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RULE 424(b)(3)
REGISTRATION NO. 33-63161
PNC BANK CORP. THOMAS H. O'BRIEN
Fifth Avenue and Wood Street Chairman and
Pittsburgh, PA 15265 Chief Executive Officer
LOGO
October 3, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the shareholders of PNC
Bank Corp. ("PNC") to be held on November 17, 1995 beginning at 11:00 a.m.,
local time, on the 15th Floor of One PNC Plaza, Fifth Avenue and Wood Street,
Pittsburgh, Pennsylvania.
At the Special Meeting, you will be asked to consider and vote upon the proposed
merger of Midlantic Corporation ("Midlantic") with and into PNC Bancorp, Inc., a
wholly-owned subsidiary of PNC, and the issuance of up to 115,000,000 shares of
the common stock of PNC in connection therewith. Upon consummation of the
merger, Midlantic shareholders will receive 2.05 shares of the common stock of
PNC for each share of Midlantic common stock, and cash in lieu of any fractional
share. Midlantic is a registered bank holding company with total assets of $13.7
billion headquartered in Edison, New Jersey.
Among other anticipated benefits, the merger presents a unique opportunity for
PNC to achieve a significant position in the attractive New Jersey and
metropolitan Philadelphia markets, to generate substantial economies by reducing
costs associated with overlapping and duplicative operations and to enhance
revenue growth through the marketing of PNC's products and services to
Midlantic's customers. PNC's balance sheet will also be positively impacted by
Midlantic's large and stable base of consumer core deposits and superior capital
position. Based on the assumptions and subject to the qualifications described
in the enclosed Joint Proxy Statement, we expect the proposed merger to be
accretive to earnings in 1996. Further, we believe it represents a more
attractive investment than other alternatives, and creates a financial
institution with a more stable and consistent earnings stream capable of
sustaining superior returns.
Your Board of Directors has unanimously approved the consummation of the
proposed transaction subject to shareholder approval and certain other
conditions, and recommends that you vote FOR the merger, which requires the
issuance of additional shares of PNC common stock. The Board reached this
decision after careful consideration of a number of factors. The enclosed Joint
Proxy Statement describes these factors and also explains the proposed merger in
greater detail. Please read it carefully.
I urge you to take the time to consider this very important matter and vote now.
In order to make sure that your vote is represented, indicate your vote on the
enclosed proxy form, date and sign it, and return it in the enclosed envelope
regardless of whether you plan to attend the meeting. If you do attend the
meeting, you may revoke your proxy at the meeting and vote in person. If you
have any questions regarding the proxy form, the Special Meeting or the proposed
merger, please call 1-800-488-8075.
Cordially,
THOMAS H. O'BRIEN
Thomas H. O'Brien
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PNC BANK CORP.
ONE PNC PLAZA
PITTSBURGH, PENNSYLVANIA 15265
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 17, 1995
To The Shareholders of PNC Bank Corp.:
A Special Meeting of Shareholders (the "PNC Special Meeting") of PNC Bank
Corp. ("PNC") will be held on the 15th floor of One PNC Plaza, Fifth Avenue and
Wood Street, Pittsburgh, Pennsylvania, on November 17, 1995 beginning at 11:00
a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Reorganization ("Reorganization Agreement") among Midlantic Corporation
("Midlantic"), PNC and its wholly-owned subsidiary, PNC Bancorp, Inc. ("PNC
Bancorp"), and a related Agreement and Plan of Merger, each as amended ("Merger
Agreement" and, collectively, with the Reorganization Agreement, "Agreement"), a
copy of each of which is included in Appendix A to the accompanying Joint Proxy
Statement, pursuant to which (i) Midlantic would be merged with and into PNC
Bancorp; (ii) each outstanding share of common stock of Midlantic, par value
$3.00 per share (except as otherwise provided in the Agreement), including each
attached stock purchase right issued pursuant to the Rights Agreement dated as
of February 23, 1990 between Midlantic and Midlantic Bank, N.A., as amended,
would be converted into 2.05 shares of the common stock of PNC, par value $5.00
per share ("PNC Common Stock"), and cash in lieu of any fractional share; and
(iii) up to 115,000,000 shares of PNC Common Stock would be issued in connection
with the proposed merger (the matters being voted on constituting the "PNC
Proposal"); and
2. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Shareholders of record at the close of business on September 29, 1995 are
entitled to notice of and to vote at the PNC Special Meeting or any adjournments
or postponements thereof.
