPTION>
CORESTATES PRO FORMA
AND COMBINED
CONSTELLATION ALL
PRO FORMA TRANSACTIONS
------------- ------------
<S> <C> <C>
INTEREST INCOME
Interest and fees
on loans......... $1,079,031 $1,185,938
Interest on in-
vestment securi-
ties............. 134,075 159,840
Interest on time
deposits in
banks............ 33,066 34,017
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 4,303 5,044
Other interest
income........... 40 40
------------- ------------
Total interest
income.......... 1,250,515 1,384,879
------------- ------------
INTEREST EXPENSE
Interest on de-
posits........... 244,318 290,124
Interest on funds
borrowed......... 46,189 48,432
Interest on long-
term debt........ 48,477 54,472
------------- ------------
Total interest
expense......... 338,984 393,028
------------- ------------
Net interest in-
come............. 911,531 991,851
Provision for
losses on loans.. 82,500 91,555
------------- ------------
Net interest in-
come after provi-
sion for losses
on loans......... 829,031 900,296
------------- ------------
NON-INTEREST IN-
COME
Service charges
on deposit ac-
counts........... 127,192 133,719
Trust income..... 73,670 76,994
Fees for interna-
tional services.. 51,595 51,595
Debit and credit
card fees........ 43,764 45,503
Securities gains
(losses)......... 5,566 5,461
Other operating
income........... 101,740 112,330
------------- ------------
Total non-inter-
est income...... 403,527 425,602
------------- ------------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits..... 434,111 468,479
Net occupancy.... 81,568 86,597
Equipment ex-
penses........... 51,349 55,841
Other operating
expenses......... 288,093 314,289
------------- ------------
Total non-finan-
cial expenses... 855,121 925,206
------------- ------------
Income before in-
come taxes....... 377,437 400,692
Provision for in-
come taxes....... 125,942 132,141
------------- ------------
Net income....... $ 251,495 $ 268,551
============= ============
Average common
shares outstand-
ing.............. 128,534 145,206
PER COMMON SHARE
DATA(5)
Net income....... $1.96 $1.85
Cash dividends
declared......... $0.84 $0.84
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 60-
61.
55
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES CORESTATES
CORESTATES INDEPENDENCE AND CORESTATES CONSTELLATION AND
AND BANCORP AND PRO FORMA INDEPENDENCE AND BANCORP AND PRO FORMA CONSTELLATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees
on loans.......... $1,025,994 $113,996 $1,139,990 $1,025,994 $110,623 $1,136,617
Interest on in-
vestment securi-
ties.............. 126,045 33,798 $(24)(2) 159,819 126,045 20,369 146,414
Interest on time
deposits in banks. 41,922 2,375 44,297 41,922 41,922
Interest on
federal funds sold
and securities
purchased under
agreements to
resell............ 8,775 738 9,513 8,775 3,876 12,651
Other interest in-
come.............. 39 39 39 39
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total interest
income.......... 1,202,775 150,907 (24) 1,353,658 1,202,775 134,868 1,337,643
---------- -------- ---- ---------- ---------- -------- ---- ----------
INTEREST EXPENSE
Interest on depos-
its............... 320,498 63,175 383,673 320,498 68,952 389,450
Interest on funds
borrowed.......... 45,090 2,506 47,596 45,090 328 45,418
Interest on long-
term debt......... 54,058 4,044 (24)(2) 58,078 54,058 1,592 55,650
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total interest
expense......... 419,646 69,725 (24) 489,347 419,646 70,872 490,518
---------- -------- ---- ---------- ---------- -------- ---- ----------
Net interest in-
come.............. 783,129 81,182 0 864,311 783,129 63,996 847,125
Provision for
losses on loans... 92,300 11,684 103,984 92,300 8,500 100,800
---------- -------- ---- ---------- ---------- -------- ---- ----------
Net interest in-
come after provi-
sion for losses on
loans............. 690,829 69,498 760,327 690,829 55,496 746,325
---------- -------- ---- ---------- ---------- -------- ---- ----------
NON-INTEREST IN-
COME
Debit and credit
card fees......... 116,768 1,671 118,439 116,768 299 117,067
Service charges on
deposit accounts.. 105,576 6,266 111,842 105,576 9,280 114,856
Trust income...... 72,420 3,002 75,422 72,420 2,083 74,503
Fees for interna-
tional services... 44,010 44,010 44,010 773 44,783
Securities gains
(losses).......... 13,405 (271) 13,134 13,405 1,633 15,038
Other operating
income............ 34,744 7,587 42,331 34,744 17,119 51,863
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total non-inter-
est income...... 386,923 18,255 405,178 386,923 31,187 418,110
---------- -------- ---- ---------- ---------- -------- ---- ----------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits...... 399,012 34,725 433,737 399,012 32,574 $447 (3) 432,033
Net occupancy..... 74,591 4,900 79,491 74,591 7,106 81,697
Equipment ex-
penses............ 54,195 4,561 58,756 54,195 5,640 59,835
Other operating
expenses.......... 263,318 23,938 287,256 263,318 44,209 307,527
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total non-finan-
cial expenses... 791,116 68,124 859,240 791,116 89,529 447 881,092
---------- -------- ---- ---------- ---------- -------- ---- ----------
Income (loss) be-
fore income taxes. 286,636 19,629 306,265 286,636 (2,846) (447) 283,343
Provision for in-
come taxes........ 93,339 5,784 99,123 93,339 (679)(3)(4) 92,660
---------- -------- ---- ---------- ---------- -------- ---- ----------
Income (loss) be-
fore cumulative
effect of a change
in accounting
principle......... $ 193,297 $ 13,845 $ 207,142 $ 193,297 $ (2,846) $232 $ 190,683
========== ======== ==== ========== ========== ======== ==== ==========
Average common
shares outstand-
ing............... 115,322 11,210 131,577 115,322 8,187 118,695
PER COMMON SHARE
DATA(5)
Income (loss) be-
fore cumulative
effect of a change
in accounting
principle......... $1.68 $1.24 $1.57 $1.68 $(0.35) $1.61
Cash dividends de-
clared............ $0.75 $0.87 $0.75 $0.75 $0.75
<CAPTION>
PRO FORMA
COMBINED ALL
TRANSACTIONS
------------
<S> <C>
INTEREST INCOME
Interest and fees
on loans.......... $1,250,613
Interest on in-
vestment securi-
ties.............. 180,188
Interest on time
deposits in banks. 44,297
Interest on
federal funds sold
and securities
purchased under
agreements to
resell............ 13,389
Other interest in-
come.............. 39
------------
Total interest
income.......... 1,488,526
------------
INTEREST EXPENSE
Interest on depos-
its............... 452,625
Interest on funds
borrowed.......... 47,924
Interest on long-
term debt......... 59,670
------------
Total interest
expense......... 560,219
------------
Net interest in-
come.............. 928,307
Provision for
losses on loans... 112,484
------------
Net interest in-
come after provi-
sion for losses on
loans............. 815,823
------------
NON-INTEREST IN-
COME
Debit and credit
card fees......... 118,738
Service charges on
deposit accounts.. 121,122
Trust income...... 77,505
Fees for interna-
tional services... 44,783
Securities gains
(losses).......... 14,767
Other operating
income............ 59,450
------------
Total non-inter-
est income...... 436,365
------------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits...... 466,758
Net occupancy..... 86,597
Equipment ex-
penses............ 64,396
Other operating
expenses.......... 331,465
------------
Total non-finan-
cial expenses... 949,216
------------
Income (loss) be-
fore income taxes. 302,972
Provision for in-
come taxes........ 98,444
------------
Income (loss) be-
fore cumulative
effect of a change
in accounting
principle......... $ 204,528
============
Average common
shares outstand-
ing............... 134,950
PER COMMON SHARE
DATA(5)
Income (loss) be-
fore cumulative
effect of a change
in accounting
principle......... $1.52
Cash dividends de-
clared............ $0.75
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 60-
61.
56
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES CORESTATES
CORESTATES INDEPENDENCE AND CORESTATES CONSTELLATION AND
AND BANCORP AND PRO FORMA INDEPENDENCE AND BANCORP AND PRO FORMA CONSTELLATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees
on loans......... $1,352,164 $150,174 $1,502,338 $1,352,164 $145,244 $1,497,408
Interest on in-
vestment securi-
ties............. 168,713 44,986 $(41)(2) 213,658 168,713 25,316 194,029
Interest on time
deposits in
banks............ 55,635 2,855 58,490 55,635 55,635
Interest on fed-
eral funds sold
and securities
purchased under
agreements to re-
sell............. 10,791 1,113 11,904 10,791 4,831 15,622
Other interest
income........... 57 57 57 57
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total interest
income.......... 1,587,360 199,128 (41) 1,786,447 1,587,360 175,391 1,762,751
---------- -------- ---- ---------- ---------- -------- ---- ----------
INTEREST EXPENSE
Interest on de-
posits........... 402,846 80,952 483,798 402,846 86,657 489,503
Interest on funds
borrowed......... 56,709 3,410 60,119 56,709 361 57,070
Interest on long-
term debt........ 70,759 5,638 (41)(2) 76,356 70,759 2,069 72,828
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total interest
expense......... 530,314 90,000 (41) 620,273 530,314 89,087 619,401
---------- -------- ---- ---------- ---------- -------- ---- ----------
Net interest in-
come............. 1,057,046 109,128 0 1,166,174 1,057,046 86,304 1,143,350
Provision for
losses on loans.. 119,300 30,950 150,250 119,300 10,000 129,300
---------- -------- ---- ---------- ---------- -------- ---- ----------
Net interest in-
come after provi-
sion for losses
on loans......... 937,746 78,178 1,015,924 937,746 76,304 1,014,050
---------- -------- ---- ---------- ---------- -------- ---- ----------
NON-INTEREST IN-
COME
Debit and credit
card fees........ 149,154 2,186 151,340 149,154 738 149,892
Service charges
on deposit ac-
counts........... 142,672 8,465 151,137 142,672 11,995 154,667
Trust income..... 89,833 4,077 93,910 89,833 2,821 92,654
Fees for interna-
tional services.. 60,247 60,247 60,247 60,247
Securities gains
(losses)......... 13,407 (1,280) 12,127 13,407 1,678 15,085
Other operating
income........... 91,196 10,493 101,689 91,196 22,982 114,178
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total non-inter-
est income...... 546,509 23,941 570,450 546,509 40,214 586,723
---------- -------- ---- ---------- ---------- -------- ---- ----------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits..... 537,755 45,837 583,592 537,755 43,716 $596(3) 582,067
Net occupancy.... 96,751 6,562 103,313 96,751 9,452 106,203
Equipment ex-
penses........... 72,042 6,239 78,281 72,042 7,308 79,350
Other operating
expenses......... 388,043 34,612 422,655 388,043 57,680 445,723
---------- -------- ---- ---------- ---------- -------- ---- ----------
Total non-finan-
cial expenses... 1,094,591 93,250 1,187,841 1,094,591 118,156 596 1,213,343
---------- -------- ---- ---------- ---------- -------- ---- ----------
Income (loss) be-
fore income tax-
es............... 389,664 8,869 398,533 389,664 (1,638) (596) 387,430
Provision for in-
come taxes....... 127,260 1,757 129,017 127,260 53 (905)(3)(4) 126,408
---------- -------- ---- ---------- ---------- -------- ---- ----------
Income (loss)
before cumulative
effect of a
change in
accounting
principle........ $ 262,404 $ 7,112 $ 269,516 $ 262,404 $ (1,691) $309 $ 261,022
========== ======== ==== ========== ========== ======== ==== ==========
Average common
shares outstand-
ing.............. 115,600 11,237 131,894 115,600 9,065 119,335
PER COMMON SHARE
DATA(5)
Income (loss)
before cumulative
effect of a
change in
accounting
principle........ $2.27 $0.63 $2.04 $2.27 $(0.19) $2.19
Cash dividends
declared......... $1.02 $1.16 $1.02 $1.02 $1.02
<CAPTION>
PRO FORMA
COMBINED
ALL
TRANSACTIONS
------------
<S> <C>
INTEREST INCOME
Interest and fees
on loans......... $1,647,582
Interest on in-
vestment securi-
ties............. 238,974
Interest on time
deposits in
banks............ 58,490
Interest on fed-
eral funds sold
and securities
purchased under
agreements to re-
sell............. 16,735
Other interest
income........... 57
------------
Total interest
income.......... 1,961,838
------------
INTEREST EXPENSE
Interest on de-
posits........... 570,455
Interest on funds
borrowed......... 60,480
Interest on long-
term debt........ 78,425
------------
Total interest
expense......... 709,360
------------
Net interest in-
come............. 1,252,478
Provision for
losses on loans.. 160,250
------------
Net interest in-
come after provi-
sion for losses
on loans......... 1,092,228
------------
NON-INTEREST IN-
COME
Debit and credit
card fees........ 152,078
Service charges
on deposit ac-
counts........... 163,132
Trust income..... 96,731
Fees for interna-
tional services.. 60,247
Securities gains
(losses)......... 13,805
Other operating
income........... 124,671
------------
Total non-inter-
est income...... 610,664
------------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits..... 627,904
Net occupancy.... 112,765
Equipment ex-
penses........... 85,589
Other operating
expenses......... 480,335
------------
Total non-finan-
cial expenses... 1,306,593
------------
Income (loss) be-
fore income tax-
es............... 396,299
Provision for in-
come taxes....... 128,165
------------
Income (loss)
before cumulative
effect of a
change in
accounting
principle........ $ 268,134
============
Average common
shares outstand-
ing.............. 135,628
PER COMMON SHARE
DATA(5)
Income (loss)
before cumulative
effect of a
change in
accounting
principle........ $1.98
Cash dividends
declared......... $1.02
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 60-
61.
57
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES CORESTATES
CORESTATES INDEPENDENCE AND CORESTATES CONSTELLATION AND
AND BANCORP AND PRO FORMA INDEPENDENCE AND BANCORP AND PRO FORMA CONSTELLATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees
on loans......... $1,759,239 $169,555 $1,928,794 $1,759,239 $186,841 $1,946,080
Interest on in-
vestment securi-
ties............. 176,149 53,104 229,253 176,149 32,860 209,009
Interest on time
deposits in
banks............ 73,132 5,734 $ (13)(2) 78,853 73,132 643 73,775
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 13,286 2,424 15,710 13,286 12,272 25,558
Other interest
income........... 51 51 51 51
---------- -------- ------- ---------- ---------- -------- -------- ----------
Total interest
income.......... 2,021,857 230,817 (13) 2,252,661 2,021,857 232,616 2,254,473
---------- -------- ------- ---------- ---------- -------- -------- ----------
INTEREST EXPENSE
Interest on
deposits......... 689,397 114,712 (13)(2) 804,096 689,397 146,303 835,700
Interest on funds
borrowed......... 164,009 5,118 169,127 164,009 2,478 166,487
Interest on long-
term debt........ 82,058 5,945 88,003 82,058 2,360 84,418
---------- -------- ------- ---------- ---------- -------- -------- ----------
Total interest
expense......... 935,464 125,775 (13) 1,061,226 935,464 151,141 1,086,605
---------- -------- ------- ---------- ---------- -------- -------- ----------
Net interest
income........... 1,086,393 105,042 0 1,191,435 1,086,393 81,475 1,167,868
Provision for
losses on loans.. 190,601 18,665 209,266 190,601 81,995 272,596
---------- -------- ------- ---------- ---------- -------- -------- ----------
Net interest
income after
provision for
losses on loans.. 895,792 86,377 982,169 895,792 (520) 895,272
---------- -------- ------- ---------- ---------- -------- -------- ----------
NON-INTEREST
INCOME
Debit and credit
card fees........ 166,231 1,753 167,984 166,231 (64) 166,167
Service charges
on deposit
accounts......... 120,602 7,841 128,443 120,602 14,546 135,148
Trust income..... 90,482 3,976 94,458 90,482 2,904 93,386
Fees for
international
services......... 47,275 47,275 47,275 47,275
Securities gains
(losses)......... (17,546) 307 (17,239) (17,546) 3,371 (14,175)
Other operating
income........... 134,602 14,575 149,177 134,602 24,710 159,312
---------- -------- ------- ---------- ---------- -------- -------- ----------
Total non-
interest income. 541,646 28,452 570,098 541,646 45,467 587,113
---------- -------- ------- ---------- ---------- -------- -------- ----------
NON-FINANCIAL
EXPENSES
Salaries, wages
and benefits..... 522,828 44,921 567,749 522,828 52,610 575,438
Net occupancy.... 104,667 6,386 111,053 104,667 10,795 115,462
Equipment
expenses......... 72,915 5,975 78,890 72,915 10,176 83,091
Other operating
expenses......... 395,709 32,927 428,636 395,709 59,556 455,265
---------- -------- ------- ---------- ---------- -------- -------- ----------
Total non-
financial
expenses........ 1,096,119 90,209 1,186,328 1,096,119 133,137 1,229,256
---------- -------- ------- ---------- ---------- -------- -------- ----------
Income (loss)
before income
taxes............ 341,319 24,620 365,939 341,319 (88,190) 253,129
Provision for
income taxes..... 113,573 5,664 1,265 (4) 120,502 113,573 532 $(23,602)(4) 90,503
---------- -------- ------- ---------- ---------- -------- -------- ----------
Net income
(loss)........... $ 227,746 $ 18,956 $(1,265) $ 245,437 $ 227,746 $(88,722) $ 23,602 $ 162,626
========== ======== ======= ========== ========== ======== ======== ==========
Average common
shares
outstanding...... 113,624 11,047 129,642 113,624 8,200 117,002
PER COMMON SHARE
DATA(5)
Net income
(loss)........... $2.00 $1.72 $1.89 $2.00 $(10.82) $1.39
Cash dividends
declared......... $0.97 $1.16 $0.97 $0.97 $0.97
<CAPTION>
PRO FORMA
COMBINED
ALL
TRANSACTIONS
------------
<S> <C>
INTEREST INCOME
Interest and fees
on loans......... $2,115,635
Interest on in-
vestment securi-
ties............. 262,113
Interest on time
deposits in
banks............ 79,496
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 27,982
Other interest
income........... 51
------------
Total interest
income.......... 2,485,277
------------
INTEREST EXPENSE
Interest on
deposits......... 950,399
Interest on funds
borrowed......... 171,605
Interest on long-
term debt........ 90,363
------------
Total interest
expense......... 1,212,367
------------
Net interest
income........... 1,272,910
Provision for
losses on loans.. 291,261
------------
Net interest
income after
provision for
losses on loans.. 981,649
------------
NON-INTEREST
INCOME
Debit and credit
card fees........ 167,920
Service charges
on deposit
accounts......... 142,989
Trust income..... 97,362
Fees for
international
services......... 47,275
Securities gains
(losses)......... (13,868)
Other operating
income........... 173,887
------------
Total non-
interest income. 615,565
------------
NON-FINANCIAL
EXPENSES
Salaries, wages
and benefits..... 620,359
Net occupancy.... 121,848
Equipment
expenses......... 89,066
Other operating
expenses......... 488,192
------------
Total non-
financial
expenses........ 1,319,465
------------
Income (loss)
before income
taxes............ 277,749
Provision for
income taxes..... 97,432
------------
Net income
(loss)........... $ 180,317
============
Average common
shares
outstanding...... 133,021
PER COMMON SHARE
DATA(5)
Net income
(loss)........... $1.36
Cash dividends
declared......... $0.97
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 60-
61.
58
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1990
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES CORESTATES
CORESTATES INDEPENDENCE AND CORESTATES CONSTELLATION AND
AND BANCORP AND PRO FORMA INDEPENDENCE AND BANCORP AND PRO FORMA CONSTELLATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees
on loans......... $2,026,147 $184,767 $2,210,914 $2,026,147 $232,588 $2,258,735
Interest on in-
vestment securi-
ties............. 179,033 53,227 232,260 179,033 38,153 217,186
Interest on time
deposits in
banks............ 55,412 7,184 62,596 55,412 332 55,744
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 11,396 4,696 16,092 11,396 5,607 17,003
Other interest in-
come............. 599 599 599 599
---------- -------- ----- ---------- ---------- -------- -------- ----------
Total interest
income......... 2,272,587 249,874 2,522,461 2,272,587 276,680 2,549,267
---------- -------- ----- ---------- ---------- -------- -------- ----------
INTEREST EXPENSE
Interest on
deposits......... 833,090 133,077 966,167 833,090 159,540 992,630
Interest on funds
borrowed......... 315,817 10,833 326,650 315,817 6,216 322,033
Interest on long-
term debt........ 65,293 6,462 71,755 65,293 2,407 67,700
---------- -------- ----- ---------- ---------- -------- -------- ----------
Total interest
expense........ 1,214,200 150,372 1,364,572 1,214,200 168,163 1,382,363
---------- -------- ----- ---------- ---------- -------- -------- ----------
Net interest
income........... 1,058,387 99,502 1,157,889 1,058,387 108,517 1,166,904
Provision for
losses on loans.. 327,300 13,216 340,516 327,300 97,344 424,644
---------- -------- ----- ---------- ---------- -------- -------- ----------
Net interest
income after
provision for
losses on loans.. 731,087 86,286 817,373 731,087 11,173 742,260
---------- -------- ----- ---------- ---------- -------- -------- ----------
NON-INTEREST
INCOME
Debit and credit
card fees........ 134,148 1,385 135,533 134,148 (220) 133,928
Service charges on
deposit accounts. 98,449 7,237 105,686 98,449 14,353 112,802
Trust income...... 84,857 3,216 88,073 84,857 2,977 87,834
Fees for
international
services......... 39,707 39,707 39,707 39,707
Securities gains
(losses)......... 2,177 204 2,381 2,177 31 2,208
Other operating
income........... 53,420 8,580 62,000 53,420 24,450 77,870
---------- -------- ----- ---------- ---------- -------- -------- ----------
Total non-
interest
income......... 412,758 20,622 433,380 412,758 41,591 454,349
---------- -------- ----- ---------- ---------- -------- -------- ----------
NON-FINANCIAL
EXPENSES
Salaries, wages
and benefits..... 493,343 42,117 535,460 493,343 56,278 549,621
Net occupancy..... 92,035 6,338 98,373 92,035 11,391 103,426
Equipment
expenses......... 66,353 5,918 72,271 66,353 11,563 77,916
Other operating
expenses......... 325,330 30,333 355,663 325,330 45,320 370,650
---------- -------- ----- ---------- ---------- -------- -------- ----------
Total non-
financial
expenses....... 977,061 84,706 1,061,767 977,061 124,552 1,101,613
---------- -------- ----- ---------- ---------- -------- -------- ----------
Income (loss)
before income
taxes............ 166,784 22,202 188,986 166,784 (71,788) 94,996
Provision for
income taxes..... 38,128 5,100 $ 533 (4) 43,761 38,128 (10,017) $(21,746)(4) 6,365
---------- -------- ----- ---------- ---------- -------- -------- ----------
Net income (loss). 128,656 17,102 (533) 145,225 128,656 (61,771) 21,746 88,631
Dividends on
preferred stock.. 1,662 1,662 1,662 1,662
---------- -------- ----- ---------- ---------- -------- -------- ----------
Net income (loss)
applicable to
common stock..... $ 126,994 $ 17,102 $(533) $ 143,563 $ 126,994 $(61,771) $ 21,746 $ 86,969
========== ======== ===== ========== ========== ======== ======== ==========
Average common
shares
outstanding...... 113,956 11,019 129,934 113,956 8,067 117,280
PER COMMON SHARE
DATA(5)
Net income (loss). $1.11 $1.55 $1.10 $1.11 $(7.66) $0.74
Cash dividends
declared......... $0.96 $1.16 $0.96 $0.96 $1.44 $0.96
<CAPTION>
PRO FORMA
COMBINED
ALL
TRANSACTIONS
------------
<S> <C>
INTEREST INCOME
Interest and fees
on loans......... $2,443,502
Interest on in-
vestment securi-
ties............. 270,413
Interest on time
deposits in
banks............ 62,928
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 21,699
Other interest in-
come............. 599
------------
Total interest
income......... 2,799,141
------------
INTEREST EXPENSE
Interest on
deposits......... 1,125,707
Interest on funds
borrowed......... 332,866
Interest on long-
term debt........ 74,162
------------
Total interest
expense........ 1,532,735
------------
Net interest
income........... 1,266,406
Provision for
losses on loans.. 437,860
------------
Net interest
income after
provision for
losses on loans.. 828,546
------------
NON-INTEREST
INCOME
Debit and credit
card fees........ 135,313
Service charges on
deposit accounts. 120,039
Trust income...... 91,050
Fees for
international
services......... 39,707
Securities gains
(losses)......... 2,412
Other operating
income........... 86,450
------------
Total non-
interest
income......... 474,971
------------
NON-FINANCIAL
EXPENSES
Salaries, wages
and benefits..... 591,738
Net occupancy..... 109,764
Equipment
expenses......... 83,834
Other operating
expenses......... 400,983
------------
Total non-
financial
expenses....... 1,186,319
------------
Income (loss)
before income
taxes............ 117,198
Provision for
income taxes..... 11,998
------------
Net income (loss). 105,200
Dividends on
preferred stock.. 1,662
------------
Net income (loss)
applicable to
common stock..... $ 103,538
============
Average common
shares
outstanding...... 133,257
PER COMMON SHARE
DATA(5)
Net income (loss). $0.78
Cash dividends
declared......... $0.96
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 60-
61.
