<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1994
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CORESTATES FINANCIAL CORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 6711 23-1899716
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE 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. 1-1-17-1
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:
DAVID HUGGIN, ESQ. MARCIA E. HEISTER, ESQ.
SULLIVAN & CROMWELL SENIOR VICE PRESIDENT AND CORPORATE
125 BROAD STREET COUNSEL
NEW YORK, NY 10004 INDEPENDENCE BANCORP, INC.
(212) 558-4000 ONE HILLENDALE ROAD
PERKASIE, PA 18944
(215) 453-3200
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 Independence Bancorp, Inc. ("Independence") 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. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SECURITY OFFERING PRICE (2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par
value.................. 20,500,000 n/a $507,164,000 $174,885.36
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a maximum of 17,926,000 shares of Common Stock of the Registrant
("CoreStates Common Shares") issuable in connection with the Merger, up to
830,000 CoreStates Common Shares issuable upon the exercise of options
outstanding under stock option plans of Independence and up to 1,744,000
CoreStates Common Shares issuable upon conversion of Independence 7%
Convertible Subordinated Debentures due 2011 ("Debentures"). The amount of
CoreStates Common Shares to be registered has been determined on the basis
of the maximum exchange ratio for such CoreStates Common Shares in the
Merger (1.50 CoreStates Common Shares for each share of common stock, par
value $2.50 per share, of Independence ("Independence Common Shares")) and
the maximum number of Independence Common Shares that may be exchanged
upon consummation of the Merger (13,216,000), assuming the exercise of all
options for Independence Common Shares and conversion of all Debentures.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) under the Securities Act of 1933, as
amended, based on the last sale price per Independence Common Share
reported in the NASDAQ National Market System (38 3/8) as of a specified
date within five business days of the filing hereof, and the maximum
number of Independence Common Shares that may be exchanged upon
consummation of the Merger (13,216,000). See Footnote 1 above.
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
Prospectus........................... Forepart of Registration Statement
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 Combined
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
Reference............................ Incorporation of Documents by
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
Companies............................ Incorporation of Documents by
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>
May , 1994
Dear Independence Shareholder:
You are cordially invited to attend a Special Meeting (the "Special Meeting")
of Shareholders of Independence Bancorp, Inc. ("Independence") which will be
held on , , 1994 at p.m. at the . At the Special Meeting you will be
asked to consider and vote to approve an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which Independence will merge (the "Merger")
with and into CoreStates Financial Corp ("CoreStates"), and each share of your
Independence common stock will be converted, in a tax-free exchange, into a
number of shares of CoreStates common stock (the "Exchange Ratio") determined
as follows: (i) if the Average Closing Price (as defined in the Merger
Agreement) of CoreStates common stock on the Determination Date (as defined in
the Merger Agreement) is less than or equal to $27.00 per share, the Exchange
Ratio will be 1.50; (ii) if the Average Closing Price of CoreStates common
stock on the Determination Date is greater than or equal to $28.00 per share,
the Exchange Ratio will be 1.45; or (iii) if the Average Closing Price of
CoreStates common stock on the Determination Date is greater than $27.00 but
less than $28.00 per share, the Exchange Ratio will be determined by dividing
$40.50 by the Average Closing Price.
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 Independence and its shareholders and recommends that you vote FOR approval
of the Merger Agreement.
Consummation of the Merger is subject to certain conditions, including the
approval of the Merger Agreement by Independence 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.
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 at
least a majority of the outstanding shares of Independence common stock is
required to approve the Merger Agreement. Consequently, a failure to vote will
have the same effect as a vote against the Merger Agreement. Therefore, we urge
you to complete, sign, 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
SHARES OF INDEPENDENCE COMMON STOCK AT THIS TIME.
On behalf of your Board of Directors, we urge you to vote FOR approval of the
Merger Agreement.
Sincerely,
[sig]
Monroe W. Long
Chairman
[sig]
John D. Harding
President and Chief Executive
Officer
<PAGE>
[LOGO]
INDEPENDENCE BANCORP, INC.(R)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD [ ] , 1994
TO THE SHAREHOLDERS OF INDEPENDENCE BANCORP, INC.:
Notice is hereby given that, pursuant to the call of its Board of Directors,
a Special Meeting (the "Special Meeting") of Shareholders of Independence
Bancorp, Inc. ("Independence") will be held at , on , 1994, at
.m., local time, for the following purposes:
1. To consider and vote on whether to approve an Agreement and Plan of
Merger, dated as of the 19th day of November, 1993 (the "Merger Agreement"),
attached as Appendix I to the accompanying Proxy Statement-Prospectus,
providing for the merger (the "Merger") of Independence with and into
CoreStates Financial Corp ("CoreStates") and the conversion of each outstanding
share, with certain exceptions, of common stock, par value $2.50 per share
("Independence Common Shares"), of Independence into a number of shares (the
"Exchange Ratio") of common stock, par value $1.00 per share ("CoreStates
Common Shares"), of CoreStates determined as follows: (i) if the Average
Closing Price (as defined in the Merger Agreement) of CoreStates Common Shares
on the Determination Date (as defined in the Merger Agreement) is less than or
equal to $27.00 per share, the Exchange Ratio will be 1.50; (ii) if the Average
Closing Price of CoreStates Common Shares on the Determination Date is greater
than or equal to $28.00 per share, the Exchange Ratio will be 1.45; or (iii) if
the Average Closing Price of CoreStates Common Shares on the Determination Date
is greater than $27.00 but less than $28.00 per share, the Exchange Ratio will
be determined by dividing $40.50 by the Average Closing price.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Only holders of record of Independence Common Shares at 11:59 p.m., local
time, on , 1994 are entitled to notice of and to vote at the Special
Meeting and any adjournment or postponement thereof.
By Order of the Board of Directors,
[sig]
Orville H. Freitag, Jr.
Secretary
May , 1994
THE BOARD OF DIRECTORS OF INDEPENDENCE UNANIMOUSLY RECOMMENDS THAT THE
HOLDERS OF INDEPENDENCE COMMON SHARES VOTE TO APPROVE THE MERGER AGREEMENT.
BECAUSE THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE OUTSTANDING
INDEPENDENCE COMMON SHARES IS REQUIRED TO APPROVE THE MERGER AGREEMENT, WE URGE
YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
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 OR POSTPONEMENT THEREOF, MAY
REVOKE HIS OR HER PROXY IN WRITING AND VOTE PERSONALLY ON THE MERGER AGREEMENT
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 PROXY STATEMENT-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 MAY 9, 1994
[ART] [ART]
PROXY STATEMENT PROSPECTUS
INDEPENDENCE BANCORP, INC. CORESTATES FINANCIAL CORP
PHILADELPHIA NATIONAL BANK BUILDING
ONE HILLENDALE ROAD BROAD & CHESTNUT STREETS
PERKASIE, PENNSYLVANIA PHILADELPHIA, PENNSYLVANIA 19107
18944 (215) 973-3827
(215) 453-3200 COMMON STOCK (PAR VALUE $1.00 PER SHARE)
This Proxy Statement-Prospectus is being furnished to the holders of common
stock, par value $2.50 per share ("Independence Common Shares"), of
Independence Bancorp, Inc., a Pennsylvania corporation ("Independence"), in
connection with the solicitation of proxies by the Board of Directors of
Independence for use at the special meeting of Independence shareholders to be
held at , Pennsylvania, on , 1994, at , local time, and at any
adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, the holders of record of Independence Common Shares
at 11:59 p.m., local time, on , 1994 will consider and vote on whether to
approve the Agreement and Plan of Merger, dated as of the 19th day of November,
1993 (the "Merger Agreement"), by and between Independence and CoreStates
Financial Corp, a Pennsylvania corporation ("CoreStates"), pursuant to which
Independence will merge with and into CoreStates (the "Merger"). Upon
consummation of the Merger, each outstanding Independence 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 a number of shares (the "Exchange Ratio") of common stock,
par value $1.00 per share ("CoreStates Common Shares"), of CoreStates
determined as follows: (i) if the Average Closing Price (as defined below) of
CoreStates Common Shares on the Determination Date (as defined below) is less
than or equal to $27.00 per share, the Exchange Ratio will be 1.50; (ii) if the
Average Closing Price of CoreStates Common Shares on the Determination Date is
greater than or equal to $28.00 per share, the Exchange Ratio will be 1.45; or
(iii) if the Average Closing Price of CoreStates Common Shares on the
Determination Date is greater than $27.00 but less than $28.00 per share, the
Exchange Ratio will be determined by dividing $40.50 by the Average Closing
Price. "Average Closing Price" with respect to any day means the average
closing price per share of CoreStates Common Shares, as reported on the New
York Stock Exchange ("NYSE") Composite Transactions reporting system for the 20
NYSE trading days ending on the trading day prior to such day. "Determination
Date" means the fifteenth day after receipt of the required approval of the
Merger by the Board of Governors of the Federal Reserve System (the "FRB"). On
May , 1994, the last sale price of CoreStates Common Shares on the NYSE
Composite Transactions reporting system was $ . If FRB approval had been
obtained on May , 1994, the Average Closing Price (based on the closing sale
prices of CoreStates Common Shares on the 20 consecutive trading days ending
May , 1994) of CoreStates Common Shares would have been $ , and holders of
Independence Common Shares would have received at the Effective Time (as
defined herein), for each share of Independence Common Shares held by them,
shares of CoreStates Common Shares. For a description of 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 Independence on or about May , 1994.
This Proxy Statement-Prospectus also constitutes a prospectus of CoreStates
with respect to the CoreStates Common Shares issuable to Independence
shareholders pursuant to the Merger.
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 May , 1994.
<PAGE>
AVAILABLE INFORMATION
CoreStates and Independence 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 Independence 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 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 INDEPENDENCE, 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
INDEPENDENCE TO THE SECRETARY OF INDEPENDENCE, ONE HILLENDALE ROAD, PERKASIE,
PENNSYLVANIA 18944 (TELEPHONE: (215) 453-3200). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING OF SHAREHOLDERS OF
INDEPENDENCE TO WHICH THIS PROXY STATEMENT-PROSPECTUS RELATES, ANY REQUEST
SHOULD BE MADE BY MAY , 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 Independence. 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 Independence 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, 1993
(which includes portions of the 1993 Annual Report to Shareholders);
(2) the Current Reports on Form 8-K dated January 19, 1994, March 7,
1994, March 16, 1994, as amended, April 19, 1994, April 29, 1994 and May 5,
1994.
(3) 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 Independence 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, 1993
(which includes portions of the 1993 Annual Report to Shareholders); and
(2) the Current Reports on Form 8-K dated January 19, 1994, March 4, 1994
and April 20, 1994.
All documents filed by CoreStates and Independence 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 Independence set forth herein or incorporated by
reference herein has been furnished by Independence. 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
RECENT DEVELOPMENTS....................................................... 19
INFORMATION REGARDING THE SPECIAL MEETING................................. 21
General.................................................................. 21
Matters to be Considered at the Special Meeting.......................... 21
Record Date; Voting Rights............................................... 22
Proxies.................................................................. 22
Recommendation of Independence Board..................................... 23
THE MERGER................................................................ 23
General Description; Exchange Ratio...................................... 23
Background of the Merger................................................. 24
Reasons for Merger....................................................... 26
Opinion of Financial Adviser............................................. 28
Stock Option Agreement................................................... 31
Operations and Management After the Merger............................... 33
Interests of Certain Persons in the Merger............................... 34
Effect on Independence Employee Benefit Plans............................ 37
Independence Convertible Debentures...................................... 37
Certain Federal Income Tax Considerations................................ 38
No Dissenters' Rights of Appraisal....................................... 38
Regulatory Approvals..................................................... 39
Additional Information................................................... 40
Representations and Warranties; Conditions Precedent..................... 40
Effective Date; Effective Time; Amendments; Waiver; Termination.......... 41
Price Based Termination.................................................. 42
Operations of Independence and CoreStates Pending the Merger............. 43
No Solicitation.......................................................... 45
Accounting Treatment..................................................... 45
Stock Exchange Listing................................................... 46
Status of CoreStates Common Shares under the Federal Securities Laws;
Pooling of Interests.................................................... 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange of Certificates................................................. 46
Expenses................................................................. 47
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)............................... 48
CERTAIN REGULATORY CONSIDERATIONS......................................... 56
General.................................................................. 56
Capital.................................................................. 56
Dividends................................................................ 57
Support of Bank Subsidiaries............................................. 58
Borrowings by Holding Companies.......................................... 58
FDICIA................................................................... 58
Potential Enforcement Actions............................................ 60
DESCRIPTION OF CORESTATES CAPITAL STOCK................................... 60
CoreStates Capital Stock................................................. 60
CoreStates Common Shares................................................. 61
CoreStates Series Preferred Stock........................................ 61
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 63
General.................................................................. 63
Authorized Capital....................................................... 63
Amendment of Articles of Incorporation or Bylaws......................... 64
Size and Classification of Board of Directors............................ 64
Limitation of Liability and Indemnification.............................. 65
Shareholder Meetings..................................................... 66
Merger or Other Fundamental Transactions................................. 67
State Anti-Takeover Statutes............................................. 69
Stockholder Protection Rights Plan....................................... 70
Preferred Stock.......................................................... 71
EXPERTS................................................................... 71
CoreStates............................................................... 71
Independence............................................................. 72
Germantown............................................................... 72
LEGAL MATTERS............................................................. 72
APPENDIX I--Agreement and Plan of Merger
APPENDIX II--Stock Option Agreement
APPENDIX III--Opinion of Alex. Brown & Sons Incorporated
</TABLE>
4
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of all
material facts regarding CoreStates, Independence 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 PARTIES
Independence. Independence Bancorp, Inc. ("Independence") 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 One Hillendale Road, Perkasie, Pennsylvania 18944 (telephone number 215-453-
3200). At December 31, 1993, Independence had total consolidated assets,
deposits and shareholders' equity of $2.6 billion, $2.2 billion and $222
million, respectively. See "RECENT DEVELOPMENTS--Independence."
The principal banking subsidiaries of Independence are: Bucks County Bank and
Trust Company ("Bucks"), a state chartered bank with executive offices located
in Doylestown, Pennsylvania; Cheltenham Bank ("Cheltenham"), a state chartered
bank with executive offices located in Rockledge, Pennsylvania; Lehigh Valley
Bank ("Lehigh"), a state chartered bank with executive offices located in
Bethlehem, Pennsylvania; and Third National Bank and Trust Company of Scranton
("Third"), a national banking association with executive offices located in
Scranton, Pennsylvania (collectively, the "Banks"). Through the Banks,
Independence operates a network of 54 community banking offices throughout
eastern Pennsylvania, offering commercial lending services, personal banking
services and trust services.
CoreStates. CoreStates Financial Corp ("CoreStates") is a bank holding
company registered under 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 December 31, 1993, CoreStates had total consolidated assets,
deposits and shareholders' equity of $25.7 billion, $19.0 billion and $2.0
billion respectively, and, based on December 31, 1993 rankings of bank holding
companies, was believed to be the 32nd 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
(collectively, the "Banking Subsidiaries"). Through the Banking Subsidiaries,
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 December 31, 1993, on a pro forma basis after giving effect to the Merger
and the Germantown Proposed Combination (each, as defined below), the
percentage of total consolidated assets and shareholders' equity of CoreStates
represented by Independence would be 8.7% and 9.4%, respectively. For the year
ended December 31, 1993, on a pro forma basis after giving effect to the Merger
and the Germantown Proposed Combination, the percentage of net interest income
and net income of CoreStates represented by Independence would be 7.7% and
9.9%, 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 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. See "RECENT DEVELOPMENTS--Germantown."
5
<PAGE>
THE SPECIAL MEETING
The Special Meeting will be held on , , 1994 at local time. At the
Special Meeting, holders of Independence Common Shares will be asked to
consider and vote upon the approval and adoption of the Agreement and Plan of
Merger, dated as of the 19th day of November, 1993 (the "Merger Agreement"), by
and between CoreStates and Independence providing for the merger of
Independence with and into CoreStates (the "Merger"). Independence 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 Independence is aware of no such
other business.
TERMS OF THE MERGER AGREEMENT AND THE EXCHANGE RATIO
Pursuant to the Merger Agreement, Independence will be merged with and into
CoreStates, with CoreStates as the surviving entity, and CoreStates will
succeed to the business of Independence and will continue operations under the
name CoreStates. Upon the Merger becoming effective, each outstanding
Independence Common Share will be converted into a number of shares of
CoreStates Common Shares (the "Exchange Ratio") determined as follows:
(i) if the Average Closing Price (as defined in "THE MERGER--Price Based
Termination") on the Determination Date (as defined in "THE MERGER--Price
Based Termination") is less than or equal to $27.00 per share, the Exchange
Ratio will be 1.50;
(ii) if the Average Closing Price on the Determination Date is greater
than or equal to $28.00 per share, the Exchange Ratio will be 1.45; or
(iii) if the Average Closing Price on the Determination Date is greater
than $27.00 but less than $28.00 per share, the Exchange Ratio will be
determined by dividing $40.50 by the Average Closing Price.
See "THE MERGER--General Description; Exchange Ratio."
MANAGEMENT AFTER THE MERGER
Upon consummation of the Merger, Independence will be merged with and into
CoreStates, with CoreStates as the surviving entity. CoreStates' current
directors will serve as the directors of the surviving corporation following
the Merger and, pursuant to the Merger Agreement, CoreStates will cause one
member of the Independence Board of Directors (the "Independence Board")
immediately prior to the Merger, who is nominated by Independence and approved
by CoreStates, to be elected or appointed as a CoreStates director subsequent
to the Merger. 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 Independence will become subsidiaries of
CoreStates.
It is planned that after the Merger, each banking subsidiary of Independence
will be merged with and into CoreStates Bank, a national banking subsidiary of
CoreStates.
The Merger Agreement provides that, subsequent to the Merger, CoreStates will
cause three members of the Independence Board immediately prior to the Merger,
who are nominated by Independence and approved by CoreStates, one of whom will
be John D. Harding, to be elected or appointed as directors of CoreStates Bank.
See "THE MERGER--Interests of Certain Persons in the Merger."
RECOMMENDATION OF BOARD OF DIRECTORS; REASONS FOR THE MERGER
THE INDEPENDENCE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT HOLDERS OF INDEPENDENCE COMMON SHARES
6
<PAGE>
VOTE FOR APPROVAL OF THE MERGER AGREEMENT. The Independence Board believes that
the Merger will enable holders of Independence 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, Independence shareholders will receive a larger dividend, when viewed
in light of CoreStates' current dividend amount and the Exchange Ratio. See
"THE MERGER--Background of the Merger" and "THE MERGER--Reasons for the 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 Independence in the Merger.
OPINION OF FINANCIAL ADVISER
Alex. Brown & Sons Incorporated ("Alex. Brown") has served as financial
adviser to Independence in connection with the Merger and delivered a written
opinion to the Independence Board, that, as of November 19, 1993, the
consideration to be received by the holders of Independence Common Shares in
the Merger was fair to the holders of Independence Common Shares from a
financial point of view. Such opinion was updated as of the date of this Proxy
Statement-Prospectus. For additional information, see "THE MERGER--Opinion of
Financial Adviser." The opinion of Alex. Brown dated as of the date of this
Proxy Statement-Prospectus is attached as Appendix III 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
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 and all conditions to the Merger have been satisfied
or waived, or on such earlier or later date as may be agreed by Independence
and CoreStates, Independence and CoreStates will file Articles of Merger with
the Department of State of the Commonwealth of Pennsylvania. 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 of Merger (the
"Effective Date"). Although it is the intention of CoreStates and Independence
to consummate the Merger as soon as practicable after shareholder approval and
after all other conditions have been met or waived, the nature of such other
conditions makes it impractical to fix the Effective Date at present. 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 Independence, by (i) mutual consent of CoreStates and
Independence; (ii) either CoreStates or Independence if the shareholders of
Independence 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 Independence if the Merger has
not been consummated by October 31, 1994 (subject to extension in certain
circumstances); or (iv) either CoreStates or Independence 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 Merger Agreement also contains a provision that permits Independence to
terminate the Merger Agreement at any time during the ten-day period commencing
with 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
7
<PAGE>
"Determination Date") by a majority vote of the members of the Independence
Board, if either of the following conditions occurs: (X) (i) the average
closing price per share of CoreStates Common Shares over such twenty-day
pricing period prior to the Determination Date is less than $24.30; and (ii)
the decline in the price of CoreStates Common Shares exceeds by more than 10%
the decline over such time period in an index composed of a group of common
stocks of other bank holding companies; or (Y) the average closing price per
share of CoreStates Common Shares over such twenty-day pricing period is less
than $22.95; provided, however, that in the case of (X) or (Y) CoreStates can
elect to increase the Exchange Ratio as set forth in the Merger Agreement. 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 Independence as a result of the
Merger and (ii) no gain or loss will be recognized by holders of Independence
Common Shares upon the receipt of CoreStates Common Shares in exchange for
Independence 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 Independence 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 Independence
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 at least a majority
of the outstanding Independence Common Shares. It is not necessary for the
shareholders of CoreStates to approve the Merger. The Independence Board has
set , 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 Independence Common Shares outstanding.
As of the Record Date, Independence's directors and executive officers and
their affiliates beneficially owned Independence Common Shares,
representing % of the outstanding Independence Common Shares. As of the Record
Date, subsidiaries of Independence held of record or in the name of nominees
Independence Common Shares in a fiduciary capacity, representing % of the
outstanding Independence Common Shares, as to of which shares they had sole
or shared voting authority. As of the Record Date, CoreStates and CoreStates'
directors, executive officers and their affiliates beneficially owned
Independence Common Shares, representing % of the outstanding Independence
Common Shares. As of the Record Date, subsidiaries of CoreStates held of record
or in the name of nominees Independence Common Shares in a fiduciary
capacity, representing % of the outstanding Independence Common Shares, as to
of which shares they had sole or shared voting authority. For additional
information concerning voting by shareholders of Independence on the proposed
Merger, see "THE MERGER--General Description; Exchange Ratio."
DISSENTERS' RIGHTS
Holders of Independence 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 Independence must be obtained from the FRB, the
Pennsylvania Department of Banking and the Arizona
8
<PAGE>
Department of Insurance. The management of CoreStates has no reason to believe
that the required governmental approvals will not be obtained.
CONDITIONS
Consummation of the Merger is subject to satisfaction or waiver of various
conditions, including compliance by Independence 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 Independence and CoreStates and other matters.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Independence's management and the Independence Board may
be deemed to have interests in the Merger in addition to their interests as
shareholders of Independence generally. These include, among other things,
provisions in the Merger Agreement relating to indemnification and agreements
made for the benefit of directors of Independence. The Merger Agreement
provides that, subsequent to the Merger, CoreStates will cause (i) one member
of the Independence Board immediately prior to the Merger, who is nominated by
Independence and approved by CoreStates, to be elected or appointed as a
CoreStates director and (ii) three members of the Independence Board
immediately prior to the Merger, who are nominated by Independence and approved
by CoreStates, one of whom will be John D. Harding, to be elected or appointed
as directors of CoreStates Bank.
Pursuant to the Merger Agreement, CoreStates has agreed to assume
Independence's obligations under employment agreements with certain executive
officers of Independence. The following table sets forth certain benefits that
the five most highly compensated executive officers of Independence, and the
remaining executive officers as a group, may receive as a result of the Merger.
The "Total" column is the total severance payment obligation being assumed by
CoreStates (assuming a June 30, 1994 Effective Date) pursuant to severance
agreements based upon the named executive officer's annual base salary in
effect on the date of this Proxy Statement-Prospectus and, in the case of
Messrs. Harding and Rinnander, the amount of their incentive compensation for
1993:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME* SINCE TOTAL
----- --------- --------
<S> <C> <C>
John D. Harding.................................... 1986 $864,848
Monroe W. Long..................................... 1983 0
George A. Pann..................................... 1987 228,603
Philip H. Rinnander................................ 1988 615,460
T. Alexander Spratt................................ 1992 600,000
Nine Remaining Executive Officers as a Group....... -- 333,147
</TABLE>
- --------
* Table does not include the remaining severance payment of $170,280 to an
individual who is not an "executive officer" of Independence.