By Order of the Board of Directors,
WILLIAM F. STROME
William F. Strome
Corporate Secretary
Pittsburgh, Pennsylvania
October 3, 1995
IMPORTANT
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE PNC
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS SOON
AS POSSIBLE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE TO
APPROVE THE PNC PROPOSAL.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
INTRODUCTION......................................................................... 1
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE........................... 2
THE COMPANIES........................................................................ 3
SUMMARY.............................................................................. 5
MEETING INFORMATION.................................................................. 17
Date, Place and Time............................................................... 17
Record Date; Voting Rights......................................................... 17
Voting and Revocation of Proxies................................................... 18
Solicitation of Proxies............................................................ 18
PROPOSED MERGER...................................................................... 19
Background of and Reasons for the Merger; Recommendations
of the Boards of Directors...................................................... 19
Terms of the Merger................................................................ 25
Surrender of Certificates.......................................................... 26
Opinions of Financial Advisors..................................................... 26
Representations and Warranties; Conditions to the Merger; Waiver................... 36
Regulatory and Other Approvals..................................................... 36
Business Pending the Merger........................................................ 37
Effective Date of the Merger; Termination.......................................... 38
Management and Operations After the Merger......................................... 38
Interests of Certain Persons in the Merger......................................... 41
Certain Differences in Rights of Shareholders...................................... 43
Certain Federal Income Tax Consequences............................................ 48
Resale of PNC Common Stock......................................................... 49
Dividend Reinvestment and Stock Purchase Plan...................................... 50
Share Repurchase Program........................................................... 50
Accounting Treatment............................................................... 50
Stock Option Agreements............................................................ 51
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (Unaudited)............................. 53
CERTAIN LEGAL PROCEEDINGS............................................................ 61
CERTAIN REGULATORY CONSIDERATIONS.................................................... 62
RELATIONSHIPS WITH INDEPENDENT AUDITORS.............................................. 65
EXPERTS.............................................................................. 66
LEGAL OPINION........................................................................ 66
SUBMISSION OF SHAREHOLDER PROPOSALS.................................................. 66
APPENDIX A-- AGREEMENT AND PLAN OF REORGANIZATION AND RELATED AGREEMENT AND PLAN OF
MERGER, AS AMENDED
APPENDIX B--PNC STOCK OPTION AGREEMENT
APPENDIX C--MIDLANTIC STOCK OPTION AGREEMENT
APPENDIX D--OPINION OF SMITH BARNEY INC.
APPENDIX E--OPINION OF MERRILL LYNCH & CO.
</TABLE>
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PNC BANK CORP.
AND
MIDLANTIC CORPORATION
JOINT PROXY STATEMENT
INTRODUCTION
This Joint Proxy Statement/Prospectus ("Joint Proxy Statement") is being
furnished to shareholders of PNC Bank Corp. ("PNC") and Midlantic Corporation
("Midlantic") in connection with the solicitation of proxies by the Boards of
Directors of PNC and Midlantic (the "PNC Board" and the "Midlantic Board,"
respectively) for their use at their respective special meetings of
shareholders, and any adjournments or postponements thereof, to be held at the
time and place set forth in the accompanying respective notices of special
meeting ("Special Meetings"). It is anticipated that the mailing of this Joint
Proxy Statement and the enclosed proxy card will commence on or about October 6,
1995.