59
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
(1) The Pro Forma Condensed Combined Statements of Income do not reflect the
estimated $107.0 million provision for losses on loans related to
Constellation's loan portfolio, the $38.0 million addition to
Constellation's reserve against OREO, or charges of approximately $42.5
million which include expenses directly attributable to the Merger and
certain other costs and expenses. Were these expenses reflected in the Pro
Forma Condensed Combined Statements of Income for the nine months ended
September 30, 1993, net income would decrease by $121.9 million, or $0.84
per share.
The Pro Forma Condensed Combined Statements of Income also do not reflect
the estimated $25.0 million provision for losses on loans related to
Independence's loan portfolio, the $5.0 million addition to Independence's
reserve against OREO, or charges of approximately $24.2 million directly
attributable to the Proposed Combination. Were these expenses reflected in
the Pro Forma Condensed Combined Statements of Income for the nine months
ended September 30, 1993, net income would decrease by $35.2 million, or
$0.24 per share.
(2) Reflects the elimination of intercompany interest on deposits, long-term
debt and Federal funds transactions.
(3) Reflects the adoption of FAS 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions." As permitted under FAS 106, CoreStates
elected to recognize immediately the January 1, 1992 transitional liability
of $122.7 million pre-tax, $81.0 million or $0.70 per share after-tax, as
the cumulative effect of a change in accounting principle in the first
quarter of 1992.
Constellation adopted FAS 106 on January 1, 1993, the date required under
that statement. Constellation elected not to recognize immediately its $6.0
million transitional liability, but to amortize that liability over 20
years. As permitted under FAS 106 and pooling accounting, the pro forma
financial information is prepared as if Constellation adopted FAS 106
effective January 1, 1992 and immediately recognized the $6.0 million, $4.0
million after-tax, transitional liability. Pro forma salaries, wages and
benefits have been adjusted accordingly.
The impact of FAS 106 on Independence is immaterial.
(4) In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes
("FAS 109"), which has superseded FAS 96. Although FAS 109 was not required
to be adopted until the first quarter of 1993, in the first quarter of 1992
CoreStates retroactively adopted FAS 109 as of January 1, 1987.
Constellation adopted FAS 109 on January 1, 1993. However, pro forma
financial information is prepared as if CoreStates and Constellation
retroactively adopted FAS 109 as of January 1, 1987 on a combined basis. The
impact of retroactively applying FAS 109 to Constellation has the following
effect on pro forma net income and period-end common shareholders' equity
(in thousands, except per share):
<TABLE>
<CAPTION>
INCREASE
(DECREASE) CUMULATIVE
IN NET INCOME INCREASE (DECREASE)
--------------- IN COMMON
PER SHAREHOLDERS'
AMOUNT SHARE EQUITY
------- ------ -------------------
<S> <C> <C> <C>
Nine months ended September 30, 1993... $(2,922) $(0.02) $42,078
Year ended:
December 31, 1992..................... 702 0.01 45,000
December 31, 1991..................... 23,602 0.20 44,298
December 31, 1990..................... 21,746 0.19 20,696
December 31, 1989..................... -- -- (1,050)
December 31, 1988..................... -- -- (1,050)
</TABLE>
60
<PAGE>
Independence prospectively adopted FAS 109 on January 1, 1992, recognizing a
cumulative benefit of $4.4 million as the cumulative effect of a change in
accounting principle. However, the pro forma financial information is
prepared as if Independence retroactively adopted FAS 109 as of January 1,
1987. The impact of retroactively applying FAS 109 to Independence has the
following effects on pro forma net income and period-end common
shareholders' equity (in thousands, except per share):
<TABLE>
<CAPTION>
INCREASE
(DECREASE) CUMULATIVE
IN NET INCOME INCREASE (DECREASE)
--------------- IN COMMON
PER SHAREHOLDERS'
AMOUNT SHARE EQUITY
------- ------ -------------------
<S> <C> <C> <C>
Nine months ended September 30, 1993... -- -- --
Year ended:
December 31, 1992..................... $(4,378) $(0.03) --
December 31, 1991..................... (1,265) (0.01) $4,378
December 31, 1990..................... (533) * 5,643
December 31, 1989..................... (613) * 6,176
December 31, 1988..................... 6,789 (0.05) 6,789
</TABLE>
--------
* Decrease less than $.01 per share.
(5) Reflects the impact of the Stock Dividend. CoreStates, Constellation,
Independence and pro forma earnings per common share for the nine months
ended September 30, 1993 and 1992 and for the years ended December 31,
1992, 1991 and 1990 were based on weighted average common shares
outstanding as dilution from potentially dilutive common stock equivalents
was less than 3% for each period.
61
<PAGE>
LEGAL PROCEEDINGS
A class action complaint was filed against Constellation and certain other
parties in the United States District Court for the Southern District of New
York on June 8, 1990. A first amended and second amended complaint were filed
on August 23, 1990 and April 1, 1992, respectively. The second amended
complaint names as defendants Constellation, its then banking subsidiaries,
Constellation Bank and New Brunswick Savings Bank, and the following present
and former directors and officers: John J. Connolly, C. William Kuhlthau, III,
Frederic K. Becker, Francis V. Bonello, Anne Evans Gibbons, W. Emlen Roosevelt,
Joel D. Siegel, Martin L. Ritter, John A. Brockriede and Robert M. Jackson. The
second amended complaint alleges that Constellation's reserves for loan losses
were inadequate, and that defendants made misleading positive statements about
Constellation's financial condition, thus artificially inflating
Constellation's assets and earnings and the prices of Constellation's
securities during a purported class period of February 6, 1989 through January
24, 1990. The suit further alleges that Constellation's internal credit review
and controls were inadequate. In addition, plaintiffs assert that the
Registration Statement, dated August 11, 1989, issued by Constellation in
connection with its acquisition of New Brunswick Savings Bank, was false and
misleading because it did not disclose the foregoing conduct. The plaintiffs
demand judgment including unspecified monetary damages and attorneys' fees. On
March 3, 1992, the Court denied defendants' motion to dismiss the first amended
complaint. On May 20, 1993, the court ordered, pursuant to a stipulation of the
parties, the certification of a class of individuals who purchased
Constellation Common Shares between February 6, 1989 and January 24, 1990. The
Constellation Board and management of Constellation believe the allegations
contained in the second amended complaint to be lacking in merit. Based on
their understanding and evaluation of the relevant facts and circumstances, the
Constellation Board and management of Constellation believe that there are
meritorious defenses to the litigation described above and intend to defend
this action vigorously.
As a result of the Merger, CoreStates will succeed to the assets and
liabilities of Constellation and its banking subsidiaries, including any
liabilities with respect to this action. The management of CoreStates believes
that the consolidated financial condition, liquidity and results of operations
of CoreStates will not be affected materially by the outcome of this action.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Each of CoreStates and Constellation is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the "1956 Act")
and is registered as such with the FRB. As bank holding companies, each is also
subject to regulation by applicable state regulatory authorities. The national
bank subsidiaries of each of CoreStates and Constellation are subject to
regulation, supervision and regular examination by the OCC, as well as
regulation by the FDIC. Bank holding companies and banks are extensively
regulated under both federal and state law. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to the particular statutory and regulatory
provisions. A change in applicable law or regulation may have a material effect
on the business of CoreStates and Constellation.
Each of CoreStates and Constellation is required to file an annual report
with the FRB containing such additional information as the FRB may require
pursuant to the 1956 Act. Copies of annual and other periodic reports are also
required to be filed with the applicable state regulatory authorities. The 1956
Act requires each bank holding company to obtain the prior approval of the FRB
before it may acquire substantially all of the assets of any bank, or before it
may acquire ownership or control of any voting shares of any bank, if, after
such acquisition, it would own or control, directly or indirectly, more than 5%
of the voting shares of such bank. The 1956 Act also restricts the types of
businesses and operations in which a bank holding company and its nonbank
subsidiaries may engage. Generally, permissible activities are limited to
banking and activities found by the FRB to be so closely related to banking as
to be a proper incident thereto.
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The operations of the banking subsidiaries of each of CoreStates and
Constellation are subject to requirements and restrictions under federal and
state law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be made and limits upon
the types of services which may be offered. Various consumer laws and
regulations also affect the operations of the banking subsidiaries of each of
CoreStates and Constellation. The approval of the OCC is required for branching
by a national bank and for bank mergers in which the continuing bank is a
national bank.
Each of CoreStates, Constellation and their respective subsidiaries are
subject to examination on a periodic basis by the FRB in the case of holding
companies and non-banking subsidiaries and the OCC in the case of national bank
subsidiaries. In light of Constellation's and Constellation Bank's financial
condition, such examinations have taken, and can be expected to take, place on
a frequent basis. Furthermore, in light of Constellation's and Constellation
Bank's financial condition, Constellation and Constellation Bank discuss and
consult with their regulators on a regular basis concerning various aspects of
their operations and activities.
CAPITAL
The FRB in the case of bank holding companies such as CoreStates and
Constellation and the OCC in the case of national banks in general measure
capital adequacy by using a risk-based capital framework and by monitoring
compliance with minimum leverage ratio guidelines. The required minimum ratio
of total risk-based capital to risk-weighted assets (including certain off-
balance sheet items, such as standby letters of credit) is 8%. At least half of
the total capital, or 4%, is to be comprised of common equity and qualifying
perpetual preferred stock, less deductible intangibles ("Tier 1 Capital"). The
remainder ("Tier 2 Capital") may consist of mandatory convertible debt
securities, qualifying subordinated debt, other preferred stock and a portion
of the reserve for possible credit losses up to 1.25% of total risk weighted
assets. The aggregate amount of Tier 1 Capital and Tier 2 Capital is referred
to herein as "Total Capital".
In addition, the FRB has established minimum leverage ratio guidelines for
bank holding companies and the OCC has established minimum leverage ratio
guidelines for national banks. These guidelines provide for a minimum leverage
ratio (Tier 1 Capital to quarterly average total assets less deductible
intangibles) of 3% for bank holding companies and banks that meet certain
criteria, including the maintenance of the highest regulatory rating. All other
bank holding companies and banks are required to maintain a leverage ratio of
3% plus an additional cushion of at least 100 to 200 basis points.
In the Consent Order (as defined below), Constellation Bank agreed with the
OCC to achieve by June 30, 1992 a Tier 1 Risk-Based Capital Ratio of at least
6.00% and a Leverage Ratio of at least 5.50% (calculated on the basis of period
end assets). In the Written Agreement (as defined below), the FRB has not
specified any specific leverage ratio applicable to Constellation, but
Constellation expects that if the FRB were to advise it of a required minimum
that it would not be less than 5.00%.
In addition to considering specific minimum capital levels, the regulatory
agencies review capital adequacy in light of a variety of factors, including
asset quality. Therefore, the capital adequacy of a banking organization will
be impacted by and assessed in relation to its asset quality. Bank regulators
continue to indicate their desire to raise capital requirements applicable to
banking organizations beyond current levels. However, it is difficult to
predict whether and when higher capital requirements would be imposed, and if
so, at what levels and on what schedule. In addition, institutions which meet
minimum regulatory capital requirements, but are not "well capitalized," are
subject to certain restrictions and disadvantages, such as restrictions on the
receipt of brokered deposits.
Failure to satisfy the minimum capital requirements of the regulatory
guidelines and requirements such as those set forth in the Consent Order could
subject a banking organization to enforcement action by the regulatory
authorities, including the termination of FDIC deposit insurance, and in the
case of Constellation and Constellation Bank, result in additional restrictions
on, and requirements for, Constellation and Constellation Bank and the possible
appointment of a conservator or receiver for Constellation Bank.
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Set forth below are the minimum regulatory capital ratios and the capital
ratios for each of CoreStates and Constellation and their banking subsidiaries
as of September 30, 1993:
<TABLE>
<CAPTION>
MINIMUM CORESTATES CONSTELLATION
RATIO CORESTATES BANK, N.A. NJNB CBD CONSTELLATION BANK
------- ---------- ---------- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Capital to Risk
Adjusted Assets........ 8.0% 13.1% 11.3% 11.5% 14.5% 10.9% 10.4%
Tier 1 to Risk Adjusted
Assets................. 4.0 9.5 8.7 9.3 13.3 9.6 9.1
Leverage Ratio.......... 3.0-5.0 8.1 7.2 6.7 14.9 6.7 6.5
</TABLE>
CoreStates' and all of CoreStates' bank subsidiaries' capital ratios as of
September 30, 1993 exceed all general minimum capital requirements imposed by
the FRB and the OCC. Both Constellation's and Constellation Bank's capital
ratios as of September 30, 1993 met all general minimum capital requirements
imposed by the FRB and the OCC and the requirements of the Consent Order and
the Written Agreement.
REGULATORY AGREEMENTS
Consent Order. On August 22, 1991, Constellation Bank entered into a consent
order (the "Consent Order") with the OCC. Under the Consent Order,
Constellation Bank has agreed with the OCC to: (i) select and appoint a
compliance committee of directors responsible for coordinating and monitoring
compliance with the Consent Order; (ii) achieve and maintain certain financial
ratios and develop a three year capital plan; (iii) refrain from paying any
dividends without prior regulatory approval and obtain regulatory approval
prior to entering into certain transactions with affiliates, including any
transfer of assets to or exchange of assets with Constellation; (iv) employ an
independent management consultant to conduct a management study reviewing all
aspects of Constellation Bank; (v) establish a plan to reduce assets criticized
by the OCC; (vi) review and revise loan review procedures, monitor the level of
allowance for loan losses at least quarterly and maintain an adequate allowance
for loan losses; (vii) provide effective review of internal troubled loan
identification and loan review activities and implement an effective
independent internal loan review system to identify developing problem loans;
(viii) evaluate and revise real estate lending policies, establishing a written
policy setting forth criteria for credit approval and management of OREO,
foreclosures and repossessed property; (ix) develop and implement a written
program to improve loan administration; (x) extend credit for commercial real
estate purposes only in conformity with lending policies and enhance loan
related management information systems with respect to commercial real estate
loans; (xi) review its residential real estate department and lending
activities; (xii) implement an independent appraisal process for each parcel of
real estate that represents a primary source of collateral relating to material
assets criticized by the OCC; (xiii) maintain adequate liquidity levels and not
accept any brokered deposits without the written permission of the OCC; (xiv)
develop and implement a profit plan to improve and sustain earnings; and (xv)
submit monthly information to the OCC, including a balance sheet, income
statement, report of non-performing assets and an allowance for loan loss
reconciliation and liquidity reports.
The Consent Order resulted from, among other things, the OCC's determination
as indicated in the Consent Order that certain practices of Constellation Bank
were deemed to be unsafe and unsound. Constellation and Constellation Bank have
been devoting significant effort to the work of the compliance committee and to
take necessary and appropriate action to comply with the terms of the Consent
Order. The Compliance Committee has been monitoring compliance with the
requirements of the Consent Order and providing monthly progress reports to the
Board of Directors and the OCC. Constellation Bank believes that it is
presently in substantial compliance with the Consent Order.
The Consent Order remains in effect until modified, changed or terminated by
the OCC, notwithstanding the consummation of the Merger or the merger of
Constellation Bank into NJNB. CoreStates, however, expects that after the
consummation of the Merger it will request the OCC to terminate the Consent
Order and that such request will be granted. Failure to comply could lead to
certain enforcement actions by regulators.
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Written Agreement. On July 20, 1992, Constellation entered into a written
agreement (the "Written Agreement") with the Federal Reserve Bank of New York
("FRBNY"). Pursuant to the Written Agreement, Constellation may not, without
the prior written approval of the FRBNY and/or the Director of the Division of
Banking Supervision and Regulation of the FRB, (i) declare or pay any
dividends; (ii) incur any debt; (iii) make any cash expenditures in excess of
$10,000 to any individual or entity during any calendar month; or (iv) enter
into or approve any personal service agreement (which shall include an
employment contract or agreement, a consulting agreement, a severance package,
or an excess or supplemental retirement plan (other than plans that are not
discriminatory and that are made available to all employees of Constellation
and Constellation Bank) with any current or former senior executive officer of
Constellation or Constellation Bank) unless reviewed and approved by the
Constellation Board and certified to by an independent third party consultant.
Under the Written Agreement, Constellation is required to develop and submit a
written capital plan to the FRBNY designed to achieve, and thereafter maintain,
an adequate capital position by Constellation and Constellation Bank, as well
as a written plan to improve the earnings of the consolidated organization.
Constellation believes that it is presently in compliance with the Written
Agreement. The Written Agreement remains in effect until modified, changed or
terminated by the FRBNY, notwithstanding the consummation of the Merger.
CoreStates, however, expects that after consummation of the Merger it will
request the FRBNY to terminate the Written Agreement and that such request will
be granted.
POTENTIAL ENFORCEMENT ACTIONS
Bank holding companies and banks and their institution-affiliated parties may
be subject to potential enforcement actions by the FRB, the OCC or the FDIC for
unsafe or unsound practices in conducting their businesses, or for violations
of any law, rule or regulation or provision, any consent order with any agency,
any condition imposed in writing by the agency or any written agreement with
the agency. Enforcement actions may include the imposition of a conservator or
receiver, additional cease-and-desist orders and written agreements, the
termination of insurance of deposits, the imposition of civil money penalties
and removal and prohibition orders against institution-affiliated parties.
DIVIDENDS
Each of CoreStates and Constellation is a legal entity separate and distinct
from its bank and other subsidiaries. CoreStates principal source of revenue
consists of dividends from its bank and non-bank subsidiaries. Other than its
equity interest in Constellation Bank, Constellation has no significant sources
of revenue other than dividends from Constellation Bank. Federal law imposes
limitations on the payment of dividends by national banks.
The payment of dividends by each of CoreStates and Constellation and their
respective bank subsidiaries may also be affected by other factors, such as the
maintenance of adequate capital. For example, the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") generally prohibits an
undercapitalized institution from paying dividends. In addition, if, in the
opinion of the applicable regulatory authority, a bank holding company or a
bank under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the bank,
could include the payment of dividends), such authority may require, after
notice and hearing, that such organization cease and desist from such practice.
The FRB, the Comptroller and the FDIC have issued policy statements which
provide that insured banks and bank holding companies should generally only pay
dividends out of current operating earnings.
Each subsidiary bank that is a national banking association is required by
federal law to obtain the approval of the OCC for the payment of dividends if
the total of all dividends declared by the board of directors of such bank in
any year will exceed the total of such bank's net profits (as defined and
interpreted by regulation) for that year and the retained net profits (as
defined) for the preceding two years, less any required transfers to surplus.
National banks can only pay dividends to the extent that retained net profits
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(including the portion transferred to surplus) exceed bad debts. As of
September 30, 1993, the banking subsidiaries of CoreStates could pay $238
million in dividends under the foregoing restrictions. Constellation Bank could
not pay any dividends under the foregoing restrictions and, as of September 30,
1993, had a deficit with respect to its undivided profits of $22.6 million.
In addition to the foregoing, the Written Agreement prohibits Constellation
from paying dividends without the approval of the FRBNY and the Director of the
Division of Banking Supervision and Regulation of the FRB and the Consent Order
prohibits Constellation Bank from paying any dividends without the approval of
the OCC.
SUPPORT OF BANK SUBSIDIARIES
A depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989 in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository institution in danger of default.
"Default" is defined generally as the appointment of a conservator or receiver
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a "default" is likely to occur in the absence of
regulatory assistance.
Under FRB regulations, a bank holding company is required to serve as a
source of financial and managerial strength to its subsidiary banks and may not
conduct its operations in an unsafe or unsound manner. In addition, it is the
FRB's policy that in serving as a source of strength to its subsidiary banks, a
bank holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility and capital-
raising capacity to obtain additional resources for assisting its subsidiary
banks. A bank holding company's failure to meet its obligations to serve as a
source of strength to its subsidiary banks will generally be considered by the
FRB to be an unsafe and unsound banking practice or a violation of the FRB
regulations or both. This doctrine is commonly known as the "source of
strength" doctrine.
Federal law provides for the enforcement of any pro rata assessment of
shareholders of a national bank to cover impairment of capital stock by sale,
to the extent necessary, of the stock of any assessed shareholder failing to
pay the assessment.
BORROWINGS BY HOLDING COMPANIES
Federal law also prevents each of CoreStates and Constellation and certain of
their respective affiliates from borrowing from their banking subsidiaries
unless such borrowings are secured by specified amounts and types of
collateral. Additionally, each such secured loan to an affiliate is generally
limited to an amount not exceeding 10% of the bank's capital and surplus, and
all such loans between the lending bank and its affiliates are limited to an
amount not to exceed 20% of the lending bank's capital and surplus. Further, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease
or sale of property or furnishing of services.
FDICIA
Insurance Premiums. FDICIA, enacted on December 19, 1991 in connection with
the recapitalization of the Bank Insurance Fund ("BIF"), requires the FDIC to
set semi-annual assessment rates for BIF members at levels sufficient to
increase the BIF's reserve ratio to a designated level within a prescribed
period of time, not to exceed 15 years from the date that the FDIC promulgates
the applicable time schedule. In addition, FDICIA directs the FDIC to develop
and implement, on or before January 1, 1994, a system of risk-based premiums
for federal deposit insurance under which the semi-annual rates at which a
depository institution is assessed will be based on the probability that the
depository insurance fund will incur a loss with respect to the institution.
Pursuant to FDICIA, the FDIC has developed a risk-based assessment system,
under which
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the assessment rate for an insured depository institution varies according to
the level of risk incurred in its activities. An institution's risk category is
based upon whether the institution is well capitalized, adequately capitalized
or less than adequately capitalized. Each insured depository institution is
also to be assigned to one of the following "supervisory subgroups": Subgroup
A, B or C. Subgroup A institutions are financially sound institutions with few
minor weaknesses; Subgroup B institutions are institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration;
and Subgroup C institutions are institutions for which there is a substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. Based on its
capital and supervisory subgroups, each BIF or Savings Association Insurance
Fund member institution is assigned an annual FDIC assessment rate varying
between 0.23% per annum (for well capitalized Subgroup A institutions) and
0.31% per annum (for undercapitalized Subgroup C institutions). Each of the
CoreStates banking subsidiaries is considered well capitalized. Constellation
Bank is considered adequately capitalized. See "CERTAIN REGULATORY
CONSIDERATIONS--General".
Prompt Corrective Action. FDICIA substantially revised the bank regulatory
provisions of the Federal Deposit Insurance Act and several other federal
banking statutes. Among other things, FDICIA requires federal banking agencies
to broaden the scope of regulatory corrective action taken with respect to
depository institutions that do not meet minimum capital requirements and to
take such actions promptly in order to minimize losses to the FDIC. In
connection with FDICIA, federal banking agencies are required to establish
capital measures (including both a leverage measure and a risk-based capital
measure) and to specify for each capital measure the levels at which depository
institutions will be considered "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" or "critically
undercapitalized".
Under FDICIA, the OCC has adopted regulations establishing relevant capital
measures and relevant capital levels. The relevant capital measures are the
Total Capital to risk adjusted assets ratio, Tier 1 Capital to risk adjusted
assets ratio and the leverage ratio. Under the regulations, a national bank
will be (i) well capitalized if it has a Total Capital to risk adjusted assets
ratio of 10% or greater, a Tier 1 Capital to risk adjusted assets ratio of 6%
or greater and a leverage ratio of 5% or greater and is not subject to any
order or written directive by the OCC to meet and maintain a specific capital
level for any capital measure; (ii) adequately capitalized if it has a Total
Capital to risk adjusted assets ratio of 8% or greater, a Tier 1 Capital to
risk adjusted assets ratio of 4% or greater and a leverage ratio of 4% or
greater (3% in certain circumstances) and is not well capitalized; (iii)
undercapitalized if it has a Total Capital to risk adjusted assets ratio of
less than 8%, a Tier 1 Capital to risk adjusted assets ratio of less than 4% or
a leverage ratio of less than 4% (3% in certain circumstances); (iv)
significantly undercapitalized if it has a Total Capital to risk adjusted
assets ratio of less than 6%, a Tier 1 Capital to risk adjusted assets ratio of
less than 3% or a leverage ratio of less than 3%; and (v) critically
undercapitalized if its tangible equity is equal to or less than 2% of average
quarterly tangible assets. Each of the CoreStates banking subsidiaries is
considered well capitalized. Constellation Bank is considered adequately
capitalized.