Severance payments will be paid only if required pursuant to the terms of the
related employment agreements. 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 Independence and
9
<PAGE>
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
Independence entered into a Stock Option Agreement, dated November 19, 1993
(the "Stock 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 Independence's knowledge), to purchase
up to 1,130,000 Independence Common Shares (representing approximately 9.8% of
the outstanding Independence Common Shares) at a price of $33.50 per share,
subject to termination within certain periods. The Stock 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 Independence's shareholders fail to approve the Merger
Agreement, either CoreStates or Independence 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 Stock Option Agreement) has occurred
prior to such termination or an Exercise Termination Event (as defined in the
Stock Option Agreement), the Stock Option Agreement will automatically
terminate at such time. If an Initial Triggering Event and Subsequent
Triggering Event occur prior to such termination, then CoreStates will be
entitled to exercise the Option in accordance with its terms.
A copy of the Stock Option Agreement is attached to this Proxy Statement-
Prospectus as Appendix II. See "THE MERGER--Stock Option Agreement."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
On the Effective Date, shareholders of Independence automatically will become
shareholders of CoreStates. The rights of shareholders of CoreStates are
determined by the Pennsylvania Business Corporation Law and by CoreStates'
articles of incorporation and by-laws. The rights of shareholders of CoreStates
differ from the rights of shareholders of Independence with respect to certain
matters. For a summary of these differences, see "COMPARISON OF SHAREHOLDER
RIGHTS."
GERMANTOWN PROPOSED COMBINATION
On March 7, 1994, CoreStates and Germantown Savings Bank ("Germantown")
entered into a definitive agreement pursuant to which CoreStates expects to
acquire Germantown for a combination of cash and CoreStates Common Shares (the
"Germantown Proposed Combination"). Germantown is a 140-year-old institution
serving five southeastern Pennsylvania counties through 32 community banking
offices. At December 31, 1993, Germantown had total consolidated assets,
deposits and shareholders' equity of $1.6 billion, $1.5 billion and $142
million, respectively.
Under the terms of the agreement, each of Germantown's 4,189,334 shares of
common stock, par value $0.10 per share ("Germantown Common Shares"), will be
exchanged for cash, CoreStates Common Shares or a combination of cash and
CoreStates Common Shares valued at $62.00.
The pro forma financial information included in this Proxy Statement-
Prospectus has been presented to give effect to the Germantown Proposed
Combination, unless otherwise indicated. The Germantown Proposed Combination is
expected to be accounted for as a purchase. See "RECENT DEVELOPMENTS--
Germantown."
10
<PAGE>
SELECTED FINANCIAL INFORMATION
(UNAUDITED)
The tables on pages 12 and 13 set forth selected historical financial
information for CoreStates and Independence for each of the five years in the
period ended December 31, 1993. Such information has been derived from and
should be read in conjunction with the consolidated financial statements of
CoreStates and Independence, including the respective notes thereto and
management's discussions and analyses of financial conditions and results of
operations contained therein, which are incorporated by reference in this Proxy
Statement-Prospectus. The selected historical financial information for
CoreStates reflects the restatement for the March 16, 1994 acquisition of
Constellation Bancorp ("Constellation") under the pooling of interests method
of accounting.
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 for
1993 also gives effect to the Germantown Proposed Combination. The Germantown
Proposed Combination is expected to be accounted for under the purchase method
of accounting. 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 1.50 CoreStates Common Shares for each
Independence Common Share. In addition, the unaudited pro forma financial
information for 1993 assumes that 5.391 million CoreStates Common Shares will
be issued in the Germantown Proposed Combination. The 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.
11
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CORESTATES FINANCIAL CORP
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME:
Interest income........ $1,664,769 $1,762,751 $2,254,473 $2,549,267 $2,608,651
Interest expense....... 446,115 619,401 1,086,605 1,382,363 1,477,368
Net interest income.... 1,218,654 1,143,350 1,167,868 1,166,904 1,131,283
Provision for losses on
loans(1).............. 230,000 129,300 272,596 424,644 322,166
Securities gains (loss-
es)................... 15,748 15,085 (14,175) 2,208 161
Income before
cumulative effect of a
change in accounting
principle............. 211,750 261,022 162,626 88,631 142,892
Cumulative effect of a
change in accounting
principle(2)(10)...... (13,010) (84,946) -- -- --
Net income(3).......... 198,740 176,076 162,626 88,631 142,892
Dividends on preferred
stock(4).............. -- -- -- 1,662 20,973
Net income attributable
to common shares...... 198,740 176,076 162,626 86,969 121,919
PER COMMON SHARE(5):
Income before
cumulative effect of a
change in accounting
principle(2)(10)...... 1.65 2.19 1.39 0.74 1.03
Net income(3).......... 1.55 1.48 1.39 0.74 1.03
Cash dividends de-
clared(6)............. 1.14 1.02 0.97 0.96 0.87
Book value............. 15.79 14.76 14.65 13.99 14.41
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET
(AVERAGE BALANCES):
Total assets........... $ 25,171 $ 24,931 $ 26,036 $ 26,686 $ 26,660
Loans.................. 17,315 17,152 18,869 20,088 19,063
Allowance for possible
loan losses........... 422 433 486 335 382
Deposits............... 18,550 19,073 19,414 18,732 18,857
Long-term debt......... 1,333 1,227 1,094 754 741
Common shareholders'
equity(8)............. 1,987 1,742 1,668 1,770 1,764
Total shareholders' eq-
uity(4)............... 1,987 1,742 1,668 1,787 1,864
AVERAGE COMMON SHARES
OUTSTANDING (5)(8) (in
thousands)............. 128,570 119,350 117,016 117,293 118,128
PERIOD-END COMMON SHARES
OUTSTANDING(5)(8) (in
thousands)............. 128,784 128,055 117,577 116,695 117,814
SELECTED RATIOS:
Return on average total
assets(7)............. 0.84% 1.05% 0.62% 0.33% 0.46%
Return on average com-
mon shareholders' eq-
uity(7)............... 10.66 14.98 9.75 4.91 6.91
Return on average total
shareholders'
equity(7)............. 10.66 14.98 9.75 4.96 7.66
Average shareholders'
equity to average
assets................ 7.89 6.8 6.28 6.66 6.99
Allowance for possible
loan losses to loans
(period-end).......... 2.98 2.37 2.52 2.46 2.69
Non-performing assets
to total loans plus
other real estate
owned (period-end).... 2.06 3.55 4.24 3.21 2.04
</TABLE>
See footnotes to selected financial information on pages 15 and 16.
12
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF INDEPENDENCE BANCORP, INC.
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME:
Interest income......... $177,285 $199,128 $230,817 $249,874 $261,965
Interest expense........ 70,668 90,000 125,775 150,372 163,871
Net interest income..... 106,617 109,128 105,042 99,502 98,094
Provision for losses on
loans.................. 11,201 30,950 18,665 13,216 5,015
Securities gains (loss-
es).................... 362 (1,280) 307 204 (8,904)
Income before cumulative
effect of a change in
accounting principle... 22,879 7,112 18,956 17,102 16,017
Cumulative effect of a
change in accounting
principle(3)........... -- 4,378 -- -- --
Net income(3)........... 22,879 11,490 18,956 17,102 16,017
PER COMMON SHARE:
Income before cumulative
effect of a change in
accounting principle(3). 1.98 0.63 1.72 1.55 1.48
Net income(3)........... 1.98 1.02 1.72 1.55 1.48
Cash dividends declared
....................... 1.16 1.16 1.16 1.16 1.16
Book value.............. 19.26 18.43 18.43 17.88 17.54
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET
(AVERAGE BALANCES):
Total assets............ $ 2,617 $ 2,626 $ 2,611 $ 2,630 $ 2,720
Loans................... 1,676 1,665 1,654 1,662 1,682
Allowance for possible
loan losses............ 36 30 26 23 23
Deposits................ 2,157 2,194 2,204 2,182 2,224
Long-term debt.......... 123 85 74 71 57
Common shareholders' eq-
uity................... 215 213 197 195 185
Total shareholders' eq-
uity................... 215 213 197 195 185
AVERAGE COMMON SHARES
OUTSTANDING (in thou-
sands).................. 11,438 11,173 11,012 11,019 10,821
PERIOD-END COMMON SHARES
OUTSTANDING (in thou-
sands).................. 11,522 11,291 11,061 10,950 11,015
SELECTED RATIOS:
Return on average total
assets(7).............. 0.87% 0.27% 0.73% 0.65% 0.59%
Return on average common
shareholders'
equity(7).............. 10.66 3.35 9.60 8.75 8.64
Return on average total
shareholders' equi-
ty(7).................. 10.66 3.35 9.60 8.75 8.64
Average shareholders'
equity to average as-
sets................... 8.20 8.09 7.56 7.43 6.81
Allowance for possible
loan losses to loans
(period-end)........... 1.96 2.09 1.63 1.42 1.35
Non-performing assets to
total loans plus other
real estate owned
(period-end)........... 2.23 3.21 2.65 1.55 0.72
</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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
INCOME:
Interest income........ $1,949,451 $1,961,838 $2,485,277 $2,799,141 $2,870,616
Interest expense....... 566,674 709,360 1,212,367 1,532,735 1,641,239
Net interest income.... 1,382,777 1,252,478 1,272,910 1,266,406 1,229,377
Provision for losses on
loans(1).............. 243,101 160,250 291,261 437,860 327,181
Securities gains (loss-
es)................... 17,289 13,805 (13,868) 2,412 (8,743)
Income before
cumulative effect of a
change in accounting
principle............. 242,955 268,134 180,317 105,200 158,296
Cumulative effect of a
change in accounting
principle(2)(10)...... (13,010) (84,946) -- -- --
Net income(3).......... 229,945 183,188 180,317 105,200 158,296
Dividends on preferred
stock(4).............. -- -- -- 1,662 20,973
Net income attributable
to common shares...... 229,945 183,188 180,317 103,538 137,323
PER COMMON SHARE(5):
Income before
cumulative effect of a
change in accounting
principle(2)(10)...... 1.61 1.97 1.35 0.77 1.02
Net income(3).......... 1.52 1.35 1.35 0.77 1.02
Cash dividends de-
clared(6)............. 1.14 1.02 0.97 0.96 0.87
Book value............. 15.56 14.48 14.40 13.77 14.12
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET
(AVERAGE BALANCES):
Total assets........... $ 29,393 $ 27,558 $ 28,647 $ 29,316 $ 29,380
Loans.................. 20,042 18,817 20,523 21,750 20,745
Allowance for possible
loan losses........... 479 463 512 358 405
Deposits............... 22,160 21,267 21,618 21,094 21,081
Long-term debt......... 1,456 1,312 1,168 825 798
Common shareholders'
equity(8)(9).......... 2,332 1,955 1,865 1,965 1,950
Total shareholders' eq-
uity(4)............... 2,202 1,955 1,865 1,982 2,050
AVERAGE COMMON SHARES
OUTSTANDING(5)(8) (in
thousands)............. 151,032 135,813 133,534 133,822 134,359
PERIOD-END COMMON SHARES
OUTSTANDING(5)(8) (in
thousands)............. 150,778 144,694 134,169 133,120 134,336
SELECTED RATIOS:
Return on average total
assets(7)............. 0.85% 0.97% 0.63% 0.35% 0.47%
Return on average
common shareholders'
equity(7)............. 10.42 13.72 9.67 5.27 7.04
Return on average total
shareholders'
equity(7)............. 11.03 13.72 9.67 5.31 7.72
Average shareholders'
equity to average
assets................ 7.49 7.09 6.51 6.76 6.98
Allowance for possible
loan losses to loans
(period-end).......... 2.97 2.34 2.44 2.38 2.58
Non-performing assets
to total loans plus
other real estate
owned (period-end).... 1.95 3.52 4.11 3.08 1.93
</TABLE>
See footnotes to selected financial information on pages 15 and 16.
14
<PAGE>
FOOTNOTES TO SELECTED FINANCIAL INFORMATION
(UNAUDITED)
(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 for 1989. 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. The provision for loan losses in 1993 included $120 million
recorded in connection with a change in strategic direction concerning the
workout of Constellation's problem assets and to conform Constellation's
loan, accrual and reserves policies to those of CoreStates.
(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 $128.7 million, $84.9 million after-tax, as the
cumulative effect of a change in accounting principle.
The impact of FAS 106 on Independence is immaterial.
Germantown adopted FAS 106 effective January 1, 1992 and elected to
recognize immediately a one-time, non-cash charge equal to its January 1,
1992 transitional liability of $3.7 million, $2.4 million after-tax, as the
cumulative effect of a change in accounting principle.
(3) In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS 109"), which 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.
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>
Year ended:
December 31, 1993.............. -- -- --
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
</TABLE>
--------
* Decrease less than $.01 per share.
(4) 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.
15
<PAGE>
(5) 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, Independence, and
pro forma earnings per common share for the five years ended December 31,
1993, were based on weighted average common shares outstanding as dilution
from potentially dilutive common stock equivalents was less than 3% for
each period.
(6) Cash dividends declared per share for the respective periods prior to
CoreStates' acquisition of FPC, First Peoples Corporation (on September 3,
1992), Constellation (on March 16, 1994), Independence and Germantown
assume that CoreStates would have declared cash dividends per share equal
to the cash dividends per share actually declared by CoreStates.
(7) 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.
(8) On December 18, 1992, Constellation completed the sale of 13.3 million
Constellation Common Shares (5.5 million CoreStates Common Shares) in a
rights offering to existing shareholders and the sale of 5.5 million
additional Constellation Common Shares (2.3 million CoreStates Common
Shares) to various standby purchasers for an aggregate net increase in
shareholders' equity of $67.5 million.
(9) While Independence 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 Independence's loan, accrual and reserve policies
to those of CoreStates, it will take an addition to the allowance for
possible loan losses of approximately $25.0 million and an addition to the
reserve against other real estate owned ("OREO") of approximately $5.0
million. Accordingly, pro forma shareholders' equity at December 31, 1993
has 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 Merger. 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. The carrying
value of these assets is approximately $120 million and the estimated
provisions represent 25% of this amount.
(10) Effective January 1, 1993, CoreStates adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("FAS 112"). FAS 112 established the accounting requirements for
benefits provided to former or inactive employees after employment but
before retirement. FAS 112 requires that employers accrue the costs
associated with providing benefits, such as salary and benefit
continuation under disability plans, when payment of the benefits is
probable and the amount of the obligation can be reasonably estimated.
CoreStates recognized the January 1, 1993 FAS 112 transitional liability
of $20.0 million, $13.0 million after-tax or $0.10 per share, as the
cumulative effect of a change in accounting principle.
The impact of FAS 112 on Independence and Germantown is immaterial.
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 a historical basis for
CoreStates and Independence; (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 Germantown Proposed Combination had been effective on January 1, 1993; and
(iv) on a pro forma equivalent basis per common share for Independence,
assuming that the Merger had been effective for all periods presented and the
Germantown Proposed Combination had been effective on January 1, 1993. Pro
forma per share amounts are based on an exchange ratio of 1.50 CoreStates
Common Shares for each Independence Common Share and the issuance of 5.391
million CoreStates Common Shares in the Germantown Proposed Combination.
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
PER COMMON SHARE
BOOK VALUE:
CoreStates(1):
Historical book value
per share.............. $15.79
CoreStates &
Independence pro forma
book value per share... 15.16
All transactions pro
forma book value per
share.................. 15.56
Independence:
Historical book value
per share.............. 19.26
Pro forma equivalent
book value per
share(1)(2)............ 23.34
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
CASH DIVIDENDS DECLARED:
CoreStates(1):
Historical cash dividends per share(3)................ $1.14 $1.02 $0.97
CoreStates & Independence pro forma cash dividends per
share(4)............................................. 1.14 1.02 0.97
All transactions pro forma cash dividends per
share(4)............................................. 1.14
Independence:
Historical cash dividends per share................... 1.16 1.16 1.16
Pro forma equivalent cash dividends per share(1)(2)... 1.71 1.53 1.46
NET INCOME:
CoreStates(1):
Historical earnings per share(5)...................... 1.65 2.19 1.39
CoreStates & Independence pro forma earnings per
share................................................ 1.61 1.97 1.35
All transactions pro forma net income per share....... 1.61
Independence:
Historical earnings per share......................... 1.98 0.63 1.72
Pro forma equivalent earnings per share(1)(2)......... 2.42 2.96 2.03
</TABLE>
- --------
(1) Restated to reflect the impact of the Stock Dividend.
(2) Independence pro forma equivalent per share data is computed by multiplying
CoreStates' pro forma per share data (giving effect to both the Merger and
the Germantown Proposed Combination) by the 1.50 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 changes 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. Independence Common Shares are traded in the over-the-counter market
and price quotations are reported on the NASDAQ National Market System under
the symbol "INBC." The table below sets forth, for the periods indicated, the
high and low sales prices for CoreStates Common Shares as reported on the NYSE
Composite Transactions reporting system or as quoted on the NASDAQ National
Market System, as applicable, and the cash dividends declared per share, and
the high and low sales prices for Independence Common Shares as quoted by the
NASDAQ National Market System and the cash dividends declared per share.
<TABLE>
<CAPTION>
CORESTATES INDEPENDENCE
----------------------- -----------------------
DIVIDEND DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
First Quarter.................. 25 1/8 21 7/8 $0.25 23 18 1/2 $0.29
Second Quarter................. 27 21 0.25 24 1/2 21 1/2 0.29
Third Quarter.................. 26 1/4 23 5/8 0.25 24 1/2 21 1/4 0.29
Fourth Quarter................. 28 7/8 24 1/8 0.27 28 1/2 22 1/2 0.29
Year ended December 31, 1993:
First Quarter.................. 29 3/4 26 3/8 0.27 29 1/4 25 0.29
Second Quarter................. 30 1/8 25 1/8 0.27 28 1/2 24 0.29
Third Quarter.................. 29 3/4 26 3/4 0.30 32 1/4 24 0.29
Fourth Quarter................. 29 3/4 25 1/8 0.30 37 5/8 25 1/8 0.29
Year ended December 31, 1994:
First Quarter.................. 27 1/8 24 1/2 0.30 38 1/4 34 1/4 0.29
Second Quarter (through May ,
1994)......................... 0.30 0.29
</TABLE>
The last sale price of CoreStates Common Shares and Independence Common
Shares as quoted on the NASDAQ National Market System as reported by the
consolidated trading system on November 18, 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 Independence Common Shares as quoted on the NASDAQ National
Market System as reported by the consolidated trading system on May , 1994, a
day shortly prior to the mailing of this Proxy Statement-Prospectus is set
forth below. The equivalent Independence Common Share market values of a
CoreStates Common Share are based on Exchange Ratios of 1.50 and , for
November 18, 1993 and May , 1994, respectively.
<TABLE>
<CAPTION>
CORESTATES INDEPENDENCE
COMMON SHARES COMMON SHARES
------------- ---------------------
HISTORICAL HISTORICAL EQUIVALENT
------------- ---------- ----------
<S> <C> <C> <C>
November 18, 1993........................... $27 $33 1/2 $40.50
May , 1994.................................
</TABLE>
Shareholders are advised to obtain current market quotations for CoreStates
Common Shares and Independence Common Shares. Since the Exchange Ratio will be
fixed prior to the Effective Date, Independence shareholders are not assured of
receiving a specific market value of CoreStates Common Shares at the Effective
Date. The market price of Independence 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 $91.9 million, or $0.72 per share in the
first quarter of 1994, up from $75.1 million, or $0.58 per share (before the
cumulative effect of a change in accounting principle) in the first quarter of
1993. The 24.1% increase in first quarter net income per share was principally
attributable to: a $16.2 million increase in non-interest income; a $2.5
million reduction in the provision for losses on loans, mostly due to an
improving outlook for credit quality and a $6.4 million improvement in net
interest income due to the increased loan demand and reduced non-performing
loans. The provision for losses on loans in the first quarter of 1994 was $25.0
million, compared to $27.5 million in the prior year first quarter. The amounts
for 1993 have been restated for the acquisition of Constellation Bancorp
("Constellation") on March 16, 1994.
Total non-interest income in the first quarter of 1994 before investment
securities gains increased 10.2% from the prior year first quarter, principally
reflecting continuing increases in revenues from CoreStates' fee-based
businesses including a $3.2 million, or 8.0%, increase in service charges on
deposit accounts and a $2.7 million, or 17.2%, increase in fees for
international services. Also contributing to the first quarter increase was
income related to Electronic Payment Services, Inc. ("EPS"). CoreStates'
investment in the EPS joint venture was restructured in December 1993. The
restructuring adds $3 million to quarterly revenue over ten years, representing
recognition of deferred gains from CoreStates' contribution of its former
electronic payment services businesses to EPS. Gains on sales of investment
securities in the first quarter of 1994 included $5 million from sales of
certain investments acquired with Constellation.
Total non-financial expenses were $273.4 million in the first quarter of
1994, a decrease of $4.9 million, or 1.8%, from the first quarter of 1993,
reflecting some cost efficiencies from the Constellation Bancorp acquisition.
Compared to December 31, 1993, non-performing assets increased 24.6% to $464
million or 2.5% of loans plus OREO and 1.8% of assets at March 31, 1994. This
increase reflects recognition of non-performing assets in the Constellation
portfolios in accordance with a previously announced change in strategic
direction concerning those assets. Net loan charge-offs were $30.2 million in
the first quarter of 1994, compared to $20.7 million in the prior year first
quarter. The reserve for loan losses as a percentage of non-performing loans
was 141.8% at March 31, 1994.
Consolidated total assets at March 31, 1994 were $25.7 billion, substantially
unchanged from 1993 year end. The March 31, 1994 tier 1 risk based capital
ratio, total risk based capital ratio and leverage ratio at 8.9%, 13.1% and
7.8%, 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 March 31, 1994 and 1993.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------------------
1994 1993
-------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Selected income data:
Net interest income.......... $301,524 $295,161
Provision for losses on
loans....................... 25,000 27,500
Income before cumulative
effect of a change in
accounting principle........ 91,912 75,050
Net income................... 91,912 62,040(a)
Per share:
Income before cumulative
effect of a change in
accounting principle........ 0.72 0.58
Net income................... 0.72 0.48(a)
</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.
19
<PAGE>
INDEPENDENCE
Independence reported operating income of $5.9 million for the three months
ended March 31, 1994, a 12.7% increase from operating and net income of $5.2
million a year ago. Operating income per share was $0.50 for the first quarter
of 1994, compared with $0.46 in the first quarter of 1993.
Net income for the first quarter of 1994 was $2.5 million, or $0.21 per
share, as Independence recognized a $3.4 million after-tax impairment loss on
certain mortgage securities. The loss was the result of a writedown to fair
value of these securities, which were deemed to be impaired. This resulted from
a recent Financial Accounting Standards Board (FASB) interpretation of a 1993
accounting change, Statement of Financial Accounting Standards (SFAS) No. 115.
The interpretation, reached by a consensus of the FASB Emerging Issues Task
Force in March, 1994, requires more definitive criteria for recognition of
impairment of these type of securities. The writedown had been recognized as a
fair value adjustment to equity in 1993.
Nonperforming assets declined to $36.7 million, or 2.20% of total loans and
other real estate owned at March 31, 1994, compared with $52.0 million or 3.12%
at March 31, 1993. Net charge-offs were $1.9 million for the first quarter
compared with $2.8 million in 1993. The provision for loan losses was $1.9
million in the first quarter of 1994, compared with $3.2 million in the first
quarter of 1993.
At March 31, 1994, Independence's loan loss allowance was $33.0 million or
2.00% of total loans, compared with $35.1 million, or 2.13% at March 31, 1993.
Independence's tier 1 risk based capital ratio was 10.70% at March 31, 1994,
compared with 9.96% at March 31, 1993. The total capital and tier 1 leverage
ratios at March 31, 1994 were 15.22% and 8.38%, respectively, compared to
14.36% and 8.07% at March 31, 1993.
Tax-equivalent net interest income was unchanged at $27.3 million at March
31, 1994. The net interest margin was 4.67% for the first quarter of 1994
compared with 4.53% for the first quarter of 1993. Total loans were unchanged
from the prior year at $1.65 billion, and total deposits were $2.13 billion
compared with $2.15 billion at March 31, 1993.