At their respective Special Meetings, shareholders of PNC and Midlantic
will be asked to approve an Agreement and Plan of Reorganization (the
"Reorganization Agreement") and related Agreement and Plan of Merger (the
"Merger Agreement"), each dated as of July 10, 1995, and each as subsequently
amended (collectively, the "Agreement"), copies of which are attached hereto as
Appendix A, providing for the Merger ("Merger") of Midlantic with and into PNC
Bancorp, Inc. ("PNC Bancorp"), a wholly-owned subsidiary of PNC and, in the case
of shareholders of PNC, approval of the issuance of up to 115,000,000 shares of
PNC Common Stock in connection with the Merger (the matters being voted on by
the PNC shareholders and the Midlantic shareholders are referred to herein as
the "PNC Proposal" and the "Midlantic Proposal", respectively).
Upon the Effective Date (as defined in the Agreement) of the Merger, each
share of the common stock of Midlantic, par value $3.00 per share ("Midlantic
Common Stock"), issued and outstanding immediately prior to the Effective Date
(except as otherwise provided in the Agreement), including each attached stock
purchase right issued pursuant to the Rights Agreement dated as of February 23,
1990 between Midlantic and Midlantic Bank, N.A., as amended (the "Rights
Agreement"), will be converted into 2.05 shares of the common stock, par value
$5.00 per share, of PNC ("PNC Common Stock"), and cash in lieu of any fractional
share ("Exchange Ratio"). For a more complete description of the Agreement and
the terms of the Merger, see "PROPOSED MERGER."
All information concerning PNC contained in this Joint Proxy Statement has
been furnished by PNC, and all information contained herein concerning Midlantic
has been furnished by Midlantic.
PNC Common Stock is listed and traded on the New York Stock Exchange
("NYSE") under the symbol "PNC." Midlantic Common Stock is traded in the
over-the-counter market and price quotations therefor are reported on The Nasdaq
National Market(R) ("NASDAQ/NMS") under the symbol "MIDL." The last reported
sale price per share of Midlantic Common Stock as of October 2, 1995 (the latest
practicable trading day before the printing of this Joint Proxy Statement) was
$54.25. The closing price per share of PNC Common Stock on the NYSE as of that
date was $27.875 (which would be equivalent to $57.14 for the 2.05 shares of PNC
Common Stock into which each share of Midlantic Common Stock will be converted
in the Merger.) See "SUMMARY--Markets and Market Prices." The price of PNC
Common Stock and Midlantic Common Stock may change prior to and (in the case of
PNC Common Stock) following consummation of the Merger.
THE SHARES OF PNC COMMON STOCK OFFERED HEREBY ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), AND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK SUBSIDIARY OF PNC.
THE PNC COMMON STOCK TO BE ISSUED IN THE MERGER HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
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("COMMISSION" OR "SEC"), ANY STATE SECURITIES AUTHORITY OR OTHER GOVERNMENTAL
AGENCY, NOR HAS THE COMMISSION, ANY STATE SECURITIES AUTHORITY OR OTHER
GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
JOINT PROXY STATEMENT IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF PNC OR MIDLANTIC SINCE THE DATE OF THIS JOINT
PROXY STATEMENT.
The date of this Joint Proxy Statement, which also constitutes a prospectus
of PNC for up to 115,000,000 shares of PNC Common Stock issuable in connection
with the Merger, is October 3, 1995. This Joint Proxy Statement does not cover
any resales of PNC Common Stock received by shareholders of Midlantic upon
consummation of the Merger, and no person is authorized to make use of this
Joint Proxy Statement in connection with any such resale.
ALL SHAREHOLDERS ARE URGED TO READ THIS JOINT PROXY STATEMENT CAREFULLY AND
IN ITS ENTIRETY.
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE
PNC (Commission File No. 1-9718) and Midlantic (Commission File No.