FDICIA authorizes the appropriate federal banking agency, after notice and an
opportunity for a hearing, to treat a well capitalized, adequately capitalized
or undercapitalized insured depository institution as if it had a lower
capital-based classification if it is in an unsafe or unsound condition or
engaging in an unsafe or unsound practice. Thus, an adequately capitalized
institution can be subjected to the restrictions on undercapitalized
institutions (provided that a capital restoration plan cannot be required of
the institution) described below and an undercapitalized institution can be
subjected to the restrictions applicable to significantly undercapitalized
institutions described below.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
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likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of (i) an amount equal to five
percent of the depository institution's total assets at the time it became
undercapitalized, and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
Brokered Deposits. Under FDICIA, a bank cannot accept brokered deposits
(which term is defined to include payment of an interest rate more than 75
basis points above prevailing rates) unless (i) it is well capitalized or (ii)
it is adequately capitalized and receives a waiver from the FDIC. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. In addition, a bank that is adequately
capitalized may not pay an interest rate on any deposits in excess of 75 basis
points over certain prevailing market rates. There are no such restrictions on
a bank that is well capitalized. All of the CoreStates banking subsidiaries are
well capitalized for purposes of the foregoing. Under these limitations,
Constellation Bank would be prohibited from accepting brokered deposits without
a waiver from the FDIC. Constellation Bank does not presently utilize brokered
deposits.
Safety and Soundness Standards. FDICIA requires that each of the Federal bank
regulatory agencies prescribe by regulation the depository institution and
depository institution holding company standards relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and employee compensation,
fees and benefits and standards specifying minimum earnings sufficient to
absorb losses without impairing capital, to the extent feasible a minimum ratio
of market value to book value for publicly traded shares and such other
standards relating to the foregoing as it deems appropriate. A holding company
or institution that fails to comply with such standards will be required to
submit a plan designed to achieve such compliance. If no such plan is submitted
or a failure to implement such a plan exists, the depository institution or
holding company would become subject to additional regulatory action or
enforcement proceedings. FDICIA provides that final regulations under such
provisions should have become effective no later than December 1, 1993. Since
the standards have not yet been prescribed in final form, neither CoreStates
nor Constellation can assess the significance of the impact such standards will
have on their respective operations, which could be material.
Other. FDICIA also contains a variety of other provisions that may affect the
operations of bank holding companies and banks, including new reporting
requirements, revised regulatory standards for real estate lending, "truth in
savings" provisions and the requirement that a depository institution give 90
days' prior notice to customers and regulatory authorities before closing any
branch.
MISCELLANEOUS
Because of Constellation's and Constellation Bank's condition, the FRB and
the OCC must be given 30 days' written notice of any changes in directors or
senior executive officers of Constellation and Constellation Bank,
respectively. The FRB and the OCC may object to such changes.
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DESCRIPTION OF CORESTATES CAPITAL STOCK
CORESTATES CAPITAL STOCK
As of January 31, 1994, the authorized capital stock of CoreStates consisted
of 10,000,000 shares of Series Preferred Stock, without par value ("Series
Preferred Stock"), of which none was issued and outstanding, and 200,000,000
CoreStates Common Shares, par value $1.00 per share, of which 117,858,148
shares were issued and outstanding.
CoreStates' Board of Directors is authorized to issue the shares of Series
Preferred Stock in series without further shareholder action with such voting
rights, designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or relative rights
of any series as it may determine from time to time by resolution.
CORESTATES COMMON SHARES
Dividend Rights. The holders of CoreStates Common Shares are entitled to
share ratably in dividends out of funds legally available therefor, when and as
declared by CoreStates' Board of Directors, after full cumulative dividends on
all shares of Series Preferred Stock, and any other class or series of
preferred stock ranking superior as to dividends to CoreStates Common Shares,
have been paid or declared and funds sufficient for the payment thereof set
apart.
Voting Rights. Each holder of CoreStates Common Shares has one vote on
matters presented for consideration by the shareholders for each share held.
There are no cumulative voting rights in the election of directors. All issued
and outstanding CoreStates Common Shares are fully paid and non-assessable. In
certain circumstances, issued and outstanding Series Preferred Stock or any
other class or series of preferred stock issued by CoreStates may affect voting
rights of CoreStates Common Shares. There are no shares of Series Preferred
Stock or any other class or series of preferred stock issued by CoreStates
outstanding.
Size and Classification of Board of Directors. CoreStates' Articles of
Incorporation provide for a classified Board of Directors, consisting of three
substantially equal classes of directors, each serving for a three-year term,
with the term of each class of directors ending in successive years. The Board
of Directors currently consists of 19 members. Classification of the Board of
Directors may have the effect of decreasing the number of directors that could
otherwise be elected at a given annual meeting by anyone who obtains a
controlling interest in CoreStates Common Shares and thereby could impede a
change in control of CoreStates.
Preemptive Rights. The holders of CoreStates Common Shares have no preemptive
rights to acquire any new or additional unissued shares or treasury shares of
CoreStates capital stock.
Liquidation Rights. In the event of a liquidation, dissolution or winding up
of CoreStates, whether voluntary or involuntary, the holders of CoreStates
Common Shares will be entitled to share ratably in any of CoreStates' assets or
funds that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made therefor)
and after preferences on any outstanding preferred stock.
Assessment and Redemption. The CoreStates Common Shares issuable pursuant to
the Merger will be, when issued, fully paid and nonassessable. CoreStates
Common Shares do not have any redemption provisions.
CORESTATES SERIES PREFERRED STOCK
CoreStates' Articles of Incorporation contain general terms for Series
Preferred Stock, and specific terms for a series of 3,041,000 shares designated
as Series A Preferred Stock. No shares of Series Preferred Stock or Series A
Preferred Stock are issued and outstanding.
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Dividend Rights. The holders of Series A Preferred Stock are entitled to
receive out of any funds legally available therefor, when and as declared by
CoreStates' Board of Directors, cash dividends at an annual per share rate
equal to 12.3%.
Voting Rights. Except as otherwise required by law or as provided in any
resolution of CoreStates' Board of Directors designating a series of Series
Preferred Stock (a "Creating Resolution"), any series of Series Preferred Stock
has no voting rights and shall not be entitled to notice of any meeting of the
shareholders of CoreStates or, upon any matter on which the shares of Series
Preferred Stock of any series having voting rights, each holder of shares of
Series Preferred Stock of such series shall be entitled to one vote for each
$25 which would be payable with respect to the holders of shares of Series
Preferred Stock of such series upon any involuntary liquidation, dissolution or
winding up of CoreStates. The Creating Resolution relating to the Series A
Preferred Stock did not provide for any voting rights or notice of any meeting
of the shareholders of CoreStates. Except as otherwise provided in a Creating
Resolution, in the event that dividends upon any series of the Series Preferred
Stock shall be in arrears in an amount equal to six full quarterly dividends
thereon, the holders of such series shall become entitled to vote
noncumulatively at all elections of directors of CoreStates, and to receive
notice of all shareholders' meetings to be held for such purpose. At such
meetings, the holders of such series, voting as a class together with the
holders of any other series then having the right to elect directors under such
circumstances, shall be entitled solely to elect two members of the Board of
Directors of CoreStates and all other directors of CoreStates shall be elected
by the other shareholders of CoreStates entitled to vote in the election of
directors. Such voting rights of the holders of such series shall continue
until all accumulated and unpaid dividends thereon shall have been paid or
funds sufficient therefor set aside, whereupon all such voting rights of the
holders of shares of such series shall cease, subject to being again revived
from time to time upon the reoccurrence of the conditions above described as
giving rise thereto.
At any time when such right to elect directors separately as a class has so
vested, CoreStates may, and upon written request of the holders of record of
not less than 20% of the then outstanding total number of shares of all the
Series Preferred Stock having the right to elect directors in such
circumstances shall, call a special meeting of holders of such Series Preferred
Stock for the election of directors. Upon the mailing of the notice of such
special meeting to the holders of such Series Preferred Stock, or, if no such
meeting is held, then upon the mailing of the notice of the next annual or
special meeting of shareholders for the election of directors, the number of
directors of CoreStates shall be increased only to the extent necessary to
provide sufficient vacancies to enable the holders of such Series Preferred
Stock to elect the two directors discussed herein, and all such vacancies shall
be filled only by a vote of the holders of such Series Preferred Stock as
discussed herein. Whenever the number of directors of CoreStates shall have
been increased, the number as so increased may thereafter be further increased
or decreased in such manner as may be permitted by CoreStates' By-laws and
without the vote of the holders of Series Preferred Stock, provided that no
such action shall impair the right of the holders of Series Preferred Stock to
elect and to be represented by two directors as herein provided.
So long as the holders of any series of Series Preferred Stock are entitled
to voting rights under CoreStates' Articles of Incorporation, any vacancy in
the Board of Directors caused by the death or resignation of any director
elected by the holders of Series Preferred Stock, shall, until the next meeting
of shareholders for the election of directors, in each case be filled by the
remaining director elected by the holders of Series Preferred Stock having the
right to elect directors in such circumstances.
Upon termination of the voting rights of the holders of any series of Series
Preferred Stock, so long as no other Series Preferred Stock then outstanding
has the right to elect directors in such circumstances, the terms of office of
all persons who shall have been elected directors of CoreStates by vote of the
holders of Series Preferred Stock or by a director elected by such holders
shall forthwith terminate.
Except in certain cases, as long as two or more series of Series Preferred
Stock are outstanding, no particular series of Series Preferred Stock shall be
entitled to vote as a separate series on any matter and all shares of Series
Preferred Stock of all series shall be deemed to constitute but one class for
any purpose for which a vote of the shareholders of CoreStates by classes may
now or hereafter be required.
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Preemptive Rights. No holder of Series Preferred Stock shall have any
preemptive right to acquire any new or additional unissued shares or treasury
shares of CoreStates capital stock.
Liquidation Rights. In the event of a liquidation, dissolution or winding up
of CoreStates, whether voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled only to payment in cash of $25 per share,
plus an amount equal to full cumulative dividends to the date when such
payments shall be made available to the holders thereof.
Redemption. The Series A Preferred Stock may be called for redemption and
redeemed by the payment therefor of $25.00 per share, plus an amount equal to
full cumulative dividends to the date fixed by the Board of Directors as such
redemption date.
Certain Corporation Action. Without the consent of the holders of at least a
majority of the shares of Series Preferred Stock at the time outstanding,
CoreStates cannot (i) authorize any new class or series of shares or any series
of Series Preferred Stock, or an increase in the authorized amount of any class
or series of shares or any series of Series Preferred Stock, which shall rank
senior to any series of the Series Preferred Stock with respect to payment of
dividends or distribution upon liquidation; provided, however, that if shares
of such class or series would rank prior to one or more but not all of the
several series of the Series Preferred Stock at the times outstanding, the
consent of the holder of a majority of the shares of all series with respect to
which shares of such class or series would rank prior shall be required in lieu
of the consent of holders of all Series Preferred Stock; or (ii) increase the
authorized Series Preferred Stock to any amount in excess of 5,000,000; or
(iii) merge or consolidate with any other corporation if the corporation
resulting from such merger or consolidation would have after such merger or
consolidation any authorized class of shares ranking prior to or equal with the
Series Preferred Stock with respect to payment of dividends or distributions
upon liquidation, except for classes having the same number of shares with the
same rights and preferences as the authorized shares of CoreStates immediately
preceding such merger or consolidation.
See "COMPARISON OF SHAREHOLDER RIGHTS--Amendment of Certificate or Articles
of Incorporation or Bylaws," for a description of the manner in which
CoreStates' Articles of Incorporation and By-laws may be amended.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
CoreStates is a Pennsylvania corporation subject to the provisions of the
Pennsylvania Business Corporation Law ("PaBCL"). Constellation is a New Jersey
corporation subject to the provisions of the New Jersey Business Corporation
Act ("NJBCA"). Shareholders of Constellation, whose rights are governed by
Constellation's certificate of incorporation (the "Constellation Certificate of
Incorporation") and bylaws (the "Constellation Bylaws") and the NJBCA will,
upon consummation of the Merger, become shareholders of CoreStates and, at the
Effective Time, their rights as shareholders will be determined by the
CoreStates Articles of Incorporation, the CoreStates Bylaws and the PaBCL.
The following is a summary of the material differences in the rights of
shareholders of Constellation under the Constellation Certificate of
Incorporation, Constellation Bylaws and the NJBCA, on the one hand, and the
rights of shareholders of CoreStates under the CoreStates Articles of
Incorporation, the CoreStates By-laws and the PaBCL, on the other hand. THE
FOLLOWING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE DISCUSSION OF, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE GOVERNING LAW AND THE ARTICLES
OR CERTIFICATE OF INCORPORATION AND BY-LAWS OF EACH CORPORATION.
AUTHORIZED CAPITAL
The Constellation Certificate of Incorporation authorizes the issuance of
75,000,000 of Constellation Common Shares, no par value, of which 27,261,769
shares were issued and outstanding as of the Record Date, and 5,000,000 shares
of preferred stock, no par value ("Constellation Preferred Stock"), none of
which were issued and outstanding as of the Record Date. Constellation
Preferred Stock is issuable in series, each
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having such rights and preferences as the Constellation Board may, by adoption
of an amendment of the Constellation Certificate of Incorporation, fix and
determine. As of the Record Date, 750,000 shares of Series A Preferred Stock,
no par value ("Constellation Series A Preferred Stock"), were reserved for
issuance upon the exercise of Constellation's preferred stock purchase rights
pursuant to the Constellation Rights Agreement (as defined below under
"Shareholder Protection Rights Plan").
For a description of the authorized capital of CoreStates, see "DESCRIPTION
OF CORESTATES CAPITAL STOCK--CoreStates Capital Stock."
VOTING AND OTHER RIGHTS
Subject to the voting rights of Constellation Series A Preferred Stock and
any other series of Constellation Preferred Stock then outstanding, the holders
of Constellation Common Shares possess exclusive voting rights of
Constellation. Each holder of Constellation Common Shares is entitled to one
vote for each share owned of record. There are no cumulative voting rights in
the election of directors. All of the issued and outstanding Constellation
Common Shares are fully paid and nonassessable. The Constellation Certificate
of Incorporation does not provide for any conversion rights, sinking fund
provisions, redemption provisions or restrictions on alienability with respect
to Constellation Common Shares.
For a description of the voting and other rights of CoreStates Common Shares
and CoreStates Series Preferred Stock see "DESCRIPTION OF CORESTATES CAPITAL
STOCK--CoreStates Common Shares--Voting Rights" and "CoreStates Series
Preferred Stock--Voting Rights."
The voting rights and other rights of Constellation Common Shares and
CoreStates Common Shares are similar in that in each instance each holder of a
share of common stock is entitled to one vote for each share of record and that
there are no cumulative voting rights in the election of directors.
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION OR BYLAWS
The Constellation Certificate of Incorporation may be amended by
Constellation's shareholders upon the affirmative vote of the holders of a
majority of the votes cast by the holders of outstanding Constellation Common
Shares if such amendment is first approved by the Constellation Board. An
amendment to Constellation's Bylaws requires the affirmative vote of a majority
of the Constellation Board or the affirmative vote of a majority of the
outstanding Constellation Common Shares. Any amendment to Constellation's
Bylaws adopted by Constellation shareholders may be amended or repealed by the
Constellation Board unless the adopting resolution for such bylaw amendment
expressly reserves to the shareholders the right to amend.
CoreStates' Articles of Incorporation may be amended in the manner prescribed
by the PaBCL. The PaBCL generally provides that an amendment of the articles of
incorporation must be proposed by the Board of Directors and may be adopted by
the affirmative vote of a majority of the votes cast by all shareholders
entitled to vote thereon and by a majority of the votes cast by the
shareholders any class or series of shares entitled to vote thereon.
Notwithstanding the foregoing, without the consent of the holders of at least
two-thirds of the shares of Series Preferred Stock outstanding, CoreStates
cannot adopt or effect any amendment to its Articles or Incorporation which
would adversely affect the rights or preferences of the Series Preferred Stock
(except as may be expressly permitted under its Articles of Incorporation with
the consent of the holders of a majority of the shares of Series Preferred
Stock); provided, however, that if any such amendment adversely affects the
rights or preferences of one or more, but not all, of the series of Series
Preferred Stock at the time outstanding, the consent of the holders of at least
two-thirds of the shares of all series adversely affected, is required in lieu
of the consent of the holders of two-thirds of the shares of Series Preferred
Stock. CoreStates' By-laws may be amended by shareholder vote by a majority of
the votes cast by all shareholders entitled to vote or by a majority of the
Board of Directors if the matter in question is not committed to the
shareholders by statute.
The rights to amend the Constellation Certificate of Incorporation and the
CoreStates' Articles of Incorporation are similar for holders of Constellation
Common Shares and CoreStates Common Shares,
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respectively, except that CoreStates' Articles of Incorporation may not be
amended by holders of CoreStates Common Shares if such amendment would have an
adverse effect on the rights of the holders of any Series Preferred Stock.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
Constellation's Bylaws provide that the Constellation Board will be composed
of five or more, but not more than ten members, the number of which may be
fixed by resolution of the Constellation Board. All directors are elected at
each annual meeting of shareholders to serve until their successors have been
elected and qualified. The Constellation Board is not classified. The current
number of directors is 10.
For a description of the size and classification of CoreStates' Board of
Directors, see "DESCRIPTION OF CORESTATES CAPITAL STOCK--CoreStates Common
Shares--Size and Classification of Board of Directors."
The classification of the CoreStates Board of Directors may have the effect
of decreasing the number of directors that could otherwise be elected at a
given annual meeting by any holder of CoreStates Common Shares who obtains a
controlling interest in CoreStates Common Shares. Any holder of Constellation
Common Shares who obtains a controlling interest in Constellation Common Shares
could elect the entire Constellation Board at any meeting held for the purpose
of electing directors.
REMOVAL OF DIRECTORS
Under the Constellation Certificate of Incorporation as well as the NJBCA, a
director of Constellation may be removed for cause only by the shareholders by
the affirmative vote of the majority of the votes cast by the holders of shares
entitled to vote for the election of directors.
CoreStates' By-laws provide that the entire Board of Directors, or any class
of the Board of Directors, or any individual directors may be removed from
office by vote of the shareholders entitled to vote thereon without assigning
any cause, provided, however, that, if the Articles of Incorporation or By-laws
adopted by the shareholders provide for a classified Board of Directors, the
entire Board of Directors, or any class of the board, or any individual
director may be removed from office by vote of the shareholders entitled to
vote thereon only for cause. Because CoreStates' By-laws adopted by the
shareholders provide for a classified board, directors may only be removed for
cause. In case the Board of Directors or a class of the Board of Directors or
any one or more directors are so removed, new directors may be elected at the
same meeting.
The holders of Constellation Common Shares and CoreStates Common Shares have
the similar right to remove directors only for cause.
INDEMNIFICATION AND LIMITATION OF LIABILITY
As permitted by the NJBCA, the Constellation Certificate of Incorporation
provides that every director, officer, employee or agent of Constellation, or
any such person who serves or served in any capacity with any other enterprise
at the request of Constellation, may be indemnified by Constellation to the
fullest extent permitted by law against all expenses and liabilities reasonably
incurred by or imposed upon such person, in connection with any proceeding to
which such person may be made, or threatened to be made, a party, or in which
such person may become involved by reason of being or having been a director,
officer, employee or agent of Constellation, or of serving or having served
such other enterprise, whether or not such person is a director, officer,
employee or agent of Constellation, or continues to serve such other
enterprise, at the time the expenses or liabilities are incurred.
Also, as permitted by the NJBCA, the Constellation Certificate of
Incorporation provides that, except to the extent otherwise prohibited by law,
no director or officer of Constellation will be personally liable to
Constellation or its shareholders for damages for breach of any duty owed to
Constellation or its shareholders,
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except that a director or officer is not to be relieved from liability for any
breach of duty based upon an act or omission (i) in breach of such person's
duty of loyalty to Constellation or its shareholders, (ii) not in good faith or
involving a knowing violation of law or (iii) resulting in receipt by such
person of an improper personal benefit.
As permitted by the PaBCL, the Articles of Incorporation of CoreStates
provide that a director or officer shall not be personally liable, as such, for
monetary damages for any action taken, or any failure to take any action,
unless the director or officer has breached or failed to perform the duties of
his or her office and the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness. Such limitation (i) does not apply
to the responsibility or liability of a director or officer pursuant to any
criminal statute or the liability of a director for the payment of taxes, and
(ii) may, in the view of certain commentators, shield a director from liability
for certain breaches of his or her duty of loyalty as well as his or her duty
of care.
In accordance with the PaBCL, and pursuant to its By-laws, CoreStates is
obligated to indemnify an Indemnified representative (as defined below) against
any Liability (as defined below) incurred in connection with any Proceeding (as
defined below) in which the Indemnified representative may be involved as a
party or otherwise, by reason of the fact that such person is or was serving in
an Indemnified capacity (as defined below), including, without limitation,
liabilities resulting from any actual or alleged breach or neglect of duty,
error, misstatement or misleading statement, negligence, gross negligence or
act giving rise to strict or product Liability; except:
(i) where such indemnification is expressly prohibited by applicable law,
or
(ii) where the conduct of the Indemnified representative has been
determined to constitute willful misconduct or recklessness within the
meaning of 42 Pa.C.S. (S)(S) 8365(b) (now a reference to PaBCL (S)1746(b))
or any superseding provision of law, sufficient in the circumstances to bar
indemnification against Liabilities arising from the conduct.
For purposes of the foregoing,
"Indemnified capacity" means any and all past, present and future service by
an indemnified representative in one or more capacities as a director, officer,
employee or agent of CoreStates, or, at the request of CoreStates, as a
director, officer, employee, agent, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
entity or enterprise;
"Indemnified representative" means any and all directors and officers of the
corporation and any other person designated as an indemnified representative by
the Board of Directors of CoreStates (which may, but need not, include any
person serving at the request of CoreStates, as a director, officer, employee,
agent, fiduciary or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other entity or enterprise);
"Liability" means any damage, judgment, amount paid in settlement, fine,
penalty, punitive damages, excise tax assessed with respect to an employee
benefit plan, or other cost or expense of any nature (including, without
limitation, attorneys' fees and disbursements); and
"Proceeding" means any threatened, pending or completed action, suit, appeal
or other proceeding of any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of CoreStates, a class of its security holders or otherwise.
The Constellation Certificate of Incorporation and the By-laws of CoreStates
provide for a similar degree of indemnification of any director, officer,
employee or agent. The By-laws of CoreStates, however, obligate CoreStates to
indemnify any Indemnified Representatives in the instances set forth above,
while the Constellation Certificate of Incorporation provides that (i) such
persons may be indemnified to the fullest extent permitted by law and (ii) no
directors or officers will be liable to Constellation or its shareholders, as
discussed above.
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SHAREHOLDER MEETINGS
The Constellation Bylaws provide that the annual meeting of shareholders of
Constellation be held upon not less than ten nor more than sixty days' written
notice in order to elect directors and transact any other business properly
before the meeting. The presence in person or by proxy of holders of shares
entitled to cast a majority of the votes of all outstanding Constellation
Common Shares constitutes a quorum at any shareholders' meeting. The
Constellation Bylaws provide that in order for business, including the
nomination of directors by a shareholder, to be properly brought by a
shareholder before an annual shareholders' meeting, notice must be given by
such shareholder to the Secretary of Constellation not more than 90 days and
not less than 60 days prior to the anniversary date of the immediately
preceding annual meeting. No other business may be conducted at the annual
meeting except in accordance with the procedures set forth in the Constellation
Bylaws. A special meeting of Constellation shareholders may be called for any
purpose by Constellation's President or a majority of the Constellation Board.
Action by shareholders may be taken by written consent of shareholders who
would have been entitled to cast the minimum number of votes which would be
necessary to authorize such action at a meeting at which all shareholders
entitled to vote thereon were present and voting. In addition, holders of 10%
or more of the outstanding Constellation Common Shares may apply to the
Superior Court of New Jersey to order that a special meeting of shareholders be
held. The court may proceed, if good cause is shown, to order a special meeting
of shareholders to be called.
CoreStates' By-laws provide that the Board of Directors may fix and designate
the date and time of the annual meeting of shareholders, but if no such date is
fixed, the meeting for any calendar year is to be held on the third Tuesday of
April in such year. The presence in person or by proxy of shareholders entitled
to cast at least a majority of the votes that all shareholders are entitled to
cast on a particular matter to be acted upon at the meeting constitutes a
quorum at that meeting.