Non-interest income was unchanged for the first quarter of 1994 at $6.6
million. Non-interest expense increased 0.8% to $22.9 million.
GERMANTOWN
On March 7, 1994, CoreStates and Germantown Savings Bank ("Germantown")
entered into a definitive agreement pursuant to which CoreStates expects to
acquire Germantown for a combination of cash and CoreStates Common Shares (the
"Germantown Proposed Combination"). Germantown is a 140-year-old institution
serving five southeastern Pennsylvania counties through 32 community banking
offices. At December 31, 1993, Germantown had total consolidated assets,
deposits and shareholders' equity of $1.6 billion, $1.5 billion and $142
million, respectively.
Under the terms of the agreement, each of Germantown's 4,189,334 shares of
common stock, par value $0.10 per share ("Germantown Common Shares"), will be
exchanged for cash, CoreStates Common Shares or a combination of cash and
CoreStates Common Shares valued at $62.00.
The pro forma financial information included in this Proxy Statement-
Prospectus has been presented to give effect to the Germantown Proposed
Combination, unless otherwise indicated. The Germantown Proposed Combination is
expected to be accounted for as a purchase.
Germantown recorded net income of $5.2 million or $1.18 per share in the
first quarter of 1994, compared to $4.4 million or $1.01 per share for the same
period in 1993.
The increase in first quarter net income of $845,000 or 19.2% was principally
attributed to: an increase of $610,000 in net interest income due to a greater
decrease in total interest expense than total interest income; a decrease of
$750,000 in the provision for possible loan losses due to recoveries exceeding
charge-offs; and a
20
<PAGE>
decrease of $249,000 in noninterest expenses. Net security gains amounted to
$4,000 in the first quarter of 1994, compared to $317,000 for the same period
of 1993. Applicable income taxes were $2.7 million, compared to $2.3 million.
The net interest rate margin for each quarter remained unchanged at 3.95%.
Nonperforming loans and other real estate owned at March 31, 1994 were $3.6
million or 0.22% of total assets, compared to $3.7 million or 0.22% at December
31, 1993. For the first quarter of 1994, charge-offs and recoveries were
$142,000 and $506,000, respectively, compared to $286,000 and $356,000,
respectively, for the first quarter of 1993. The decrease in charge-offs
occurred primarily in1-4 family mortgages and consumer loans. The increase in
recoveries occurred primarily in construction loans. At March 31, 1994, the
allowance for possible loan losses amounted to $23.5 million or 2.30% of total
loans, compared to $23.0 million or 2.20% at year-end 1993.
Consolidated total assets at March 31, 1994 were $1.62 billion, down from
$1.64 billion at year-end 1993. At March 31, 1994, Germantown's leverage
capital and total risk-based capital ratios were 8.87% and 18.44% respectively,
compared to 8.58% and 17.36%, respectively, at December 31, 1993.
The following is unaudited consolidated financial information for Germantown
and its subsidiaries for the three-month periods ended March 31, 1994 and 1993.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1994 1993
------- -------
(IN THOUSANDS,
EXCEPT FOR PER
SHARE AMOUNTS)
<S> <C> <C>
Selected Income Data:
Total interest income...................................... $26,465 $28,761
Total interest expense..................................... 10,206 13,112
Net interest income........................................ 16,259 15,649
Net income................................................. 5,247 4,402
Per share:
Net income................................................. 1.18 1.01
</TABLE>
INFORMATION REGARDING THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus is being furnished to the holders of
Independence Common Shares in connection with the solicitation of proxies by
the Independence Board of Directors (the "Independence Board") for use at the
Special Meeting of Shareholders to be held on , , 1994, local time, and at
any adjournments or postponements thereof (the "Special Meeting").
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, shareholders of Independence will be asked to
consider and vote upon a proposal unanimously recommended by the Independence
Board to approve and adopt the Agreement and Plan of Merger, dated as of the
19th day of November, 1993 (the "Merger Agreement"), by and between
Independence and CoreStates. The Merger Agreement provides for the merger of
Independence with and into CoreStates, with CoreStates as the surviving
corporation (the "Merger"). Shareholders of Independence will receive for each
Independence Common Share a number of CoreStates Common Shares (the "Exchange
Ratio") determined as follows: (i) if the Average Closing Price (as defined in
"THE MERGER-Price Based Termination" below) of CoreStates Common Shares on the
Determination Date (as defined in "THE MERGER-Price Based Termination" below)
is less than or equal to $27.00 per share, the Exchange Ratio will be 1.50;
(ii) if the Average Closing Price of CoreStates Common Shares on the
Determination Date is greater than or equal to $28.00 per share, the Exchange
Ratio will be 1.45; or (iii) if the Average Closing Price of CoreStates Common
Shares on the Determination Date is greater than $27.00 but less than $28.00
per share, the Exchange Ratio will be determined by dividing $40.50 by the
Average Closing Price. See "THE MERGER--General Description; Exchange Ratio."
21
<PAGE>
RECORD DATE; VOTING RIGHTS
The Independence Board has fixed , 1994 as the record date for the
determination of Independence shareholders entitled to notice of and to vote at
the Special Meeting (the "Record Date"). Accordingly, only holders of record of
Independence Common Shares at 11:59 p.m., local time, on such date will be
entitled to vote at the Special Meeting. At such time on the Record Date, there
were Independence 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 holders of record of Independence
Common Shares. Pursuant to Independence's articles of incorporation, as amended
(the "Independence Articles"), the affirmative vote of a majority of the
outstanding Independence Common Shares is required to approve the Merger
Agreement. 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 Independence Common Shares are voted
in favor of approval of the Merger than the number required for approval, it is
expected that 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, Independence's directors and executive officers and
their affiliates beneficially owned Independence Common Shares,
representing % of the outstanding Independence Common Shares. As of the Record
Date, subsidiaries of Independence held of record or in the name of nominees
Independence Common Shares in a fiduciary capacity, representing % of the
outstanding Independence Common Shares, as to of which shares they had sole
or shared voting authority. As of the Record Date, CoreStates and CoreStates'
directors, executive officers and their affiliates beneficially owned
Independence Common Shares, representing % of the outstanding Independence
Common Shares. As of the Record Date, subsidiaries of CoreStates held of record
or in the name of nominees Independence Common Shares in a fiduciary
capacity, representing % of the outstanding Independence Common Shares, as to
of which shares they had sole or shared voting authority.
PROXIES
All Independence Common Shares entitled to be voted at the Special Meeting
that 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 on such proxies. If no instructions are indicated on properly
executed proxies, Independence Common Shares represented by proxies solicited
by the Independence Board will be voted "FOR" approval of the Merger Agreement
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
including, among other things, a motion to adjourn or postpone the Special
Meeting to another time and/or place, for the purpose of soliciting additional
proxies or otherwise; provided, however, that no proxy which is voted against
the proposal to approve the Merger Agreement will be voted in favor of any such
adjournment or postponement.
Shareholders of Independence 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 Independence. Shareholders of Independence may also revoke
a proxy by executing a later dated proxy and returning such later dated proxy
to the Secretary of Independence. 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 or any Assistant
Secretary of Independence in writing prior to the voting of such proxy and may
then vote in person if the shareholder desires to do so.
As of the date of this Proxy Statement-Prospectus, Independence knows of no
business which will be presented for consideration at the Special Meeting other
than the matters described in this Proxy Statement-
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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 Independence. In addition to the use of the mails,
proxies may be solicited by officers and other employees of Independence and
its subsidiaries by personal meetings or telephone, for which no additional
compensation will be paid. Independence 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
Independence Common Shares. Independence 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 $7,500 plus expenses.
HOLDERS OF INDEPENDENCE COMMON SHARES ARE REQUESTED PROMPTLY TO SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID, ADDRESSED
ENVELOPE.
HOLDERS OF INDEPENDENCE COMMON SHARES SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
RECOMMENDATION OF THE INDEPENDENCE BOARD
THE INDEPENDENCE BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
INDEPENDENCE AND ITS SHAREHOLDERS AND, ACCORDINGLY, UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF INDEPENDENCE COMMON SHARES VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT. SEE "THE MERGER--REASONS FOR MERGER" AND "THE MERGER--OPINION OF
FINANCIAL ADVISER."
THE MERGER
The following information, insofar as it relates to matters contained in the
Merger Agreement and the Stock Option Agreement, dated as of November 19, 1993
(the "Stock Option Agreement"), between CoreStates and Independence is
qualified in its entirety by reference to the Merger Agreement and the Stock
Option Agreement which are incorporated herein by reference and attached hereto
as Appendix I and Appendix II, respectively. Independence shareholders are
urged to read the Merger Agreement and the Stock Option Agreement carefully.
GENERAL DESCRIPTION; EXCHANGE RATIO
The terms of the Merger are set forth in the Merger Agreement, which was
executed and delivered on November 19, 1993. The Merger Agreement provides that
on the date that the Merger becomes effective (the "Effective Date"),
Independence shall be merged with and into CoreStates, with CoreStates as the
surviving corporation. In the Merger, shareholders of Independence will
receive, for each Independence Common Share, the number of shares of CoreStates
Common Shares (the "Exchange Ratio") determined as follows:
(i) if the Average Closing Price (as defined in "Price Based Termination"
below) on the Determination Date (as defined in "Price Based Termination"
below) is less than or equal to $27.00 per share, the Exchange Ratio will
be 1.50;
(ii) if the Average Closing Price on the Determination Date is greater
than or equal to $28.00 per share, the Exchange Ratio will be 1.45; or
(iii) if the Average Closing Price on the Determination Date is greater
than $27.00 but less than $28.00 per share, the Exchange Ratio will be
determined by dividing $40.50 by the Average Closing Price.
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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 in the Merger for each Independence Common Share.
The determination of the Exchange Ratio resulted from arm's-length
negotiations between CoreStates and Independence.
No fractional shares will be issued in the Merger. Each Independence
shareholder will receive cash in lieu of any fraction of a CoreStates Common
Share.
BACKGROUND OF THE MERGER
Over recent years, Independence has, from time to time, evaluated the
prospects for continuing as an independent entity and the prospects of
possible business combinations with financial institutions of varying sizes.
Over the same period, Independence has received informal inquiries regarding
possible business combinations. The Independence Board has always maintained a
strategy of independence, primarily because remaining independent has been
consistent with Independence's focus on community banking. No negotiations
ever ensued from such informal inquiries and no offers were ever received.
During 1993, Independence was contacted by an individual and by several
financial institutions, including CoreStates, that had expressed an interest
in discussing a possible affiliation with Independence. Although the
Independence Board had not altered its strategy of independence, recent
changes in banking markets, including the continuing trend toward
consolidation in the banking industry generally and the increased merger
activity in Independence's markets, together with increasing pressures on
Independence's earnings, led the Independence Board to re-evaluate its
prospects for continuing as an independent entity and the prospects of
possible business combinations. As a result, in September 1993, Alex. Brown &
Sons Incorporated ("Alex. Brown") and special counsel to Independence met with
the Independence Board, at its regular monthly meeting, in light of such
expressions of interest to (i) provide advice to Independence in connection
with its long-term strategic planning and (ii) assist Independence in
responding to acquisition proposals it might receive. Alex. Brown is
Independence's regular financial adviser, which Independence has had on
retainer for over five years. The Independence Board determined that although
Independence should continue to pursue its strategy of independence, members
of Independence management should, in the interests of shareholders, respond
to inquiries from parties who expressed interest to Independence regarding a
potential business combination, but not to seek out merger partners.
On September 27, 1993, Mr. Monroe W. Long, Chairman of the Board of
Independence and Mr. John D. Harding, President and Chief Executive Officer of
Independence, met with Mr. Terrence A. Larsen, Chairman, President and Chief
Executive Officer of CoreStates. At that time Mr. Larsen discussed CoreStates'
organization and philosophy and a basic structure of a business combination,
without specific terms.
At its regular monthly meeting on October 19, 1993, the Independence Board,
together with Independence management, again reviewed the status of additional
informal inquiries and expressions of interest from parties that had
previously made informal inquiries and expressions of interest, and reviewed
CoreStates' proposed business combination structure. Following such review,
the Independence Board reaffirmed its instruction to Independence management
to respond to inquiries and expressions of interest, but not to seek out
merger partners. Prior to its approval of the Merger Agreement, the
Independence Board did not reach any determination that Independence should
engage in any business combination transaction.
On October 22, 1993, Messrs. Long and Harding met again with Mr. Larsen. At
that time, Messrs. Long, Harding and Larsen further discussed the basic
structure of a proposed business combination and Mr. Larsen noted that any
agreement would be subject to reviews of the business and affairs of
Independence, negotiation of definitive documentation and approval of the
CoreStates Board of Directors (the "CoreStates Board").
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<PAGE>
Following the October 22, 1993 meeting, Messrs. Long and Harding decided to
call a special meeting of the Independence Board to discuss the CoreStates
expression of interest as a result of their discussions with Mr. Larsen in
September and October.
Messrs. Long and Harding have known the senior management of CoreStates for
several years, and Independence and CoreStates have had a long correspondent
banking relationship. As a result of these contacts, they believed that
CoreStates was an organization with substantial similarities in management
philosophy and organizational culture to Independence. In particular,
CoreStates has a history of operating acquired banks under their trade names in
their local markets, and otherwise maintaining a community banking philosophy,
which also has been a focus of Independence's strategy.
At a special meeting on November 16, 1993, the Independence Board, with
representatives of Alex. Brown and legal advisers, considered Independence
management's assessment of the issues facing Independence for 1994 and beyond,
the effects a business combination with CoreStates would have on Independence
shareholders, employees, and communities served, and possible business
combinations with other potential candidates. The Independence Board considered
whether Independence should avoid prolonged negotiations or an auction process
in connection with a possible merger transaction for various reasons, including
(i) the potential for severe disruption of normal operations (including the
substantial demand on, and effect on morale of, personnel of Independence and
its subsidiaries during business reviews by numerous potential bidders) and the
resultant diminution in value such disruption could have on Independence and
(ii) the difficulty in dealing with the various relevant factors that would not
necessarily be captured in the price offered. These factors included: the
volatility and prospects of the offeror's common stock (which is of particular
concern in the banking industry because of the long regulatory approval
process); the differing ability of various bidders to obtain regulatory
approval with a minimum of delay; and the difficulty of controlling an auction
process. The Independence Board was concerned that the difficulty in
controlling the auction process could result in significantly less favorable
effects on the employees and customers of Independence and the communities that
Independence serves and thereby not be in the best interests of Independence.
As a result of such meeting, a committee (the "Committee") comprised of Mr. J.
Lawrence Grim, Jr., General Counsel to Independence, and three directors of
Independence: Messrs. Jerry J. Weinberger, William F. Heefner and Harry C.
Barbin, was appointed to assist management and to analyze with Alex. Brown and
legal counsel the terms of a possible business combination with CoreStates, and
to make recommendations to the Independence Board concerning any such
transaction.
Prior to November 18, 1993, representatives of Independence, Alex. Brown and
CoreStates met on various occasions to (i) discuss the economic benefits of a
business combination and (ii) conduct detailed business reviews of each other.
In addition, other meetings involving representatives of Independence and
CoreStates, as well as advisers and legal counsel for Independence and
CoreStates, were held between November 16 and November 19, 1993, at which the
expressed interest of CoreStates and the terms of the proposed forms of Merger
Agreement, Stock Option Agreement and related documents were discussed.
The Independence Board met on several occasions beginning on November 16,
1993 in order to (i) consider analyses performed by Alex. Brown with respect to
the CoreStates expression of interest and other possible merger partners, in
light of the CoreStates expression of interest, (ii) further consider the views
of management with respect to the future prospects of Independence as an
independent entity, and (iii) further consider the appropriate strategy for
responding to and evaluating other possible expressions of interest, in light
of the CoreStates expression of interest. On November 18, 1993, Independence
issued a press release stating that Independence was involved in discussions
with another party regarding a possible business combination. At an
Independence Board special meeting on November 18, the management of
Independence, as well as representatives of Alex. Brown and legal advisers to
Independence, reviewed with the Independence Board the terms of the proposed
CoreStates merger, together with another expression of interest received
subsequent to dissemination of Independence's press release. The additional
expression of interest is discussed
25
<PAGE>
below. In addition, representatives of CoreStates, including Mr. Larsen, made a
presentation regarding the proposed affiliation with CoreStates and
representatives of Independence's management and advisers discussed the results
of their business reviews of CoreStates and its subsidiaries.
At a meeting of the Independence Board held on November 19, 1993, the
management of Independence and the Committee, as well as representatives of
Alex. Brown and legal counsel to Independence, reviewed with the Independence
Board the terms of the proposed forms of the Merger Agreement and the Stock
Option Agreement. Based upon the foregoing, and after receiving the opinion of
Alex. Brown (discussed below) and consideration of various other factors
discussed below including recommendations of management and the Committee, the
Independence Board approved the Merger Agreement and the Stock Option
Agreement. In the course of reaching its decisions, the Independence Board
weighed the prospects of enhancing shareholder value by remaining independent,
against enhancing shareholder value through the proposed merger and serving
those customers and communities as part of a much larger organization by
effecting a combination with CoreStates. The Independence Board also evaluated
whether to enter into an auction process or to seek to negotiate with other
parties. The Independence Board, based on the aforementioned factors, among
others, determined that it could best enhance long-term shareholder value,
provide for its employees and provide service to its customers and communities
by accepting the CoreStates proposal and voting to approve the Merger
Agreement. Those directors attending the meeting unanimously approved the
Merger Agreement and the Stock Option Agreement. The director who was not
present subsequently endorsed the Merger.
Other Contacts. Subsequent to dissemination of the Independence press release
on November 18 described above, Independence received an expression of interest
from another bank holding company (the "Interested Party") to have an initial
meeting to discuss a potential business combination. The Interested Party
expressed an interest in acquiring Independence, subject to normal and
customary conditions in an exchange pursuant to which each Independence Common
Share would be converted into the right to receive a number of shares of the
common stock of the Interested Party having a market value of $42.00, assuming
such expression of interest resulted in a firm offer at that price.
After consideration of the Interested Party's expression of interest, the
Independence Board determined to enter into a definitive agreement with
CoreStates because (i) Independence and representatives of Alex. Brown believed
that, based on relevant factors such as the quality of CoreStates' common
stock, CoreStates' financial strength and its performance history, the Exchange
Ratio was superior consideration as compared to the amount of Interested Party
stock stated in the Interested Party's expression of interest, (ii) the
Interested Party's expression of interest was subject to normal and customary
conditions, which include due diligence and negotiations, and Independence did
not want to go through a prolonged process for the reasons discussed above,
(iii) Independence management believed that Independence would be unable to
maintain the CoreStates offer while pursuing discussions with the Interested
Party, and (iv) the Interested Party's expression of interest was received at a
time when substantial negotiations with CoreStates had occurred.
REASONS FOR MERGER
Independence
THE INDEPENDENCE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF INDEPENDENCE AND ITS
SHAREHOLDERS. THE INDEPENDENCE BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF INDEPENDENCE COMMON SHARES VOTE FOR THE ADOPTION AND APPROVAL OF THE
MERGER AGREEMENT. The Independence Board believes that the Merger will enable
holders of Independence 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, Independence shareholders
will receive a larger dividend, when viewed in light of CoreStates' current
dividend amount and the Exchange Ratio. See "Background of the Merger" and
"Opinion of Financial Adviser."
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<PAGE>
In reaching its determination to approve the Merger Agreement, the
Independence Board considered a number of factors, including, without
limitation, the following:
(i) The Independence Board's familiarity with and review of
Independence's business, financial condition, results of operations and
prospects; such review included a review of the current and prospective
environment in which Independence operates, including national and local
economic conditions, the competitive environment for banks and other
financial institutions generally and the trend toward consolidation in the
financial services industry;
(ii) The Independence Board's review, based in part on presentations by
Independence's management and advisers, of CoreStates' business, financial
condition, earnings and results of operations, on both an historical and a
prospective basis, the enhanced opportunities for operating efficiencies
(particularly in terms of integration of operations and support functions)
that could result from the Merger, and the respective contributions the
parties would bring to a combined institution;
(iii) The Independence 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 Independence Common Shares obtainable through
implementation of such alternatives and the timing and likelihood of
actually receiving such values; such review included reviews of the recent
performance of the common stock of various possible affiliation partners
and the pro forma impact of the acquisition of Independence on each of such
possible affiliation partners;
(iv) The Independence Board's review with its legal and financial
advisers of the results of management's discussions with possible
affiliation partners for Independence other than CoreStates;
(v) The Exchange Ratio, including the expectation that the Merger will
provide holders of Independence 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 Independence 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 method of accounting and, therefore, will not give rise to
goodwill (see "Certain Federal Income Tax Considerations" and "Accounting
Treatment");
(vi) The presentation by Alex. Brown and the opinion of Alex. Brown that
the consideration to be received by holders of Independence Common Shares
is fair to the holders of Independence Common Shares from a financial point
of view (See "Opinion of Financial Adviser");
(vii) The Independence Board's belief, based in part on the presentation
by Alex. Brown, as to the improbability of receiving a significantly higher
firm offer from another person or of consummating other corporate
transactions that would provide comparable value;
(viii) The review by the Independence Board with its legal and financial
advisers of the provisions of the Merger Agreement and the Stock Option
Agreement;
(ix) The projected social, legal and economic effects of the Merger upon
Independence, its shareholders and other corporate constituencies,
including employees and customers in the communities in which it does
business;
(x) Based on CoreStates programs for its own employees, its past record
with respect to employees of acquired businesses and the terms in the
CoreStates offer with respect to employees of Independence, the favorable
benefits for Independence employees from the CoreStates offer;
(xi) The expanded product lines, both to commercial and retail customers,
that a business combination with CoreStates will provide to Independence
customers, and the expectation that CoreStates will continue to provide
quality service to the communities and customers served by Independence;
and
(xii) The compatibility of the respective businesses and management
philosophies of CoreStates and Independence.
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The Independence Board did not assign any specific or relative weights to the
factors under consideration.
CoreStates
The CoreStates Board approved the Merger Agreement and the Stock 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 considered a number of factors, including, without limitation, the
following:
(i) a review of Independence, including a presentation by CoreStates
management regarding its due diligence review of Independence, 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 Stock Option Agreement;
(iii) CoreStates' existing position in Pennsylvania and its desire to
strengthen and extend its presence in that state, particularly in the
markets broadly served through the Independence 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 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 Independence 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 34% of
Independence's expense base. Consideration was also 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 Independence's prospective economic value to
CoreStates' shareholders. The premium offered by CoreStates incorporated
Independence's prospective economic value to CoreStates' shareholders, after
giving effect to planned adjustments, cost savings and revenue enhancements.
The CoreStates Board did not assign any specific or relative weights to the
factors under its consideration.
OPINION OF FINANCIAL ADVISER
Independence retained Alex. Brown to act as its financial adviser in
connection with the Merger and related matters. Alex. Brown has historically
provided, and continues to provide, certain other financial advisory and agency
services to Independence. Alex. Brown was selected to act as Independence's
financial adviser based upon its qualifications, expertise and reputation, as
well as Alex. Brown's prior investment banking relationship and familiarity
with Independence. Alex. Brown regularly publishes research reports regarding
the financial services industry and the business and securities of publicly
owned companies in that industry.
On November 19, 1993, at the meeting at which the Independence Board approved
the Merger Agreement, Alex. Brown delivered a written opinion to the
Independence Board that as of such date the Exchange Ratio to be received by
the shareholders of Independence was fair to the shareholders of
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Independence from a financial point of view. Such opinion was updated as of the
date of this Proxy Statement-Prospectus. No limitations were imposed by the
Independence Board upon Alex. Brown with respect to the investigations made or
procedures followed by it in rendering its opinions.