0-15870) are each subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith,
PNC and Midlantic file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by PNC
and Midlantic can be inspected and copied at the Commission's public reference
room located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the Commission's regional offices located at 7 World Trade
Center (13th floor), New York, New York 10006 and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, copies of
such material can be obtained upon payment of prescribed fees by writing to the
Commission, Public Reference Section, Washington, D.C. 20549.
Reports, proxy statements and other information filed by PNC can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005,
on which exchange PNC Common Stock and two series of PNC's preferred stock are
listed. Reports, proxy statements and other information filed by Midlantic can
also be inspected at the offices of the National Association of Securities
Dealers, Inc. 1735 K Street, N.W., Washington, D.C. 20006.
PNC has filed with the Commission a registration statement ("Registration
Statement") under the Securities Act of 1933, as amended ("Securities Act"),
relating to the shares of PNC Common Stock that may be issued in connection with
the Merger. This Joint Proxy Statement also constitutes the prospectus of PNC
filed as part of the Registration Statement and does not contain all of the
information set forth in the Registration Statement and exhibits thereto.
Statements contained in this Joint Proxy Statement or in any document
incorporated by reference in this Joint Proxy Statement as to the contents of
any documents referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such other documents filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement and the exhibits
thereto may be inspected and
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copied, upon payment of prescribed fees, at the public reference facilities
maintained by the Commission at the addresses set forth above.
THIS JOINT PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO PNC (OTHER
THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST TO GLENN DAVIES, VICE PRESIDENT - FINANCIAL REPORTING,
PNC BANK CORP., ONE PNC PLAZA, PITTSBURGH, PENNSYLVANIA 15265. TELEPHONE
REQUESTS MAY BE DIRECTED TO (412) 762-1553. DOCUMENTS RELATING TO MIDLANTIC
(OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE
UPON WRITTEN OR ORAL REQUEST TO JOHN M. SPERGER, SENIOR VICE PRESIDENT AND
SECRETARY, MIDLANTIC CORPORATION, METRO PARK PLAZA, P.O. BOX 600, EDISON, NEW
JERSEY 08818. TELEPHONE REQUESTS MAY BE DIRECTED TO (908) 321-2793. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE TO PNC BY
NOVEMBER 10, 1995 AND TO MIDLANTIC BY NOVEMBER 9, 1995.
The following documents filed with the Commission are incorporated herein
by reference: (i) Annual Report on Form 10-K of PNC for the year ended December
31, 1994, as amended on June 29, 1995; (ii) Quarterly Reports on Form 10-Q of
PNC for the quarters ended March 31 and June 30, 1995; (iii) Current Reports on
Form 8-K of PNC dated as of April 17, July 10 (as amended on July 17, 1995), and
July 20, 1995; (iv) the description of PNC Common Stock set forth in response to
Item 1 of the Registration Statement on Form 8-A of PNC filed September 24, 1987
pursuant to Section 12 of the Exchange Act, and any amendment or report filed
for the purpose of updating such description; (v) Annual Report on Form 10-K of
Midlantic for the year ended December 31, 1994; (vi) Quarterly Reports on Form
10-Q of Midlantic for the quarters ended March 31 and June 30, 1995; (vii)
Current Reports on Form 8-K of Midlantic dated as of May 31 and July 10, 1995;
and (viii) the description of Midlantic's Series B Junior Participating
Preferred Stock set forth in Midlantic's Registration Statement on Form 8-A
dated as of February 27, 1990 (as amended by a Form 8-A/A dated July 20, 1995).
All documents filed by PNC or Midlantic pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date hereof and prior to the
dates of the Special Meetings shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of the filing. 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 Joint
Proxy Statement to the extent that a statement contained herein or in any other
subsequently filed document which 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 Joint Proxy Statement.