CoreStates' By-laws provide that a special meeting of the shareholders may be
called at any time by the Chairman of the Board, the President or the Board of
Directors, who may fix the date, time and place of the meeting. If the date,
time or place of the meeting is not so fixed, it will be fixed by the
Secretary. A date fixed by the secretary cannot be more than 60 days after the
date of the calling of the meeting. CoreStates' By-laws expressly provide that,
except when acting by unanimous consent to remove a director or directors,
shareholders may act only at a duly organized meeting.
CoreStates' By-laws provide that nominations for election of directors may be
made by any shareholder entitled to vote for the election of directors so long
as written notice of such shareholder's intent to nominate a director at the
meeting is given by the shareholder and received by the Secretary of CoreStates
not less than 45 days prior to the date of the annual meeting of shareholders.
If directors are to be elected by shareholders at any other time, notice is
required to be delivered to the Secretary of CoreStates not later than the
seventh day following the day on which notice of the meeting was first mailed
to shareholders. In lieu of delivery to the Secretary of CoreStates, such
notice may be mailed to the Secretary of CoreStates by certified mail, return
receipt requested, but shall be deemed to have been given only upon actual
receipt by the Secretary of CoreStates. The notice is required to be in writing
and contain or be accompanied by certain information about such shareholder, as
described in CoreStates' By-Laws. The chairman of the meeting may, if the facts
warrant, determine and declare to the meeting that any nomination made at the
meeting was not made in accordance with the foregoing procedures and, in such
event, the nomination will be disregarded.
The NJBCA provides that holders of 10% or more of the outstanding
Constellation Common Shares may apply to the Superior Court of New Jersey to
order that a special meeting of shareholders be held. Neither the PaBCL nor
CoreStates' Articles of Incorporation or By-laws provide that a special meeting
of the shareholders may be called by the shareholders. The Constellation Bylaws
set forth procedures pursuant to which any business, including the nomination
of directors by a shareholder, may be properly brought by a shareholder before
an annual meeting of shareholders. CoreStates' By-laws set forth similar
procedures that are applicable only to the election of directors.
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MERGER OR OTHER FUNDAMENTAL TRANSACTIONS
The approval of at least two-thirds of the outstanding Constellation Common
Shares is required for any merger, consolidation or sale, lease, exchange or
other disposition of assets of Constellation other than in the usual and
regular course of business.
Under the PaBCL, a plan of merger, consolidation, share exchange, division,
conversion or asset transfer (in respect of a sale, lease, exchange or other
disposition of all, or substantially all, the assets of a corporation other
than in the usual and regular course of business) generally must be proposed by
the board of directors and approved by the affirmative vote of a majority of
the votes cast by all shareholders of any class or series of shares entitled to
vote thereon as a class.
The PaBCL provides that if a shareholder of a covered corporation is a party
to a sale of assets transaction, share exchange, merger or consolidation
involving the corporation or a subsidiary, or if a shareholder is to receive a
disproportionate amount of the shares or other securities of any corporation
surviving or resulting from a plan of division, or is to be treated differently
in a corporate dissolution from other shareholders of the same class, or is to
have a materially increased percentage of voting or economic share interest in
the corporation relative to substantially all other shareholders as a result of
a reclassification, then approval must be obtained of the shareholders entitled
to cast at least a majority of the votes which all shareholders other than the
interested shareholder are entitled to cast with respect to the transaction,
without counting the votes of the interested shareholder (and certain
affiliated and associated persons). Such additional shareholder approval is not
required if the consideration to be received by the other shareholders in such
transaction for shares of any class is not less than the highest amount paid by
the interested shareholder in acquiring shares of the same class, or if the
proposed transaction is approved by a majority of the board of directors other
than certain directors affiliated or associated with, or nominated by, the
interested shareholder.
Under the PaBCL, an articles amendment or plan of reclassification, merger,
consolidation, exchange, asset transfer, division or conversion that provides
mandatory special treatment for the shares of a class held by particular
shareholders or groups of shareholders that differs materially from the
treatment accorded other shareholders or groups of shareholders holding shares
of the same class must be approved by each group of holders of any outstanding
shares of a class who are to receive the same special treatment under the
amendment or plan, voting as a special class in respect of the plan, regardless
of any limitations stated in the articles or bylaws on the voting rights of any
class or series. At the option of the corporation's board of directors, the
approval of such special treatment by any such affected group may be omitted,
but in such event the holder of any outstanding shares of the special class so
denied voting rights will be entitled to dissenters' rights (i.e., the right to
demand payment in cash by the corporation of the fair value of the
shareholder's shares).
Any merger or other fundamental transaction with respect to Constellation
other than in the usual and regular course of business must be approved by at
least two-thirds of the outstanding Constellation Common Shares. Under the
PaBCL, such transactions with respect to CoreStates generally must be approved
by a majority of the votes cast by all shareholders of any class of securities
entitled to vote thereon, voting as a class.
STATE ANTI-TAKEOVER STATUTES
Chapter 10A of Title 14A of the NJBCA, entitled the New Jersey Shareholders
Protection Act ("NJSPA"), contains New Jersey's business combination statute.
The NJSPA provides that no corporation organized under the laws of New Jersey
with its principal executive offices or significant operations located in New
Jersey (a "New Jersey Resident Domestic Corporation") may engage in any
"business combination" (as defined in the NJSPA, a "Business Combination") with
any interested shareholder (as defined in the NJSPA, an "Interested
Stockholder") of that New Jersey Resident Domestic Corporation for a period of
five years following that Interested Stockholder's stock acquisition unless
that Business Combination is approved
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by the board of directors of that New Jersey Resident Domestic Corporation prior
to that Interested Stockholder's stock acquisition. The term Business
Combination as defined in the NJSPA includes, among other things, certain
mergers, consolidations, asset transfers, stock issuances, plans of liquidation
and recapitalizations. Interested Stockholder, as defined in the NJSPA, includes
certain holders of 10% or more of the voting power of the outstanding voting
stock of that New Jersey Resident Domestic Corporation and certain affiliates of
the New Jersey Resident Domestic Corporation that at any time within the five-
year period immediately prior to the date in question were the beneficial
owners, directly or indirectly, of 10% or more of the voting power of the then
outstanding stock of the New Jersey Resident Domestic Corporation.
Pursuant to the NJSPA, no New Jersey Resident Domestic Corporation may
engage, at any time, in any Business Combination with any Interested
Stockholder of that New Jersey Resident Domestic Corporation other than: (i) a
Business Combination approved by the board of directors of that New Jersey
Resident Domestic Corporation prior to that Interested Stockholder's stock
acquisition, (ii) a Business Combination approved by the affirmative vote of
the holders of two-thirds of the voting stock not beneficially owned by that
Interested Stockholder at a meeting called for such purpose, or (iii) a
Business Combination where the Interested Stockholder pays a formula price
designed to ensure that all holders (other than the Interested Stockholder) of
stock of the New Jersey Resident Domestic Corporation receive at least the
highest price per share paid by that Interested Stockholder. The NJSPA does not
apply to certain inadvertent acquisitions, provided the shareholder divests
itself or himself of a sufficient number of shares in accordance with the
NJSPA. A New Jersey Resident Domestic Corporation may not opt-out of the NJSPA.
Under the NJBCA, the director of a New Jersey corporation may consider, in
discharging his or her duties to the corporation and in determining what he or
she reasonably believes to be in the best interest of the corporation, any of
the following (in addition to the effects of any action on shareholders): (i)
the effects of the action on the corporation's employees, suppliers, creditors
and customers, (ii) the effects of the action on the community in which the
corporation operates and (iii) the long-term as well as the short-term
interests of the corporation and its shareholders, including the possibility
that these interests may be best served by the continued independence of the
corporation. If, on the basis of the foregoing factors, the board of directors
determines that any proposal or offer to acquire the corporation is not in the
best interest of the corporation, it may reject such proposal or offer, in
which event the board of directors will have no duty to remove any obstacles
to, or refrain from impeding, such proposal or offer.
CoreStates is subject to some, but not all, of various provisions of the
PaBCL which are triggered, in general, if any person or group acquires, or
discloses an intent to acquire, 20% or more of the voting power of a covered
corporation, other than pursuant to a registered firm commitment underwriting
or, in certain cases, pursuant to the approving vote of the board of directors.
The relevant provisions are contained in Subchapters 25E-H of the PaBCL.
Subchapter 25E (relating to control transactions) provides that if any person
or group acquires 20% or more of the voting power of a covered corporation, the
remaining shareholders may demand from such person or group the fair value of
their shares, including a proportionate amount of any control premium.
Subchapter 25F (relating to business combinations) delays for five years and
imposes conditions upon "business combinations" between an "interested
shareholder" and the corporation. The term "business combination" is defined
broadly to include various transactions utilizing a corporation's assets for
purchase price amortization or refinancing purposes. For this purpose, an
"interested shareholder" is defined generally as the beneficial owner of at
least 20% of a corporation's voting shares.
Subchapter 25G (relating to control-share acquisitions) prevents a person who
has acquired 20% or more of the voting power of a covered corporation from
voting such shares unless the "disinterested" shareholders approve such voting
rights. Failure to obtain such approval exposes the owner to the risk of a
forced sale of the shares to the issuer. If shareholder approval is obtained,
the corporation is also subject to Subchapters 25I and J. Subchapter 25I
provides for a minimum severance payment to certain employees terminated within
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two years of the approval. Subchapter 25J prohibits the abrogation of certain
labor contracts prior to their stated date of expiration.
Subchapter 25H (relating to disgorgement) applies in the event that (i) any
person or group publicly discloses that the person or group may acquire control
of the corporation or (ii) a person or group acquires (or publicly discloses an
offer or intent to acquire) 20% or more of the voting power of the corporation
and, in either case, sells shares within 18 months thereafter. Any profits from
sales of equity securities of the corporation by the person or group during the
18-month period belong to the corporation if the securities that were sold were
acquired during the 18-month period or within 24 months prior thereto.
Subchapters 25E-H contain a wide variety of transactional and status
exemptions, exclusions and safe harbors. As permitted under the PaBCL,
CoreStates has opted out of the provisions of Subchapters 25G and H but is
subject to the provisions of Subchapters 25E and F.
In addition, the fiduciary duty standards applicable to the Board of
Directors of CoreStates under the PaBCL (i) explicitly give the Board of
Directors the authority to weigh (in addition to consideration of employees,
suppliers, customers and creditors of the corporation, the communities in which
the corporation is located and other pertinent factors) the short and long-term
interests of the corporation and the possibility that they may be best served
by the independence of the corporation, and the resources, intent and past and
potential conduct of the prospective acquiror, (ii) relieve the board from any
duty to regard the shareholder interest as dominant or controlling, (iii)
explicitly give the board the discretion to refuse to redeem a shareholder
rights plan or to refuse to take certain specified actions with respect to
potential acquisitions of control of the corporation, (iv) declare actions by
directors with respect to a takeover bid to be subject to the same standard of
conduct for directors that is applicable to all other conduct and (v) establish
a presumption that actions with respect to a takeover bid by the "disinterested
directors" (a term defined to include essentially all directors except certain
officers and persons associated with the prospective acquiror) are lawful
unless it is proved under a clear and convincing evidence standard that the
director did not act in good faith after reasonable investigation.
Under a provision of the Pennsylvania Banking Code of 1965 designed to
protect shareholders of Pennsylvania banking institutions, subject to certain
exceptions, no person may offer to acquire, or acquire, control of more than
10% of the outstanding shares of a Pennsylvania banking institution or 5% of
the outstanding shares of a Pennsylvania banking institution if such
institution had net operating loss carry forwards in excess of 20% of its total
shareholders' equity as reported in its most recent publicly available annual
financial statements, without the prior written approval of the Pennsylvania
Department of Banking.
Both New Jersey and Pennsylvania law include a business combination statute
and a provision that permits, in certain circumstances, directors to consider
factors other than any effects of an action on the shareholders in discharging
their fiduciary duties as a director. Additionally, Pennsylvania law includes a
control share acquisition statute and a disgorgement statute, each of which may
impede a change in control of CoreStates.
SHAREHOLDER PROTECTION RIGHTS PLAN
Attached to each Constellation Common Share is a preferred stock purchase
right (each, a "Constellation Preferred Stock Purchase Right") issued pursuant
to a Rights Agreement dated as of February 19, 1991 (as amended to date, the
"Constellation Rights Agreement"). Each Constellation Preferred Stock Purchase
Right entitles its registered holder to purchase one one-hundredth (1/100th) of
a share of the Constellation Series A Preferred Stock at the price of $55 (the
"Exercise Price"), subject to adjustment, at the close of business on the tenth
business day after the earlier to occur of (i) a public announcement that a
person or group of affiliated or associated persons (other than a tender or
exchange offer by an Exempt Person (as defined in the Constellation Rights
Agreement)) has acquired beneficial ownership of 10% or more of Constellation's
voting stock ("Acquiring Person"), or (ii) after the commencement of, or public
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announcement of an intention to make, a tender or exchange offer, which if
consummated, would result in the ownership by a person or group of affiliated
or associated persons of 30% or more of the outstanding voting stock of
Constellation, even if no shares are actually purchased pursuant to such offer
(the earlier of such dates being called the "Distribution Date"). The
Constellation Preferred Stock Purchase Rights will not trade separately from
Constellation Common Shares unless and until the Distribution Date. The
Constellation Rights Agreement does not contain any provision intended to
benefit management.
The Constellation Preferred Stock Purchase Rights will not be exercisable
until the Distribution Date. Constellation's Preferred Stock Purchase Rights
expire at the earlier of (i) the close of business on February 19, 2001 and
(ii) the date on which the Constellation Preferred Stock Purchase Rights are
redeemed as described below. The Exercise Price and the number of Constellation
Preferred Stock Purchase Rights outstanding, or in certain circumstances the
securities purchasable upon exercise of the Constellation Preferred Stock
Purchase Rights, are subject to adjustment upon the occurrence of certain
events.
The Constellation Rights Agreement provides that, unless the Constellation
Preferred Stock Purchase Rights are earlier redeemed and except pursuant to a
transaction approved in advance by a majority of the Continuing Directors (as
defined in the Constellation Rights Agreement), in the event that, after the
Constellation Preferred Stock Purchase Rights have become exercisable, (i)
Constellation were to be a party to a merger or consolidation in which
Constellation was not the surviving corporation or in which the outstanding
shares of Constellation's voting stock were changed or exchanged or (ii) more
than 50% of the assets or earning power of Constellation and its subsidiaries
(taken as a whole) were to be sold or transferred in one or a series of related
transactions, proper provision must be made so that each holder of record of a
Constellation Preferred Stock Purchase Right will have the right to receive,
upon payment of the Exercise Price, that number of shares of common stock of
the acquiring company having a Fair Market Value (as defined in the
Constellation Rights Agreement) at the time of such transaction equal to two
times the Exercise Price. The Constellation Rights Agreement further provides
that, unless the Constellation Preferred Stock Purchase Rights are earlier
redeemed, in the event that any person becomes an Acquiring Person, each holder
of record of a Constellation Preferred Stock Purchase Right, other than a
Constellation Preferred Stock Purchase Right owned at such time or prior
thereto by the Acquiring Person (which Constellation Preferred Stock Purchase
Rights will thereupon become null and void), will thereafter have the right to
receive, upon payment of the Exercise Price, that number of shares of
Constellation's Series A Preferred Stock having a Fair Market Value at the time
of the transaction equal to two times the Exercise Price.
At any time on or prior to the close of business on the tenth day (or such
later date as a majority of the Continuing Directors may determine) after a
public announcement that a person has become an Acquiring Person, Constellation
may redeem Constellation's Preferred Stock Purchase Rights in whole, but not in
part, at a price of $0.01 per Constellation Preferred Stock Purchase Right.
Immediately upon the action of the Board of Directors of Constellation
authorizing redemption of Constellation's Preferred Stock Purchase Rights, the
right to exercise Constellation's Preferred Stock Purchase Rights will
terminate and the only right of the holders of Constellation Preferred Stock
Purchase Rights will be to receive the redemption price.
Until a Constellation Preferred Stock Purchase Right is exercised, the
holder, as such, will have no rights as a shareholder of Constellation,
including, without limitation, the right to vote or to receive dividends.
Constellation has reserved 750,000 shares of Constellation Series A Preferred
Stock for issuance upon exercise of Constellation's Preferred Stock Purchase
Rights.
CoreStates has not adopted a plan similar to or having the same effect as the
Stockholder Protection Rights Agreement.
DISSENTERS' RIGHTS
The NJBCA generally provides for dissenters' rights in connection with any
merger or consolidation or any sale, lease, exchange, or other disposition of
all or substantially all of the assets of the corporation not in
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the usual or ordinary course of business. However, no such rights exist with
respect to (i) any class or series of shares that is listed on a national
securities exchange or is held of record by not less than 1,000 holders on the
record date fixed to determine the shareholder entitled to vote on the
transaction, or, generally, (ii) any transaction in connection with which the
shareholders of the corporation will receive only (a) cash, (b) securities
that, upon consummation of the transaction, will be listed on a national
securities exchange or held by record by not less than 1,000 holders, or (c)
cash and such securities. A shareholder of a corporation may also dissent from
any acquisition of shares owned by such shareholder in connection with the
acquisition by another New Jersey corporation, in exchange for its shares, of
all the shares of a class or series of securities of such corporation. Any
shareholder that perfects dissenters' rights under the NJBCA is entitled to
receive the "fair value" of such shares as determined either by agreement
between such shareholder and the corporation or by a court of competent
jurisdiction.
As described under "THE MERGER--No Dissenters' Rights of Appraisal" above,
holders of Constellation Common Shares have no dissenters' rights with respect
to the Merger.
Under the PaBCL, a shareholder of a corporation is generally entitled to
receive payment for the fair value of such shareholder's shares if such
shareholder duly exercises its dissenters rights with respect to a plan of
merger or consolidation, share exchange or asset transfer, to which such
corporation is a party, except if the shares are (i) listed on a national
securities exchange or (ii) held by more than 2,000 shareholders. The foregoing
market exceptions do not apply, and dissenters rights generally are available
in respect of, (i) shares that are not converted solely into shares or shares
and money in lieu of fractional shares, (ii) shares of any preferred or special
class unless the shareholders of the class are entitled to vote on the plan and
such class vote is required for the adoption of the plan or to effectuate the
transaction and (iii) shares which under the plan are treated differently from
shares of the same class or series and which are not entitled to vote as a
special class under PaBCL (S) 1906(c). The PaBCL allows a corporation to
provide dissenters rights notwithstanding the statutory exceptions but
CoreStates' Articles of Incorporation and By-laws do not require such optional
dissenters rights. Under the PaBCL, if a plan of merger or consolidation, share
exchange, asset transfer, division or conversion is adopted by the directors
only, without any shareholder approvals required, the shareholders have no
statutory dissenters rights in respect of the plan other than optional
dissenters rights, if any. (In respect of the Merger, as permitted under the
PaBCL, the plan has been adopted by the CoreStates' Board of Directors, no
action is required by CoreStates shareholders and no optional dissenters rights
have been granted to CoreStates shareholders.)
The statutory dissenters rights under New Jersey and Pennsylvania law
applicable to Constellation Common Shares and CoreStates Common Shares are
generally similar in that each statute provides for the receipt of fair value
to shareholders entitled to receive dissenters rights and provides that no such
rights exist in certain situations.
DIVIDENDS AND OTHER DISTRIBUTIONS
Under the NJBCA, a corporation may pay dividends or purchase, redeem or
otherwise acquire its own shares unless, after giving effect thereto, (i) the
corporation would be unable to pay its debts as they become due in the usual
course of its business or (ii) the corporation's total assets would be less
than its total liabilities.
For a description of dividend rights of CoreStates Common Shares and
CoreStates Series Preferred Stock, see "DESCRIPTION OF CORESTATES CAPITAL
STOCK--CoreStates Common Shares--Dividend Rights" and "CoreStates Series
Preferred Stock--Dividend Rights."
VOLUNTARY DISSOLUTION
Under the NJBCA, Constellation may be dissolved upon the consent of all its
shareholders entitled to vote thereon or, alternatively, if the Constellation
Board recommends that Constellation be dissolved and
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directs that the question be submitted to a vote at a meeting of shareholders,
Constellation may be dissolved upon the affirmative vote of a majority of the
votes cast by the shareholders entitled to vote thereon and, if any class or
series of securities of Constellation is entitled to vote on such motion as a
class, upon the affirmative vote of a majority of the votes cast by each such
class. If the dissolution is proposed by, on behalf of or pursuant to any
agreement, arrangement or understanding with an Interested Stockholder, the
NJSPA will apply. See "State Anti-Takeover Statutes" above.
For a description of voluntary dissolution with respect to CoreStates Common
Shares and CoreStates Series Preferred Stock, see "DESCRIPTION OF CORESTATES
CAPITAL STOCK--CoreStates Common Shares--Liquidation Rights" and "CoreStates
Series Preferred Stock--Liquidation Rights". See "State Anti-Takeover Statutes"
above.
PREEMPTIVE RIGHTS
Constellation Common Shares may be issued from time to time by a majority
vote of the Constellation Board for such consideration as the Constellation
Board may determine. Holders of Constellation Common Shares are not entitled to
preemptive rights with respect to any shares which may be issued.
For a description of Preemptive Rights of CoreStates Common Shares and
CoreStates Series Preferred Stock, see "DESCRIPTION OF CORESTATES CAPITAL
STOCK--CoreStates Common Shares--Preemptive Rights" and "CoreStates Series
Preferred Stock--Preemptive Rights."
Neither the holders of Constellation Common Shares nor CoreStates Common
Shares are entitled to preemptive rights with respect to any shares which may
be issued.
PREFERRED STOCK
Constellation's Preferred Stock (other than Constellation's Series A
Preferred Stock) is issuable in one or more series and the Constellation Board,
subject to certain limitations, is authorized to provide for the issuance of
one or more new series of Constellation's Preferred Stock and to fix the number
of shares, dividend rate, liquidation prices, redemption, conversion and voting
rights and other terms of the series without further action of the
shareholders. The Constellation Board may issue such preferred stock from time
to time in transactions that may not require the approval of Constellation's
shareholders, and the preferences, designations, and voting rights of such
preferred stock may materially limit or qualify the rights of the outstanding
Constellation Common Shares.
For a description of CoreStates Series Preferred Stock, see "DESCRIPTION OF
CORESTATES CAPITAL STOCK--CoreStates Series Preferred Stock."
EXPERTS
CORESTATES
The consolidated financial statements of CoreStates Financial Corp
incorporated by reference in CoreStates Financial Corp's Annual Report (Form
10-K) for the year ended December 31, 1992 have been audited by Ernst & Young,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
CONSTELLATION
The consolidated financial statements of Constellation Bancorp and
subsidiaries as of December 31, 1992 and 1991 and for each of the years in the
three year period ended December 31, 1992, incorporated by
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reference herein, have been incorporated by reference herein 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.
INDEPENDENCE BANCORP
The consolidated financial statements of Independence Bancorp, Inc. as of
December 31, 1992 and for the year ended December 31, 1992, incorporated by
reference herein, have been incorporated by reference herein in reliance on the
report, which includes an explanatory paragraph noting that Independence
Bancorp, Inc. changed its method of accounting for income taxes in 1992, of
Coopers & Lybrand, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
LEGAL MATTERS
David J. Martin, Executive Vice President and Chief Counsel of CoreStates,
has rendered an opinion with respect to the validity of the CoreStates Common
Shares to be issued in connection with the Merger and has passed upon certain
other legal matters on behalf of CoreStates.