THE FULL TEXT OF THE OPINION OF ALEX. BROWN DATED AS OF THE DATE OF THIS
PROXY STATEMENT-PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX
III AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF INDEPENDENCE ARE
URGED TO READ THIS OPINION IN ITS ENTIRETY. THE FOLLOWING SUMMARY OF THE
OPINION OF ALEX. BROWN SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion dated as of the date hereof, Alex. Brown (i)
reviewed the Merger Agreement, certain publicly available business and
financial information concerning Independence and CoreStates, and certain
internal financial analyses and forecasts for Independence and CoreStates
prepared by their respective management; (ii) held discussions with members of
senior management regarding the past and current business operations, financial
condition, and future prospects of Independence and CoreStates; (iii) reviewed
the reported price and trading activity for Independence Common Shares and
CoreStates Common Shares and compared certain financial and stock market
information for Independence and CoreStates with similar information for
certain other companies, the securities of which are publicly traded; (iv)
reviewed the financial terms of certain recent business combinations which
Alex. Brown deemed comparable in whole or in part; and (v) performed such other
studies and analyses as Alex. Brown considered appropriate.
Alex. Brown relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinions. With respect to the financial
forecasts reviewed by Alex. Brown in rendering its opinions, Alex. Brown
assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Independence and CoreStates as to the future financial
performance of their organizations. Alex. Brown did not make independent
evaluations or appraisals of the assets or liabilities of Independence or
CoreStates nor was it furnished with any such appraisal.
The summary set forth below does not purport to be a complete description of
the analyses performed by Alex. Brown in this regard. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors discussed below, Alex. Brown believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinions. No
one of the analyses performed by Alex. Brown was assigned a greater
significance than any other. In performing its analyses, Alex. Brown made
numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond Independence's
or CoreStates' control. The analyses performed by Alex. Brown are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
sold.
Analysis of Selected Publicly Traded Companies. In preparing its opinions,
Alex. Brown, using publicly available information, compared selected financial
information, including book value, tangible book value, recent earnings, asset
quality ratios and loan loss reserve levels, for Independence and two groups of
bank holding companies.
The first group was comprised of eight bank holding companies located in the
states of Pennsylvania, New York, New Jersey and Maryland that possessed an
asset base between $1.5 billion and $5.5 billion ("Regional Comparables
Group"). The Regional Comparables Group included Dauphin Deposit Corporation,
Fulton Financial Corp., Keystone Financial, Inc., and Susquehanna Bancshares,
Inc. (PA);
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ONBANCorp, Inc. (NY); Summit Bancorporation and Valley National Bancorp (NJ);
and Citizens Bancorp (MD). The second group was comprised of national
commercial bank holding companies that possessed an asset base between $1.5
billion and $5.0 billion (the "National Peer Group"). This comparison showed,
among other things, that as of November 18, 1993, (i) the multiple of
Independence's market price to stated book value was 175.2% compared to the
Regional Comparable Group's multiple of mean market price to stated book value
of 163.6% and the National Peer Group's multiple of mean market price to stated
book value of 160.4%, (ii) the multiple of Independence's market price to
tangible book value was 176.6% compared to the Regional Comparables Group's
mean market price to tangible book value of 168.3% and the National Peer
Group's multiple of mean market price to tangible book value of 170.8%, (iii)
the ratio of market price to the latest twelve month earnings ("LTM Earnings")
for Independence was 39.0x compared to the ratio of mean market price to LTM
Earnings of 12.5x for the Regional Comparables Group and 12.6x for the National
Peer Group, and (iv) the multiple of market price to total assets for
Independence was 14.8% compared to the multiple of mean market price to total
assets of 14.5% for the Regional Comparables Group and 13.0% for the National
Peer Group.
Analysis of Comparable Acquisition Transactions. In preparing its opinions,
Alex. Brown analyzed certain comparable merger and acquisition transactions for
bank holding companies based upon the acquisition price at the time of the
announcement of the transaction relative to stated book value, tangible book
value, LTM Earnings, the consensus Wall Street earnings estimate for the
calendar year after the acquisition's announcement ("Forward Earnings") and the
premium to core deposits. The market price premium, which is measured against
the market price of the common stock one month prior to an acquisition's
announcement, was not deemed relevant due to the stock price volatility of
Independence Common Shares associated with takeover rumors in Independence's
stock. The analysis included a review and comparison of the mean multiples
represented by a sample of recently effected or pending bank holding company
acquisitions nationwide having a transaction value in excess of $200 million
which were announced between January 1, 1992 and November 18, 1993 (a total of
26 transactions), as segmented into: (a) the Mid-Atlantic region (Pennsylvania,
Delaware, Maryland, New Jersey, Virginia and West Virginia) - 9 transactions
("Regionally-Segmented" transactions); (b) transactions in which the selling
bank holding company generated a return on average assets between 0.50% and
1.00% in the year of an announced acquisition--7 transactions ("Profitability-
Segmented" transactions); and (c) transactions in which the selling bank
holding company was competing in either overlapping or proximate market areas
with the buying institution--16 transactions ("In-Market" transactions). This
entire group was then segmented into national acquisitions announced between
January 1, 1993 and November 18, 1993 -14 transactions ("1993 Transactions").
Based on the closing stock price of CoreStates Common Shares on November 18,
1993 of $27.00 per share, the Merger consideration at November 18, 1993 was
$40.50 per Independence Common Share (the "Comparison Value"). The relative
multiples of the Comparison Value and each of the comparable acquisition
transaction segmentations are provided in the following table:
<TABLE>
<CAPTION>
PURCHASE PURCHASE PRICE
PURCHASE PRICE TO PURCHASE PRICE TO PRICE TO LTM TO FORWARD CORE DEPOSIT
TRANSACTION GROUP STATED BOOK VALUE TANGIBLE BOOK VALUE EARNINGS EARNINGS PREMIUM
----------------- ----------------- ------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
COMPARISON VALUE........ 211.8% 213.5% 45.5x 19.8x 12.7%
Comparable Acquisition
Transactions:
(a) 1993 Transactions... 208.3% 223.0% 16.6x 15.0x 10.4%
(b) Nationwide.......... 203.7% 218.4% 16.7x 14.9x 9.6%
(c) Regionally-
Segmented.............. 200.6% 216.0% 15.7x 13.9x 8.2%
(d) Profitability-
Segmented.............. 215.8% 233.0% 18.1x 15.6x 9.7%
(e) In-Market........... 206.7% 224.1% 16.7x 14.1x 10.3%
</TABLE>
Discounted Cash Flow Analysis. Using discounted cash flow analysis, Alex.
Brown estimated the present value of the future dividend streams that
Independence could produce over a five year period, under different assumptions
as to required equity levels, if Independence performed in accordance with
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management's forecasts and certain variants thereof. Alex. Brown also estimated
the terminal value for Independence's common equity after the five year period
by applying book value (200-225%) and Forward Earnings (14-16 times)
acquisition multiples currently being received by bank holding companies with
similar profitability ratios as Independence is projected to have during its
calendar year ended December 31, 1998. The range of multiples used reflected a
variety of scenarios regarding the growth and profitability prospects of
Independence. The dividend streams and terminal values were then discounted to
present values using discount rates of 12.0% and 15.0%, which reflect different
assumptions regarding the required rates of returns of holders or prospective
buyers of Independence Common Shares.
Reference Range. Based in part on the several analyses discussed above, Alex.
Brown developed, for purposes of its opinions, a reference range for the value
of Independence Common Shares of $35.00 to $40.00 per share. The values
reflected in the foregoing reference range were considered along with the other
analyses performed by Alex. Brown and were not intended to represent the price
at which 100% of Independence's Common Shares could actually be sold. The
foregoing reference ranges were based in part on the application of economic
and financial models and are not necessarily indicative of actual values, which
may be significantly more or less than such estimates. The reference ranges do
not purport to be appraisals.
In connection with its opinion dated as of the date of this Proxy Statement-
Prospectus, Alex. Brown confirmed the appropriateness of its reliance on the
analyses used to render its November 19, 1993 opinion by performing procedures
to update certain of such analyses and reviewing the assumptions on which such
analyses were based and the factors considered in connection therewith.
Pursuant to the terms of an engagement letter dated January 2, 1993,
Independence has paid Alex. Brown $500,000 for acting as financial adviser in
connection with the Merger, including rendering its opinions. In addition,
Independence has agreed to pay Alex. Brown a fee of 0.68% of the aggregate
consideration received by Independence shareholders in the Merger less the
$500,000 in fees already paid to Alex. Brown, resulting in an aggregate fee of
approximately $3.6 million. Whether or not the Merger is consummated,
Independence also has agreed to indemnify Alex. Brown and certain related
persons against certain liabilities relating to or arising out of its
engagement.
STOCK OPTION AGREEMENT
At the insistence of CoreStates and as a condition to CoreStates entering
into the Merger Agreement and in consideration therefor, Independence and
CoreStates entered into the Stock Option Agreement entitling CoreStates, under
certain circumstances, to purchase from Independence up to 1,130,000
Independence Common Shares (the "Option Shares"), representing approximately
9.8% of the outstanding Independence Common Shares, at an exercise price of
$33.50 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) Independence or any bank or trust company subsidiary of Independence,
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 Independence Board
recommends that the shareholders of Independence 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 Independence or any bank or trust company
subsidiary of Independence, (y) a purchase, lease or other acquisition of
all or substantially all of the assets of Independence or any bank or trust
company subsidiary of Independence, or (z) a purchase
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or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 20% or more of the voting
power of Independence or any bank or trust company subsidiary of
Independence;
(ii) Any person other than CoreStates, any CoreStates subsidiary or any
Independence subsidiary acting in a fiduciary capacity acquires beneficial
ownership or the right to acquire beneficial ownership of 20% or more of
the outstanding Independence Common Shares;
(iii) Any person other than CoreStates or any CoreStates subsidiary makes
a bona fide proposal to Independence 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 Independence or its
shareholders to engage in an Acquisition Transaction, Independence 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 Board of
Governors of the Federal Reserve System (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 of beneficial ownership of 25% or more of the then outstanding
Independence 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 in "Effective Date; Effective Time; Amendments;
Waiver; Termination" 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 Stock 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 Independence 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 Independence promptly prepare, file and keep current a shelf
registration statement under the Securities Act covering Independence 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 Independence nor CoreStates may assign any of its respective rights
or 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
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Event; provided, however, that 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 Independence, (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.
The Stock Option Agreement provides that in the event that prior to an
Exercise Termination Event, Independence 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 Independence with Independence as the
continuing or surviving corporation, but, in connection therewith, the then
outstanding Independence Common Shares are changed into or exchanged for
securities of any other person or cash or any other property, or the then
outstanding Independence 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 (x) the continuing or surviving
corporation of a merger or a consolidation or the transferee of all or
substantially all of Independence's assets (the "Acquiring Person") or (y) any
person that controls the Acquiring Person. 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 Stock 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 Independence's shareholders fail to approve the Merger
Agreement, either CoreStates or Independence 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 Stock 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 Stock Option Agreement is attached as Appendix II to this Proxy
Statement-Prospectus.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
Upon consummation of the Merger, Independence will be merged with and into
CoreStates, with CoreStates as the surviving entity. The Merger Agreement
provides that, subsequent to the Merger, CoreStates will cause (i) one member
of the Independence Board immediately prior to the Merger, who is nominated by
Independence and approved by CoreStates, to be elected or appointed as a
CoreStates director and (ii) three members of the Independence Board
immediately prior to the Merger, who are nominated by Independence and approved
by CoreStates, one of whom will be John D. Harding, to be elected or appointed
as directors of CoreStates Bank N.A. ("CoreStates Bank"), a national banking
subsidiary of CoreStates located in Philadelphia, Pennsylvania. Directors of
CoreStates are entitled to directors' fees consisting of an annual retainer of
$15,000, 200 CoreStates Common Shares and a $1,000 per meeting fee. Directors
of CoreStates Bank are entitled to directors' fees consisting of an annual
retainer of $10,000 and a $750 per meeting fee. Except as otherwise described
in this paragraph, 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 Independence will become subsidiaries of CoreStates.
It is planned that after the Merger, each banking subsidiary of Independence
will be merged with and into Corestates Bank (collectively, the "Bank
Mergers"). The mergers of Bucks, Lehigh and Cheltenham with and into CoreStates
Bank must be approved by the Office of the Comptroller of the Currency ("OCC")
and
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the Pennsylvania Department of Banking. The merger of Third with and into
CoreStates Bank must be approved by the OCC. CoreStates expects that an
application for such approval will be filed in the second quarter of 1994.
CoreStates generally intends under current competitive, marketing and
operating conditions to continue to use the trade names of each banking
subsidiary of Independence, in the market served by such banking subsidiary,
including use of such trade names at each former branch of such banking
subsidiary after such banking subsidiary's merger into CoreStates Bank.
In addition, CoreStates intends that the bank market managers of each
banking subsidiary of Independence will continue their employment duties
similar to those existing on the date of the Merger Agreement.
Information concerning the current directors and executive officers of
CoreStates is included in the CoreStates 1994 Annual Meeting Proxy Statement
and the CoreStates 1993 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 Independence's management and the Independence Board may
be deemed to have interests in the Merger in addition to their interests, if
any, as shareholders of Independence generally. The Independence 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. As described above (see "Operations and
Management After the Merger"), the Merger Agreement provides that one member
of the Independence Board will become one CoreStates director and that three
members of the Independence Board will become CoreStates Bank directors.
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 Independence or its subsidiaries and each officer or employee
of Independence or its subsidiaries that is serving or has served as a
director or trustee of another entity expressly at Independence's request or
direction against any and all costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any and all claims, actions, suits, proceedings or
investigations, whether civil, criminal, administrative or investigative,
arising 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 permitted by the Pennsylvania Business
Corporation Law (the "PABCL") (and also advance expenses as incurred to the
fullest extent permitted by the PABCL) 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 Independence (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.
Employment Agreements. Pursuant to the Merger Agreement, CoreStates has
agreed to honor Independence's and any of its subsidiaries' obligations under
employment agreements with the following seven senior executive officers (the
"Executive Agreements"): Mr. Harding, George A. Pann, Group Executive Vice
President of Independence, Philip H. Rinnander, Group Executive Vice President
and Chief Financial Officer of Independence, Gordon W. Long, President and
Chief Operating Officer of Cheltenham Bank, William W. Davis, Jr., Chairman of
the Board, Chief Executive Officer and President of Third National Bank and
Trust Company of Scranton, C. Andrew Cook, President and Chief Executive
Officer of Lehigh Valley Bank, and T. Alexander Spratt, Group Executive Vice
President of Independence and President and Chief Executive Officer of Bucks
County Bank and Trust Company.
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<PAGE>
The Executive Agreements are automatically extended each year for an
additional year unless either party elects not to extend such agreement beyond
its then current length. Certain Executive Agreements provide for severance
payments if the executive terminates his employment for "good reason" or if the
employer terminates the executive's employment "without cause." Other Executive
Agreements provide for severance payments, among other events, if the executive
terminates his employment within eleven months after a "change in control" for
"good reason." The Merger will constitute such a change in control.
Each of Mr. Harding and Mr. Rinnander's Executive Agreements provides for
severance payments if he terminates for "good reason" or his employer
terminates without "cause," in each case, equal to the product of (A) the sum
of (i) his base annual salary as of the date of termination and (ii) the amount
of his incentive compensation for the year prior to termination and (B) the
number of years (and fractions thereof) remaining on his agreement's then
current length.
Each of Gordon W. Long, Mr. Davis and Mr. Cook's Executive Agreements
provides for a severance payment in the event he terminates for "good reason"
following a "change in control" in an amount equal to the lesser of his then
current base annual salary through the end of the then current length of his
agreement or one times his then current base annual salary.
Mr. Pann's Executive Agreement provides for a severance payment in the event
he terminates for "good reason" following a "change in control" of the greater
of his then current base annual salary through the end of his then current
length of his agreement or one times his then current base annual salary.
Mr. Spratt's Executive Agreement provides for a severance payment in the
event he terminates following a "change of control" on or before December 31,
1995 equal to three times his then current base annual salary.
Each of Messrs. Davis, Cook, Pann and Spratt's Executive Agreements provides
for a severance payment in the event he is terminated without cause, in an
amount equal to his then current base annual salary through the end of his
agreement's then current length.
Prior to the consummation of the Merger, Independence intends to enter into
(i) an amendment to the current employment agreement with Monroe W. Long, which
will extend his current employment to the Effective Time, (ii) a consulting
agreement with Monroe W. Long, who intends to resign as Chairman on the
Effective Time, which will provide, among other things, for a consulting fee of
not more than $100,000 per year, for the use of an automobile and for health
benefits and life insurance at levels not exceeding those currently provided by
Independence, and will be renewable annually at the discretion of CoreStates
Bank; (iii) an amendment to the current employment agreement with Mr. Harding,
which will extend his current employment agreement for a period not to exceed 5
years from the Effective Time, (iv) an amendment to the current employment
agreement with Mr. Rinnander, which will extend his current employment
agreement for a period not to exceed 3 years from the Effective Time, (v)
amendments to the current employment agreements with Mr. Spratt, Gordon W.
Long, Mr. Cook and Mr. Davis which, in each case, will extend their respective
current employment agreements for a period not to exceed 2 years from the
Effective Time, and (vi) an amendment to the current employment agreement with
Mr. Pann which will terminate his employment agreement at the Effective Time
and pay to him all amounts that would otherwise accrue thereunder had his
employment agreement not been so terminated. Payments under the amendments
described above will be limited to the extent that they would result in being
"parachute payments" for federal income tax purposes so that only amounts that
would result in the aggregate payments under any such amendments not being
"parachute payments" will be made.
Based on their annual base salaries in effect as of the date of this Proxy
Statement-Prospectus and, with respect to Mr. Harding and Mr. Rinnander, the
amount of incentive compensation received for the prior year, in the event that
each person terminated his respective Executive Agreement for "good reason",
the
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executive officers of Independence would be entitled to the severance payments
set forth below opposite their names (assuming a June 30, 1994 Effective Date):
<TABLE>
<CAPTION>
EXECUTIVE SEVERANCE
NAME* OFFICER SINCE PAYMENT
----- ------------- ---------
<S> <C> <C>
John D. Harding......................................... 1986 $864,848
Monroe W. Long.......................................... 1983 0
George A. Pann.......................................... 1987 228,603
Philip H. Rinnander..................................... 1988 615,460
T. Alexander Spratt..................................... 1992 600,000
Nine Remaining Executive Officers as a Group............ -- 333,147
</TABLE>
- --------
* Table does not include the remaining severance payment of $170,280 to an
individual who is not an "executive officer" of Independence.
Executive Advisory Board. CoreStates has agreed to cause each member of the
Independence Board and each member of the board of directors of each banking
subsidiary of Independence who is nominated by Independence and willing to
serve, together with J. Lawrence Grim, Jr., Esq., general counsel to
Independence and Bucks, to be elected or appointed as members of newly formed
executive advisory boards of each banking subsidiary of Independence, or if any
such banking subsidiary ceases to exist, of CoreStates Bank, with Monroe W.
Long serving as chairman of the advisory board with respect to Cheltenham Bank.
Each member of such an executive advisory board will receive a retainer or
retainers and per meeting fees in amounts not less than the amounts such member
received for service as a director of Independence or any subsidiary of
Independence for service in 1993, provided that if either Mr. Grim or Mr. Pann
is a member of an executive advisory board, he will be eligible to receive such
fees as if he had been a member of the Independence Board and the board of
directors of a bank subsidiary of Independence. In 1993, each Independence
director received a $12,000 annual retainer, an attendance fee of $500 for each
special Independence Board meeting, $250 for each committee meeting held on the
day of a Board meeting, and $400 for a committee meeting held on any other day,
and each director of Bucks, Cheltenham, Lehigh, or Third received an annual
retainer of $15,000, $14,000, $13,500 and $13,500, respectively. During 1993,
each nonemployee Independence director received 1,500 options to purchase
Independence Common Shares pursuant to the terms of the 1992 Nonemployee
Directors Stock Option Plan.
Stock Option Plans. Independence maintains an Incentive Stock Option Plan,
the 1992 Employee Long Term Incentive Plan and the 1992 Nonemployee Directors
Stock Option Plan. Pursuant to Independence's stock option plans, 479,890
options to purchase Independence Common Shares were outstanding as of the date
of this Proxy Statement-Prospectus. All these outstanding stock options were
exercisable by their terms as of the date of this Proxy Statement-Prospectus.
In connection with the Merger, Independence 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 Independence Employee Benefit Plans" below.
Incentive Compensation Plans. During 1993, Independence maintained the
Incentive Compensation Plan (the "Plan"). In accordance with the Plan, certain
officers of Independence and the subsidiary banks were granted cash bonus
awards for 1993. Independence's executive officers received the incentive
awards set forth opposite their names below under the Plan in 1993:
<TABLE>
<CAPTION>
EXECUTIVE INCENTIVE
OFFICER SINCE AWARD
NAME ------------- ---------
<S> <C> <C>
John D. Harding.................................... 1986 $62,000
Monroe W. Long..................................... 1983 50,000
George A. Pann..................................... 1987 50,000
Philip H. Rinnander................................ 1988 35,000
T. Alexander Spratt................................ 1992 35,000
Nine Remaining Executive Officers as a Group....... -- 98,788
</TABLE>
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<PAGE>
EFFECT ON INDEPENDENCE EMPLOYEE BENEFIT PLANS
CoreStates has agreed to, and to cause its subsidiaries to, honor without
modification, offset or counterclaim all contracts, agreements and commitments
of Independence 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 Independence or any of its subsidiaries, including without
limitation, the Executive Agreements. CoreStates has also agreed to, and to
cause its subsidiaries to, provide to officers and employees of Independence
who become or remain regular (full-time) employees of CoreStates or any of its
subsidiaries, employee benefits no less favorable in the aggregate than those
provided from time to time to their respective officers or employees. For
purposes of the preceding sentence, employee benefits include, without
limitation, pension benefits, health and welfare benefits, life insurance and
vacation, but for purposes of determining employee benefits which are no less
favorable in the aggregate, CoreStates is not obligated to maintain or cause
its subsidiaries to maintain any single type of employee benefit of any
particular amount. Any employee of Independence or any of its subsidiaries who
becomes a participant in any employee benefit plan, program, policy, or
arrangement of CoreStates will be given credit under such plan, program,
policy, or arrangement for all service (prior to becoming such a participant)
with Independence or any of its subsidiaries for purposes of eligibility and
vesting.
At the Effective Time, each outstanding and unexercised option to purchase
Independence Common Shares issued pursuant to Independence'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:
(1) the number of shares of CoreStates Common Shares to be subject to the
new option shall be equal to the product of (i) the number of Independence
Common Shares subject to the original option and (ii) the Exchange Ratio,
the product being rounded, if necessary, up or down, to the nearest whole
share; and
(2) the exercise price per share of CoreStates Common Shares under the
new option shall be equal to (i) the exercise price per share of
Independence Common Shares under the original option divided by (ii) the
Exchange Ratio, rounded, if necessary, up or down, to the nearest cent.
CoreStates will provide a severance program for employees of Independence and
its subsidiaries 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, employees of Independence and its subsidiaries
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.
INDEPENDENCE CONVERTIBLE DEBENTURES
As of the Record Date, Independence had outstanding $42,147,000 in principal
amount of its 7% Convertible Subordinated Debentures due 2011 (the
"Debentures") that were convertible at a conversion price of $36.25 per
Independence Common Share into a maximum of 1,162,675 Independence Common
Shares. The Merger Agreement provides that the Debentures will remain
outstanding after the Effective Time, except that, from and after the Effective
Time, the Debentures will be obligations of CoreStates, and the holders of the
Debentures will have the right to convert such Debentures into the number of
shares of CoreStates Common Stock receivable by a holder of the number of
Independence Common Shares into which such Debenture might have been converted
immediately prior to the Merger. Thus, a holder of $10,000 principal amount of
the Debentures, which prior to the Effective Time would have been convertible
into 275
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<PAGE>
whole Independence Common Shares, would be entitled after the Merger to convert
the Debentures into 413 CoreStates Common Shares, which is the number of whole
CoreStates Common Shares that a holder of 275 Independence Common Shares would
have received upon conversion of his shares in the Merger assuming an Exchange
Ratio of 1.50. The number of CoreStates Common Shares that a holder of
Debentures may acquire upon conversion of such Debentures after the Merger will
be subject to adjustment in accordance with the anti-dilution provisions
applicable to the Debentures. CoreStates and the trustee under the indenture
under which the Debentures were issued will enter into a supplemental indenture
with respect to such obligations pursuant to the terms of the indenture under
which the Debentures were issued.