THE COMPANIES
PNC. PNC is a Pennsylvania corporation registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"). PNC was incorporated in 1983 with the
consolidation of Pittsburgh National Corporation and Provident National
Corporation. Since 1983, PNC has diversified its geographical presence and
product capabilities through strategic acquisitions and the formation of various
nonbanking subsidiaries. PNC operates banking subsidiaries in Pennsylvania,
Delaware, Florida, Indiana, Kentucky, Massachusetts, New Jersey and Ohio and
conducts certain nonbanking operations throughout the United States. PNC's major
businesses include corporate banking, consumer banking, private banking,
mortgage banking and trust and mutual fund asset management. As of June 30,
1995, PNC had total assets of $62.8 billion and shareholders' equity of $4.4
billion. As of June 30, 1995, PNC was ranked, on the basis of total assets, as
the 13th largest bank holding company in the United States and the largest
headquartered in Pennsylvania.
On March 7, 1995, PNC entered into a definitive agreement with Chemical
Banking Corp. ("Chemical") to acquire Chemical New Jersey Holdings, Inc. ("CNJ
Holdings") and its wholly owned subsidiary, Chemical Bank New Jersey, National
Association ("Chemical-New Jersey"). In conjunction with and prior to
consummation of such transaction, Chemical will undertake an internal
reorganization of CNJ Holdings and Chemical-New Jersey such that PNC will
acquire a network of 82 branches, located in 15 counties throughout central and
southern New Jersey. The total purchase price, which will be based on the
closing date balance sheet for Chemical-New Jersey, is anticipated to
approximate $490 million. The
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transaction includes assets approximating $3.2 billion and retail core deposits
approximating $2.7 billion. No nonperforming assets will be acquired. PNC
expects the transaction to close in early October 1995. PNC currently expects to
merge the Chemical-New Jersey franchise acquired with and into PNC Bank,
National Association ("PNC Bank"), a wholly-owned indirect subsidiary of PNC
with banking operations throughout Pennsylvania. The Chemical-New Jersey
acquisition does not represent a "significant subsidiary" in relation to PNC and
therefore the financial impact has not been reflected in the pro forma financial
statements included herein. See "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)."
From time to time, PNC investigates and holds discussions and negotiations
in connection with possible transactions with other banks and financial service
entities. At the date hereof, PNC has not entered into any agreements or
understandings with respect to any significant transactions of the type referred
to above except for the transactions described herein and in documents
incorporated herein by reference. See "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE." If required under applicable law, or NYSE policy,
any such transactions would be subject to regulatory approval and the approval
of shareholders.
The principal executive offices of PNC are located at One PNC Plaza, Fifth
Avenue and Wood Street, Pittsburgh, Pennsylvania 15265. Its telephone number is
(412) 762-1553. For additional information concerning the business of PNC and
its financial condition, reference should be made to the PNC documents
incorporated herein by reference. See "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE."
PNC BANCORP. PNC Bancorp is a Delaware corporation registered under the
BHCA and a wholly-owned subsidiary of PNC. PNC Bancorp serves as an intermediate
holding company for PNC's bank subsidiaries.
MIDLANTIC. Midlantic is a New Jersey corporation registered under the BHCA.
As of June 30, 1995, Midlantic had total assets of $13.7 billion and
shareholders' equity of $1.4 billion. Midlantic's principal subsidiary is
Midlantic Bank, N.A. ("Midlantic Bank"), a national banking association, with
336 banking offices in New Jersey and southeastern Pennsylvania. Midlantic Bank
engages in a full range of commercial and retail banking and trust businesses,
including taking deposits, extending secured and unsecured credit and providing
personal and corporate trust services.
The principal executive offices of Midlantic are located at Metro Park
Plaza, P.O. Box 600, Edison, New Jersey 08818. Its telephone number is (908)
321-8000. For additional information concerning the business of Midlantic and
its financial condition, reference should be made to Midlantic's documents
incorporated herein by reference. See "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE."