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 2ND DAY OF AUGUST, 1993
BY AND BETWEEN
CORESTATES FINANCIAL CORP
AND
CONSTELLATION BANCORP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Recitals................................................................. I-1
ARTICLE I. THE MERGER
Section 1.1. Structure of the Merger................................... I-1
Section 1.2. Effect on Outstanding Shares.............................. I-2
Section 1.3. Exchange Procedures....................................... I-2
Section 1.4. Options................................................... I-4
Section 1.5. Stock Option Agreement.................................... I-4
ARTICLE II. CONDUCT PENDING THE MERGER
Section 2.1. Conduct of the Company's Business Prior to the Effective
Time..................................................... I-4
Section 2.2. Forbearance by the Company................................ I-4
Section 2.3. Forbearance by Acquiror................................... I-5
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties............................ I-5
ARTICLE IV. COVENANTS
Section 4.1. Acquisition Proposals..................................... I-11
Section 4.2. Employee Benefits......................................... I-11
Section 4.3. Access and Information.................................... I-11
Section 4.4. Certain Filings, Consents and Arrangements................ I-12
Section 4.5. Indemnification; Directors' and Officers' Insurance....... I-12
Section 4.6. Additional Agreements..................................... I-13
Section 4.7. Publicity................................................. I-13
Section 4.8. Proxy; Registration Statement............................. I-14
Section 4.9. Shareholders' Meetings.................................... I-14
Section 4.10. Securities Act; Pooling of Interests...................... I-14
Section 4.11. Pooling of Interests and Tax-Free Reorganization
Treatment................................................ I-14
Section 4.12. Executive Advisory Committee; Directorships............... I-14
Section 4.13. Antitakeover Statutes..................................... I-14
Section 4.14. Severance Benefits........................................ I-15
Section 4.15. Allowance For Credit Losses............................... I-15
Section 4.16 Bank Merger............................................... I-15
ARTICLE V. CONDITIONS TO CONSUMMATION
Section 5.1. Conditions to All Parties' Obligations.................... I-16
Section 5.2. Conditions to Obligations of Acquiror..................... I-17
Section 5.3. Conditions to the Obligation of the Company............... I-17
ARTICLE VI. TERMINATION
Section 6.1. Termination............................................... I-18
Section 6.2. Effect of Termination..................................... I-20
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1. Effective Date and Effective Time......................... I-20
</TABLE>
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<TABLE>
ARTICLE VIII. OTHER MATTERS
<CAPTION>
PAGE
----
<C> <S> <C>
Section 8.1. Certain Definitions; Interpretation........................ I-20
Section 8.2. Survival................................................... I-21
Section 8.3. Waiver..................................................... I-21
Section 8.4. Counterparts............................................... I-21
Section 8.5. Governing Law.............................................. I-21
Section 8.6. Expenses................................................... I-21
Section 8.7. Notices.................................................... I-21
Section 8.8. Entire Agreement; Etc...................................... I-22
Section 8.9. Assignment................................................. I-22
Exhibit A Stock Option Agreement
</TABLE>
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LIST OF ANNEXES
Annex 1 --Acquiror Rights (Recital C)
Annex 2 --The Company Rights (Recital C)
Annex 3 --Significant Subsidiaries of Acquiror (Section 3.1(d))
Annex 4 --The Company Employee Benefit Plans (Section 3.1(m))
Annex 5 --Form of Amendment to Rights Agreement (Section 3.1(u))
Annex 6 --Severance Policies (Section 4.14)
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INDEX TO DEFINITIONS
<TABLE>
<CAPTION>
LOCATION OF
TERM DEFINITION
- ---- -----------
<S> <C>
Acquiror........................................................... Preamble
Acquiror Common Stock.............................................. Recital A
Acquiror Preferred Stock........................................... Recital A
Acquisition Proposal............................................... 4.1
Acquiror Ratio..................................................... 6.1(e)
Affiliates......................................................... 4.10(a)
Average Closing Price.............................................. 1.2(b)
Bank Regulators.................................................... 3.1(k)
Benefit Plans...................................................... 3.1(m)
Branch Property.................................................... 3.1(v)
Certificate........................................................ 1.3(a)
Code............................................................... Recital D
Company............................................................ Preamble
Company Common Stock............................................... Recital B
Company Meeting.................................................... 4.9
Company Preferred Stock............................................ Recital B
Control............................................................ 8.1
Conversion Number.................................................. 1.2(a)
Costs.............................................................. 4.5(a)
Determination Date................................................. 6.1(e)
Effective Date..................................................... 7.1
Effective Time..................................................... 7.1
Environmental Law.................................................. 3.1(v)
ERISA.............................................................. 3.1(m)
Exchange Agent..................................................... 1.3(b)
Exchange Fund...................................................... 1.3(b)
Federal Reserve Board.............................................. 5.1(b)
Final Index Price.................................................. 6.1(e)
Final Price........................................................ 6.1(e)
Governmental Entity................................................ 3.1(v)
Hazardous Substance................................................ 3.1(v)
Indemnified Parties................................................ 4.5(a)
Index Group........................................................ 6.1(e)
Index Ratio........................................................ 6.1(e)
Initial Index Price................................................ 6.1(e)
IRS................................................................ 3.1(m)
ISRA............................................................... 4.4
Material........................................................... 8.1
Material Adverse Effect............................................ 8.1
Maximum Amount..................................................... 4.5(c)
Merger............................................................. 1.1
NJBCA.............................................................. 1.1
NJDEPE............................................................. 4.4
NJNB............................................................... 4.12(b)
NMS................................................................ 1.2(b)
OREO............................................................... 3.1(v)
Pension Plan....................................................... 3.1(m)
Person............................................................. 8.1
</TABLE>
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<TABLE>
<CAPTION>
LOCATION OF
TERM DEFINITION
- ---- -----------
<S> <C>
Plan............................................................... Preamble
Proxy Statement.................................................... 3.1(s)
Proxy Statement/Prospectus......................................... 3.1(s)
Real Property...................................................... 3.1(v)
Registration Statement............................................. 3.1(s)
Reports............................................................ 3.1(g)
Restricted Parties................................................. 4.1
Rights............................................................. Recital C
Rights Agreement................................................... Recital C
SEC................................................................ 3.1(g)
Securities Act..................................................... 3.1(s)
Securities Exchange Act............................................ 3.1(g)
Significant Subsidiary............................................. 3.1(b)
Starting Date...................................................... 6.1(e)
Starting Price..................................................... 6.1(e)
Subsidiary......................................................... 8.1
Surviving Corporation.............................................. 1.1
</TABLE>
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Agreement and Plan of Merger, dated as of the 2nd day of August, 1993, as
amended (this "Plan"), by and between CoreStates Financial Corp ("Acquiror")
and Constellation Bancorp (the "Company").
Recitals:
A. Acquiror. Acquiror has been duly incorporated and is an existing
corporation in good standing under the laws of the Commonwealth of Pennsylvania
with its principal executive offices located in Philadelphia, Pennsylvania. As
of the date hereof, Acquiror has 200,000,000 authorized shares of common stock,
par value $1.00 per share (the "Acquiror Common Stock"), of which approximately
58,700,000 shares are outstanding, and 10,000,000 authorized shares of series
preferred stock, no par value (the "Acquiror Preferred Stock"), none of which
is outstanding (no other class of capital stock being authorized).
B. The Company. The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of New Jersey, with
its principal executive offices located in Elizabeth, New Jersey. As of the
date hereof, the Company has 75,000,000 authorized shares of common stock, no
par value (the "Company Common Stock"), of which 27,171,995 shares are
outstanding, and 5,000,000 authorized shares of preferred stock, no par value
(the "Company Preferred Stock"), none of which is outstanding (no other class
of capital stock being authorized).
C. Rights, Etc. None of Acquiror or the Company has any shares of its capital
stock reserved for issuance, any outstanding option, call or commitment
relating to shares of its capital stock or any outstanding securities,
obligations or agreements convertible into or exchangeable for, or giving any
person any right (including, without limitation, pre-emptive rights) to
subscribe for or acquire from it, any shares of its capital stock
(collectively, "Rights"), except (i) in the case of the Company pursuant to the
Rights Agreement, dated as of February 19, 1991, as amended, between the
Company and Constellation Bank, N.A., as Rights Agent (the "Rights Agreement")
and (ii) as set forth on Annex 1 (as to Acquiror) and Annex 2 (as to the
Company).
D. Intention of the Parties. It is the intention of the parties to this Plan
that the Merger (as defined below) (i) for federal income tax purposes shall
qualify as a "reorganization" within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) for accounting purposes
shall qualify for treatment as a "pooling of interests."
E. Board Approvals. The respective boards of directors of Acquiror and the
Company have duly approved the Plan and have duly authorized its execution and
delivery.
F. Stock Option. The Acquiror and the Company will enter into a Stock Option
Agreement.
Now, Therefore, in consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Plan and prescribe the terms
and conditions hereof and the manner and basis of carrying it into effect,
which shall be as follows:
ARTICLE I. THE MERGER
Section 1.1. Structure of the Merger. On the Effective Date (as defined in
Section 7.1), the Company will merge (the "Merger") with and into Acquiror,
with Acquiror being the surviving corporation (the "Surviving Corporation"),
pursuant to the provisions of, and with the effect provided in, the
Pennsylvania Business Corporation Law and the New Jersey Business Corporation
Act (the "NJBCA"). At the Effective Time (as defined in Section 7.1), the
articles of incorporation and by-laws of the Surviving Corporation shall be the
articles of incorporation and by-laws of Acquiror in effect immediately prior
to the Effective Time. At the Effective Time, the directors and officers of the
Surviving Corporation shall be the directors and officers of Acquiror.
Section 1.2. Effect on Outstanding Shares. (a) By virtue of the Merger,
automatically and without any action on the part of the holder thereof, each
share of the Company Common Stock issued and
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outstanding at the Effective Time (other than shares held directly or
indirectly by Acquiror, excluding shares held in a fiduciary capacity, or in
satisfaction of a debt previously contracted) shall become and be converted
into .206 of a share of Acquiror Common Stock (the "Conversion Number");
provided that if Acquiror effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction, after the date hereof and before the Effective Time, the
Conversion Number shall be appropriately adjusted. As of the Effective Time,
each share of the Company Common Stock held directly or indirectly by Acquiror,
excluding shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted and shares held as treasury stock of the Company, shall
be cancelled, retired and cease to exist, and no exchange or payment shall be
made with respect thereof. Notwithstanding the foregoing, the Conversion Number
shall be .4137 of a share of Acquiror Common Stock for each share of Company
Common Stock (as appropriately adjusted to give effect to Acquiror's stock
dividend paid on October 15, 1993 to Acquiror's shareholders of record on
September 15, 1993) so long as the Effective Date occurs on or before March 30,
1994.
(b) No fractional shares of Acquiror Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Acquiror Common
Stock pursuant to Section 1.2(a), cash adjustments will be paid to holders in
respect of any fractional share of Acquiror Common Stock that would otherwise
be issuable; the amount of such cash adjustment shall be equal to such
fractional proportion of the Average Closing Price of a share of Acquiror
Common Stock with respect to the Effective Date. "Average Closing Price" with
respect to a day means the average of the closing price per share of Acquiror
Common Stock, as reported on the National Association of Securities Dealers
Automated Quotation National Market System ("NMS") (as reported by The Wall
Street Journal or, if not reported thereby, another authoritative source), for
the 20 NMS trading days ending on the trading day prior to such day.
(c) The shares of Acquiror Common Stock issued and outstanding immediately
prior to the Effective Time shall remain outstanding and unchanged after the
Merger.
Section 1.3. Exchange Procedures. (a) At and after the Effective Time, each
certificate previously representing shares of the Company Common Stock (each a
"Certificate") shall represent (i) the number of whole shares of Acquiror
Common Stock and (ii) the right to receive cash in lieu of fractional shares
into which such the Company Common Stock has been converted pursuant to
Sections 1.2(a) and (b). Certificates previously representing shares of the
Company Common Stock shall be exchanged for certificates representing whole
shares of Acquiror Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Certificates in accordance
with this Section 1.3, without any interest thereon.
(b) As of the Effective Time, Acquiror shall deposit, or shall cause to be
deposited, with a bank or trust company subsidiary of the Acquiror (or another
bank selected by the Acquiror and reasonably acceptable to the Company) (the
"Exchange Agent"), for the benefit of the holders of shares of the Company
Common Stock, for exchange in accordance with this Section 1.3, certificates
representing the shares of Acquiror Common Stock and the cash in lieu of
fractional shares (such cash and certificates for shares of Acquiror Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to
Section 1.2 and paid pursuant to this Section 1.3 in exchange for outstanding
shares of the Company Common Stock.
(c) Promptly after the Effective Time, Acquiror shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates the
following: (i) a letter of transmittal specifying that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent, which shall be in a form
and contain any other provisions as Acquiror and the Company may reasonably
agree; and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Acquiror
Common Stock and cash in lieu of fractional shares. Upon the proper surrender
of a Certificate to the Exchange Agent, together with a properly completed and
duly executed letter of transmittal, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) a certificate representing that
number of whole shares of Acquiror Common Stock and (y) a check representing
the amount of cash in lieu of any fractional shares and unpaid dividends and
distributions, if
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any, which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of Section 1.2(a), and the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or
accrued on the cash in lieu of fractional shares and unpaid dividends and
distributions, if any, payable to holders of Certificates. In the event of a
transfer of ownership of any shares of the Company Common Stock not registered
in the transfer records of the Company, a certificate representing the proper
number of shares of Acquiror Common Stock, together with a check for the cash
to be paid in lieu of fractional shares, may be issued to the transferee if the
Certificate representing such Company Common Stock is presented to the Exchange
Agent, accompanied by documents sufficient (1) to evidence and effect such
transfer and (2) to evidence that all applicable stock transfer taxes have been
paid.
(d) Whenever a dividend or other distribution is declared by Acquiror on
Acquiror Common Stock, the record date for which is at or after the Effective
Time, the declaration shall include dividends or other distributions on all
shares issuable pursuant to this Plan; provided that after the 90th day
following the Effective Date no dividend or other distribution declared or made
on Acquiror Common Stock shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Acquiror Common Stock represented
thereby until the holder of such Certificate shall duly surrender such
Certificate in accordance with this Section 1.3. Following such surrender of
any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions having a record date after the Effective Time theretofore
payable with respect to such whole shares of Acquiror Common Stock and not yet
paid and (ii) at the appropriate payment date, the amount of dividends or other
distributions having (x) a record date after the Effective Time but prior to
surrender and (y) a payment date subsequent to surrender payable with respect
to such whole shares of Acquiror Common Stock.
(e) From and after the Effective Time, there shall be no transfers on the
stock transfer records of the Company of any shares of the Company Common Stock
that were outstanding immediately prior to the Effective Time. If after the
Effective Time Certificates are presented to Acquiror, they shall be cancelled
and exchanged for the shares of Acquiror Common Stock and cash in lieu of
fractional shares, if any, deliverable in respect thereof pursuant to this Plan
in accordance with the procedures set forth in this Section 1.3.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any Acquiror Common Stock) that remains unclaimed by
the shareholders of the Company for six months after the Effective Time shall
be repaid to Acquiror. Any shareholders of the Company who have not theretofore
complied with this Section 1.3 shall thereafter look only to Acquiror for
payment of their shares of Acquiror Common Stock, cash in lieu of fractional
shares and any unpaid dividends and distributions on the Acquiror Common Stock
deliverable in respect of each share of the Company Common Stock such
stockholder holds as determined pursuant to this Plan, in each case, without
any interest thereon. If outstanding certificates for shares of the Company
Common Stock are not surrendered or the payment for them not claimed prior to
the date on which such payments would otherwise escheat to or become the
property of any governmental unit or agency, the unclaimed items shall, to the
extent permitted by abandoned property and any other applicable law, become the
property of Acquiror (and to the extent not in its possession shall be paid
over to it), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, none of Acquiror, the
Exchange Agent or any other person shall be liable to any former holder of the
Company Common Stock for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Acquiror, the
posting by such person of a bond in such amount as Acquiror may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Acquiror Common Stock and cash in lieu of
fractional shares deliverable (and unpaid dividends and distributions) in
respect thereof pursuant to this Plan.
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(h) Notwithstanding anything in this Plan to the contrary, for a period of
90 days after the Effective Date holders of Certificates shall be entitled to
vote as holders of shares of Acquiror Common Stock notwithstanding that such
Certificates shall not have been exchanged.
Section 1.4. Options. At the Effective Time, each option granted by the
Company to purchase shares of the Company Common Stock, which is outstanding
and unexercised immediately prior thereto, shall be converted, into an option
to purchase shares of Acquiror Common Stock on the same terms and conditions
as are in effect immediately prior to the Merger as adjusted as set forth
below. Each such option that is converted shall be converted into an option to
purchase such number of shares of Acquiror Common Stock at such exercise price
as is determined as provided below (and otherwise having the same duration and
other terms as the original option):
(a) the number of shares of Acquiror Common Stock to be subject to the
new option shall be equal to the product of (i) the number of shares of the
Company Common Stock subject to the original option and (ii) the Conversion
Number, the product being rounded, if necessary, up or down, to the nearest
whole share; and
(b) the exercise price per share of Acquiror Common Stock under the new
option shall be equal to (i) the exercise price per share of the Company
Common Stock under the original option divided by (ii) the Conversion
Number, rounded, if necessary, up or down, to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with Section 424(a) of the Code.
Section 1.5. Stock Option Agreement. Immediately after the execution and
delivery of this Plan, the Acquiror and the Company will execute a Stock
Option Agreement in the form attached hereto as Exhibit A.
ARTICLE II. CONDUCT PENDING THE MERGER
Section 2.1. Conduct of the Company's Business Prior to the Effective
Time. Except as expressly provided in this Plan, during the period from the
date of this Plan to the Effective Time, the Company shall, and shall cause
its subsidiaries to, (i) conduct its business in the usual, regular and
ordinary course consistent with past practice, (ii) use its best efforts to
maintain and preserve intact its business organization, employees and
advantageous business relationships and retain the services of its officers
and key employees, and (iii) take no action which would adversely affect or
delay the ability of the Company or the Acquiror to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
transactions contemplated hereby or to perform its covenants and agreements on
a timely basis under this Plan.
Section 2.2. Forbearance by the Company. During the period from the date of
this Plan to the Effective Time, except as noted in the letter delivered by
the Company to Acquiror pursuant to Section 3.1, the Company shall not, and
shall not permit any of its subsidiaries, without the prior written consent of
Acquiror, to:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, or make
any loan or advance;
(b) adjust, split, combine or reclassify any capital stock; make, declare
or pay any dividend or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for
any shares of its capital stock, or grant any stock appreciation rights or
grant any individual, corporation or other entity any right to acquire any
shares of its capital stock, except pursuant to the Rights Agreement and
except for dividends paid by any of the wholly owned subsidiaries of the
Company to the Company or any of
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its wholly owned subsidiaries; or issue any additional shares of capital
stock except pursuant to (i) the exercise of stock options outstanding as
of the date hereof or (ii) the Rights Agreement;
(c) other than in the ordinary course of business consistent with past
practice, sell, transfer, mortgage, encumber or otherwise dispose of any of
its material properties or assets to any individual, corporation or other
entity other than a direct or indirect wholly owned subsidiary of the
Company, or cancel, release or assign any indebtedness of any such person
or any claims held by any such person, except in the ordinary course of
business consistent with past practice or pursuant to contracts or
agreements in force at the date of this Plan;
(d) other than in the ordinary course of business consistent with past
practice, make any material investment either by purchase of stock or
securities, contributions to capital, property transfers, or purchase of
any property or assets of any other individual, corporation or other entity
other than a wholly owned subsidiary of the Company;
(e) other than in the ordinary course of business consistent with past
practice, enter into or terminate any material contract or agreement, or
make any change in any of its material leases or contracts, other than
renewals of contracts and leases without material adverse changes of terms;
(f) except as may be required by law, increase in any manner the
compensation or fringe benefits of any of its employees (other than
increases not greater than 6% over the current level of compensation and in
accordance with past practice) or pay any pension or retirement allowance
not required by any existing plan or agreement to any such employees, or
become a party to, amend or commit itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment agreement
with or for the benefit of any employee (other than with respect to new
employees in the ordinary course of business), or adopt, amend or modify
any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit agreements, trusts, plans, funds, employee stock
ownership, consulting, severance or fringe benefit plan, formal or
informal, written or oral, or other arrangements for the benefit or welfare
of any director, officer or employee.
(g) other than in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding involving any liability of
the Company or any of its subsidiaries for material money damages or
restrictions upon the operations of the Company or any of its subsidiaries;
(h) modify in any material respect the manner in which it and its
subsidiaries have heretofore conducted or accounted for their business;
(i) except as contemplated by this Plan, amend its articles of
incorporation, its by-laws or the Rights Agreement;
(j) elect or appoint any new director or officer of the Company or any of
its subsidiaries; or
(k) agree to, or make any commitment to, take any of the actions
prohibited by this Section 2.2.
Section 2.3. Forbearance by Acquiror. During the period from the date of this
Plan to the Effective Time, without the prior written consent of the Company,
Acquiror will not declare or pay any extraordinary or special dividend on the
Acquiror Common Stock or take any action that would (a) delay or adversely
affect in any material respect the ability of the Company or Acquiror to obtain
any necessary approvals, consents or waivers of any governmental authority
required for the transactions contemplated hereby or (b) adversely affect its
ability to perform its covenants and agreements on a timely basis under this
Plan.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties. Acquiror represents and warrants
to the Company, and the Company represents and warrants to Acquiror that,
except as previously disclosed in a letter of the Acquiror or the Company,
respectively, of even date herewith delivered to the other party:
(a) RECITALS TRUE. The facts set forth in the Recitals of this Plan with
respect to it are true and correct.
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(b) CAPITAL STOCK. All outstanding shares of capital stock of it and its
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X,
provided that any subsidiary that is a bank, savings bank or trust company
shall be deemed a Significant Subsidiary) are duly authorized, validly
issued and outstanding, fully paid and (subject to 12 U.S.C. (S) 55 in the
case of a national bank subsidiary and any similar state statute in the
case of a subsidiary that is a state-chartered bank, savings bank or trust
company) non-assessable, and subject to no preemptive rights.
(c) AUTHORITY. Each of it and its Significant Subsidiaries has the power
and authority, and is duly qualified in all jurisdictions (except for such
qualifications the absence of which, individually or in the aggregate,
would not have a Material Adverse Effect (as defined in Section 8.1)) where
such qualification is required, to carry on its business as it is now being
conducted and to own all its material properties and assets, and it has all
federal, state, local, and foreign governmental authorizations necessary
for it to own or lease its properties and assets and to carry on its
business as it is now being conducted, except for such powers and
authorizations the absence of which, either individually or in the
aggregate, would not have a Material Adverse Effect.
(d) SUBSIDIARIES. In the case of Acquiror, a list of its Significant
Subsidiaries is contained in Annex 3; and in the case of the Company, its
sole Significant Subsidiary is Constellation Bank, N.A. The shares of
capital stock of each of its Significant Subsidiaries are owned by it
(except for director's qualifying shares) free and clear of all liens,
claims, encumbrances and restrictions on transfer and there are no Rights
with respect to such capital stock.
(e) APPROVALS. In the case of Acquiror, and subject, in the case of the
Company, to the receipt of the required shareholder approval for this Plan,
this Plan has been authorized by all necessary corporate action of it.
Subject to receipt of (A) such shareholder approval and (B) the required
approvals, consents or waivers of governmental authorities referred to in
Section 5.1(b), this Plan is a valid and binding agreement of it
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(f) NO VIOLATIONS. The execution, delivery and performance of this Plan
by it does not, and the consummation of the transactions contemplated
hereby by it will not, constitute (i) a breach or violation of, or a
default under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of it
or its subsidiaries or to which it or its subsidiaries (or any of their
respective properties) is subject, which breach, violation or default would
have a Material Adverse Effect on it, or enable any person to enjoin the
Merger or (ii) a breach or violation of, or a default under, the
certificate or articles of incorporation or by-laws of it or any of its
Significant Subsidiaries; and the consummation of the transactions
contemplated hereby will not require any approval, consent or waiver under
any such law, rule, regulation, judgment, decree, order, governmental
permit or license or the approval, consent or waiver of any other party to
any such agreement, indenture or instrument, other than (i) the required
approval, consents and waivers of governmental authorities referred to in
Section 5.1(b), (ii) the approval of the shareholders of the Company
referred to in Section 3.1(e), (iii) such approvals, consents or waivers as
are required under the federal and state securities or "Blue Sky" laws in
connection with the transactions contemplated by this Plan and (iv) any
other approvals, consents or waivers the absence of which, individually or
in the aggregate, would not result in a Material Adverse Effect or enable
any person to enjoin the Merger.
(g) SEC REPORTS. As of their respective dates, neither its Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, nor any other
document filed subsequent to December 31, 1992 under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), each in the form (including exhibits) filed
with the Securities and Exchange Commission (the "SEC") (collectively, its
"Reports"), contained or will contain any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each of the
balance sheets or statements of condition contained or incorporated by
reference in its
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Reports (including any related notes and schedules) fairly presented or
will fairly present the financial position of the entity or entities to
which it relates as of its date and each of the statements of operations
and retained earnings and of cash flows and changes in financial position
or equivalent statements contained or incorporated by reference in its
Reports (including any related notes and schedules) fairly presented or
will fairly present the results of operations, retained earnings and cash
flows of the entity or entities to which it relates for the periods set
forth therein (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments that are not material in amount or
effect), in each case in accordance with generally accepted accounting
principles applicable to bank holding companies consistently applied during
the periods involved, except as may be noted in the Reports. There exist no
material liabilities of it and its consolidated subsidiaries, contingent or
otherwise, that are required to be disclosed under generally accepted
accounting principles, or would be required to be disclosed in the
financial statements contained in its Annual Report on Form 10-K for the
year ended December 31, 1992 or its report on Form 10-Q for the quarter
ended March 31, 1993, but are not so disclosed in its Reports.