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 institutions,
foreign persons and persons who acquired Independence Common Shares pursuant to
the exercise of employee stock options or rights or otherwise as compensation.
Independence 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 Independence as
a result of the Merger; (ii) no gain or loss will be recognized by holders of
Independence Common Shares upon the receipt of CoreStates Common Shares in
exchange for Independence 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 Independence Common
Shares in the Merger will be the same as the aggregate adjusted tax basis in
Independence 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 Independence Common Shares in the Merger will
include the holding period of Independence Common Shares surrendered in
exchange therefor, provided that such Independence Common Shares are held as
capital assets at the Effective Time.
Consummation of the Merger is conditioned upon receipt by each of CoreStates
and Independence of an opinion of Sullivan & Cromwell, dated the Effective
Date, substantially to the foregoing effect. Such an opinion of Sullivan &
Cromwell, counsel to Independence, 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
Independence 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 in general 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 Independence 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 Share deemed to be received and then redeemed (which will
generally include the holding period for the Independence Common Shares deemed
exchanged) is more than one year.
NO DISSENTERS' RIGHTS OF APPRAISAL
As of the Record Date, there were holders of record of Independence
Common Shares and, accordingly, pursuant to Section 15:1571(b)(1) of the PABCL,
holders of Independence Common Shares will not have any dissenters' rights of
appraisal in connection with the Merger.
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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 is required by law and must be obtained before the Merger
can be consummated. The 1956 Act provides that the FRB may not approve any
transaction: (1) if such transaction would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States; or (2) if
the effect of such transaction, in any section of the country, may be to
substantially lessen competition, or tend to create a monopoly, or in any other
manner to restrain trade, in each case unless the FRB finds that the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served. In conducting its review
of any application for approval, the FRB is required to consider whether the
financial and managerial resources of the acquiring bank holding company are
adequate. The FRB has the authority to deny an application if it concludes that
the combined organization would have an inadequate capital position or if the
acquiring organization does not meet the requirements of the Community
Reinvestment Act of 1977, as amended.
The 1956 Act provides that a transaction approved by the FRB generally may
not be consummated until 30 days after FRB approval. During such period, the
United States Department of Justice ("Justice Department") may commence a legal
action challenging the transaction under the antitrust laws. The commencement
of an action would stay the effectiveness of the FRB's approval unless a court
specifically orders otherwise.
The 1956 Act provides for the publication of notice and the opportunity for
administrative hearings relating to the application for approval of the FRB
noted above and authorizes the FRB to permit interested parties to intervene in
the proceedings. If an interested party is permitted to intervene, such
intervention could substantially delay the FRB approval required for
consummation of the Merger.
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.
CoreStates' indirect acquisition of Independence's insurance subsidiary,
Independence Life Insurance Company ("Independence Life"), is subject to
approval by the Director of the Arizona Department of Insurance (the "Arizona
Director"). An application for such approval will be filed with the Arizona
Department of Insurance. The Arizona Director must approve the Merger unless,
after a public hearing, he finds that the Merger is contrary to law;
inequitable to Independence; would substantially reduce the security of and
service to be rendered to policyholders of Independence Life (in Arizona and
elsewhere); after the change of control Independence Life would not be able to
satisfy the requirements for the reissuance of a certificate of authority to
write the lines of insurance for which it is presently licensed; the effect of
the Merger would be to substantially lessen competition in insurance in Arizona
or tend to create a monopoly; the financial condition of CoreStates might
jeopardize the financial stability of Independence Life or prejudice the
interest of its policyholders; the plans or proposals that CoreStates has to
liquidate Independence Life, sell its assets or consolidate or merge it with
any person, or to make any other material change in its business or corporate
structure or management, are unfair and unreasonable to policyholders of
Independence Life and are not in the public interest; the competence,
experience and integrity of those persons who would control the operation of
Independence Life are such that it would not be in the interest of
policyholders of Independence Life and of the public to permit the Merger; or
the Merger is likely to be hazardous or prejudicial to the insurance buying
public.
Applications have been filed seeking the foregoing approvals from the FRB and
the Pennsylvania Department of Banking, and an application will be submitted to
the Director of the Arizona Department of Insurance.
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The management of CoreStates has no reason to believe that the required
regulatory approvals will not be obtained. There can be no assurance that such
regulatory approvals will be obtained, and, if the Merger is approved, there
can be no assurance as to the date of any approval. There can also be no
assurance that any such approvals will not contain a condition or requirement
which causes such approvals 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 Justice
Department will not object to the Merger.
ADDITIONAL INFORMATION
Both Independence and CoreStates have received subpoenas from the Securities
and Exchange Commission (the "Commission') requesting the production of
documents pertaining to events leading to the Merger Agreement. Independence
and CoreStates have been advised that the investigation by the Commission
relates to purchases of Independence stock by certain individuals immediately
prior to public announcement of the transaction.
REPRESENTATIONS AND WARRANTIES; CONDITIONS PRECEDENT
The Merger Agreement contains representations and warranties by the parties
regarding, among other things, CoreStates' and Independence's organization,
financial statements, capitalization, pending litigation and enforceability of
the Merger Agreement. These representations and warranties will not survive
the Effective Time.
Conditions to Each Party's Obligations. The respective obligations of
CoreStates and Independence 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 Independence's shareholders; (ii) receipt of the necessary approvals
of the FRB under the 1956 Act, the Pennsylvania Department of Banking, and the
Arizona Department of Insurance 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
Independence of a letter from CoreStates' independent public accountants to
the effect that the Merger will qualify for pooling of interests accounting
treatment if consummated in accordance with the Merger Agreement; (v) the
receipt by the Independence Board of a letter from Alex. Brown, in form and
substance satisfactory to Independence and dated the date of this Proxy
Statement-Prospectus, in which Alex. Brown expresses its opinion that the
consideration to be received by Independence's shareholders is fair from a
financial point of view; and (vi) the absence of any injunction enjoining or
prohibiting consummation of the Merger.
CoreStates Conditions. The obligation of CoreStates to effect the Merger is
subject to the satisfaction or waiver prior to the Effective Time of certain
additional conditions, including the following:
(i) The truth of each of the representations and warranties of
Independence contained in the Merger Agreement, in all material respects,
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); and performance by Independence, in all material respects,
of each of its covenants and agreements contained in the Merger Agreement;
(ii) Receipt of all state securities laws and "Blue Sky" permits and
other authorizations necessary to consummate the transactions contemplated
by the Merger Agreement; and
(iii) Receipt by CoreStates and its directors from Independence's
independent certified public accountants of "agreed upon procedures"
letters, dated (i) the date of the mailing of the Proxy Statement-
Prospectus to Independence's shareholders and (ii) shortly prior to the
Effective Date, with respect to certain financial information regarding
Independence in the form customarily issued by such accountants at such
time in transactions of this type.
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Independence Conditions. The obligation of Independence to effect the Merger
is subject to the satisfaction or waiver prior to the Effective Time of certain
additional conditions, including the following:
(i) The truth of each of the representations and warranties of CoreStates
contained in the Merger Agreement, in all material respects, 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); and performance by CoreStates, in all material respects, of
each of its covenants and agreements contained in the Merger Agreement;
(ii) The CoreStates Common Shares to be issued in the Merger have been
approved for listing on the NYSE subject to official notice of issuance;
and
(iii) Receipt by Independence and its directors from CoreStates'
independent certified public accountants of "agreed upon procedures"
letters, dated (i) the date of the mailing of the Proxy Statement-
Prospectus to Independence's shareholders and (ii) shortly prior to the
Effective Date, with respect to certain financial information regarding
CoreStates in the form customarily issued by such accountants at such time
in transactions of this type.
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 Independence and CoreStates, Independence and
CoreStates will file Articles of Merger with the Department of State of the
Commonwealth of Pennsylvania. 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 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. Although it is the intention of CoreStates and
Independence to consummate the Merger as soon as practicable after shareholder
approval and after all other conditions have been met or waived, the nature of
such other conditions makes it impracticable to fix the Effective Date at
present.
Independence 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 Independence; provided, however, that after such approval
no such amendment or modification, without further shareholder approval, shall
reduce 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 the Effective Date either before or after approval by the shareholders of
Independence, by (i) mutual consent of CoreStates and Independence 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 Independence or CoreStates,
in the event of the failure of the shareholders of Independence 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) Independence 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 in
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
Independence or CoreStates, in the event that the Merger is not consummated by
October 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; or (v) by a majority of the
Independence Board in the circumstances described under "Price Based
Termination" below.
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PRICE BASED TERMINATION
The Merger Agreement contains a provision that permits Independence to
terminate the Merger Agreement at any time during the ten-day period
commencing with the fifteenth day after the required approval of the Merger by
the FRB (the "Determination Date") by a majority vote of the members of the
Independence Board, if either of the following conditions is satisfied:
(X) (i) the Average Closing Price on the Determination Date of CoreStates
Common Shares is less than $24.30; and
(ii) (A) the number obtained by dividing the Average Closing Price of
CoreStates Common Shares on the Determination Date by $27.00 (the
"CoreStates Ratio") is less than (B) the number obtained by dividing
the Final Index Price (as defined below) by the Initial Index Price (as
defined below) and subtracting 0.10 from the quotient in this clause
(ii)(B) (the "Index Ratio"); or
(Y) the Average Closing Price on the Determination Date of CoreStates
Common Shares is less than $22.95.
If the Independence Board elects to exercise this termination right, it must
give written notice to CoreStates following such election (provided that such
notice of election may be withdrawn within such ten-day period). During the
five-day period commencing with its receipt of such notice, CoreStates has the
option to avoid such termination of the Merger Agreement by electing to
increase the Exchange Ratio. In the case of (X), this increase would occur by
adjusting the Exchange Ratio to equal the lesser of (x) a number equal to a
fraction, the numerator of which is the product obtained by multiplying $24.30
by the Exchange Ratio and the denominator of which is the Average Closing
Price as of the Determination Date and (y) a number equal to a fraction, the
numerator of which is the Index Ratio (as defined above) multiplied by the
Exchange Ratio and the denominator of which is the CoreStates Ratio. In the
case of (Y), this increase would occur by adjusting the Exchange Ratio to
equal the number obtained by dividing the product of $22.95 and the Exchange
Ratio by the Average Closing Price on the Determination Date. If CoreStates so
elects within such five-day period, it must give prompt written notice to
Independence of such election and the revised Exchange Ratio, whereupon no
termination will have occurred and the Merger Agreement will otherwise remain
in effect in accordance with its terms.
The following terms have the meanings indicated below:
"Average Closing Price" with respect to a day means the average closing
prices per share of CoreStates Common Shares, as reported on the New York
Stock Exchange ("NYSE") Composite Transactions reporting system (as
reported by The Wall Street Journal or, if not reported thereby, another
authoritative source), for the 20 NYSE trading days ending on the trading
day prior to such day.
"Final Index Price" means the sum of the Final Price for each company
comprising the Index Group multiplied by the appropriate weighing.
"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 15 bank holding companies listed below, the
common stock of all of which shall be publicly traded and as to which there
shall not have been a publicly announced proposal at any time during the
period beginning on November 18, 1993 and ending on 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 at any time during the period beginning on
November 18, 1993 and ending on the Determination Date, such company will
be removed from the Index Group, and the weights attributed to the
remaining companies will be adjusted
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proportionately for purposes of determining the Final Index Price and the
Initial Index Price. The 15 bank holding companies and the weights
attributed to them are as follows:
<TABLE>
<CAPTION>
BANK HOLDING COMPANY WEIGHING
-------------------- --------
<S> <C>
The Bank of New York Company, Inc. (BK)............................... 7.51%
Norwest Corporation (NOB)............................................. 9.72%
Sun Trust Banks, Inc. (STI)........................................... 8.06%
First Union Corporation (FTU)......................................... 10.06%
Fleet Financial Group, Inc. (FLT)..................................... 6.22%
NBD Bancorp, Inc. (NBD)............................................... 6.94%
PNC Bank Corp. (PNC).................................................. 9.82%
U.S. Bancorp (USBC)................................................... 3.60%
Wachovia Corporation (WB)............................................. 8.29%
First Bank System, Inc. (FBS)......................................... 4.90%
First Fidelity Bancorporation (FFB)................................... 4.76%
Barnett Banks, Inc. (BBI)............................................. 5.42%
National City Corporation (NCC)....................................... 5.50%
Mellon Bank Corporation (MEL)......................................... 5.10%
Boatmen's Bancshares, Inc. (BOAT)..................................... 4.11%
</TABLE>
"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 weighing, as such prices are reported on the consolidated
transactions reporting system for the market or exchange on which such
common stock is principally traded on November 18, 1993.
If CoreStates 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 November 18, 1993 and the
Determination Date, the prices for the common stock of such company will be
appropriately adjusted for purposes of applying the foregoing price-based
termination option.
Prior to making any decision to terminate the Merger Agreement, the
Independence Board intends to consult with its financial and other advisers and
would consider all financial and other information it deemed relevant to its
decision. The matter would not, however, be resubmitted to shareholders.
OPERATIONS OF INDEPENDENCE AND CORESTATES PENDING THE MERGER
The Merger Agreement contains certain restrictions on the conduct of
Independence'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, Independence will, and will cause each of 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 Independence and any of
its subsidiaries from engaging in certain transactions without the prior
written consent of CoreStates. Specifically, without such consent, Independence
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 other than regular quarterly cash dividends not exceeding
$0.29 per Independence Common Share 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
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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 Independence Rights Agreement (as defined below)
and except for dividends paid by any of the wholly owned subsidiaries of
Independence to Independence 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 November 19, 1993 or (y) the Independence
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 Independence, 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
Independence; (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 its employees (other than increases not greater than 4.5% in the
aggregate 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 or terminate 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 Independence or any of
its subsidiaries for material money damages or restrictions upon the operations
of Independence 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 Independence
Rights Agreement; (x) elect or appoint any new director or officer of
Independence or any of its subsidiaries, provided that the appointment of an
officer to another office of Independence or any of its subsidiaries shall not
be deemed to be the appointment of a new officer; 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
Independence, CoreStates will not, prior to the Effective Time, declare or pay
any extraordinary or special dividend on CoreStates Common Shares or take any
action that would (i) delay or adversely affect in any material respect the
ability of Independence 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.
Modification of Certain Independence Policies. The Merger Agreement provides
that, notwithstanding that Independence 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, Independence and CoreStates will consult and cooperate with each
other with respect to (i) conforming Independence's loan, accrual and reserve
policies to those policies of CoreStates to the extent appropriate, recognizing
that differing policies and regulations may apply to state-chartered banks of
Independence, (ii) new extensions of credit or material revisions to existing
terms of credits by each bank subsidiary, in each case, where the aggregate
exposure exceeds $1,500,000 and (iii) conforming the composition of the
investment portfolio and
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overall asset/liability management position of Independence and each bank
subsidiary to the extent appropriate.
In addition, the Merger Agreement provides that Independence and CoreStates
will consult and cooperate with each other with respect to determining
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 CoreStates' plan or plans of integration and
the Bank Mergers. The Merger Agreement requires Independence 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, Independence'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) Independence 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 obligation to consummate the Merger have been waived or
satisfied and (b) Independence acknowledges that the conditions to its
obligation to consummate the Merger have been satisfied or waived by
Independence. Pursuant to the foregoing, Independence will not be obligated to
take any such action that (i) impairs its regulatory capital, that is
inconsistent with any formal or informal undertaking by Independence to any
bank regulatory agency that has been disclosed in writing to CoreStates prior
to the date of the Merger Agreement or is inconsistent with any bank regulatory
requirement applicable to Independence or any of its banking subsidiaries or
(ii) is inconsistent with generally accepted accounting principles.
NO SOLICITATION
Independence has agreed in the Merger Agreement that neither it nor any of
its subsidiaries nor any of the respective officers, directors and employees of
Independence or its subsidiaries, acting within the scope of their authority
will, and Independence will direct and use its best efforts to cause its agents
and representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its subsidiaries) not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to shareholders of Independence) with respect to a merger, consolidation
or similar transaction involving, or any purchase of all or any significant
portion of the assets or any equity securities of, Independence or any of its
subsidiaries (an "Acquisition Proposal") or, except as may be legally required
for the discharge by the Independence Board of its fiduciary duties, engage in
any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by Independence
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 Independence 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 Independence, as modified for intercompany transactions,
for the entire fiscal year and quarterly period of Independence in which the
Effective Date occurs and will combine and restate as its income for prior
periods the reported consolidated income of Independence for prior periods, as
modified for intercompany transactions.
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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."
STOCK EXCHANGE LISTING
CoreStates Common Shares are listed on the NYSE. CoreStates has agreed to use
its best efforts to list the CoreStates Common Shares to be issued in the
Merger on the NYSE, and the obligation of Independence to consummate the Merger
is subject to approval for listing by the NYSE of such shares.
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 Independence,
except for those shareholders who are deemed to be "affiliates" of Independence
as such term is used in Rule 144 and Rule 145 under the Securities Act. With
respect to those shareholders who are deemed to be affiliates of Independence,
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 Independence will be required to deliver a letter under which such
person agrees not to sell, transfer or otherwise dispose of Independence 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
Independence.
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
Independence. Persons who may be deemed to be affiliates of Independence
generally include individuals who, or entities which, directly or indirectly
control, are controlled by or are under common control with Independence and
would include certain officers and directors of Independence as well as
principal shareholders of Independence.
EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, an exchange agent to be appointed by
CoreStates will mail to all persons who held Independence 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 INDEPENDENCE 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 Independence 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
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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
Independence 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
Independence Common Shares will be entitled to vote as holders of CoreStates
Common Shares notwithstanding that certificates representing Independence
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 Independence Common Shares for six
months after the Effective Time shall be repaid to CoreStates. If outstanding
certificates for Independence Common Shares are not surrendered or payment is
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 CoreStates, free and clear of all claims or
interests. Neither CoreStates, the Exchange Agent or any other person will be
liable to any former holder of Independence Common Shares for any amount
delivered to a public body or official pursuant to applicable abandoned
property, escheat or similar laws.
EXPENSES
The Merger Agreement provides, in general, that CoreStates and Independence
will each pay its own expenses incurred in connection with the Merger other
than printing expenses, which will be shared equally by CoreStates and
Independence.
47
<PAGE>
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma condensed combined financial statements
reflect the Merger 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 Independence, as reported on
its Consolidated Balance Sheet, 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 Statement of Income the
consolidated results of operations of Independence for the entire fiscal year
in which the Effective Date occurs and will combine and restate its results of
operations for prior periods to include the reported consolidated results of
operations of Independence for prior periods. The Pro Forma Statements of
Income for the years ended December 31, 1993, 1992 and 1991 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. The Consolidated Balance Sheet and Statements of Income
of CoreStates reflect the restatement for the March 16, 1994 acquisition of
Constellation under the pooling of interests method of accounting.
The unaudited pro forma condensed combined financial statements reflect the
Germantown Proposed Combination as if it had become effective on January 1,
1993 for pro forma statement of income presentation and on December 31, 1993
for pro forma balance sheet presentation. See "GERMANTOWN PROPOSED
COMBINATION." The Germantown Proposed Combination will be accounted for, in
accordance with generally accepted accounting principles, as a purchase of
Germantown by CoreStates. Under the purchase method of accounting, all assets
and liabilities of Germantown at December 31, 1993 have been adjusted, net of
income tax effects, to their current fair values and combined with the asset
and liability book values of CoreStates.
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 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.
The Merger Agreement provides for an Exchange Ratio of 1.50 CoreStates Common
Shares for each Independence Common Share if the Average Closing Price of
CoreStates Common Shares on the Determination Date is less than or equal to
$27.00 per share. The accompanying unaudited pro forma financial information
reflects an equivalent per Independence Common Share value at that exchange
ratio. The accompanying unaudited pro forma financial information for 1993 also
assumes that 5.391 million CoreStates Common Shares will be issued in the
Germantown Proposed Combination.
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 December 31, 1993.
48
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES
CORESTATES GERMANTOWN AND CORESTATES INDEPENDENCE INDEPENDENCE
AND GERMANTOWN PRO FORMA GERMANTOWN AND BANCORP AND PRO FORMA
SUBSIDIARIES SAVINGS BANK ADJUSTMENTS PRO FORMA SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS
------------ ------------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks............. $ 2,466,867 $ 27,849 $ (222)(1) $ 2,494,494 $ 2,466,867 $ 120,462 $ (65,653)(1)
Time deposits..... 1,273,373 138 1,273,511 1,273,373 46,084
Investment
securities........ 3,013,606 547,514 6,818 (1)(9) 3,567,938 3,013,606 602,434 (16,874)(6)
Loans............. 18,026,142 1,039,381 12,522 (9) 19,078,045 18,026,142 1,745,116
Allowance for loan
losses............ (537,767) (23,043) (560,810) (537,767) (33,056) (25,000)(2)
Federal funds sold
and securities
purchased under
agreements to
resell............ 148,527 13,000 161,527 148,527 26,600 (8,600)(1)
Trading account
securities........ 6,393 6,393 6,393
Due from customers
on acceptances.... 332,234 332,234 332,234
Premises and
equipment and
other assets...... 1,041,703 32,351 148,657 (4)(9) 1,222,711 1,041,703 95,785 13,970 (2)(3)
----------- ---------- -------- ----------- ----------- ---------- ----------
Total assets.... $25,771,078 $1,637,190 $167,775 $27,576,043 $25,771,078 $2,603,425 $ (102,157)
=========== ========== ======== =========== =========== ========== ==========
LIABILITIES
Deposits:
Domestic:
Non-interest
bearing......... $ 6,331,130 $ 48,977 $ (222)(1) $ 6,379,885 $ 6,331,130 $ 383,890 $ (65,653)(1)
Interest
bearing......... 11,916,852 1,426,662 9,363 (9) 13,352,877 11,916,852 1,769,175
Overseas branches
and subsidiaries. 796,902 796,902 796,902
----------- ---------- -------- ----------- ----------- ---------- ----------
Total deposits.. 19,044,884 1,475,639 9,141 20,529,664 19,044,884 2,153,065 (65,653)
Funds borrowed.... 1,830,495 (1,001)(1) 1,829,494 1,830,495 62,230 (8,600)(1)
Bank acceptances
outstanding....... 337,180 337,180 337,180
Other liabilities. 1,069,570 19,560 41,887 (4) 1,131,017 1,069,570 31,898 24,200 (3)
Long-term debt.... 1,455,036 116,883 (7) 1,571,919 1,455,036 134,254
----------- ---------- -------- ----------- ----------- ---------- ----------
Total
liabilities..... 23,737,165 1,495,199 166,910 25,399,274 23,737,165 2,381,447 (50,053)
----------- ---------- -------- ----------- ----------- ---------- ----------
SHAREHOLDERS'
EQUITY
Common stock...... 129,136 419 5,391 (7) 134,527 129,136 29,188 (11,623)(5)
(419)(8) (1,514)(6)
Capital surplus... 680,556 38,480 137,465 (7) 818,021 680,556 91,659 11,623 (5)
(38,480)(8) (4,731)(6)
Retained earnings. 1,232,040 103,092 (103,092)(8) 1,232,040 1,232,040 103,521 (48,249)(2)(3)(6)
Treasury stock.... (7,819) (7,819) (7,819) (2,390) 2,390 (6)
----------- ---------- -------- ----------- ----------- ---------- ----------
Total
shareholders'
equity.......... 2,033,913 141,991 865 2,176,769 2,033,913 221,978 (52,104)
----------- ---------- -------- ----------- ----------- ---------- ----------
Total
liabilities and
shareholders'
equity.......... $25,771,078 $1,637,190 $167,775 $27,576,043 $25,771,078 $2,603,425 $ (102,157)
=========== ========== ======== =========== =========== ========== ==========
Book value per
share(5)(7)....... $15.79 $33.89 $16.22 $15.79 $19.26
====== ====== ====== ====== ======
<CAPTION>
CORESTATES PRO FORMA
AND COMBINED
INDEPENDENCE ALL
PRO FORMA TRANSACTIONS
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from
banks............. $ 2,521,676 $ 2,549,303
Time deposits..... 1,319,457 1,319,595
Investment
securities........ 3,599,166 4,153,498
Loans............. 19,771,258 20,823,161
Allowance for loan
losses............ (595,823) (618,866)
Federal funds sold
and securities
purchased under
agreements to
resell............ 166,527 179,527
Trading account
securities........ 6,393 6,393
Due from customers
on acceptances.... 332,234 332,234
Premises and
equipment and
other assets...... 1,151,458 1,332,466
------------- -------------
Total assets.... $28,272,346 $30,077,311
============= =============
LIABILITIES
Deposits:
Domestic:
Non-interest
bearing......... $ 6,649,367 $ 6,698,122
Interest
bearing......... 13,686,027 15,122,052
Overseas branches
and subsidiaries. 796,902 796,902
------------- -------------
Total deposits.. 21,132,296 22,617,076
Funds borrowed.... 1,884,125 1,883,124
Bank acceptances
outstanding....... 337,180 337,180
Other liabilities. 1,125,668 1,187,115
Long-term debt.... 1,589,290 1,706,173
------------- -------------
Total
liabilities..... 26,068,559 27,730,668
------------- -------------
SHAREHOLDERS'
EQUITY
Common stock...... 145,187 150,578
Capital surplus... 779,107 916,572
Retained earnings. 1,287,312 1,287,312
Treasury stock.... (7,819) (7,819)
------------- -------------
Total
shareholders'
equity.......... 2,203,787 2,346,643
------------- -------------
Total
liabilities and
shareholders'
equity.......... $28,272,346 $30,077,311
============= =============
Book value per
share(5)(7)....... $15.16 $15.56
====== ======
</TABLE>
See footnotes to the Pro Forma Condensed Combined Balance Sheet on page 50.