COMBINED COMPANY. Upon consummation of the Merger, PNC will significantly
expand its presence in New Jersey and in metropolitan Philadelphia. After the
Merger and the Chemical transaction described above, PNC expects that it will
have the third and second largest market share (measured in terms of deposits)
in New Jersey and in metropolitan Philadelphia, respectively. In addition, the
Merger will provide the opportunity for PNC to achieve significant cost savings
in areas such as branch network consolidations, back office and administrative
units and marketing expenses, while at the same time making its broad array of
national products and services, such as asset management, treasury management,
residential mortgages and credit cards, available to the current customer base
of Midlantic Bank. See "PROPOSED MERGER--Management and Operations After the
Merger."
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SUMMARY
This summary is necessarily general and abbreviated and has been prepared
to assist shareholders in their review of this Joint Proxy Statement. This
summary is not intended to be a complete explanation of the matters covered in
this Joint Proxy Statement and is qualified in all respects by reference to the
more detailed information contained elsewhere in this Joint Proxy Statement, the
Appendices hereto and the documents incorporated herein by reference.
Shareholders are urged to read this Joint Proxy Statement and the Appendices
hereto carefully and in their entirety.
THE SPECIAL MEETINGS
PNC. The Special Meeting of PNC shareholders (the "PNC Special Meeting") to
consider and vote upon the PNC Proposal will be held on November 17, 1995
beginning at 11:00 a.m., local time, on the 15th floor of One PNC Plaza, Fifth
Avenue and Wood Street, Pittsburgh, Pennsylvania. Only holders of record of PNC
capital stock described below at the close of business on September 29, 1995
(the "Record Date") will be entitled to notice of and to vote at such Special
Meeting and any adjournments or postponements thereof. At such date, there were
outstanding and entitled to vote 228,598,590 shares of PNC Common Stock, and the
following shares of PNC preferred stock, par value $1 per share ("PNC Preferred
Stock"): 17,951 shares of $1.80 Cumulative Convertible Preferred Stock-Series A
("PNC Preferred Stock-A"); 6,336 shares of $1.80 Cumulative Convertible
Preferred Stock-Series-B ("PNC Preferred Stock-B"); 361,363 shares of $1.60
Cumulative Convertible Preferred Stock-Series C ("PNC Preferred Stock-C"); and
479,383 shares of $1.80 Cumulative Convertible Preferred Stock-Series D ("PNC
Preferred Stock-D"). PNC Common Stock and PNC Preferred Stock are hereinafter
collectively referred to as "PNC Capital Stock."
MIDLANTIC. The Special Meeting of Midlantic shareholders (the "Midlantic
Special Meeting") to consider and vote upon the Midlantic Proposal will be held
on November 16, 1995 at 10:00 a.m., local time, at the Sheraton at Woodbridge
Place, 515 Route 1 South, Iselin, New Jersey. Only holders of record of
Midlantic Common Stock at the close of business on the Record Date will be
entitled to notice of and to vote at such Special Meeting and any adjournments
or postponements thereof. At such date, there were outstanding and entitled to
vote 52,359,775 shares of Midlantic Common Stock.
For additional information with respect to the Special Meetings and the
voting rights of shareholders, see "MEETING INFORMATION."
THE PROPOSED MERGER
In accordance with the terms of the Agreement, on the Effective Date
Midlantic will be merged with and into PNC Bancorp. Also on the Effective Date,
the separate existence of Midlantic will cease and PNC Bancorp, as the surviving
entity, will continue unaffected and unimpaired by the Merger. On the Effective
Date, each outstanding share of Midlantic Common Stock (except as otherwise
provided in the Agreement) will be converted into 2.05 shares of PNC Common
Stock and cash in lieu of any fractional share (the "Exchange Ratio"). See
"PROPOSED MERGER--Terms of the Merger." It is expected that the Merger will be
accounted for as a "pooling-of-interests" transaction.
For a discussion of treatment of outstanding stock options issued pursuant
to Midlantic's stock option plans, see "SUMMARY--Management and Operations after
the Merger; Interests of Certain Persons in the Merger" and "PROPOSED
MERGER--Terms of the Merger."