(h) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in its
Reports filed prior to the date of this Plan, since December 31, 1992,
there has not been any change in the financial condition or results of
operations of it or any of its subsidiaries which, individually or in the
aggregate, has had a Material Adverse Effect on it (other than as a result
of changes in banking laws or regulations of general applicability or
interpretations thereof).
(i) TAXES. In the case of the Company, except as otherwise would not have
a Material Adverse Effect, all federal, state, local, and foreign tax
returns required to be filed by or on behalf of it or any of its
subsidiaries have been timely filed or requests for extensions have been
timely filed and any such extension shall have been granted and not have
expired. In the case of the Company, all taxes shown on returns filed by or
on behalf of it or any of its subsidiaries have been paid in full or
adequate provision has been made for any such taxes on its balance sheet
(in accordance with generally accepted accounting principles). In the case
of the Company, as of the date of this Plan, there are no assessments or
notices of deficiency or proposed assessments with respect to any taxes of
it or any of its subsidiaries that, if resolved in a manner adverse to it,
would result in a determination that would have a Material Adverse Effect
on it. In the case of the Company, except as otherwise would not have a
Material Adverse Effect, it has not executed an extension or waiver of any
statute of limitations on the assessment or collection of any tax due that
is currently in effect.
(j) ABSENCE OF CLAIMS. Except in the case of the Company as disclosed in
the Reports, no material litigation, proceeding or controversy before any
court or governmental agency is pending, and there is no pending claim,
action or proceeding against it or any of its subsidiaries, which is
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect or to materially hinder or delay consummation of the
transactions contemplated hereby.
(k) ABSENCE OF REGULATORY ACTIONS. Except in the case of the Company with
respect to the Written Agreement, dated July 20, 1992, between the Company
and the Federal Reserve Bank of New York and the Consent Order, dated
August 22, 1991, between Constellation Bank, N.A. and the Office of the
Comptroller of the Currency, neither it nor any of its subsidiaries is a
party to any cease and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any
board resolutions at the request of, federal or state governmental
authorities charged with the supervision or regulation of banks or bank
holding companies or engaged in the insurance of bank deposits ("Bank
Regulators"), nor has it been advised by any Bank Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness
of issuing or requesting) any such order, directive, written agreement,
memorandum of understanding, extraordinary supervisory letter, commitment
letter, board resolutions or similar undertaking.
(l) LABOR MATTERS. In the case of the Company, neither it nor any of its
subsidiaries is a party to, or is bound by, any collective bargaining
agreement, contract, or other agreement or understanding with
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a labor union or labor organization, nor is it or any of its subsidiaries
the subject of any proceeding asserting that it or any such subsidiary has
committed an unfair labor practice or seeking to compel it or such
subsidiary to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike or other labor dispute
involving it or any of its subsidiaries pending or threatened.
(m) EMPLOYEE BENEFIT PLANS. In the case of the Company, all "employee
benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that cover any of its or
its subsidiaries' employees, comply in all material respects with all
applicable requirements of ERISA, the Code and other applicable laws;
neither it nor any of its subsidiaries has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) with respect to any such plan which is likely to result in any
material penalties or taxes under Section 502(i) of ERISA or Section 4975
of the Code; no material liability to the Pension Benefit Guaranty
Corporation has been or is expected by it or them to be incurred with
respect to any such plan which is subject to Title IV of ERISA ("Pension
Plan"), or with respect to any "single-employer plan" (as defined in
Section 4001(a)(15) of ERISA) currently or formerly maintained by it, them
or any entity which is considered one employer with it under Section 4001
of ERISA or Section 414 of the Code; no Pension Plan had an "accumulated
funding deficiency" (as defined in Section 302 of ERISA (whether or not
waived)) as of the last day of the end of the most recent plan year ending
prior to the date hereof; the fair market value of the assets of each
Pension Plan exceeded the present value of the "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA) under such Pension Plan as of the
end of the most recent plan year with respect to the respective Pension
Plan ending prior to the date hereof, calculated on the basis of the
actuarial assumptions used in the most recent actuarial valuation for such
Pension Plan as of the date hereof; no notice of a "reportable event" (as
defined in Section 4043 of ERISA) for which the 30-day reporting
requirement has not been waived has been required to be filed for any
Pension Plan within the 12-month period ending on the date hereof; neither
it nor any of its subsidiaries has provided, or is required to provide,
security to any Pension Plan pursuant to Section 401(a)(29) of the Code; it
and its subsidiaries have not contributed to any "multiemployer plan", as
defined in Section 3(37) of ERISA, on or after September 26, 1980; and it
and its subsidiaries do not have any obligations for retiree health and
life benefits under any benefit plan, contract or arrangement that cannot
be amended or terminated without incurring any liability thereunder. In the
case of the Company, with respect to each benefit plan for employees that
is maintained or contributed to by the Company or any of its subsidiaries,
including, but not limited to, "employee benefit plans" within the meaning
of Section 3(3) of ERISA (the "Benefit Plans"), it has made available to
Acquiror a true and correct copy of (i) the most recent annual report on
Form 5500 filed with the Internal Revenue Service (the "IRS"), (ii) such
Benefit Plan, (iii) each trust agreement and insurance contract relating to
such Benefit Plan, (iv) the most recent summary plan description for such
Benefit Plan, (v) the most recent actuarial report or valuation if such
Benefit Plan is subject to Title IV of ERISA and (vi) the most recent
determination letter issued by the IRS if such Benefit Plan is intended to
be qualified under Section 401(a) of the Code and (vii) all outstanding
employment contracts or agreements. Annex 4 contains a complete list of the
Benefit Plans (other than medical and other similar welfare plans made
generally available to employees) as well as all outstanding employment
contracts or agreements.
(n) TITLE TO ASSETS. Each of it and its subsidiaries has good and
marketable title to its properties and assets (other than property as to
which it is lessee), except for such defects in title which would not,
individually or in the aggregate, have a Material Adverse Effect.
(o) KNOWLEDGE AS TO CONDITIONS. It knows of no reason why the approvals,
consents and waivers of governmental authorities referred to in Section
5.1(b) should not be obtained without the imposition of any condition of
the type referred to in the provisos thereto or why the accountants' letter
referred to in Section 5.1(h) cannot be obtained.
(p) COMPLIANCE WITH LAWS. It and each of its subsidiaries has all
permits, licenses, certificates of authority, orders, and approvals of, and
has made all filings, applications, and registrations with, federal, state,
local, and foreign governmental or regulatory bodies that are required in
order to permit it to carry
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on its business as it is presently conducted and the absence of which
could, individually or in the aggregate, have a Material Adverse Effect.
(q) ACQUIROR COMMON STOCK. In the case of Acquiror, the shares of
Acquiror Common Stock to be issued pursuant to this Plan, when issued in
accordance with the terms of this Plan, will be duly authorized, validly
issued, fully paid and non-assessable and subject to no preemptive rights.
(r) FEES. Other than financial advisory services performed for Acquiror
by J. P. Morgan Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and for the Company by Keefe, Bruyette & Woods, Inc. (on terms
disclosed to Acquiror), neither it nor any of its subsidiaries, nor any of
their respective officers, directors, employees or agents has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions, or finder's fees, and no broker or finder has
acted directly or indirectly for it or any of its subsidiaries, in
connection with the Plan or the transactions contemplated hereby.
(s) REGISTRATION STATEMENT. The information to be supplied by it for
inclusion in (i) the Registration Statement on Form S-4 and/or such other
form(s) as may be appropriate to be filed under the Securities Act of 1933,
as amended (the "Securities Act"), with the SEC by Acquiror for the purpose
of, among other things, registering the Acquiror Common Stock to be issued
to the shareholders of the Company in the Merger (the "Registration
Statement"), or (ii) the proxy statement to be filed with the SEC by the
Company under the Securities Exchange Act and distributed in connection
with the Company's meeting of its shareholders to vote upon this Plan (as
amended or supplemented from time to time, the "Proxy Statement", and
together with the prospectus included in the Registration Statement, as
amended or supplemented from time to time, the "Proxy
Statement/Prospectus") will not, at the time such Registration Statement
becomes effective, and, in the case of the Proxy Statement/Prospectus, at
the time it is mailed and at the time of the Company Meeting (as defined
below), contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading.
(t) ANTITAKEOVER PROVISIONS INAPPLICABLE. In the case of the Company, the
provisions of Sections 14A:10A-4 and 14A:10A-5 of the NJBCA do not and will
not apply to this Plan or the Merger or the transactions contemplated
hereby.
(u) RIGHTS AGREEMENT. In the case of the Company, the Company has duly
adopted an amendment to the Rights Agreement in the form of Annex 5.
(v) ENVIRONMENTAL MATTERS.
(i) For purposes of this Section 3.1(v), the following terms shall
have the indicated meaning:
"Branch Property" means all real property presently or formerly
owned or operated by the Company and each of its subsidiaries on
which branches or facilities are or were located.
"Environmental Law" means any applicable federal, state or local
statute, law, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree,
injunction, directive, requirement or agreement with any court,
governmental authority or other regulatory or administrative agency
or commission, domestic or foreign ("Governmental Entity") now
existing, relating to: (a) the protection, preservation or
restoration of the environment, (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety, or (b) the exposure
to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release
or disposal of Hazardous Substances, in each case as amended and (c)
any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance,
trespass, and strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
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"Hazardous Substance" means any substance, whether liquid, solid
or gas, listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, under any applicable Environmental
Law, whether by type or by quantity. Hazardous Substance includes,
without limitation, (i) any "hazardous substance" as defined in the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended, (ii) any "hazardous waste" as defined in the
Resource Conservation and Recovery Act, as amended, and (iii) any
toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste or petroleum or any
derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyls.
"Real Property" means the Branch Property, all real property
classified by the Company and each of its subsidiaries as other real
estate owned ("OREO"), all real property on which the Company holds
a lien or security interest and all real property (including
property held as trustee or in any other fiduciary capacity) over
which the Company and each of its subsidiaries currently or formerly
has exercised dominion, management or control.
(ii) Except as disclosed to Acquiror in writing or as would not
individually or in the aggregate have a Material Adverse Effect on the
Company,
(a) each of the Company and its subsidiaries is and has been in
substantial compliance with all applicable Environmental Laws,
(b) the Real Property does not contain any Hazardous Substance in
violation of any applicable Environmental Law,
(c) neither the Company nor any of its subsidiaries has received
any written notices, demand letters or written requests for
information from any Governmental Entity or any third party
indicating that the Company or any subsidiary may be in violation
of, or liable under, any Environmental Law,
(d) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending or
threatened against the Company or any subsidiary alleging that they
may be in violation of, or liable under, any Environmental Law,
(e) no reports have been filed, or are required to be filed, by
the Company or any of its subsidiaries concerning the release of any
Hazardous Substance or the threatened or actual violation of any
Environmental Law on or at the Real Property,
(f) to the knowledge of the Company, there are no underground
storage tanks on, in or under any of the Branch Property and no
underground storage tanks have been closed or removed from any
Branch Property while such Branch Property was owned or operated by
the Company or any of its subsidiaries, and
(g) to the knowledge of the Company, neither the Company nor any
of its subsidiaries has incurred, and none of the Real Property is
presently subject to, any liabilities (fixed or, to the knowledge of
the Company, contingent) relating to any suit, settlement, court
order, administrative order, judgment or claim asserted or arising
under any Environmental Law.
(iii) For purposes of this Section 3.1(v), "to the knowledge of the
Company" shall mean to the knowledge of each person with the title of
Senior Vice President of the Company or higher.
(iv) There are no permits or licenses required under any
Environmental Law in respect of the Branch Property presently operated
by the Company or any of its subsidiaries or in respect of OREO
presently held by the Company or in respect of any real property held
as trustee or in any other fiduciary capacity that are not held and
that the absence of which could, individually or in the aggregate, have
a Material Adverse Effect.
(v) The Company has delivered to Acquiror copies of all documentation
representing the Company's environmental policies and procedures and
has operated and conducted the Company's business and operations in
compliance with all such policies and procedures except where the
failure to so operate or conduct would not, individually or in the
aggregate, have a Material Adverse Effect.
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ARTICLE IV. COVENANTS
Section 4.1. Acquisition Proposals. Neither the Company nor any of its
subsidiaries nor any of their respective officers, employees, or directors
(including the Company and its subsidiaries, "Restricted Parties") will,
directly or indirectly, solicit or encourage any inquiries or proposals with
respect to a business combination, tender offer, exchange offer, merger,
consolidation, recapitalization or similar transaction regarding any purchase
of all or a substantial portion of the assets of, or any equity interest in,
the Company or any of its subsidiaries (an "Acquisition Proposal"). Except as
may be legally required for the discharge by the Company's board of directors
of its fiduciary duties, a Restricted Party will not itself, or otherwise
authorize, permit or instruct the Company's investment bankers or other third
parties, to (i) solicit or encourage an Acquisition Proposal or (ii) cooperate,
discuss or negotiate with, or furnish non-public information concerning the
Company or any of its subsidiaries to, any person in connection with, or
otherwise facilitate, an Acquisition Proposal. To the extent not prohibited by
a confidentiality agreement executed as of the date hereof, the Company will
notify Acquiror immediately if any inquiries or proposals are received by, any
information is requested from, or any negotiations or discussions are sought to
be initiated or continued with the Company relating to an Acquisition Proposal.
To the extent not prohibited by a confidentiality agreement executed prior to
the date hereof, the Company will provide to Acquiror a copy of any written
information provided to any person relating to or in connection with a proposed
or potential Acquisition Proposal. As of the time hereof, the Company is not
engaged in any negotiations or discussions relating to an Acquisition Proposal.
To the extent not prohibited by a confidentiality agreement executed prior to
the date hereof, the Company shall promptly notify Acquiror orally and in
writing of any proposal or offer regarding an Acquisition Proposal or any
inquiries with respect thereto. To the extent not prohibited by a
confidentiality agreement executed prior to the date hereof, such written
notification shall include the identity of the Person making such inquiry or
Acquisition Proposal or offer and such other information with respect thereto
as is reasonably necessary to apprise Acquiror of the material terms of such
Acquisition Proposal or offer and all other material information relating
thereto. To the extent not prohibited by a confidentiality agreement executed
prior to the date hereof, the Company shall give Acquiror contemporaneous
written notice upon engaging in discussions or negotiations with, or providing
any information regarding the Company to, any such person regarding an
Acquisition Proposal.
Section 4.2. Employee Benefits. (a) Acquiror hereby unconditionally agrees
to, and agrees to cause its subsidiaries to honor, without modification, all
contracts, agreements and commitments of the Company or any of its subsidiaries
authorized by the Company or any of its subsidiaries prior to the date of this
Plan which apply to any current or former employee or current or former
director of the Company or any of its subsidiaries, including, without
limitation, the severance agreements between Constellation Bank, N.A. and
sixteen senior officers (copies of which severance agreements have been
furnished to Acquiror). In accordance with the terms of such severance
agreements, Acquiror hereby assumes, subject to the consummation of the Merger,
all of Constellation Bank, N.A.'s obligations under such severance agreements.
(b) Acquiror hereby unconditionally agrees to, and to cause its subsidiaries
to, provide to officers and employees of the Company and its subsidiaries who
become or remain regular (full-time) employees of Acquiror or any of its
subsidiaries employee benefits, no less favorable to those provided by Acquiror
and its subsidiaries to their similarly situated officers and employees. Any
employee of the Company or any of its subsidiaries who becomes a participant in
any employee benefit plan, program, policy, or arrangement of Acquiror or any
of its subsidiaries shall be given credit under such plan, program, policy, or
arrangement for all service prior to becoming such a participant with the
Company or any of its subsidiaries for purposes of eligibility and vesting.
Section 4.3. Access and Information. Upon reasonable notice, each party shall
(and shall cause each of the parties' subsidiaries to) afford to the other
party and their representatives (including, without limitation, directors,
officers and employees of the parties and their affiliates, and counsel,
accountants and other professionals retained) such access during normal
business hours throughout the period prior to the Effective
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Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as any party may reasonably request; provided, however, that no
investigation pursuant to this Section 4.3 shall affect or be deemed to modify
any representation or warranty made herein. Each party will not, and will cause
its representatives not to, use any information obtained pursuant to this
Section 4.3 for any purpose unrelated to the consummation of the transactions
contemplated by this Plan. Subject to the requirements of law, each party will
keep confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.3 unless such
information (i) was already known to such party, (ii) becomes available to such
party from other sources not known by such party to be bound by a
confidentiality obligation, (iii) is disclosed with the prior written approval
of the party to which such information pertains or (iv) is or becomes readily
ascertainable from published information or trade sources. In the event that
this Plan is terminated or the transactions contemplated by this Plan shall
otherwise fail to be consummated, each party shall promptly cause all copies of
documents or extracts thereof containing information and data as to another
party hereto to be returned to the party which furnished the same.
Section 4.4. Certain Filings, Consents and Arrangements. (a) Acquiror and the
Company shall (i) as soon as practicable make any filings and applications
required to be filed in order to obtain all approvals, consents and waivers of
governmental authorities necessary or appropriate for the consummation of the
transactions contemplated hereby, (ii) cooperate with one another (1) in
promptly determining what filings are required to be made or approvals,
consents or waivers are required to be obtained under any relevant federal,
state or foreign law or regulation and (2) in promptly making any such filings,
furnishing information required in connection therewith and seeking timely to
obtain any such approvals, consents or waivers and (iii) deliver to the other
copies of the publicly available portions of all such filings and applications
promptly after they are filed.
(b) Promptly after the execution of this Plan, the Company shall notify the
New Jersey Department of Environmental Protection and Energy ("NJDEPE") of the
transactions contemplated by this Plan and shall use its best efforts
(including taking any actions required in connection therewith) to obtain a
remediation agreement or administrative consent order from the NJDEPE
permitting completion of the Merger prior to obtaining a no further action
letter under the New Jersey Industrial Site Remediation Act ("ISRA"), and
Acquiror will fully cooperate with and assist the Company in connection
therewith. Such cooperation and assistance shall include, but not be limited
to, providing a "remediation funding service" as that term is defined in ISRA,
in connection with any remediation agreement, remediation plan or other
arrangement with the NJDEPE pursuant to ISRA in connection with the Merger.
Section 4.5. Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, Acquiror agrees to indemnify and advance costs
and expenses (including reasonable attorney's fees, disbursements and expenses)
and hold harmless each present and former director and officer of the Company
or its subsidiaries determined as of the Effective Time (the "Indemnified
Parties"), against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages, settlements or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising within 6 years of the Effective Time and out of or
pertaining to matters existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent that the Company would have been permitted under New Jersey law
and its certificate of incorporation or by-laws in effect on the date hereof to
indemnify such person (and also advance expenses as incurred to the fullest
extent permitted under applicable law provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification); provided that
any determination required by law to be made with respect to whether an
officer's or director's conduct complies with the standards set forth under New
Jersey law and the Company's certificate of incorporation and by-laws shall be
made by independent counsel selected jointly by Acquiror and the Indemnified
Party.
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(b) Any Indemnified Party wishing to claim indemnification under Section
4.5(a), shall notify Acquiror within forty-five days upon learning of any such
claim, action, suit, proceeding or investigation, but the failure to so notify
shall not relieve Acquiror of any liability it may have to such Indemnified
Party if such failure does not materially prejudice the indemnifying party. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time) other than such as is described in
the Reports filed prior to the date hereof, (i) Acquiror shall have the right
to assume the defense thereof and Acquiror shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Acquiror elects not to assume such defense
or counsel for the Indemnified Parties advises that there are issues which
raise conflicts of interest between Acquiror and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Acquiror shall
pay the reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided, however, that
Acquiror shall be obligated pursuant to this paragraph (b) to pay for only one
firm of counsel for all Indemnified Parties in any jurisdiction unless the use
of one counsel for such Indemnified Parties would present such counsel with a
conflict of interest, (ii) the Indemnified Parties will cooperate in the
defense of any such matter and (iii) Acquiror shall not be liable for any
settlement effected without its prior written consent which shall not be
unreasonably withheld; and provided further that Acquiror shall not have any
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. If
such indemnity is not available with respect to any Indemnified Party, then the
Acquiror and the Indemnified Party shall contribute to the amount payable in
such proportion as is appropriate to reflect relative faults and benefits.
(c) For a period of three years after the Effective Time, Acquiror shall use
all reasonable efforts to cause to be maintained in effect the current policies
of directors' and officers' liability insurance maintained by the Company
(provided that Acquiror may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are substantially no
less advantageous to such directors and officers) with respect to claims
arising from facts or events which occurred before the Effective Time;
provided, however, that in no event shall Acquiror be obligated to expend, in
order to maintain or provide insurance coverage pursuant to this Subsection
4.5(c), any amount per annum in excess of 200% of the amount of the annual
premiums paid as of the date hereof by the Company for such insurance (the
"Maximum Amount"). If the amount of the annual premiums necessary to maintain
or procure such insurance coverage exceeds the Maximum Amount, Acquiror shall
use all reasonable efforts to maintain the most advantageous policies of
directors' and officers' insurance obtainable for an annual premium equal to
the Maximum Amount. In the event that the Acquiror acts as its own insurer for
all of its directors and officers with respect to matters typically covered by
a directors' and officers' liability insurance policy, the Acquiror's
obligations under this subsection (c) of Section 4.5 may be satisfied by such
self insurance.
Section 4.6. Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take promptly, or cause to be taken promptly, all actions and to do
promptly, or cause to be done promptly, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Plan as promptly as
practicable, including using efforts to obtain all necessary actions or non-
actions, extensions, waivers, consents and approvals from all applicable
governmental entities, effecting all necessary registrations, applications and
filings (including, without limitation, filings under any applicable state
securities laws) and obtaining any required contractual consents and regulatory
approvals.
Section 4.7. Publicity. The initial press release announcing this Plan shall
be a joint press release and thereafter the Company and Acquiror shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any governmental entity or with any national securities
exchange with respect thereto.
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Section 4.8. Proxy; Registration Statement. As soon as practicable after the
date hereof, Acquiror and the Company shall prepare the Proxy Statement, file
it with the SEC, respond to comments of the Staff of the SEC, clear the Proxy
Statement with the Staff of the SEC and promptly thereafter mail the Proxy
Statement to all holders of record (as of the applicable record date) of shares
of the Company Common Stock. Acquiror and the Company shall cooperate with each
other in the preparation of the Proxy Statement. Acquiror shall promptly
prepare the Registration Statement and file it with the SEC as soon as is
reasonably practicable following receipt of final comments from the Staff of
the SEC on the Proxy Statement (or advice that such Staff will not review such
filing) and shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable and to maintain the
effectiveness of such Registration Statement. Acquiror shall also take any
action required to be taken under state "Blue Sky" or securities laws in
connection with the issuance of Acquiror Common Stock pursuant to the Merger,
and the Company shall furnish Acquiror all information concerning the Company
and the holders of its capital stock and shall take any action as Acquiror may
reasonably request in connection with any such action.
Section 4.9. Shareholders' Meeting. The Company shall take all action
necessary, in accordance with applicable law and its certificate of
incorporation and by-laws, to convene a meeting of the holders of the Company
Common Stock (the "Company Meeting") as promptly as practicable for the purpose
of considering and taking action required by this Plan. Except to the extent
legally required for the discharge by the board of directors of its fiduciary
duties, the board of directors of the Company shall recommend that the holders
of the Company Common Stock vote in favor of and approve the Merger and adopt
this Plan at the Company Meeting.
Section 4.10. Securities Act; Pooling-of-Interests. (a) As soon as
practicable after the date of the Company Meeting, the Company shall identify
to Acquiror all persons who were, at the time of the Company Meeting, possible
"affiliates" of the Company as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act and for purposes of qualifying for "pooling-
of-interests" accounting treatment (the "Affiliates").
(b) The Company shall use its best efforts to obtain a written "affiliate"
letter agreement in form and substance satisfactory to each of the Company and
Acquiror from each person who is identified as a possible Affiliate pursuant to
clause (a) above. The Company shall deliver such written "affiliates" letter
agreements to Acquiror as soon as practicable after the Company Meeting.
Section 4.11. Pooling-of-Interests and Tax-Free Reorganization
Treatment. Neither Acquiror nor the Company shall take or cause to be taken, or
permit any subsidiary to take, any action, whether before or after the
Effective Time, which would disqualify the Merger as a "pooling-of-interests"
for accounting purposes or as a "reorganization" within the meaning of Section
368 of the Code.