49
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(1) Elimination of intercompany deposits, Federal funds transactions and
other intercompany funding.
(2) While Independence 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 Independence's loan, accrual and reserve policies to those of
CoreStates, it will take an addition to the allowance for possible loan
losses of approximately $25.0 million and an addition to the reserve
against other real estate owned ("OREO") of approximately $5.0 million.
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 aggregated provisions will be disposed of within
eighteen months of the Effective Date. The carrying value of these assets
is approximately $120.0 million and the estimated provisions represent
25% of this amount.
(3) Reflects charges of approximately $24.2 million, $15.7 million after the
related tax effects, which include expenses directly attributable to the
Merger. Deferred taxes receivable at statutory rates totalling $18.970
million related to the charges of approximately $24.2 million of expenses
directly attributable to the Merger, the $25.0 million addition to
Independence's allowance for possible loan losses and the $5.0 million
reserve against OREO are reflected in other assets.
(4) Reflects charges of approximately $41.9 million, $27.3 million after the
related tax effects, which include expenses directly attributable to the
Germantown Proposed Combination.
(5) Reflects the conversion of 11.522 million outstanding Independence Common
Shares on December 31, 1993 into 17.283 million CoreStates Common Shares.
(6) Reflects the cancellation of 453,000 Independence Common Shares owned by
CoreStates and 153,000 Independence Common Shares held as treasury stock.
(7) Represents the purchase price in the Germantown Proposed Combination
using the following assumptions:
a) Shareholders of Germantown will receive, for each of the 4,189,334
Germantown Common Shares, $62 per share payable 55% in equivalent
value CoreStates Common Shares and 45% in cash, for a total purchase
price of $259.7 million.
b) The market value for CoreStates Common Shares, for purposes of
Germantown pro forma calculations, was assumed to be $26.50 per
share.
c) CoreStates Common Shares issued in the Germantown Proposed
Combination will equal 5.391 million shares.
d) The cash portion of the purchase price was assumed to be raised
through the issuance of seven-year notes at 7 1/4%.
(8) The following shareholders' equity accounts of Germantown will be
eliminated (in thousands):
<TABLE>
<S> <C>
Common Stock..................................................... $ 419
Surplus.......................................................... 38,480
Retained Earnings................................................ 103,092
--------
Total Shareholders' Equity....................................... $141,991
========
</TABLE>
(9) Represents the estimated adjustments of Germantown's assets and
liabilities to their fair values (which were determined using information
available at the most recent practicable date), the intangible asset
related to the value of the deposit base acquired, which is estimated to
be approximately $28 million, and the adjustment of approximately $109
million arising from the excess of the total purchase price over net
assets acquired (i.e. goodwill).
50
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES CORESTATES
CORESTATES GERMANTOWN AND CORESTATES INDEPENDENCE INDEPENDENCE AND
AND GERMANTOWN PRO FORMA GERMANTOWN AND BANCORP AND PRO FORMA INDEPENDENCE
SUBSIDIARIES SAVINGS BANK ADJUSTMENTS PRO FORMA SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA(1)
------------ ------------ ----------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees
on loans......... $1,442,794 $84,413 $ (2,504)(6) $1,524,703 $1,442,794 $142,169 $1,584,963
Interest on in-
vestment securi-
ties............. 172,757 27,371 (2,383)(2)(6) 197,745 172,757 32,060 $ (82)(2) 204,735
Interest on time
deposits in
banks............ 43,040 10 43,050 43,040 43,040
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 6,119 680 6,799 6,119 3,056 (108)(2) 9,067
Other interest
income........... 59 59 59 59
---------- ------- -------- ---------- ---------- -------- ----- ----------
Total interest
income.......... 1,664,769 112,474 (4,887) 1,772,356 1,664,769 177,285 (190) 1,841,864
---------- ------- -------- ---------- ---------- -------- ----- ----------
INTEREST EXPENSE
Interest on de-
posits........... 320,086 47,870 (6,180)(6) 361,776 320,086 59,727 379,813
Interest on funds
borrowed......... 64,457 (83)(2) 64,374 64,457 2,652 (108)(2) 67,001
Interest on long-
term debt........ 61,572 8,474 (6) 70,046 61,572 8,289 (82)(2) 69,779
---------- ------- -------- ---------- ---------- -------- ----- ----------
Total interest
expense......... 446,115 47,870 2,211 496,196 446,115 70,668 (190) 516,593
---------- ------- -------- ---------- ---------- -------- ----- ----------
Net interest in-
come............. 1,218,654 64,604 (7,098) 1,276,160 1,218,654 106,617 0 1,325,271
Provision for
losses on loans.. 230,000 1,900 231,900 230,000 11,201 241,201
---------- ------- -------- ---------- ---------- -------- ----- ----------
Net interest in-
come after provi-
sion for losses
on loans......... 988,654 62,704 (7,098) 1,044,260 988,654 95,416 1,084,070
---------- ------- -------- ---------- ---------- -------- ----- ----------
NON-INTEREST IN-
COME
Debit and credit
card fees........ 59,500 163 59,663 59,500 2,217 61,717
Service charges
on deposit ac-
counts........... 170,786 3,268 (19)(2) 174,035 170,786 8,642 179,428
Trust income..... 97,306 97,306 97,306 4,487 101,793
Fees for interna-
tional services.. 69,432 69,432 69,432 69,432
Securities gains
(losses)......... 15,748 1,179 16,927 15,748 362 16,110
Other operating
income........... 131,882 1,824 133,706 131,882 13,668 145,550
---------- ------- -------- ---------- ---------- -------- ----- ----------
Total non-inter-
est income...... 544,654 6,434 (19) 551,069 544,654 29,376 574,030
---------- ------- -------- ---------- ---------- -------- ----- ----------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits..... 576,470 19,992 596,462 576,470 46,498 622,968
Net occupancy.... 108,295 4,618 112,913 108,295 6,656 114,951
Equipment ex-
penses........... 69,072 1,728 70,800 69,072 5,772 74,844
Other operating
expenses......... 469,424 11,840 11,609(2)(6) 492,873 469,424 34,675 504,099
---------- ------- -------- ---------- ---------- -------- ----- ----------
Total non-finan-
cial expenses... 1,223,261 38,178 11,609 1,273,048 1,223,261 93,601 1,316,862
---------- ------- -------- ---------- ---------- -------- ----- ----------
Income before in-
come taxes....... 310,047 30,960 (18,726) 322,281 310,047 31,191 341,238
Provision for in-
come taxes(4).... 98,297 10,462 (6,554)(6)(7) 102,205 98,297 8,312 106,609
---------- ------- -------- ---------- ---------- -------- ----- ----------
Income before
cumulative effect
of a change in
accounting
principle(7)..... $ 211,750 $20,498 $(12,172) $ 220,076 $ 211,750 $ 22,879 $ 234,629
========== ======= ======== ========== ========== ======== ===== ==========
Average common
shares outstand-
ing.............. 128,570 4,377 134,204 128,570 11,438 145,399
PER COMMON SHARE
DATA(5)
Income before
cumulative effect
of a change in
accounting
principle........ $1.65 $4.68 $1.64 $1.65 $1.98 $1.61
Cash dividends
declared......... $1.14 $ .40 $1.14 $1.14 $1.16 $1.14
<CAPTION>
PRO FORMA
COMBINED
ALL
TRANSACTIONS
------------
<S> <C>
INTEREST INCOME
Interest and fees
on loans......... $1,666,872
Interest on in-
vestment securi-
ties............. 229,723
Interest on time
deposits in
banks............ 43,050
Interest on
federal funds
sold and
securities
purchased under
agreements to
resell........... 9,747
Other interest
income........... 59
------------
Total interest
income.......... 1,949,451
------------
INTEREST EXPENSE
Interest on de-
posits........... 421,503
Interest on funds
borrowed......... 66,918
Interest on long-
term debt........ 78,253
------------
Total interest
expense......... 566,674
------------
Net interest in-
come............. 1,382,777
Provision for
losses on loans.. 243,101
------------
Net interest in-
come after provi-
sion for losses
on loans......... 1,139,676
------------
NON-INTEREST IN-
COME
Debit and credit
card fees........ 61,880
Service charges
on deposit ac-
counts........... 182,677
Trust income..... 101,793
Fees for interna-
tional services.. 69,432
Securities gains
(losses)......... 17,289
Other operating
income........... 147,374
------------
Total non-inter-
est income...... 580,445
------------
NON-FINANCIAL EX-
PENSES
Salaries, wages
and benefits..... 642,960
Net occupancy.... 119,569
Equipment ex-
penses........... 76,572
Other operating
expenses......... 527,548
------------
Total non-finan-
cial expenses... 1,366,649
------------
Income before in-
come taxes....... 353,472
Provision for in-
come taxes(4).... 110,517
------------
Income before
cumulative effect
of a change in
accounting
principle(7)..... $ 242,955
============
Average common
shares outstand-
ing.............. 151,032
PER COMMON SHARE
DATA(5)
Income before
cumulative effect
of a change in
accounting
principle........ $1.61
Cash dividends
declared......... $1.14
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 54-
55.
51
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES
CORESTATES INDEPENDENCE AND
AND BANCORP AND PRO FORMA INDEPENDENCE
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on
loans.................... $1,497,408 $150,174 $1,647,582
Interest on investment se-
curities................. 194,029 44,986 $(41)(2) 238,974
Interest on time deposits
in banks................. 55,635 2,855 58,490
Interest on federal funds
sold and securities pur-
chased under agreements
to resell................ 15,622 1,113 16,735
Other interest income..... 57 57
---------- -------- ---- ----------
Total interest income.... 1,762,751 199,128 (41) 1,961,838
---------- -------- ---- ----------
INTEREST EXPENSE
Interest on deposits...... 489,503 80,952 570,455
Interest on funds borrow-
ed....................... 57,070 3,410 60,480
Interest on long-term
debt..................... 72,828 5,638 (41)(2) 78,425
---------- -------- ---- ----------
Total interest expense... 619,401 90,000 (41) 709,360
---------- -------- ---- ----------
Net interest income....... 1,143,350 109,128 0 1,252,478
Provision for losses on
loans.................... 129,300 30,950 160,250
---------- -------- ---- ----------
Net interest income after
provision for losses on
loans.................... 1,014,050 78,178 1,092,228
---------- -------- ---- ----------
NON-INTEREST INCOME
Debit and credit card
fees..................... 149,892 2,186 152,078
Service charges on deposit
accounts................. 154,667 8,465 163,132
Trust income.............. 92,654 4,077 96,731
Fees for international
services................. 60,247 60,247
Securities gains (losses). 15,085 (1,280) 13,805
Other operating income.... 114,178 10,493 124,671
---------- -------- ---- ----------
Total non-interest in-
come.................... 586,723 23,941 610,664
---------- -------- ---- ----------
NON-FINANCIAL EXPENSES
Salaries, wages and bene-
fits..................... 582,067 45,837 627,904
Net occupancy............. 106,203 6,562 112,765
Equipment expenses........ 79,350 6,239 85,589
Other operating expenses.. 445,723 34,612 480,335
---------- -------- ---- ----------
Total non-financial ex-
penses.................. 1,213,343 93,250 1,306,593
---------- -------- ---- ----------
Income before income tax-
es....................... 387,430 8,869 396,299
Provision for income tax-
es(4) ................... 126,408 1,757 128,165
---------- -------- ---- ----------
Income before cumulative
effect of a change in
accounting principle(3).. $ 261,022 $ 7,112 $ 268,134
========== ======== ==== ==========
Average common shares out-
standing................. 119,350 11,173 135,813
PER COMMON SHARE DATA(5)
Income before cumulative
effect of a change in
accounting principle..... $2.19 $0.63 $1.97
Cash dividends declared... $1.02 $1.16 $1.02
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 54-
55.
52
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CORESTATES
CORESTATES INDEPENDENCE AND
AND BANCORP AND PRO FORMA INDEPENDENCE
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on
loans................... $1,946,080 $169,555 $2,115,635
Interest on investment
securities.............. 209,009 53,104 262,113
Interest on time deposits
in banks................ 73,775 5,734 $ (13)(2) 79,496
Interest on federal funds
sold and securities
purchased under
agreements to resell.... 25,558 2,424 27,982
Other interest income.... 51 51
---------- -------- ------- ----------
Total interest income... 2,254,473 230,817 (13) 2,485,277
---------- -------- ------- ----------
INTEREST EXPENSE
Interest on deposits..... 835,700 114,712 (13)(2) 950,399
Interest on funds
borrowed................ 166,487 5,118 171,605
Interest on long-term
debt.................... 84,418 5,945 90,363
---------- -------- ------- ----------
Total interest expense.. 1,086,605 125,775 (13) 1,212,367
---------- -------- ------- ----------
Net interest income...... 1,167,868 105,042 0 1,272,910
Provision for losses on
loans................... 272,596 18,665 291,261
---------- -------- ------- ----------
Net interest income after
provision for losses on
loans................... 895,272 86,377 981,649
---------- -------- ------- ----------
NON-INTEREST INCOME
Debit and credit card
fees.................... 166,167 1,753 167,920
Service charges on
deposit accounts........ 135,148 7,841 142,989
Trust income............. 93,386 3,976 97,362
Fees for international
services................ 47,275 47,275
Securities gains
(losses)................ (14,175) 307 (13,868)
Other operating income... 159,312 14,575 173,887
---------- -------- ------- ----------
Total non-interest
income................. 587,113 28,452 615,565
---------- -------- ------- ----------
NON-FINANCIAL EXPENSES
Salaries, wages and
benefits................ 575,438 44,921 620,359
Net occupancy............ 115,462 6,386 121,848
Equipment expenses....... 83,091 5,975 89,066
Other operating expenses. 455,265 32,927 488,192
---------- -------- ------- ----------
Total non-financial
expenses............... 1,229,256 90,209 1,319,465
---------- -------- ------- ----------
Income before income
taxes................... 253,129 24,620 277,749
Provision for income
taxes(4) ............... 90,503 5,664 1,265(4) 97,432
---------- -------- ------- ----------
Net income............... $ 162,626 $ 18,956 $(1,265) $ 180,317
========== ======== ======= ==========
Average common shares
outstanding............. 117,016 11,012 133,534
PER COMMON SHARE DATA(5)
Net income............... $1.39 $1.72 $1.35
Cash dividends declared.. $0.97 $1.16 $0.97
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income on pages 54-
55.
53
<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 $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 Merger. Were these expenses reflected in the Pro Forma
Condensed Combined Statement of Income for the year ended December 31,
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, Federal funds transactions and other intercompany funding.
(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 $128.7 million pre-tax, $84.9 million or $0.71 per share after-tax, as
the cumulative effect of a change in accounting principle in the first
quarter of 1992.
The impact of FAS 106 on Independence is immaterial.
Germantown adopted FAS 106 effective January 1, 1992 and elected to recognize
immediately a one-time, non-cash charge equal to its January 1, 1992
transitional liability of $3.7 million, $2.4 million after-tax, as the
cumulative effect of a change in accounting principle.
(4) In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes
("FAS 109"), which 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.
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>
Year ended:
December 31, 1993...................... -- -- --
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
</TABLE>
--------
* Decrease less than $.01 per share.
54
<PAGE>
(5) Reflects the impact of the Stock Dividend. CoreStates, Independence and pro
forma earnings per common share for the years ended December 31, 1993, 1992
and 1991 were based on weighted average common shares outstanding as
dilution from potentially dilutive common stock equivalents was less than
3% for each period.
(6) Reflects the anticipated impact of the purchase accounting adjustments
(which were determined using information available at the most recent
practicable date) assuming the Germantown Proposed Combination was
effective on January 1, 1993. For the purposes of determining the effects
on the pro forma combined condensed statement of income, the following pro
forma adjustments have been made:
a) Amortization of the premium on the loan and investment securities
portfolios and certificates of deposit and the related income tax
effects.
b) Amortization of intangibles including goodwill and deposit base
intangible which was calculated using lives of 15 years and 10 years,
respectively. As required by FAS 109, the provision for income taxes
assumes that the amortization of the deposit base intangible is
deductible for Federal income tax purposes.
c) Interest expense on the seven-year 7 1/4% notes which were assumed to
have been issued to fund the cash portion of the purchase price.
(7) Effective January 1, 1993, CoreStates adopted FAS 112, "Employers'
Accounting for Postemployment Benefits." CoreStates recognized the January
1, 1993 FAS 112 transitional liability of $20.0 million, $13.0 million
after-tax or $0.10 per share, as the cumulative effect of a change in
accounting principle. The impact of FAS 112 on Independence and Germantown
is immaterial.
55
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
CoreStates is a bank holding company within the meaning of the 1956 Act and
is registered as such with the FRB. As a bank holding company, it is also
subject to regulation by the Pennsylvania Department of Banking. The national
bank subsidiaries of CoreStates 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.
CoreStates 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.
The operations of the banking subsidiaries of CoreStates 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 CoreStates. 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.
CAPITAL
The FRB, in the case of bank holding companies such as CoreStates, 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) (the total risk-based capital ratio) is 8%.
At least half of the total capital, or 4%, is to be comprised of common equity,
qualifying perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries, less deductible intangibles ("Tier 1
Capital"). The remainder ("Tier 2 Capital") may consist of other preferred
stock, certain other instruments (limited in the case of subordinated debt) 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 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.
56
<PAGE>
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 could subject a banking organization to enforcement
action by the regulatory authorities, including the termination of FDIC deposit
insurance.
Set forth below are the minimum regulatory capital ratios and the capital
ratios for each of CoreStates and Independence, and their respective banking
subsidiaries, and Germantown as of December 31, 1993:
<TABLE>
<CAPTION>
NEW JERSEY CORESTATES
CORESTATES AND BANK MINIMUM CORESTATES NATIONAL BANK OF
SUBSIDIARIES RATIO CORESTATES BANK, N.A. BANK DELAWARE
------------------- -------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total Risk Based Capital
Ratio.................. 8.0% 13.2% 10.9% 11.4% 12.1%
Tier 1 Risk Based Capi-
tal Ratio.............. 4.0 9.0 8.5 9.3 10.9
Leverage Ratio.......... 3.0--5.0 7.7 7.3 6.5 13.4
<CAPTION>
THIRD
INDEPENDENCE AND BANK MINIMUM BUCKS CHELTENHAM LEHIGH NATIONAL
SUBSIDIARIES RATIO INDEPENDENCE COUNTY BANK BANK VALLEY BANK BANK
--------------------- -------- ------------ ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Risk Based Capital
Ratio.................. 8.0% 14.8% 11.0% 13.9% 12.6% 11.0%
Tier 1 Risk Based Capi-
tal Ratio.............. 4.0 10.4 9.7 10.9 11.4 9.9
Leverage Ratio.......... 3.0--5.0 8.6 8.0 7.8 9.6 8.5
<CAPTION>
MINIMUM
GERMANTOWN RATIO GERMANTOWN
---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total Risk Based Capital
Ratio.................. 8.0% 17.4%
Tier 1 Risk Based Capi-
tal Ratio.............. 4.0 16.1
Leverage Ratio.......... 3.0--5.0 8.6
</TABLE>
CoreStates' and all of CoreStates' bank subsidiaries' capital ratios as of
December 31, 1993 exceeded all general minimum capital requirements imposed by
the FRB and the OCC. Independence and all of its bank subsidiaries and
Germantown capital ratios as of December 31, 1993 met all general minimum
capital requirements imposed by the FRB, FDIC and the OCC.
DIVIDENDS
CoreStates 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. Federal law imposes limitations on the
payment of dividends by national banks.
The payment of dividends by CoreStates and its 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 OCC 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
57
<PAGE>
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 (including the portion transferred to surplus)
exceed bad debts. As of December 31, 1993, the banking subsidiaries of
CoreStates could pay $171 million in dividends under the foregoing
restrictions.
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 CoreStates and certain of its 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. In connection with the recapitalization of the Bank
Insurance Fund ("BIF"), FDICIA 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.
Pursuant to FDICIA, the FDIC has developed a risk-based assessment system,
under which 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
58
<PAGE>
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 CoreStates
banking subsidiary is considered well capitalized. See "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 risk-based capital ratio, Tier 1 risk-based capital ratio (the ratio of
Tier 1 capital to risk-weighted assets) and the leverage ratio. Under the
regulations, a national bank will be (i) well capitalized if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio
of 6% or greater and a leverage ratio of 5% or greater and is not subject to
any written agreement, order or capital directive by the OCC to meet and
maintain a specific capital level for any capital measure; (ii) adequately
capitalized if it has a total risk-based capital ratio of 8% or greater, a Tier
1 risk-based capital 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 risk-based capital ratio of less than 8%, a
Tier 1 risk-based capital 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 risk-based capital ratio of less than 6%, a Tier 1 risk-based
capital 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 CoreStates banking subsidiary is
considered well 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
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 5% 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
59
<PAGE>
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.
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 as well as standards specifying minimum earnings sufficient
to absorb losses without impairing capital, and 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. Under FDICIA, 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, CoreStates cannot
assess the significance of the impact such standards will have on its
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
certain prior notice to customers and regulatory authorities before closing any
branch.
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.
DESCRIPTION OF CORESTATES CAPITAL STOCK
CORESTATES CAPITAL STOCK
As of March 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,
60
<PAGE>
and 200,000,000 CoreStates Common Shares, par value $1.00 per share, of which
127,037,854 shares were issued and outstanding.
The CoreStates Board 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 the CoreStates Board, 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 ("CoreStates Articles") 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 CoreStates Board currently consists of 19 members.
Classification of the CoreStates Board 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
The CoreStates Articles 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.
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
the CoreStates Board, cash dividends at an annual per share rate equal to
12.3%.
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<PAGE>
Voting Rights. Except as otherwise required by law or as provided in any
resolution of the CoreStates Board 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 CoreStates
Board 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 the CoreStates Articles, any vacancy in the CoreStates
Board 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.
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.
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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 CoreStates Board 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 holders 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 Articles of
Incorporation or By-laws," for a description of the manner in which the
CoreStates Articles and By-laws may be amended.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
Each of CoreStates and Independence is a Pennsylvania corporation subject to
the provisions of the PABCL. Shareholders of Independence, whose rights are
governed by Independence's articles of incorporation (the "Independence
Articles") and by-laws (the "Independence By-laws") and the PABCL 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, the CoreStates By-laws and the PABCL.