BENEFITS OF THE PROPOSED MERGER
Among other anticipated benefits, the Merger presents a unique opportunity
for PNC to achieve a significant position in the attractive New Jersey and
metropolitan Philadelphia markets, to generate substantial economies by reducing
costs associated with overlapping and duplicative operations and to enhance
revenue growth through the marketing of PNC's products and services to
Midlantic's customers. PNC's balance sheet will also be positively impacted by
Midlantic's large and stable base of consumer core deposits and superior capital
position.
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Based on the assumptions and subject to the qualifications described
elsewhere herein, PNC expects the Merger to be accretive to earnings in 1996 and
believes the Merger represents a more attractive investment than other
alternatives available to PNC. The balance sheet and other business implications
of the Merger are expected to position PNC to generate a more stable and
consistent earnings stream capable of sustaining superior returns. PNC has
estimated that 1996 earnings could approximate $983 million or $2.87 per fully
diluted common share. The 1996 earnings estimate is based upon expectations with
respect to cost savings and other synergies consistent with PNC's acquisition
experience. Attainment of these earnings would result in a substantial
improvement in profitability measures, including return on assets, return on
equity and after tax profit margin. Such estimates are based on many factors and
assumptions, including economic and business conditions, many of which are
beyond PNC's control, as well as management's strategies, which are subject to
change. See "PROPOSED MERGER--Management and Operations After the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER;
INTERESTS OF CERTAIN PERSONS IN THE MERGER
After the Merger, those persons serving as directors of PNC and PNC Bancorp
immediately prior to the Effective Date will continue as directors of those
respective entities, except that, on the Effective Date, Garry J. Scheuring,
Chairman of the Board, President and Chief Executive Officer of Midlantic and
three as yet undesignated individuals who currently are serving as directors of
Midlantic will be appointed directors of an expanded PNC Board. In addition, Mr.
Scheuring will become Vice Chairman of PNC with responsibility for the New
Jersey and metropolitan Philadelphia markets and the retail line of business
corporate-wide and Howard I. Atkins, Executive Vice President and Chief
Financial Officer of Midlantic, will become the Executive Vice President of
Asset and Liability Management/Treasury of PNC. The Agreement also contains
provisions relating to, among other things, a new employment agreement for Mr.
Scheuring, employee benefits, indemnification of directors and officers, and
directors' and officers' liability insurance after the Merger (which insurance
is anticipated to be obtained at a total cost of approximately $1.1 million). In
addition, although not required by the Agreement, PNC has agreed to enter into
an employment agreement with Mr. Atkins. If the Effective Date were to occur on
the date of this Joint Proxy Statement, the amount payable to Mr. Scheuring
under the New Employment Agreement, were his employment to terminate on that day
under circumstances entitling him to a benefit thereunder, would be
approximately $3 million. Eleven executive officers of Midlantic (not including
Mr. Scheuring) and four other officers participate in the Midlantic Corporation
Executive Severance Plan (the "Executive Severance Plan"). If the Effective Date
were to occur on the date of this Joint Proxy Statement and the employment of
each of the participants in the Executive Severance Plan were terminated on the
next business day under circumstances entitling them to benefits under the
Executive Severance Plan, the aggregate amount payable thereunder to Messrs.
Atkins, James J. Lynch, Alfred J. Schiavetti, Jr., and Alan M. Silberstein (the
executive officers of Midlantic other than Mr. Scheuring who are named in
Midlantic's most recent annual meeting proxy statement) and to all participants
in the aggregate would be approximately $750,000, $450,000, $850,000, $850,000
and $6.7 million, respectively. See "PROPOSED MERGER--Management and Operations
After the Merger" and "--Interests of Certain Persons in the Merger."