Section 4.12. Executive Advisory Committee; Directorships. (a) The Acquiror
agrees, promptly following the Effective Time, to cause all the members of the
Company's board of directors and Constellation Bank, N.A.'s board of directors
immediately prior to the Effective Time who are nominated by the Company and
are willing so to serve to be elected or appointed as members of a newly formed
executive advisory board, the function of which shall be to advise the Acquiror
on deposit and lending activities in the Company's former market area. The
executive advisory board shall meet once every calendar quarter and terminate
on the second anniversary of the Effective Date.
(b) Acquiror agrees, following the Effective Time, to cause three members of
the Company's board of directors immediately prior to the Effective Time, who
are nominated by the Company and approved by Acquiror, one of whom shall be
George R. Zoffinger, to be elected or appointed as directors of the Acquiror's
wholly-owned subsidiary, New Jersey National Bank ("NJNB").
Section 4.13. Antitakeover Statutes. The Company shall take all reasonable
steps (i) to exempt the Company and the Merger from the requirements of any
state antitakeover law by action of its board of
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directors or otherwise and (ii), upon the request of Acquiror, to assist in any
challenge by Acquiror to the applicability to the Merger of any state
antitakeover law.
Section 4.14. Severance Benefits. The Acquiror shall provide severance
benefits to the employees of the Company and its subsidiaries in accordance
with the terms and conditions set forth in Annex 6 hereof.
Section 4.15. Allowance for Credit Losses. The allowance for credit losses
included in the consolidated financial statements of the Company included in
the Company's March 31, 1993 Form 10-Q was determined in accordance with
generally accepted accounting principles to be adequate to provide for losses
relating to or inherent in the loan and lease portfolios of, and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by, the Company and its subsidiaries. Company has disclosed
to Acquiror in writing prior to the date hereof the aggregate amounts as of a
recent date of all loans, losses, advances, credit enhancements, other
extensions of credit, commitments and interest-bearing assets of Company and
its subsidiaries that have been classified by any bank examiner (whether
regulatory or internal) as "Other Loans Specially Mentioned", "Special
Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized",
"Credit Risk Assets", "Concerned Loans" or words of similar import, and Company
shall promptly on a periodic basis inform Acquiror of any such classification
arrived at any time after the date hereof. The OREO included in non-performing
assets is carried net of reserves at the lower of cost or market value based on
independent appraisals.
Section 4.16. Bank Merger. During the period from the date of this Plan to
the Effective Time, the Company shall, and shall cause its officers, directors
and employees to cooperate with and assist Acquiror in the formulation of a
plan of integration for the merger of Constellation Bank, N.A. with and into
NJNB ("Bank Merger") as soon after the Effective Time as is practicable.
Notwithstanding that the Company believes that it has established all
reserves and taken all provisions for possible loan losses required by
generally accepted accounting principles and applicable laws, rules and
regulations, the Company recognizes that Acquiror has adopted different loan,
accrual and reserve policies (including loan classifications and levels of
reserves for possible loan losses). From and after the date of this Plan to the
Effective Time and in order to formulate the plan of integration for the Bank
Merger, the Company and Acquiror shall consult and cooperate with each other
with respect to (i) conforming, as specified in a written notice from Acquiror
to the Company, based upon such consultation, the Company's loan, accrual and
reserve policies to those policies of Acquiror to the extent appropriate, (ii)
new extensions of credit or material revisions to existing terms of credits by
the Bank in each case where the aggregate exposure exceeds $1,000,000 and (iii)
conforming, as specified in a written notice from Acquiror to the Company,
based upon such consultation, the composition of the investment portfolio and
overall asset/liability management position of the Company and the Bank to the
extent appropriate.
In addition, from and after the date of this Plan to the Effective Time and
in order to formulate the plan of integration for the Bank Merger, the Company
and Acquiror shall consult and cooperate with each other with respect to
determining, as specified in a written notice from Acquiror to the Company,
based upon such consultation, appropriate accruals, reserves and charges to
establish and take in respect of excess facilities and equipment capacity,
severance costs, litigation matters, write-off or write-down of various assets
and other appropriate accounting adjustments taking into account the Acquiror's
plan of integration and the Bank Merger.
The Company and Acquiror shall consult and cooperate with each other with
respect to determining, as specified in a written notice from Acquiror to the
Company, based upon such consultation, the amount and the timing for
recognizing for financial accounting purposes the expense of the Merger and the
restructuring charges related to or to be incurred in connection with the
Merger.
At the request of Acquiror, the Company shall, prior to the Effective Time,
use its best efforts to establish and take such reserves and accruals as
Acquiror shall request to conform, on a mutually satisfactory basis,
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the Company's loan, accrual and reserve policies to Acquiror's policies, shall
establish and take such accruals, reserves and charges in order to implement
such policies in respect of excess facilities and equipment capacity, severance
costs, litigation matters, write-off or write-down of various assets and other
appropriate accounting adjustments, and to recognize for financial accounting
purposes such expenses of the Merger and restructuring charges related to or to
be incurred in connection with the Merger; provided, however, that (i) the
Company shall not be obligated to take any such action pursuant to this
paragraph of Section 4.16 unless and until Acquiror specifies its request in a
writing delivered by Acquiror to the Company, and acknowledges that all
conditions to its obligations to consummate the Merger set forth in Section 5.1
and 5.2 have been waived (if waivable) or satisfied, (ii) the Company
acknowledges that the conditions to its obligation to consummate the Merger set
forth in Sections 5.1 and 5.3 have been satisfied or waived by the Company,
(iii) the Company shall not be required to take any such action that is
inconsistent with any requirement applicable to the Company or Constellation
Bank, N.A. by any bank regulatory agency and (iv) the Company shall not be
required to take any such action that is not consistent with generally accepted
accounting principals. The Company's representations, warranties and covenants
contained in this Plan shall not be deemed to be untrue or breached in any
respect for any purpose as a consequence of any action undertaken on account of
this Section 4.16.
ARTICLE V. CONDITIONS TO CONSUMMATION
Section 5.1. Conditions to All Parties' Obligations. The respective
obligations of Acquiror and the Company to effect the Merger shall be subject
to the satisfaction or waiver prior to the Effective Time of the following
conditions:
(a) The Plan and the transactions contemplated hereby shall have been
approved by the requisite vote of the shareholders of the Company in
accordance with applicable law.
(b) Acquiror shall have procured the required approval, consent, waiver
or other administrative action with respect to the Plan and the
transactions contemplated hereby (i) by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, and (ii) by the Pennsylvania Department of Banking
pursuant to Pennsylvania law and all applicable statutory waiting periods
shall have expired; and the parties shall have procured all other
regulatory approvals, consents, waivers or administrative actions of
governmental authorities or other persons that are necessary or appropriate
to the consummation of the transactions contemplated by the Plan; provided,
however, that no approval, consent, waiver or administrative action
referred to in this Section 5.1(b) shall be deemed to have been received if
it shall include any condition or requirement that would (i) result in a
Material Adverse Effect on Acquiror (on a combined basis giving effect to
the Merger and the other transactions contemplated by this Plan) or (ii) so
materially and adversely affect the economic or business benefits of the
Merger that the Acquiror would not have entered into this Plan had such
conditions or requirements been known at the date hereof;
(c) All other requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Plan shall have been
satisfied.
(d) No party hereto shall be subject to any order, decree or injunction
of a court or agency of competent jurisdiction which enjoins or prohibits
the consummation of the Merger or any other transaction contemplated by
this Plan. No litigation or proceeding shall be pending against Acquiror or
the Company or any of their subsidiaries brought by any governmental agency
seeking to prevent consummation of the transactions contemplated hereby.
(e) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation of the
Merger or any other transaction contemplated by this Plan.
(f) The Registration Statement shall have become effective and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
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(g) Acquiror and the Company each shall have received the opinion of
Sullivan & Cromwell, dated as of the Effective Date, substantially to the
effect that, on the basis of facts, representations and assumptions set
forth in such opinion which are consistent with the state of facts existing
at the Effective Time, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly: (i) no gain or loss will be recognized by
Acquiror or the Company as a result of the Merger; (ii) no gain or loss
will be recognized by the shareholders of the Company who exchange their
shares of the Company Common Stock solely for shares of Acquiror Common
Stock pursuant to the Merger (except with respect to cash received in lieu
of a fractional share interest in Acquiror Common Stock); (iii) the tax
basis of the shares of Acquiror Common Stock received by shareholders who
exchange all of their shares of the Company Common Stock solely for shares
of Acquiror Common Stock in the Merger will be the same as the tax basis of
the shares of the Company Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for which
cash is received); and (iv) the holding period of the shares of Acquiror
Common Stock received in the Merger will include the period during which
the shares of the Company Common Stock surrendered in exchange therefor
were held, provided such shares of the Company Common Stock were held as
capital assets at the Effective Time. In rendering their opinion, Sullivan
& Cromwell may require and rely upon representations contained in
certificates of officers of Acquiror, the Company and others.
(h) Acquiror and the Company each shall have received a letter, dated as
of the Effective Date, from Acquiror's independent certified public
accountants to the effect that the Merger will qualify for pooling-of-
interests accounting treatment if closed and consummated in accordance with
this Plan.
(i) The Board of Directors of the Company shall have received a letter,
in form and substance satisfactory to the Company, dated the date on which
the SEC declares the Registration Statement effective, pursuant to which
Keefe, Bruyette & Woods, Inc. shall express its opinion that the
consideration to be received by the Company's shareholders pursuant to
Section 1.2 hereof is fair from a financial point of view.
Section 5.2. Conditions to Obligations of Acquiror. The obligations of
Acquiror to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following additional conditions:
(a) Each of the representations and warranties of the Company contained
in this Plan shall, in all material respects, be true on the Effective Date
as if made on such date (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date);
the Company shall have performed, in all material respects, each of its
covenants and agreements contained in this Plan; and Acquiror shall have
received a certificate signed by the Chief Executive Officer and the Chief
Financial Officer of the Company, dated the Effective Date, to the
foregoing effect.
(b) Acquiror shall have received all state securities laws and "Blue Sky"
permits and other authorizations necessary to consummate the transactions
contemplated hereby.
(c) The Acquiror and its directors shall have received from KPMG Peat
Marwick, the Company's independent certified public accountants, an "agreed
upon procedures" letter, dated (i) the date of the mailing of Proxy
Statement to the Company's shareholders and (ii) shortly prior to the
Effective Time, with respect to certain financial information regarding the
Company in the form customarily issued by such accountants at such time in
transactions of this type.
Section 5.3. Conditions to the Obligation of the Company. The obligation of
the Company to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following additional conditions:
(a) Each of the representations, warranties and covenants of Acquiror
contained in this Plan shall, in all material respects, be true on the
Effective Date as if made on such date (or on the date when made in the
case of any representation or warranty which specifically relates to an
earlier date); Acquiror shall have performed, in all material respects,
each of its covenants and agreements contained in this Plan;
I-17
<PAGE>
and the Company shall have received certificates signed by the Chief
Executive Officer and the Chief Financial Officer of Acquiror, dated the
Effective Date, to the foregoing effect.
(b) The Company and its directors shall have received from the Acquiror's
independent certified public accountants an "agreed upon procedures"
letter, dated (i) the date of the mailing of Proxy Statement to the
Company's shareholders and (ii) shortly prior to the Effective Time, with
respect to certain financial information regarding the Acquiror in the form
customarily issued by such accountants at such time in transactions of this
type.
ARTICLE VI. TERMINATION
Section 6.1. Termination. This Plan may be terminated, and the Merger
abandoned, prior to the Effective Date, either before or after its approval by
the shareholders of the Company:
(a) by the mutual consent of Acquiror and the Company, if the board of
directors of each so determines by vote of a majority of the members of its
entire board;
(b) by Acquiror or the Company, if its board of directors so determines
by vote of a majority of the members of its entire board, in the event of
the failure of the shareholders of the Company to approve the Plan at its
meeting called to consider such approval or a material breach by the other
party hereto of any representation, warranty, covenant or agreement
contained herein which is not cured or not curable within 60 days after
written notice of such breach is given to the party committing such breach
by the other party;
(c) by Acquiror or the Company by written notice to the other party if
either (i) any approval, consent or waiver of a governmental authority
required to permit consummation of the transactions contemplated hereby
shall have been denied or (ii) any governmental authority of competent
jurisdiction shall have issued a final, unappealable order enjoining or
otherwise prohibiting consummation of the transactions contemplated by this
Plan;
(d) by Acquiror or the Company, if its board of directors so determines
by vote of a majority of the members of its entire board, in the event that
the Merger is not consummated by March 31, 1994, unless the failure to so
consummate by such time is due to the breach of any representation,
warranty or covenant contained in this Plan by the party seeking to
terminate; or
(e) by the Company, if its board of directors so determines by a majority
vote of the members of its entire board, at any time during the ten-day
period commencing with the Determination Date if both of the following
conditions are satisfied:
(i) the Average Closing Price on the Determination Date of shares of
Acquiror Common Stock shall be less than an amount equal to the
Starting Price multiplied by 0.85 (adjusted as indicated below in this
Section 6.1(e)); and
(ii) (A) the number obtained by dividing the Average Closing Price on
the Determination Date by the Starting Price (the "Acquiror Ratio")
shall be less than (B) the number obtained by dividing the Final Index
Price on the Determination Date by the Initial Index Price on the
Starting Date and subtracting 0.15 from the quotient in this clause
(ii)(B) (the "Index Ratio");
subject, however, to the following three sentences. If the Company elects
to exercise its termination right pursuant to this Section 6.1(e), it shall
give written notice to Acquiror (provided that such notice of election to
terminate may be withdrawn at any time within the aforementioned ten-day
period). During the five-day period commencing with its receipt of such
notice, Acquiror shall have the option to increase the consideration to be
received by the holders of the Company Common Stock hereunder, by adjusting
the Conversion Number to equal (calculated to the nearest one one-
thousandth) the lesser of (x) a number obtained by dividing (A) the product
of the Starting Price, 0.85 and the Conversion Number by (B) the Average
Closing Price on the Determination Date, and (y) a number equal to a
fraction, the numerator of which is the Index Ratio multiplied by the
Conversion Number and the denominator of
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<PAGE>
which is the Acquiror Ratio. If Acquiror so elects within such five-day
period, it shall give prompt written notice to the Company of such election
and the revised Conversion Number, whereupon no termination shall have
occurred pursuant to this Section 6.1(e) and this Plan shall remain in
effect in accordance with its terms (except as the Conversion Number shall
have been so modified).
For purposes of this Section 6.1(e), the following terms shall have the
meanings indicated:
"Average Closing Price" shall have the meaning specified in Section
1.2(b).
"Determination Date" means the fifteenth day after the required
approval of the Federal Reserve Board for the Merger.
"Final Index Price" means the sum of the Final Price for each company
comprising the Index Group multiplied by the appropriate weighting.
"Final Price", with respect to any company belonging to the Index
Group, means the average of the daily closing sales prices of a share
of common stock of such company, as reported on the consolidated
transaction reporting system for the market or exchange on which such
common stock is principally traded, during the period of 20 trading
days ending on the Determination Date.
"Index Group" means the 17 bank holding companies listed below, the
common stock of which shall be publicly traded and as to which there
shall not have been a publicly announced proposal since the Starting
Date and before the Determination Date for any such company to be
acquired. In the event that the common stock of any such company ceases
to be publicly traded or a proposal to acquire any such company is
announced after the Starting Date and before the Determination Date,
such company will be removed from the Index Group, and the weights
(which have been determined based on the number of outstanding shares
of common stock and the market prices of such stock) attributed to the
remaining companies will be adjusted proportionately for purposes of
determining the Final Index Price. The 17 bank holding companies and
the weights attributed to them are as follows:
<TABLE>
<CAPTION>
BANK HOLDING COMPANY WEIGHTING
-------------------- ---------
<S> <C>
The Bank of New York Company, Inc. (BK).......................... 4.91%
Banc One Corp. (ONE)............................................. 16.00%
Norwest Corporation (NOB)........................................ 8.29%
Sun Trust Banks, Inc. (STI)...................................... 6.14%
First Union Corporation (FTU).................................... 8.58%
Fleet Financial Group, Inc. (FLT)................................ 5.02%
NBD Bancorp, Inc. (NBD).......................................... 5.77%
PNC Bank Corp. (PNC)............................................. 7.43%
U.S. Bancorp (USBC).............................................. 2.83%
Wachovia Corporation (WB)........................................ 6.62%
First Bank System, Inc. (FBS).................................... 3.75%
First Fidelity Bancorporation (FFB).............................. 4.00%
Barnett Banks, Inc. (BBI)........................................ 4.97%
National City Corporation (NCC).................................. 4.42%
Mellon Bank Corporation (MEL).................................... 3.93%
Boatmen's Bancshares, Inc. (BOAT)................................ 3.18%
Society Corp. (SCY).............................................. 4.16%
------
100.00%
</TABLE>
"Index Price" on a given date, means the weighted average (weighted
in accordance with the factors listed above) of the closing prices on
such date of the common stocks of the companies comprising the Index
Group.
"Initial Index Price" means the sum of each per share closing price
of the common stock of each company comprising the Index Group
multiplied by the applicable weighting, as such prices
I-19
<PAGE>
are reported on the consolidated transactions reporting system for the
market or exchange on which such common stock is principally traded on
the Starting Date.
"Starting Date" means the last trading day immediately preceding the
date of the first public announcement of entry into this Plan.
"Starting Price" means the closing price per share of Acquiror Common
Stock, as reported on the NMS (as reported by The Wall Street Journal
or, if not reported thereby, another authoritative source) for the
Starting Date.
If Acquiror or any company belonging to the Index Group declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such
company shall be appropriately adjusted for the purposes of applying this
Section 6.1(e).
Section 6.2. Effect of Termination. In the event of the termination of this
Plan by either Acquiror or the Company, as provided above, this Plan shall
thereafter become void and there shall be no liability on the part of any party
hereto or their respective officers or directors, except that any such
termination shall be without prejudice to the rights of any party hereto
arising out of the willful breach by any other party of any covenant or willful
misrepresentation contained in this Plan.
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1. Effective Date and Effective Time. On the third business day
after the expiration of all applicable waiting periods in connection with
approvals of governmental authorities occurs and all conditions to the
consummation of this Plan are satisfied or waived, or on such earlier or later
date as may be agreed by the parties, but in no event earlier than January 3,
1994, articles or certificates of merger shall be executed in accordance with
all appropriate legal requirements and shall be filed as required by law, and
the Merger provided for herein shall become effective upon such filing or on
such date (which may not be later than such third business day) as may be
specified in such articles or certificates of merger. The date of such filing
or such later effective date is herein called the "Effective Date". The
"Effective Time" of the Merger shall be such time on the Effective Date as may
be agreed by the parties.
ARTICLE VIII. OTHER MATTERS
Section 8.1. Certain Definitions; Interpretation. As used in this Plan, the
following terms shall have the meanings indicated:
"Control" shall have the meaning ascribed thereto in the Bank Holding
Company Act of 1956, as amended.
"material" means material to Acquiror or the Company (as the case may be)
and its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any condition,
event, change or occurrence that is reasonably likely to have a material
adverse effect upon (A) the financial condition, business or results of
operations of such person and its subsidiaries, taken as a whole, or (B)
the ability of such person to perform its obligations under, and to
consummate the transactions contemplated by, this Plan.
"person" includes an individual, corporation, partnership, association,
trust or unincorporated organization.
"subsidiary," with respect to a person, means any other person controlled
by such person.
When a reference is made in this Plan to Sections, Annexes or Schedules, such
reference shall be to a Section of, or Annex or Schedule to, this Plan unless
otherwise indicated. The table of contents, tie sheet and headings
I-20
<PAGE>
contained in this Plan are for ease of reference only and shall not affect the
meaning or interpretation of this Plan. Whenever the words "include",
"includes", or "including" are used in this Plan, they shall be deemed followed
by the words "without limitation". Any singular term in this Plan shall be
deemed to include the plural, and any plural term the singular.
Section 8.2. Survival. Only those agreements and covenants of the parties
that are applicable in whole or in part after the Effective Time shall survive
the Effective Time. All other representations, warranties, agreements and
covenants shall be deemed to be conditions of the Plan and shall not survive
the Effective Time. If the Plan shall be terminated, the agreements of the
parties in Sections 4.3 and 8.6 shall survive such termination.
Section 8.3. Waiver. Prior to the Effective Time, any provision of this Plan
may be (i) waived by the party benefitted by the provision or by both parties
by a writing executed by an executive officer, or (ii) amended or modified at
any time (including the structure of the transaction) by an agreement in
writing between the parties hereto approved by their respective boards of
directors, except that, after the vote by the shareholders of the Company, no
such amendment or modification may be made which reduces or changes the form
and amount of consideration payable pursuant to this Plan without further
shareholder approval.
Section 8.4. Counterparts. This Plan may be executed in counterparts each of
which shall be deemed to constitute an original, but all of which together
shall constitute one and the same instrument.
Section 8.5. Governing Law. This Plan shall be governed by, and interpreted
in accordance with, the laws of the Commonwealth of Pennsylvania.
Section 8.6. Expenses. Each party hereto will bear all expenses incurred by
it in connection with this Plan and the transactions contemplated hereby,
except printing expenses which shall be shared equally.
Section 8.7. Notices. All notices, requests, acknowledgements and other
communications hereunder to a party shall be in writing and shall be deemed to
have been duly given when delivered by hand, telecopy, telegram or telex
(confirmed in writing) to such party at its address set forth below or such
other address as such party may specify by notice to the other party hereto.
If to the Company, to:
Constellation Bancorp
120 Albany Street Plaza
New Brunswick, New Jersey 08903-0831
Telecopy: (908) 943-4223
Attn: George R. Zoffinger
President and Chief Executive Officer
With copies to:
H. Rodgin Cohen, Esq.
Mark J. Menting, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telecopy: (212) 558-3588
If to Acquiror, to:
CoreStates Financial Corp
Broad & Chestnut Street
Philadelphia, PA 19105
Attn: Terrence A. Larsen, Chairman
I-21
<PAGE>
With copies to:
David T. Walker
Deputy Chief Counsel
CoreStates Financial Corp
PNB Building, F.C. 1-1-22-1
Broad & Chestnut Street
Philadelphia, PA 19107
Section 8.8. Entire Agreement; Etc. This Plan, together with the Stock Option
Agreement, represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and all
other oral or written agreements heretofore made. All terms and provisions of
the Plan shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Except as to the last
sentence of Section 4.2 and Section 4.5, nothing in this Plan is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Plan.
Section 8.9. Assignment. This Plan may not be assigned by any party hereto
without the written consent of the other parties.
In Witness Whereof, the parties hereto have caused this Plan to be executed
by their duly authorized officers as of the day and year first above written.
CORESTATES FINANCIAL CORP
/s/ DAVID C. CARNEY
By: _________________________________
DAVID C. CARNEY
Chief Financial Officer
CONSTELLATION BANCORP
/s/ GEORGE R. ZOFFINGER
By: _________________________________
GEORGE R. ZOFFINGER
President and Chief Executive
Officer
I-22
<PAGE>
Conformed Copy
EXHIBIT A
STOCK OPTION AGREEMENT
Stock Option Agreement, dated August 2, 1993, between CoreStates Financial
Corp, a Pennsylvania corporation ("Grantee"), and Constellation Bancorp, a New
Jersey corporation ("Issuer").