The following is a summary of the material differences in the rights of
shareholders of Independence under the Independence Articles, Independence By-
laws and the PABCL, on the one hand, and the rights of the shareholders of
CoreStates under the CoreStates Articles, 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 of incorporation and by-laws of each
corporation.
AUTHORIZED CAPITAL
The Independence Articles authorize the issuance of 50,000,000 of
Independence Common Shares, par value $2.50 per share, of which shares
were issued and outstanding as of the Record Date, and 2,500,000 shares of
preferred stock, par value $100 per share ("Independence Preferred Stock"),
none of which was issued and outstanding as of the Record Date. Independence
Preferred Stock is issuable in series, each having such rights and preferences
as the Independence Board may fix and determine. As of the Record Date,
110,000 shares of Series A Preferred Stock, par value $100 per share
("Independence Series A Preferred Stock"), were reserved
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for issuance upon the exercise of Independence's preferred stock purchase
rights pursuant to the Independence 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."
AMENDMENT OF ARTICLES OF INCORPORATION OR BY-LAWS
The Independence Articles and By-laws may be amended by the Independence
Board, subject to the power of the shareholders to change such action;
provided, however, that 85% of all of the issued and outstanding shares
entitled to vote in the election of directors of Independence vote in favor of
amending the Independence Articles or By-laws in any manner different from that
recommended by the Independence Board. If the Independence Board by a three-
fourths vote (or if there is a person or persons serving on the Independence
Board other than Continuing Directors (as defined under "Merger or Other
Fundamental Transactions" below), in which event the requirement is for three-
fourths of the Continuing Directors) recommends amending the Independence
Articles or By-laws, they may waive the provisions above requiring a greater
percentage of shareholder vote and a majority of all the issued and outstanding
shares entitled to vote in the election of directors of Independence is
required in favor of taking such action. Unless a resolution to amend the
Independence Articles or By-laws is approved by 85% or more of all of the
issued and outstanding shares entitled to vote in the election of directors of
Independence and does not expressly provide to the contrary, such resolution
may be amended, modified, expanded, contracted or terminated by the
Independence Board. In the event any of the foregoing provisions is finally
judicially determined to be invalid, the Independence By-laws can only be
amended by the shareholders upon a two-thirds affirmative vote.
The CoreStates Articles 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 of 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 the CoreStates Articles which would adversely affect the
rights or preferences of the Series Preferred Stock (except as may be expressly
permitted under the CoreStates Articles 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 CoreStates Board if the matter in
question is not committed to the shareholders by statute.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
The Independence Articles provide that the Independence Board will be
composed of five or more, but not more than thirty-five, members, the number of
which may be fixed by resolution of the Independence Board. The Independence
Board currently consists of 16 members. The Independence By-laws provide for a
classified board of directors, consisting of four substantially equal classes
of directors, each serving for a four-year term, with the term of each class of
directors ending in successive years. Classification of the Independence Board
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 Independence Common Shares and thereby could impede a change in
control of Independence.
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For a description of the size and classification of the CoreStates Board see
"DESCRIPTION OF CORESTATES CAPITAL STOCK--CoreStates Common Shares--Size and
Classification of Board of Directors."
The classification of the CoreStates and Independence Boards 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 or
Independence Common Shares, as the case may be, who obtains a controlling
interest in CoreStates Common Shares or Independence Common Shares.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the PABCL, the CoreStates Articles and the Independence By-
laws provide that a director (or officer, in the case of CoreStates) 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, in the case of
CoreStates) 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, in the case of
CoreStates) pursuant to any criminal statute or the liability of a director (or
officer, in the case of CoreStates) 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.
The Independence Articles and By-laws provide for indemnification for any and
all persons to the fullest extent permitted by the PABCL. The PABCL provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that he is or was a representative of the corporation, or is or was serving at
the request of the corporation as a representative of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful.
CoreStates' Articles and By-laws do not contain similar provisions with
respect to business combinations. However, the PABCL provides that, in respect
of an action by or in the right of a corporation, a corporation may indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he is or was a
representative of the corporation or is or was serving at the request of the
corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of the
action if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation; provided,
however, that there shall be no indemnification in respect of any claim, issue
or matter as to which the person has been adjudged to be liable to the
corporation unless and only to the extent that the court of common pleas of the
judicial district embracing the county in which the registered office of the
corporation is located or the court in which the action was brought determines
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity for the expenses that the court of common pleas or other court deems
proper. Notwithstanding the foregoing, the Independence By-laws prohibit
indemnification where the act or failure to act giving rise to the claim for
indemnification is finally determined by a court to have constituted willful
misconduct or recklessness.
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In accordance with the PABCL, and pursuant to the CoreStates 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)) 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 CoreStates Board (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.
SHAREHOLDER MEETINGS
The Independence By-laws provide that the annual meeting of shareholders of
Independence be held upon not less than twenty 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 Independence voting stock constitutes
a quorum at any shareholders' meeting. The Independence By-laws 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 not less than 120 days prior to the
anniversary of the release by Independence of its proxy statement to
shareholders in connection with the previous year's annual meeting. No other
business may be conducted at the annual meeting except in accordance with the
procedures set forth in the Independence By-laws. A special meeting of
Independence shareholders may be called for any purpose by Independence's
Chairman of the Board, President or a majority of the Independence Board. In
addition, holders of 40% or more of the outstanding Independence voting stock
may apply to the Secretary of Independence to order that a special meeting of
shareholders be held. The Independence Board shall then call such a meeting at
a time determined by it.
CoreStates' By-laws provide that the CoreStates Board 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
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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
CoreStates Board, 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.
MERGER OR OTHER FUNDAMENTAL TRANSACTIONS
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 Independence Articles provide that any Business Combination (as defined
below) requires the affirmative vote of the holders of (i) at least 85% of the
outstanding shares entitled to vote thereon or (ii) at least 75% of the
outstanding shares entitled to vote thereon, if certain conditions regarding
the nature and amount of consideration to be received in the transaction by
holders of Independence Common Shares have been satisfied. However, if three-
fourths of the entire Independence Board (or if there is a person or persons
serving on the Independence Board other than Continuing Directors (as defined
below), in which event three-fourths of the Continuing Directors) recommends in
favor of acceptance of a Business Combination, they may waive the provisions
above requiring a greater percentage of shareholder vote and the same may be
effected upon the affirmative vote of a majority of the holders of Independence
Common Shares. If the business combination provisions of the Independence
Articles are applicable, such 85% or 75% approval would be required even if no
vote is required or a lesser percentage is specified by the PABCL or any
agreement to which Independence is a party.
For purposes of the foregoing, "Business Combination" is defined to include
(i) any merger or consolidation of Independence with or into (a) any 20%
Shareholder (as defined below) or (b) any other corporation (whether or not
itself a 20% Shareholder) which is, or after such merger or consolidation would
be, an affiliate of a 20% Shareholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets (in one transaction
or in a series of related transactions) to or with any 20% Shareholder, the
aggregate value of which is equal to or greater than 10% of Independence's
consolidated stockholders' equity as of the date thereof; (iii) the issuance or
transfer by Independence (in one transaction or in a series of related
transactions) of any securities of Independence to any 20% Shareholder or
affiliate of a 20% Shareholder in exchange for cash, securities or other
property or any combination thereof, having an
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aggregate fair market value equal to or greater than 10% of Independence's
consolidated stockholders' equity as of the date thereof; (iv) any
reclassification of securities (including any reverse stock split),
recapitalization, reorganization, merger or consolidation of Independence with
any of its subsidiaries or any similar transaction (whether or not with, into
or otherwise involving a 20% Shareholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares of
any class of equity or convertible securities of Independence or any
subsidiary, which is directly or indirectly owned by any 20% Shareholder or any
affiliate of a 20% Shareholder; or (v) any other merger, consolidation,
purchase or other acquisition of Independence or all or substantially all of
its assets, regardless as to whether by sale, lease, exchange, mortgage,
pledge, transfer or other disposition and regardless as to whether effected or
to be effected in one transaction or a series of transactions.
"20% Shareholder" means, in respect of any Business Combination, any person
who or which, as of the record date for the determination of shareholders
entitled to notice of and to vote on such Business Combination, or immediately
prior to the consummation of any such transaction: (i) is the beneficial owner,
directly or indirectly, of not less than 20% of the Independence Common Shares;
(ii) is an affiliate of Independence and at any time within two years prior
thereto was the beneficial owner, directly or indirectly, of not less than 20%
of Independence Common Shares; (iii) is an assignee of or has otherwise
succeeded to any Independence Common Shares which were at any time within two
years prior thereto beneficially owned by any 20% Shareholder, and such
assignment or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning of
the Securities Act; or (iv) is the offeror, tenderer, acquiror, buyer, lessee,
mortgagee, pledgee, transferee, recipient or other participant in any
transaction or transactions referred to in clause (v) of the preceding
paragraph.
"Continuing Director" means a person who was a member of the Independence
Board elected by persons who are not 20% Shareholders prior to the date as of
which any 20% Shareholder acquired in excess of 10% of the then outstanding
Independence Common Shares, or a person designated (before such director's
initial election as a director) as a Continuing Director by a majority of the
then Continuing Directors.
CoreStates' Articles and By-laws do not contain similar provisions with
respect to business combinations.
However, the PABCL provides that if a shareholder of a registered 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
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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).
STATE ANTI-TAKEOVER STATUTES
CoreStates and Independence are 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
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 and Independence each have opted out of the provisions of
Subchapters 25G and H but each is subject to the provisions of Subchapters 25E
and F.
In addition, the fiduciary duty standards applicable to the board of
directors of each of CoreStates and Independence 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
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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.
STOCKHOLDER PROTECTION RIGHTS PLAN
Attached to each Independence Common Share is a preferred stock purchase
right (each, an "Independence Preferred Stock Purchase Right") issued pursuant
to a Rights Agreement dated as of February 21, 1989 (as amended to date, the
"Independence Rights Agreement"). Each Independence Preferred Stock Purchase
Right entitles its registered holder to purchase one one-hundredth of a share
of Independence Series A Preferred Stock at the price of $80 (the "Exercise
Price"), subject to adjustment, at the close of business on the tenth day (or
such later date as may be fixed by the Independence Board) after the earlier of
(i) the date (the "Stock Acquisition Date") on which a public announcement is
made that a person (other than (a) Independence, any wholly owned subsidiary of
Independence, or any employee benefit plan established by any of them or any
trustee of, or fiduciary with respect to, any such plan or (b) CoreStates or
any Associate (as defined in the Independence Rights Agreement) or Affiliate
(as defined in the Independence Rights Agreement) thereof as a result of the
execution and delivery of the Merger Agreement and the Stock Option Agreement,
or the consummation of the transactions contemplated by the Merger Agreement or
the Stock Option Agreement, including, without limitation, the merger or the
exercise of the option provided for therein) has become the beneficial owner of
20% or more of the outstanding Independence Common Shares (any such Person
being called an "Acquiring Person") or (ii) the date a person (other than
Independence, any wholly owned subsidiary of Independence, or any employee
benefit plan established by any of them or any trustee of, or fiduciary with
respect to, any such plan) commences or makes a public announcement of an
intent to commence a tender or exchange offer to acquire (when added to any
shares as to which such person is the beneficial owner immediately prior to
such tender or exchange offer) beneficial ownership of 20% or more of the
outstanding Independence Common Shares (such tenth or later day being called
the "Separation Time"); provided that if a tender or exchange offer referred to
in clause (ii) is cancelled, terminated or otherwise withdrawn prior to the
Separation Time, such offer shall be deemed never to have been made.
The Independence Preferred Stock Purchase Rights will not be exercisable
until the Separation Time. Independence's Preferred Stock Purchase Rights
expire at the earlier of (i) February 21, 1999, (ii) the date on which the
Independence Preferred Stock Purchase Rights are redeemed as described below
and (iii) immediately prior to the Effective Time (the "Expiration Time"). The
Exercise Price and the number of Independence Preferred Stock Purchase Rights
outstanding, or in certain circumstances the securities purchasable upon
exercise of the Independence Preferred Stock Purchase Rights, are subject to
adjustment upon the occurrence of certain events.
The Independence Rights Agreement provides that, unless the Independence
Preferred Stock Purchase Rights are earlier redeemed, in the event that, after
the Independence Preferred Stock Purchase Rights have become exercisable and
prior to the Expiration Time, Independence (a) consolidates with or merges with
or into any other person (other than a wholly owned subsidiary of
Independence), or any other person consolidates with or merges with or into
Independence, and, in connection therewith, all or part of the outstanding
Independence Common Shares are changed in any way or are converted into or
exchanged for stock or other securities or cash or any other property, (b)
sells or otherwise transfers (or one or more of its subsidiaries sells or
otherwise transfers) assets (i) aggregating more than 50% of the assets
(measured by either book value or fair market value), or (ii) generating more
than 50% of the operating income or cash
70
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flow, of Independence and its subsidiaries (taken as a whole) to any other
person (other than Independence or one or more of its wholly owned
subsidiaries) or to two or more such persons which are affiliated or otherwise
acting in concert, (c) engages in certain defined "self-dealing" transactions
with Acquiring Persons or (d) permits certain transactions to occur at such
time as there shall be an Acquiring Person (a "Flip-over Transaction or
Event"), proper provision must be made so that each holder of record of an
Independence 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 Market Price (as defined in the Independence
Rights Agreement) at the time of such transaction equal to two times the
Exercise Price; provided, however, that the consummation of the transactions
contemplated by the Merger Agreement shall be deemed not to be a Flip-over
Transaction or Event. The Independence Rights Agreement further provides that,
unless the Independence Preferred Stock Purchase Rights are earlier redeemed,
in the event that, after the Preferred Stock Purchase Rights have become
exercisable and prior to the Expiration Time, any person becomes an Acquiring
Person, other than as a result of a tender offer for all shares of Independence
Common Shares which the Independence Board determines, prior to the Stock
Acquisition Date, to be in the best interest of Independence and its
shareholders, each holder of record of an Independence Preferred Stock Purchase
Right, other than an Independence Preferred Stock Purchase Right owned at such
time or prior thereto by the Acquiring Person (which other Independence
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 Independence's Series A Preferred Stock having a Market
Price at the time of the transaction equal to two times the Exercise Price.
At any time prior to the earlier of (i) the close of business on the tenth
day (or such later date as may be fixed by the Independence Board) following
the Stock Acquisition Date and (ii) February 21, 1999, Independence may redeem
Independence's Preferred Stock Purchase Rights in whole, but not in part, at a
price of $0.01 per Independence Preferred Stock Purchase Right.
CoreStates has not adopted a plan similar to or having the same effect as the
Independence Rights Agreement.
PREFERRED STOCK
Independence's Preferred Stock (other than Independence's Series A Preferred
Stock) is issuable in one or more series and the Independence Board, subject to
certain limitations, is authorized to provide for the issuance of one or more
new series of Independence'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
Independence Board may issue such preferred stock from time to time in
transactions that may not require the approval of Independence's shareholders,
and the preferences, designations, and voting rights of such preferred stock
may materially limit or qualify the rights of the outstanding Independence
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 for the year ended
December 31, 1993 (restated to include Constellation Bancorp which was acquired
on March 16, 1994), included in CoreStates' Form 8-K dated May 5, 1994, have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference, whose
opinion is based in part on the report of KPMG Peat Marwick, independent
auditors. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing. The report of KPMG Peat Marwick refers
to a change in accounting for postretirement benefits, other than pensions,
income taxes and certain investments in debt and equity securities in 1993.
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INDEPENDENCE
The consolidated financial statements of Independence incorporated by
reference in Independence's Annual Report (Form 10-K) for the year ended
December 31, 1993 have been audited by Coopers & Lybrand, independent auditors,
as set forth in their report thereon, which includes an explanatory paragraph
noting that Independence changed its method of accounting for investments in
1993 and for income taxes in 1992, 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.
GERMANTOWN
The consolidated financial statements of Germantown for the year ended
December 31, 1993 incorporated in this Proxy Statement-Prospectus by reference
from the CoreStates' Current Report on Form 8-K dated April 29, 1994, have been
audited by Deloitte & Touche, independent auditors, as stated in their report,
which is incorporated herein by reference, and has so been incorporated in
reliance upon the report of such firm, given upon their authority as experts in
accounting and auditing.
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. At March 31, 1994 Mr. Martin was
the beneficial owner of 11,275 shares of CoreStates common stock and options
covering an additional 52,736 shares of CoreStates common stock.
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APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 19TH DAY OF NOVEMBER, 1993
BY AND BETWEEN
CORESTATES FINANCIAL CORP
AND
INDEPENDENCE BANCORP, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Recitals.................................................................
ARTICLE I. THE MERGER
Section 1.1. Structure of the Merger...................................
Section 1.2. Effect on Outstanding Shares..............................
Section 1.3. Exchange Procedures.......................................
Section 1.4. Options...................................................
Section 1.5. Stock Option Agreement....................................
Section 1.6. Convertible Debentures....................................
ARTICLE II. CONDUCT PENDING THE MERGER
Section 2.1. Conduct of the Company's Business Prior to the Effective
Time......................................................
Section 2.2. Forbearance by the Company................................
Section 2.3. Forbearance by Acquiror...................................
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties............................
ARTICLE IV. COVENANTS
Section 4.1. Acquisition Proposals.....................................
Section 4.2. Employee Benefits.........................................
Section 4.3. Access and Information....................................
Section 4.4. Certain Filings, Consents and Arrangements................
Section 4.5. Indemnification; Directors' and Officers' Insurance.......
Section 4.6. Additional Agreements.....................................
Section 4.7. Publicity.................................................
Section 4.8. Proxy; Registration Statement.............................
Section 4.9. Shareholders' Meetings....................................
Section 4.10. Securities Act; Pooling-of-Interests......................
Section 4.11. Pooling-of-Interests and Tax-Free Reorganization
Treatment.................................................
Section 4.12. Executive Advisory Committee; Directorships; Name;
Management................................................
Section 4.13. Antitakeover Statutes.....................................
Section 4.14. Severance Benefits........................................
Section 4.15. Listing...................................................
Section 4.16. Allowance for Credit Losses...............................
Section 4.17. Bank Merger...............................................
Section 4.18. Rights Agreement..........................................
ARTICLE V. CONDITIONS TO CONSUMMATION
Section 5.1. Conditions to All Parties' Obligations ...................
Section 5.2. Conditions to Obligations of Acquiror ....................
Section 5.3. Conditions to the Obligation of the Company...............
ARTICLE VI. TERMINATION
Section 6.1. Termination...............................................
Section 6.2. Effect of Termination.....................................
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1. Effective Date and Effective Time.........................
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VIII. OTHER MATTERS
Section 8.1. Certain Definitions; Interpretation.........................
Section 8.2. Survival....................................................
Section 8.3. Waiver .....................................................
Section 8.4. Counterparts ...............................................
Section 8.5. Governing Law ..............................................
Section 8.6. Expenses ...................................................
Section 8.7. Notices ....................................................
Section 8.8. Entire Agreement; Etc. .....................................
Section 8.9. Assignment..................................................
</TABLE>
ii
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LIST OF ANNEXES
<TABLE>
<C> <C> <S>
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 -- Significant Subsidiaries of the Company (Section 3.1(d))
Annex 5 -- The Company Employee Benefit Plans (Section 3.1(m))
Annex 6 -- Form of Amendment to Rights Agreement (Section 3.1(u))
Annex 7 -- Severance Policies (Section 4.14)
</TABLE>
iii
<PAGE>
INDEX TO DEFINITIONS
<TABLE>
<CAPTION>
TERM LOCATION OF DEFINITION
---- ----------------------
<S> <C>
Acquiror................................................. Preamble
Acquiror Common Stock.................................... Recital A
Acquiror Preferred Stock................................. Recital A
Acquisition Proposal..................................... 4.1
Acquiror Ratio........................................... 6.1(e)
Acquiror Retirement Plan................................. 4.2(c)
Affiliates............................................... 4.10(a)
Average Closing Price.................................... 1.2(b)
Bank Regulators.......................................... 3.1(k)
Benefit Plans............................................ 3.1(m)
Certificate.............................................. 1.3(a)
Code..................................................... Recital D
Company.................................................. Preamble
Company Common Stock..................................... Recital B
Company Meeting.......................................... 4.9
Company Retirement Plan.................................. 4.2(c)
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(w)
ERISA.................................................... 3.1(m)
Exchange Agent........................................... 1.3(b)
Exchange Fund............................................ 1.3(b)
Executive Agreements..................................... 4.2(d)
Federal Reserve Board.................................... 5.1(b)
Final Index Price........................................ 6.1(e)
Final Price.............................................. 6.1(e)
Hazardous Substance...................................... 3.1(w)
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)
material................................................. 8.1
Material Adverse Effect.................................. 8.1
Maximum Amount........................................... 4.5(c)
Merger................................................... 1.1
NMS...................................................... 1.2(b)
NYSE..................................................... 1.2(b)
Pension Plan............................................. 3.1(m)
person................................................... 8.1
Plan..................................................... Preamble
Properties............................................... 3.1(w)
Proxy Statement.......................................... 3.1(s)
Proxy Statement/Prospectus............................... 3.1(s)
</TABLE>
iv
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<TABLE>
<CAPTION>
TERM LOCATION OF DEFINITION
---- ----------------------
<S> <C>
Registration Statement................................... 3.1(s)
Reports.................................................. 3.1(g)
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>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of the 19th day of November, 1993
(this "Plan"), by and between CoreStates Financial Corp ("Acquiror") and
Independence Bancorp, Inc. (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 November 12, 1993, Acquiror had 200,000,000 authorized
shares of common stock, par value $1.00 per share ("Acquiror Common Stock"), of
which 117,196,856 shares were 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 Commonwealth of
Pennsylvania, with its principal executive offices located in Perkasie,
Pennsylvania. As of the date hereof, the Company has 50,000,000 authorized
shares of common stock, par value $2.50 per share (the "Company Common Stock"),
of which 11,499,291 shares are outstanding, and 2,500,000 authorized shares of
preferred stock, par value $100 per share (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 21, 1989, between the Company and The
Bank of New York, 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 (the "PBCL"). 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.
<PAGE>
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 outstanding at the Effective Time
(other than (i) shares which have not been voted in favor of the approval of
this Plan and with respect to which appraisal rights, if any, shall have been
perfected in accordance with the PBCL (the "Dissenters' Shares"), and (ii)
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 the number of shares of Acquiror Common Stock (the
"Conversion Number") determined as follows:
(i) if the Average Closing Price on the Determination Date (as defined in
Section 6.1(e)) is less than or equal to $27.00 per share, the Conversion
Number will be 1.50;
(ii) if the Average Closing Price on the Determination Date is greater
than or equal to $28.00 per share, the Conversion Number will be 1.45; or
(iii) if the Average Closing Price on the Determination Date is greater
than $27.00 but less than $28.00 per share, the Conversion Number will be
determined by dividing $40.50 by the Average Closing Price;
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.
(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") or the New York Stock
Exchange ("NYSE") Composite Transactions reporting system, as the case may be
(as reported by The Wall Street Journal or, if not reported thereby, another
authoritative source), for the 20 NMS or NYSE, as the case may be, trading days
ending on the trading day prior to such day.
(c) The shares of the Acquiror Common Stock issued and outstanding
immediately prior to the Effective Time shall remain outstanding and unchanged
after the Merger.
(d) Dissenters' Shares, if any, shall be purchased and paid for in accordance
with the PBCL.
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 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 First Chicago Trust Company of New York (or a 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
2
<PAGE>
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 are mutually agreeable to Acquiror and the
Company; 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 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 the
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 the 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
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<PAGE>
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 body or 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.
(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.
Section 1.6. Convertible Debentures. The Company's 7% Convertible
Subordinated Debentures Due 2011 (the "Debentures") outstanding at the
Effective Time shall be assumed by Acquiror and thereafter be an obligation of
the Acquiror and, from and after the Effective Time, the holders of the
Debentures shall have the right to convert such Debentures into such number of
shares of Acquiror Common Stock receivable by a holder of the number of shares
of Company Common Stock into which such Debentures might have been converted
immediately prior to the Merger. Acquiror shall enter into a supplemental
indenture with respect to such obligations pursuant to the terms of the
indenture pursuant to which the Debentures were issued.
4
<PAGE>
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
each of 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 other than regular quarterly cash dividends not
exceeding $0.29 per share on the Company Common Stock 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 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 its employees (other than increases not
greater than 4.5% in the aggregate 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, modify or terminate any bonus, profit
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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 provided that the appointment of an officer to another
office of the Company or any of its subsidiaries shall not be deemed to be
the appointment of a new officer; 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.
(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, for purposes of this Plan, 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 licensed or 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 license or 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, a
list of its Significant Subsidiaries is contained in Annex 4. The shares of
capital stock of each of its Significant Subsidiaries are owned by it
(except for director's qualifying shares and, in the case of Acquiror, a
minority interest in Congress Financial Corp) free and clear of all liens,
claims, encumbrances and restrictions on transfer and there are no Rights
with respect to such capital stock.
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(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. In
the case of the Company, the affirmative vote of the holders of a majority
of all outstanding shares of the Company Common Stock is the shareholder
vote required for approval of this Plan and consummation of the Merger and
the other transactions contemplated hereby. 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 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 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 September 30, 1993, but are not so disclosed in such Reports.
(h) Absence of Certain Changes or Events. Except as disclosed in its
Reports filed prior to the date of this Plan, since September 30, 1993,
there has not been any change in the financial condition or results
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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. 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 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 exceeds the present value of the "benefit liabilities"
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(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 5 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 (i) property as
to which it is lessee and (ii) real estate owned as a result of fore-
closure, transfer in lieu of foreclosure or other transfer in satisfaction
of a debtor's obligation previously contracted), 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 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 the
Company by Alex. Brown & Sons Incorporated (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
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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, 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 not misleading, 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 15 Pa.C.S.A. (S)(S) 2561-2568 and 15 Pa.C.S.A. (S)(S) 2571-
2576 of the PBCL do not and will not apply to this Plan or the Merger or
the transactions contemplated hereby.
(u) Environmental Matters.
i) For purposes of this Section 3.1(u), 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.
"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,
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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) 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 the purposes of this Section 3.1(u), "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.
(v) Material Contracts. Neither it nor any of its subsidiaries is in
default under any material contract, which default is reasonably likely to
have, either individually or in the aggregate, a Material Adverse Effect on
it, and there has not occurred any event that with the lapse of time or the
giving of notice or both would constitute such a default. In the case of
the Company, neither it nor any of its subsidiaries is a party to or is
bound by any agreement or subject to or bound by any judgment, decree,
order, writ or injunction that places any material restriction on the
ability of the Company or any of its subsidiaries to engage in their
respective businesses in accordance with present practices.
(w) Insurance. The assets, properties and operations of the Company and
its subsidiaries are insured under various policies of general liability
and other forms of insurance, including surety and bonding arrangements.
Such policies are in amounts and types of coverage which are adequate in
relation to the business and assets of each of them and all premiums due
have been paid in full. All such forms of insurance are in full force and
effect in accordance with their terms, no notice of cancellation has been
received, and there is no existing default or event which, with the giving
of notice or lapse of time or both, would constitute a default thereunder,
in each such case, except which would not have a Material Adverse Effect on
the Company. To the best of the knowledge of the Company, there has been no
failure to give any notice or to present any material claim under any
insurance arrangement in due and timely fashion.
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ARTICLE IV.
Covenants
Section 4.1. Acquisition Proposals. The Company agrees that neither it nor
any of its subsidiaries nor any of the respective officers, directors and
employees of the Company or its subsidiaries, acting within the scope of their
authority shall, and the Company shall direct and use its best efforts to cause
its agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or
the making of any proposal or offer (including, without limitation, any
proposal or offer to stockholders of the Company) with respect to a merger,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company or
any of its subsidiaries (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal") or, except as may be legally required for the
discharge by the board of directors of its fiduciary duties, engage in any
negotiations concern-ing, or provide any confidential information or data to,
or have any discussions with, any person relating to an Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. 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, offset
or counterclaim, 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, eight employment agreements with certain senior executives
of the Company and its subsidiaries. In accordance with the terms of such
employment agreements, Acquiror hereby assumes, subject to the consummation of
the Merger, all of the Company's and its subsidiaries' obligations under such
employment 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 the Acquiror or any of its
subsidiaries employee benefits which are no less favorable in the aggregate to
those provided from time to time to their respective similarly situated
officers and employees. For purposes of this Section 4.2(b), employee benefits
shall include, without limitation, pension benefits, health and welfare
benefits, life insurance and vacation; but for purposes of determining employee
benefits which are no less favorable in the aggregate, Acquiror shall not be
obligated to maintain or cause its subsidiaries to maintain any single type of
employee benefit of any particular amount. Any employee of the Company or any
of its subsidiaries who becomes a participant in any employee benefit plan,
program, policy, or arrangement of the 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.
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Section 4.3. Access and Information. Upon reasonable notice, each of the
parties shall (and shall cause each of the parties' subsidiaries to) afford to
the other parties 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 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) To the extent required by applicable law, 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.
Section 4.5. Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, Acquiror agrees to indemnify and hold harmless
each present and former director and officer of the Company or its subsidiaries
and each officer or employee of the Company or its subsidiaries that is serving
or has served as a director or trustee of another entity expressly at the
Company's request or direction, determined as of the Effective Time (the
"Indemnified Parties"), against any and all costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any and all
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising 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
permitted by applicable law (and also advance expenses incurred to the fullest
extent permitted by applicable law).
(b) Any Indemnified Party wishing to claim indemnification under Section
4.5(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall within forty-five (45) days upon learning of such claim,
action, suit, proceeding or investigation, notify Acquiror thereof, but the
failure to so notify shall not
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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), (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
Indemnified Party shall contribute to the amount payable in such proportion as
is appropriate to reflect the relative benefit received by such Indemnified
Party in any transaction which was the subject of, and the relative fault of
such Indemnified Party with respect to, such claim, action, suit, proceeding or
investigation by the Indemnified Party.
(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
nonactions, 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 the 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 articles 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 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; Name;
Management. (a) The Acquiror agrees, promptly following the Effective Time, to
cause all the members of the Company's board of directors, the board of
directors of each banking subsidiary of the Company immediately prior to the
Effective Time who are nominated by the Company and are willing so to serve if
so nominated and willing to serve to be elected or appointed as members of
newly formed executive advisory boards of each banking subsidiary of the
Company, or if any such banking subsidiary ceases to exist, of CoreStates Bank,
N.A., with Mr. Monroe W. Long serving as Chairman of the advisory board with
respect to Cheltenham Bank.
(b) Acquiror agrees, following the Effective Time, to cause one member of the
Company's board of directors immediately prior to the Effective Time, who is
nominated by the Company and approved by Acquiror, to be elected or appointed
as a director of Acquiror.
(c) 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
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Acquiror, one of whom shall be Mr. John D. Harding, to be elected or appointed
as directors of CoreStates Bank, N.A.
(d) Acquiror intends under current competitive, marketing and operating
conditions to continue to use the trade names of each banking subsidiary of the
Company, in the market served by such banking subsidiary, including use of such
trade names at each former branch of such banking subsidiary as the same are
used on the date of this Plan.
(e) Acquiror intends that the bank market managers of each banking subsidiary
of the Company will continue their employment duties similar to those existing
on the date of this Plan, including operating responsibilities for the banking
franchises in the marketplaces of the branches of such branch market managers,
consistent with the terms and conditions of their existing employment
contracts.
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 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 7 hereof.
Section 4.15. Listing. Acquiror shall use its best efforts to list on the NMS
or, in the event Acquiror Common Stock is then listed on the NYSE, the NYSE, in
each case upon official notice of issuance, the Acquiror Common Stock to be
issued in the Merger.
Section 4.16. Allowance for Credit Losses. (i) The allowance for credit
losses included in the consolidated financial statements of the Company
included in the Company's September 30, 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. The 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 the 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.
(ii) The allowance for credit losses included in the consolidated financial
statements of Acquiror included in Acquiror's September 30, 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, Acquiror and its subsidiaries.
Acquiror has disclosed to the Company 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 Acquiror 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 Acquiror shall promptly on a periodic basis inform the Company 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.
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Section 4.17. 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 or plans of integration for the merger of each of its bank subsidiaries
with and into CoreStates Bank, N.A. ("Bank Mergers") 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 or plans of integration for
the Bank Mergers, 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 recognizing that differing policies and regulations may apply to
state chartered banks of the Company, (ii) new extensions of credit or material
revisions to existing terms of credits by each bank subsidiary in each case
where the aggregate exposure exceeds $1,500,000 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 each bank subsidiary 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 or plans of integration for the Bank Mergers,
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 or plans of integration and the Bank Mergers.
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, 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 4.17 unless and until Acquiror specifies its request in a
writing delivered by Acquiror to the Company, and acknowledges and 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 impairs
its regulatory capital, that is inconsistent with any formal or informal
undertaking by the Company to any bank regulatory agency that has been
disclosed in writing to Acquiror prior to the date hereof or is inconsistent
with any bank regulatory requirement applicable to the Company or any of its
banking subsidiaries and (iv) the Company shall not be required to take any
such action that is not consistent with generally accepted accounting
principles. 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 4.17.
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Section 4.18. Rights Agreement. Promptly following the date hereof, the
Company will amend its Rights Agreement in substantially the form of Annex 6.
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, (ii) by the Pennsylvania Department of Banking
pursuant to Pennsylvania law, (iii) by the Arizona Director of Insurance
pursuant to Arizona law and (iv) by the NJDEPE pursuant to ISRA, to the
extent required by applicable 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 (other than any condition or
requirement imposed on the basis or as a result of the Acquiror's or any of
its subsidiaries' compliance with the Community Reinvestment Act of 1977)
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.
(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
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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 of the
Proxy Statement/Prospectus, pursuant to which Alex. Brown & Sons
Incorporated 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) Acquiror and its directors shall have received from the Company's
independent certified public accountants "agreed upon procedures" letters,
dated (i) the date of the mailing of the Proxy Statement/Prospectus to the
Company's shareholders and (ii) shortly prior to the Effective Date, 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; and the
Company shall have received certificates signed by the Chief Executive
Officer and the Chief Financial Officer of the Acquiror, dated the
Effective Date, to the foregoing effect.
(b) The Acquiror Common Stock to be issued in the Merger has been
approved for listing on the NMS or the NYSE, as the case may be, subject to
official notice of issuance.
(c) The Company and its directors shall have received from Acquiror's
independent certified public accountants "agreed upon procedures" letters,
dated (i) the date of the mailing of the Proxy Statement/ Prospectus to the
Company's shareholders and (ii) shortly prior to the Effective Date, with
respect to certain financial information regarding Acquiror in the form
customarily issued by such accountants at such time in transactions of this
type.
19
<PAGE>
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 October 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 either of the following
conditions are satisfied:
(X)(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 0.90 (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 0.10 from the quotient in this clause
(ii)(B) (the "Index Ratio"); or
(Y) 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.
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), in the case of this Section
6.1(e)(X) the lesser of (x) a number obtained by dividing (A) the product of
the Starting Price, 0.90 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 which is the Acquiror Ratio and in the case of this Section
6.1(e)(Y), 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. 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
20
<PAGE>
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 fifteen 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 fifteen 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)............................ 7.51%
Norwest Corporation (NOB).......................................... 9.72%
Sun Trust Banks, Inc. (STI)........................................ 8.06%
First Union Corporation (FTU)...................................... 10.06%
Fleet Financial Group, Inc. (FLT).................................. 6.22%
NBD Bancorp, Inc. (NBD)............................................ 6.94%
PNC Bank Corp. (PNC)............................................... 9.82%
U.S. Bancorp (USBC)................................................ 3.60%
Wachovia Corporation (WB).......................................... 8.29%
First Bank System, Inc. (FBS)...................................... 4.90%
First Fidelity Bancorporation (FFB)................................ 4.76%
Barnett Banks, Inc. (BBI).......................................... 5.42%
National City Corporation (NCC).................................... 5.50%
Mellon Bank Corporation (MEL)...................................... 5.10%
Boatmen's Bancshares, Inc. (BOAT).................................. 4.11%
------
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 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.
21
<PAGE>
"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 or the NYSE, as the case may be (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, articles 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 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
22
<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:
Independence Bancorp, Inc.
One Hillendale Road
Perkasie, Pennsylvania 18944
Attention: Philip H. Rinnander
With copies to:
David M. Huggin, 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, Pennsylvania 19105
Attention: Terrence A. Larsen, Chairman
23
<PAGE>
With copies to:
David T. Walker
Deputy Chief Counsel
CoreStates Financial Corp
PNB Building, F.C. 1-1-17-1
Broad & Chestnut Street
Philadelphia, Pennsylvania 19107
Section 8.8. Entire Agreement; Etc. This Plan, together with the 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 Sections 4.5 and 4.12, 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:__________________________________
Chief Financial Officer
Independence Bancorp, Inc.
/s/ John D. Harding
By:__________________________________
President and Chief Executive
Officer
24
<PAGE>
APPENDIX II
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated November 19, 1993, between CoreStates Financial
Corp, a Pennsylvania corporation ("Grantee"), and Independence Bancorp, Inc., a
Pennsylvania 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 1,130,000
nonassessable shares of common stock, par value $2.50 per share ("Common
Stock"), of Issuer at a price per share equal to $33.50. 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 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 any bank or trust company subsidiary of Issuer (an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act, 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
1
<PAGE>
Merger Agreement. For purposes of this Agreement, "Acquisition Transaction"
shall mean (x) a merger or consolidation, or any similar transaction,
involving Issuer or an Issuer Subsidiary, (y) a purchase, lease or other
acquisition of all or substantially all of the assets of Issuer or an
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 an 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.
2
<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.
3
<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.
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 8) (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 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
4
<PAGE>
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for the Issuer.
7. (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 a Grantee Subsidiary, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or a Grantee Subsidiary, 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 a
Grantee Subsidiary, 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 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 prior to the event
resulting in the issuance of the Substitute Option, 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 net assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the owner of Option
Shares (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 Assigned Value, 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.
(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
5
<PAGE>
is then exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal to
the Option Price multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock for which the Option is then exercisable and
the denominator of which shall be the number of shares of Substitute Common
Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 9.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 9.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or
the Owner, as the case may be.
8. The 30-day period for exercise of certain rights under Sections 2, 6 and
10 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 or 6 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 8.
9. 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.
10. 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 8); 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.
6
<PAGE>
11. 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.
12. 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.
13. 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 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.
14. 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.
15. This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
16. 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.
17. 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.
18. 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.
19. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
7
<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.
Independence Bancorp, Inc.
/s/ John D. Harding
By: _________________________________
President and Chief Executive
Officer
Corestates Financial Corp
/s/ David C. Carney
By: _________________________________
Chief Financial Officer
8
<PAGE>
APPENDIX III
[LETTERHEAD OF ALEX. BROWN]
MAY , 1994
The Board of Directors
Independence Bancorp, Inc.
One Hillendale Road
Perkasie, PA 19844
Dear Sirs and Madam:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, having a stated
value of $2.50 (the "Shares") of Independence Bancorp, Inc. (the "Company") of
the consideration to be received by the Company's shareholders pursuant to the
Agreement and Plan of Merger dated as of November 19, 1993 between CoreStates
Financial Corp ("CoreStates") and the Company (the "Agreement"). Pursuant to
the Agreement, each of the Shares will receive shares of CoreStates Common
Stock, par value $1.00 per share ("CoreStates Common Stock"), as follows: (a)
if the Average Closing Price of CoreStates Common Stock on the Determination
Date (as defined in the Agreement) is less than or equal to $27.00 per share,
1.50 shares of CoreStates Common Stock; (b) if the Average Closing Price of
CoreStates Common Stock on the Determination Date is greater than or equal to
$28.00 per share, 1.45 shares of CoreStates Common Stock; and (c) if the
Average Closing Price of CoreStates Common Stock on the Determination Date is
between $27.00 and $28.00 per share, shares of CoreStates Common Stock
determined by dividing $40.50 by the Average Closing Price (collectively, the
"Merger Consideration").
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial adviser to the Board of Directors of
the Company in connection with the transactions described above and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the transaction contemplated by the Agreement. Alex.
Brown & Sons Incorporated regularly publishes research reports regarding the
financial service industry and the businesses and securities of publicly owned
companies in that industry.
In connection with this opinion, we have reviewed certain publicly available
financial information concerning the Company and CoreStates and certain
internal financial analyses and other information furnished to us by the
Company and CoreStates. We have also held discussions with members of the
Company's senior management regarding the business and prospects of the
Company. In addition, we have (i) reviewed the reported price and trading
activity for the Shares and CoreStates Common Stock, (ii) compared certain
financial and stock market information for the Company and CoreStates,
respectively, with similar information for certain comparable companies whose
securities are publicly traded, (iii) reviewed the Agreement and compared the
financial terms of the Agreement with those of certain recent business
combinations in the commercial banking industry which we deemed comparable in
whole or in part and (iv) performed such other studies and analyses and
considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to information relating to the prospects of the Company,
we have assumed that such information reflects the best currently available
estimates and judgments of the management of the Company as to the likely
future financial performance of the Company. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities
1
<PAGE>
of the Company or CoreStates, nor have we been furnished with any such
evaluation or appraisal. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Merger Consideration is fair, from a financial point
of view, to the holders of Shares.
Very truly yours,
Alex. Brown & Sons Incorporated
By: _______________________________
Donald W. Delson
Managing Director
2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 et seq. of the PABCL provide 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 19th of November, 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 with consent of Sullivan & Cromwell regarding certain tax
matters.
12(a) --CoreStates Financial Corp and Subsidiaries Computation of Ratio of
Earnings From Continuing Operations to Fixed Charges of Continuing
Operations filed as Exhibit 12.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.
12(b) --CoreStates Financial Corp Computation of Ratio of Earnings to Fixed
Charges Combined CoreStates (Parent Company) and CoreStates Capital
filed as Exhibit 12.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein by
reference.
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 Alex. Brown & Sons Incorporated.
23(d) --Consent of Coopers & Lybrand with respect to Independence Bancorp,
Inc.
23(e) --Consent of Deloitte & Touche with respect to Germantown Savings
Bank.
24 --Powers of Attorney (included on the signature pages hereof).
*99(a) --Draft Proxy Card.
99(b) --Stock Option Agreement dated as of the 19th of November, 1993, is
Appendix II to the Proxy Statement Prospectus included in Part I and
is incorporated herein by reference.
99(c) --Opinion of Alex. Brown & Sons Incorporated is Appendix III to the
Proxy Statement-Prospectus included in Part I and is incorporated
herein by reference.
</TABLE>
- --------
* To be filed by amendment.
II-1
<PAGE>
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
(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 reoffering 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 10(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 has 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.
II-2
<PAGE>
(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.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement 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.
II-3
<PAGE>
SIGNATURES
CORESTATES FINANCIAL CORP
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, CORESTATES FINANCIAL CORP
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PHILADELPHIA,
COMMONWEALTH OF PENNSYLVANIA, ON MAY 9, 1994.
Corestates Financial Corp
By: /s/ Terrence A. Larsen
----------------------------------
TERRENCE A. LARSEN
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED. EACH PERSON IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS
TERRENCE A. LARSEN, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AND DAVID C. CARNEY, CHIEF FINANCIAL OFFICER, AND EACH OF THEM, HIS OR
HER TRUE AND LAWFUL ATTORNEY-IN-FACT, IN HIS OR HER NAME, PLACE AND STEAD TO
EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ANY
AND ALL FURTHER AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS
REGISTRATION STATEMENT.
SIGNATURES CAPACITY DATE
---------- -------- ----
/s/ Terrence A. Larsen Director, Chairman May 9, 1994
- ------------------------------------ of the Board,
TERRENCE A. LARSEN President and
Chief Executive
Officer (principal
executive officer)
/s/ David C. Carney Chief Financial May 9, 1994
- ------------------------------------ Officer (principal
DAVID C. CARNEY financial officer)
/s/ Albert W. Mandia Executive Vice May 9, 1994
- ------------------------------------ President
ALBERT W. MANDIA (principal
accounting
officer)
/s/ George A. Butler Director May 9, 1994
- ------------------------------------
GEORGE A. BUTLER
/s/ Robert H. Campbell Director May 9, 1994
- ------------------------------------
ROBERT H. CAMPBELL
II-4
<PAGE>
SIGNATURES CAPACITY DATE
---------- -------- ----
/s/ Nelson G. Harris Director May 9, 1994
- ------------------------------------
NELSON G. HARRIS
/s/ Carlton E. Hughes Director May 9, 1994
- ------------------------------------
CARLTON E. HUGHES
/s/ Ernest E. Jones Director May 9, 1994
- ------------------------------------
ERNEST E. JONES
Director
- ------------------------------------
SHIRLEY A. JACKSON
/s/ Herbert Lotman Director May 9, 1994
- ------------------------------------
HERBERT LOTMAN
/s/ Patricia A. McFate Director May 9, 1994
- ------------------------------------
PATRICIA A. MCFATE
/s/ John A. Miller Director May 9, 1994
- ------------------------------------
JOHN A. MILLER
/s/ Marlin Miller, Jr. Director May 9, 1994
- ------------------------------------
MARLIN MILLER, JR.
/s/ Stephanie w. Naidoff Director May 9, 1994
- ------------------------------------
STEPHANIE W. NAIDOFF
/s/ Seymour S. Preston, III Director May 9, 1994
- ------------------------------------
SEYMOUR S. PRESTON, III
/s/ James M. Seabrook Director May 9, 1994
- ------------------------------------
JAMES M. SEABROOK
/s/ J. Lawrence Shane Director May 9, 1994
- ------------------------------------
J. LAWRENCE SHANE
Director
- ------------------------------------
RAYMOND W. SMITH
/s/ Harold A. Sorgenti Director May 9, 1994
- ------------------------------------
HAROLD A. SORGENTI
/s/ Peter S. Strawbridge Director May 9, 1994
- ------------------------------------
PETER S. STRAWBRIDGE
II-5
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Accounting Treatment" in the Registration Statement (Form S-4) and related
Prospectus of CoreStates Financial Corp for the registration of 20,500,000
shares of its common stock and to the incorporation by reference therein of our
report dated February 1, 1994, except for Note 2, as to which the date is March
16, 1994, with respect to the consolidated financial statements of CoreStates
Financial Corp for the year ended December 31, 1993 (restated to include
Constellation Bancorp which was acquired on March 16, 1994), included in its
Form 8-K dated May 5, 1994, filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Philadelphia, Pennsylvania
May 6, 1994
<PAGE>
EXHIBIT 23(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report, incorporated herein by reference,
relating to the consolidated statements of condition of Constellation Bancorp
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1993, which
report appears in the May 5, 1994 report on Form 8-K of CoreStates Financial
Corp. Our report refers to a change in accounting for postretirement benefits,
other than pensions, income taxes and certain investments in debt and equity
securities in 1993. The financial statements referred to above are not
separately presented in such report on Form 8-K. We also consent to the
reference to us under the heading "Experts" in the Proxy Statement-Prospectus.
/s/ KPMG Peat Marwick
Short Hills, New Jersey
May 5, 1994
<PAGE>
EXHIBIT 23(D)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Corestates Financial Corp on Form S-4 of our report dated January 19, 1994, on
our audits of the consolidated financial statements of Independence Bancorp,
Inc. as of December 31, 1993 and 1992, and for the years ended December 31,
1993, 1992 and 1991, which includes an explanatory paragraph related to changes
in the method of accounting for investments in 1993 and method of accounting
for income taxes in 1992. We also consent to the reference to our Firm under
the caption "Experts" in the Registration Statement.
/s/ Coopers & Lybrand
Philadelphia, Pennsylvania
May 6, 1994
<PAGE>
EXHIBIT 23(E)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of CoreStates Financial Corp on Form S-4 of our report dated January 21, 1994,
except for Note 16 which is dated March 7, 1994, relating to the consolidated
financial statements of Germantown Savings Bank for the year ended December 31,
1993, which appears in the Current Report on Form 8-K of CoreStates Financial
Corp dated April 29, 1994 and to the reference to us under the heading
"Experts" in the Proxy Statement/Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche
Philadelphia, Pennsylvania
May 6, 1994