Witnesseth:
Whereas, Grantee and Issuer have entered into an Agreement and Plan of Merger
of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto prior to this Agreement; and
Whereas, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
Now, Therefore, in consideration of the foregoing and the covenants and
agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 5,300,000
nonassessable shares of common stock, no par value ("Common Stock"), of
Issuer at a price of $10.375 per share. Such price as adjusted pursuant to
Section 5 hereof is hereinafter referred to as the "Option Price." The
number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set
forth.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall
have sent the written notice of such exercise (as provided in subsection
(e) of this Section 2) within 30 days following such Subsequent Triggering
Event. Each of the following shall be an Exercise Termination Event: (i)
the Effective Time of the Merger; (ii) termination of the Merger Agreement
in accordance with the provisions thereof if such termination occurs prior
to the occurrence of an Initial Triggering Event; or (iii) the passage of
nine months after termination of the Merger Agreement if such termination
follows the occurrence of an Initial Triggering Event (provided that if an
Initial Triggering Event continues or occurs beyond such termination, the
Exercise Termination Event shall be nine months from the expiration of the
Last Triggering Event but in no event more than twelve months after such
termination). The "Last Triggering Event" shall mean the last Initial
Triggering Event to occur. The term "Holder" shall mean the holder or
holders of the Option. Notwithstanding the foregoing, the Option may not be
exercised, nor may Grantee require Issuer to repurchase the Option, if, at
the time of exercise or repurchase, Grantee is in breach of any covenant or
obligation contained in the Merger Agreement.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or Constellation Bank, N.A. (the "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have
entered into an agreement to engage in an Acquisition Transaction (as
hereinafter defined) with any person (the term "person" for purposes of
this Agreement having the meaning assigned thereto in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act, and the rules and
regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer shall
have recommended that the shareholders of Issuer approve or accept any
Acquisition Transaction other than as contemplated by the Merger
Agreement. For purposes of this Agreement, "Acquisition Transaction"
shall mean (x) a merger or consolidation, or any similar transaction,
involving Issuer
I-23
<PAGE>
or the Issuer Subsidiary, (y) a purchase, lease or other acquisition of
all or substantially all of the assets of Issuer or the Issuer
Subsidiary, or (z) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of securities
representing 20% or more of the voting power of Issuer or Issuer
Subsidiary;
(ii) Any person other than Grantee, any Grantee Subsidiary or any
Subsidiary of Issuer acting in a fiduciary capacity shall have acquired
beneficial ownership or the right to acquire beneficial ownership of
20% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Option Agreement having the
meaning assigned thereto in Section 13(d) of the Securities Exchange
Act, and the rules and regulations thereunder);
(iii) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(iv) After a proposal is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement
and such breach (x) would entitle Grantee to terminate the Merger
Agreement and (y) shall not have been cured prior to the Notice Date
(as defined below); or
(v) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its
prior written consent, shall have filed an application or notice with
the Federal Reserve Board, or other federal or state bank regulatory
authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 25% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (z) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event") after it becomes aware that such an event has occurred,
it being understood that the giving of such notice by Issuer shall not be a
condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 30 business days from
the Notice Date for the closing of such purchase (the "Closing Date");
provided that if prior notification to or approval of the Federal Reserve
Board or any other regulatory agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application
for approval and shall expeditiously process the same and the period of
time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite
waiting period or periods shall have passed. Any exercise of the Option
shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated
by Issuer, provided that failure or refusal of Issuer to designate such a
bank account shall not preclude the Holder from exercising the Option.
I-24
<PAGE>
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder,
and the Holder shall deliver to Issuer a copy of this Agreement and a
letter agreeing that the Holder will not offer to sell or otherwise dispose
of such shares in violation of applicable law or the provisions of this
Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the Holder
shall have delivered to Issuer a copy of a letter from the staff of the
SEC, or an opinion of counsel, in form and substance satisfactory to
Issuer, to the effect that such legend is not required for purposes of the
Securities Act; (ii) the reference to the provisions to this Agreement in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances
that do not require the retention of such reference; and (iii) the legend
shall be removed in its entirety if the conditions in the preceding clauses
(i) and (ii) are both satisfied. In addition, such certificates shall bear
any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its
assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) promptly to take all action as may from time to
time be required (including (x) complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. (S)18a and
regulations promulgated thereunder and (y) in the event, under the Bank
Holding Company Act of 1956, as amended, or the Change in Bank Control Act
of 1978, as amended, or any state banking law, prior approval of or notice
to the Federal Reserve Board or to any state regulatory authority is
necessary before the Option may be exercised, cooperating fully with the
Holder in preparing such applications or notices and providing such
information to the Federal Reserve Board or such state regulatory authority
as they may require) in order to permit the Holder to exercise the Option
and Issuer duly and effectively to issue shares of Common Stock pursuant
hereto; and (iv) promptly to take all action provided herein to protect the
rights of the Holder against dilution.
I-25
<PAGE>
4. This Agreement (and the Option granted hereby) is exchangeable,
without expense, at the option of the Holder, upon presentation and
surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used herein include any Stock Option Agreements and related
Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Agreement, and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Agreement, if
mutilated, Issuer will execute and deliver a new Agreement of like tenor
and date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. The number of shares of Common Stock purchasable upon the exercise of
the Option shall be subject to adjustment from time to time as provided in
this Section 5.
(a) In the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type
and number of shares of Common Stock purchasable upon exercise hereof
shall be appropriately adjusted.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option
Price shall be adjusted by multiplying the Option Price by a fraction,
the numerator of which shall be equal to the number of shares of Common
Stock purchasable prior to the adjustment and the denominator of which
shall be equal to the number of shares of Common Stock purchasable
after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 30 days of such Subsequent Triggering Event (or such later
period as provided in Section 9) (whether on its own behalf or on behalf of
any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the Securities Act covering
any shares issued and issuable pursuant to this Option and shall use its
reasonable efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of any
shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee; provided, however, that Issuer may postpone filing a registration
statement relating to a registration request by Grantee under this Section
6 for a period of time (not in excess of 90 days) if in its judgment such
filing would require the disclosure of material information that Issuer has
a bona fide business purpose for preserving as confidential. Issuer will
use its best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 180
days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or
other dispositions. Grantee shall have the right to demand two such
registrations. The foregoing notwithstanding, if, at the time of any
request by Grantee for registration of Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering
of shares of Common Stock, and if in the good faith judgment of the
managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of
the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby
may be reduced; and provided, however, that after any such required
reduction the number of Option Shares to be included in such offering for
the account of the Holder shall constitute at least 25% of the total number
of shares to be issued by the Holder and Issuer in the aggregate; and
provided further, however, that if such reduction occurs, then the Issuer
shall file a
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<PAGE>
registration statement for the balance as promptly as practicable and no
reduction shall thereafter occur. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such
Holder in connection with such registration, Issuer shall become a party to
any underwriting agreement relating to the sale of such shares, but only to
the extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of the Holder,
delivered within 30 days of such occurrence (or such later period as
provided in Section 9), Issuer shall repurchase the Option from the Holder
at a price (the "Option Repurchase Price") equal to (x) the amount by which
(A) the market/offer price (as defined below) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be
exercised and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered within 30 days of such occurrence (or such
later period as provided in Section 9), Issuer shall repurchase such number
of the Option Shares from the Owner as the Owner shall designate at a price
(the "Option Share Repurchase Price") equal to (x) the market/offer price
multiplied by the number of Option Shares so designated. The term
"market/offer price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been
made, (ii) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Issuer, (iii) the highest closing price
for shares of Common Stock within the 30 day period immediately preceding
the date the Holder gives notice of the required repurchase of this Option
or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, or (iv) in the event of a sale of all or substantially all
of Issuer's assets, the sum of the price paid in such sale for such assets
and the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected by
the Holder or the Owner, as the case may be, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating
that the Holder or the Owner, as the case may be, elects to require Issuer
to repurchase this Option and/or the Option Shares in accordance with the
provisions of this Section 7. As promptly as practicable, and in any event
within ten business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto, Issuer shall deliver or cause to be delivered to
the Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy or any order,
agreement or directive from any governmental authority, from repurchasing
the Option and/or the Option Shares in full, Issuer shall immediately so
notify the Holder and/or the Owner and thereafter deliver or cause to be
delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this
Section 7 is prohibited under applicable law or regulation, or as a
consequence of administrative policy or any order, agreement or directive
from any governmental authority, from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full, the Holder or Owner may revoke its
notice of repurchase of the Option or the Option Shares either in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer
shall promptly (i) deliver to the Holder and/or the Owner, as appropriate,
that portion of the Option Purchase Price or the Option Share Repurchase
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<PAGE>
Price that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the
Option Repurchase Price, or (B) to the Owner, a certificate for the Option
Shares it is then so prohibited from repurchasing.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii)
to permit any person, other than Grantee or one of its Subsidiaries, to
merge into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of
its assets to any person, other than Grantee or one of its Subsidiaries,
then, and in each such case, the agreement governing such transaction shall
make proper provision so that the Option shall, upon the consummation of
any such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of the Holder, of either (x) the Acquiring Corporation (as
hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder
or Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise
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<PAGE>
of the Substitute Option. In the event that the Substitute Option would be
exercisable for more than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise but for this clause (e), the issuer of the
Substitute Option (the "Substitute Option Issuer") shall make a cash
payment to Holder equal to the excess of (i) the value of the Substitute
Option without giving effect to the limitation in this clause (e) over (ii)
the value of the Substitute Option after giving effect to the limitation in
this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be.
9. The 30-day period for exercise of certain rights under Sections 2, 6,
7 and 11 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the Securities Exchange Act by reason of
such exercise. Nothing contained in this Agreement shall restrict Grantee
from specifying alternative exercising of rights pursuant to Sections 2, 6
or 7 hereof in the event that the exercising of any such rights shall not
have occurred due to the failure to obtain any required approval referred
to in this Section 9.
10. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has the corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the Board of
Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by Issuer. This Agreement is the valid and legally binding
obligation of Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrance and security interests and not subject to
any preemptive rights.
11. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to
any other person, without the express written consent of the other party,
except that in the event a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and
obligations hereunder within 30 days following such Subsequent Triggering
Event (or such later period as provided in Section 9); provided, however,
that until the date 30 days following the date on which the Federal Reserve
Board approves an application by Grantee under the Bank Holding Company Act
to acquire the shares of Common Stock subject to the Option, Grantee may
not assign its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one party
acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by the
Federal Reserve Board.
12. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated
by this Agreement, including without limitation applying to the Federal
Reserve Board under the Bank Holding Company Act for approval to acquire
the shares issuable hereunder.
13. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
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<PAGE>
14. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Holder is not permitted to acquire,
or Issuer is not permitted to repurchase pursuant to Section 7, the full
number of shares of Common Stock provided in Section l(a) hereof (as
adjusted pursuant to Section 1(b) or 5 hereof), it is the express intention
of Issuer to allow the Holder to acquire or to require Issuer to repurchase
such lesser number of shares as may be permissible, without any amendment
or modification hereof.
15. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person,
by cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
17. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
18. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
19. Except as otherwise expressly provided herein or in or pursuant to
the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties
hereto, and their respective successors except as assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
20. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
21. This Agreement is qualified and subject to the qualifications and
conditions described or referred to in the letter provided by the Issuer to
the Grantee pursuant to Sections 2.2 and 3.1 of the Merger Agreement.
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<PAGE>
In Witness Whereof, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
CONSTELLATION BANCORP
/s/ GEORGE R. ZOFFINGER
By: _________________________________
GEORGE R. ZOFFINGER
President and Chief
Executive Officer
CORESTATES FINANCIAL CORP
/s/ DAVID C. CARNEY
By: _________________________________
DAVID C. CARNEY
Chief Financial Officer
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<PAGE>
KEEFE, BRUYETTE & WOODS, INC.
APPENDIX II
FEBRUARY 11, 1994
The Board of Directors
Constellation Bancorp
68 Broad Street
Elizabeth, NJ 07207
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from
a financial point of view, to the shareholders of Constellation Bancorp
("Constellation") of the exchange ratio in the proposed merger (the "Merger")
of Constellation with and into CoreStates Financial Corp ("CoreStates"),
pursuant to the Agreement and Plan of Merger, dated as of August 2, 1993, as
amended (the "Agreement"), between CoreStates and Constellation. Under the
terms of the Agreement, each outstanding share of common stock, no par value,
of Constellation (the "Common Shares") will be converted into 0.4137 (0.412
under certain circumstances) shares of common stock, $1.00 par value, of
CoreStates (the "Exchange Ratio").
Keefe, Bruyette & Woods, Inc., as part of its investment banking business, is
continually engaged in the valuation of bank and bank holding company
securities in connection with acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. As specialists in the securities of
banking companies, we have experience in, and knowledge of, the valuation of
banking enterprises. In the ordinary course of our business as a broker-dealer,
we may, from time to time, purchase securities from, and sell securities to,
Constellation and CoreStates and as a market maker in securities we may from
time to time have a long or short position in, and buy or sell, debt or equity
securities of Constellation and CoreStates for our own account and for the
accounts of our customers. To the extent we have any such position as of the
date of this opinion it has been disclosed to Constellation. We have acted
exclusively for the Board of Directors of Constellation in rendering this
fairness opinion and will receive a fee from Constellation for our services.
In arriving at our opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of Constellation
and CoreStates, including, among other things, the following: (i) the
Agreement; (ii) the Registration Statement on Form S-4 filed by CoreStates to
register the shares of its common stock to be issued in the Merger; (ii) Annual
Reports to Shareholders for the three years ended December 31, 1992 of
Constellation and CoreStates and Annual Reports on Form 10-K; (iv) certain
interim reports to shareholders of Constellation and CoreStates and Quarterly
Reports on Form 10-Q of Constellation and CoreStates and certain other
communications from Constellation and CoreStates to their respective
shareholders; (v) other financial information concerning the businesses and
operations of Constellation and CoreStates furnished to us by Constellation and
CoreStates for purposes of our analysis, including certain internal financial
analyses and forecasts for Constellation and CoreStates prepared by the senior
management of Constellation and CoreStates; (vi) plans for the combined company
and the strategic objectives of the Merger with the senior executives of
CoreStates and Constellation; (vii) certain publicly available information
concerning trading of, and the trading market for, the common stock of
Constellation
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<PAGE>
and CoreStates; and (viii) certain publicly available information with respect
to banking companies and the nature and terms of certain other transactions
that we consider relevant to our inquiry.
In conducting our review and arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available and we have not attempted
independently to verify such information. We have relied upon the management of
Constellation and CoreStates as to the reasonableness and achieveability of the
financial and operating forecasts and projections (and the assumptions and
bases therefor) provided to us, and we have assumed that such forecasts and
projections reflect the best currently available estimates and judgments of
such managements and that such forecasts and projections will be realized in
the amounts and in the time periods currently estimated by such managements. We
have also assumed, without independent verification, that the aggregate
allowances for loan losses for Constellation and CoreStates are adequate to
cover such losses. We have not made or obtained any evaluations or appraisals
of the property of Constellation or CoreStates, nor have we examined any
individual loan credit files. Finally, you have informed us and we have assumed
that the Merger will be recorded as a pooling of interests under generally
accepted accounting principles.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Constellation and CoreStates, including interest income, interest expense, net
interest income, net interest margin, non-interest income, non-interest
expense, earnings, dividends, internal capital generation, book value,
intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
Constellation and for CoreStates; (ii) the assets and liabilities of
Constellation and CoreStates, including the loan, investment and mortgage
portfolios, deposits, other liabilities, historical and current liability
sources and costs and liquidity; and (iii) the nature and terms of certain
other merger transactions involving banks and bank holding companies. We have
also taken into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
experience in securities valuation and our knowledge of the banking industry
generally. Our opinion is necessarily based upon conditions as they exist and
can be evaluated on the date hereof and the information made available to us
through the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio in the Merger is fair, from a financial
point of view, to the holders of the Common Shares.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 et . seq. of the PaBCL provides that a business corporation may
indemnify directors and officers against liabilities they may incur in such
capacities provided certain standards are met, including good faith and
reasonable belief that the particular action is in, or not opposed to, the best
interest of the corporation. In general, this power to indemnify does not exist
in the case of actions against a director or officer by or in the right of the
corporation if the person entitled to indemnification shall have been adjudged
to be liable for negligence or misconduct in the performance of the person's
duties. However, Section 1746 provides that the other sections of the law are
not exclusive and that further indemnification may be provided by by-law,
agreement or otherwise except where the act or failure to act giving rise to a
claim for indemnification is determined by a court to have constituted willful
misconduct or recklessness. The corporation is required to indemnify directors
and officers against expenses they may incur in defending any action against
them in such capacities if they are successful on the merits or otherwise in
the defense of such actions.
The by-laws of CoreStates provide for the mandatory indemnification of
directors and officers to the full extent permitted by law. CoreStates has
purchased directors' and officers' liability insurance covering certain
liabilities which may be incurred by its officers and directors in connection
with the performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
2 --Agreement and Plan of Merger dated as of the 2nd day of August,
1993, is Appendix I to the Proxy Statement-Prospectus included in
Part I and is incorporated herein by reference.
3(a) --The rights of the holders of CoreStates Financial Corp Common Stock
are contained in the Articles of Incorporation of CoreStates
Financial Corp as amended through May 3, 1993, filed as Exhibit 3(a)
to the CoreStates Financial Corp Current Report on Form 8-K dated
October 21, 1993 and incorporated herein by reference.
3(b) --Bylaws of CoreStates Financial Corp as amended through April 20,
1993, filed as Exhibit 3(b) to the CoreStates Financial Corp Current
Report on Form 8-K dated October 21, 1993, and incorporated herein by
reference.
* 5 --Opinion with consent of David J. Martin regarding legality of
securities being registered.
+ 8 --Opinion of Sullivan & Cromwell regarding certain tax matters.
*23(a) --Consent of Ernst & Young with respect to CoreStates Financial Corp.
*23(b) --Consent of KPMG Peat Marwick with respect to Constellation Bancorp.
*23(c) --Consent of Keefe, Bruyette & Woods, Inc.
*23(d) --Consent of Coopers & Lybrand with respect to Independence Bancorp,
Inc.
*24 --Power of Attorney.
+99(a) --Draft Proxy Card of Constellation Bancorp.
99(b) --Opinion of Keefe, Bruyette & Woods, Inc. is Appendix II to the Proxy
Statement-Prospectus and is incorporated herein by reference.
</TABLE>
- --------
+ Filed herewith
* Previously filed
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned registrant hereby undertakes:
(A) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
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<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement,
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(B) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(C) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(2) The undersigned registrant hereby undertakes as follows: that prior to
any public offering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(3) The registrant undertakes that every prospectus (a) that is filed
pursuant to paragraph (2) immediately preceding, or (b) that purports to meet
the requirements of Section 19(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid for by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter had been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
CORESTATES FINANCIAL CORP
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CORESTATES
FINANCIAL CORP HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF PHILADELPHIA, COMMONWEALTH OF PENNSYLVANIA, ON
FEBRUARY 11, 1994.
Corestates Financial Corp
/s/ Terrence A. Larsen
By: _________________________________
TERRENCE A. LARSEN CHAIRMAN OF THE
BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
---------- -------- ----
<S> <C> <C>
* Director, Chairman February 11, 1994
- ------------------------------------- of the Board,
TERRENCE A. LARSEN President and Chief
Executive Officer
(principal
executive officer)
/s/ David C. Carney Chief Financial February 11, 1994
- ------------------------------------- Officer (principal
DAVID C. CARNEY financial officer)
* Executive Vice
- ------------------------------------- President February 11, 1994
ALBERT W. MANDIA (principal
accounting officer)
* Director February 11, 1994
- -------------------------------------
GEORGE A. BUTLER
* Director February 11, 1994
- -------------------------------------
ROBERT H. CAMPBELL
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
---------- -------- ----
<S> <C> <C>
* Director February 11, 1994
- -------------------------------------
NELSON G. HARRIS
* Director February 11, 1994
- -------------------------------------
VINCENT E. HOYER
* Director February 11, 1994
- -------------------------------------
CARLTON E. HUGHES
* Director February 11, 1994
- -------------------------------------
SHIRLEY A. JACKSON
* Director February 11, 1994
- -------------------------------------
ERNEST E. JONES
* Director February 11, 1994
- -------------------------------------
JOSEPH C. LADD
* Director February 11, 1994
- -------------------------------------
LEONARD H. LITTMAN
* Director February 11, 1994
- -------------------------------------
HERBERT LOTMAN
* Director February 11, 1994
- -------------------------------------
PATRICIA A. MCFATE
* Director February 11, 1994
- -------------------------------------
JOHN A. MILLER
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
---------- -------- ----
<S> <C> <C>
* Director February 11, 1994
- -------------------------------------
MARLIN MILLER, JR.
* Director February 11, 1994
- -------------------------------------
SEYMOUR S. PRESTON, III
* Director February 11, 1994
- -------------------------------------
J. LAWRENCE SHANE
* Director February 11, 1994
- -------------------------------------
RAYMOND W. SMITH
* Director February 11, 1994
- -------------------------------------
HAROLD A. SORGENTI
* Director February 11, 1994
- -------------------------------------
PETER S. STRAWBRIDGE
/s/ David C. Carney
*By: ________________________________
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
(LETTERHEAD OF SULLIVAN & CROMWELL APPEARS HERE)
February 8, 1994
Constellation Bancorp,
68 Broad Street,
Elizabeth, New Jersey 07207.
CoreStates Financial Corp,
Broad and Chestnut Streets,
Philadelphia, PA 19107.
Ladies and Gentlemen:
We have acted as counsel to Constellation Bancorp, a corporation
organized under the laws of New Jersey (the "Company"), in connection with the
planned merger (the "Merger") of the Company with and into CoreStates
Financial Corp, a corporation organized under the laws of Pennsylvania
("Acquiror"), pursuant to the Agreement and Plan of Merger, dated as of the
2nd day of August, 1993, by and between Acquiror and the Company (the
"Agreement"). Capitalized terms used but not defined herein shall have the
meanings specified in the Agreement.
With respect to the Merger, we have assumed with your consent that:
(a) the Merger will be effected in accordance with the Agreement, and
(b) the representations contained in the certificates received from
George R. Zoffinger, President and Chief Executive Officer of the Company, and
David C. Carney,
<PAGE>
Constellation Bancorp
CoreStates Financial Corp
-2-
Chief Financial Officer of Acquiror, will be true at the Effective Time.
On the basis of the foregoing, and our consideration of such other
matters of fact and law as we have considered necessary or appropriate, it is
our opinion that, under presently applicable Federal income tax law,
(a) the Merger will be a reorganization within the meaning of Section
368(a) of the Code,
(b) no gain or loss will be recognized by Acquiror or the Company as
a result of the Merger,
(c) no gain or loss will be recognized by the shareholders of the
Company who exchange all of their shares of Company Common Stock solely for
shares of Acquiror Common Stock pursuant to the Merger (except with respect to
cash received in lieu of a fractional share interest in Acquiror Common
Stock),
(d) the tax basis of the shares of Acquiror Common Stock received by
shareholders who exchange all of their shares of Company Common Stock solely
for shares of Acquiror Common Stock pursuant to the Merger will be the same as
the tax basis of the shares of Company Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest for
which cash is received), and
(e) the holding period of the shares of Acquiror Common Stock
received by shareholders who
<PAGE>
Constellation Bancorp
CoreStates Financial Corp
-3-
exchange all of their Company Common Stock solely for shares of Acquiror
Common Stock pursuant to the Merger will include the holding period during
which the shares of Company Common Stock were held, provided that such
shares of Company Common Stock are held as capital assets at the Effective
Time.
The tax consequences described above may not be applicable to a shareholder of
the Company who acquired the stock of the Company pursuant to the exercise of
an employee stock option or right or otherwise as compensation.
We hereby consent to the reference to us under the heading "The Merger
- -- Certain Federal Income Tax Considerations" in the Proxy Statement-Prospectus
pertaining to the Merger and to the filing of this opinion as an exhibit to the
related Registration Statement on Form S-4 filed with the Securities and
Exchange Commission. In giving this consent, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE>
CONSTELLATION BANCORP
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 16, 1994
The undersigned hereby appoints Michael A. Marinelli and Robert M. Craig, and
each of them, with full power of substitution, to represent the undersigned and
to vote all of the shares of stock in Constellation Bancorp that the
undersigned is entitled to vote at the Special Meeting of Shareholders of said
Company to be held at the Douglass College Student Center, Corner of George
Street and Nichol Avenue, New Brunswick, New Jersey, on Wednesday, March 16,
1994 at 10:00 A.M., local time, and at any adjournments or postponements
thereof.
Unless otherwise indicated the shares represented hereby shall be voted "FOR"
the Proposal and on such other matters as may properly come before the meeting.
This Proxy is Continued on the Reverse Side
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR:" I (we) will
attend the
Special Meeting
[_]
Proposal No. 1: Approval of Agreement and Plan of Merger, dated as of the 2nd
day of August, 1993, as amended, between Constellation Bancorp
("Constellation") and CoreStates Financial Corp. ("CoreStates"), providing for
the merger of Constellation with and into CoreStates (the "Merger") and the
conversion of each outstanding share, with certain exceptions, of common stock,
no par value, of Constellation into 0.4137 (0.412 if the Merger is consummated
on or after March 31, 1994) of a share of common stock, par value $1.00 per
share, of CoreStates.
FOR AGAINST ABSTAIN
[_] [_] [_]
Proposal No. 2: Approval of the postponement or adjournment of the Special
Meeting to another time and/or place for the purpose of soliciting additional
proxies in the event that there are not sufficient votes at the time of the
Special Meeting to approve the Merger Agreement and the Merger.
FOR AGAINST ABSTAIN
[_] [_] [_]
In their discretion, the Proxies are authorized to vote upon such business as
may properly come before the meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and the Proxy Statement-Prospectus.
Please sign exactly as name appears hereon. Persons signing as Executors,
Administrators, Trustees, etc., give title as such. Joint owners, both should
sign.
- --------------------------------------------------------------------------------
SIGNATURE
- --------------------------------------------------------------------------------
SIGNATURE
Dated: 1994
----------------------------------------------------------------------
PLEASE VOTE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