The Agreement also provides for the following treatment upon consummation
of the Merger of outstanding stock options (the "Midlantic Stock Options")
issued pursuant to Midlantic's stock option plans. Midlantic Stock Options that
would not otherwise be exercisable prior to the Merger, in accordance with their
terms, will become exercisable as a result of the Merger. Midlantic Stock
Options held by Insiders (defined in the Merger Agreement to include the
executive officers of Midlantic), the exercisability of which is so accelerated,
will expire upon consummation of the Merger if not exercised. Midlantic expects
that all such options will be exercised prior to their expiration. All other
Midlantic Stock Options not exercised prior to the Merger will be exchanged in
connection with the Merger for shares of PNC Common Stock having a value equal
to the excess of the value of the shares of Midlantic Common Stock issuable upon
exercise of the options over their aggregate exercise price. See "PROPOSED
MERGER--Terms of the Merger."
As of October 2, 1995, Mr. Scheuring held Midlantic Stock Options with
respect to an aggregate of 490,000 shares of Midlantic Common Stock. Of this
total amount, options with respect to 415,000 shares
6
<PAGE> 10
(with a weighted average exercise price of $12.75) are currently exercisable and
options with respect to 75,000 shares (with an exercise price of $28.3125 per
share) will become exercisable in connection with the Merger. Of the Midlantic
Stock Options held as of October 2, 1995 by Messrs. Atkins, Lynch, Schiavetti
and Silberstein, options with respect to 30,000, 25,000, 30,000 and 30,000
shares, respectively, all with an exercise price of $28.3125, will become
exercisable in connection with the Merger. Based upon the closing price of PNC
Common Stock on July 7, 1995 (the last trading day preceding public announcement
of the proposed Merger) and the Exchange Ratio of 2.05, the value of the options
held by Messrs. Scheuring, Atkins, Lynch, Schiavetti and Silberstein that will
become exercisable as a result of the Merger was $2,008,594, $803,438, $669,531,
$803,438 and $803,438, respectively. See "PROPOSED MERGER--Interests of Certain
Persons in the Merger--Option Plans."
RECOMMENDATION OF THE BOARDS OF DIRECTORS
The PNC Board and the Midlantic Board have each unanimously approved the
Agreement, believe that the Merger is in the best interests of their respective
shareholders and recommend that their respective shareholders vote FOR the PNC
Proposal and FOR the Midlantic Proposal. See "PROPOSED MERGER--Background of and
Reasons for the Merger; Recommendations of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
Smith Barney Inc. ("Smith Barney"), PNC's financial advisor in connection
with the Merger, has rendered its opinion dated October 3, 1995 that the
Exchange Ratio in the Merger is fair, as of the date of the opinion, from a
financial point of view, to PNC and its shareholders. Merrill Lynch & Co.
("Merrill Lynch"), Midlantic's financial advisor in connection with the Merger,
has also rendered its opinion dated October 3, 1995 that the Exchange Ratio is
fair, as of the date of the opinion, from a financial point of view, to
Midlantic shareholders. The summaries of such opinions set forth in this Joint
Proxy Statement are qualified in their entirety by reference to the full text of
such opinions. Copies of the opinions of Smith Barney and Merrill Lynch are
attached hereto as Appendices D and E, respectively, and should be read in their
entirety with respect to the procedures followed, assumptions made and other
matters considered. PNC and Midlantic have agreed to pay fees of $3,750,000 and
approximately $10,900,000 to Smith Barney and Merrill Lynch, respectively, a
portion of which fees are contingent upon consummation of the Merger. See
"PROPOSED MERGER--Opinions of Financial Advisors."
VOTE REQUIRED
PNC. Although neither applicable Pennsylvania law nor the Articles of
Incorporation of PNC require the shareholders of PNC to approve the PNC
Proposal, the rules and regulations of the NYSE require that the issuance of
shares of PNC Common Stock in connection with the Merger must be approved by the
affirmative vote of the holders of a majority of the shares cast by the holders
of PNC Capital Stock eligible to vote thereon, voting as a single class, at a
meeting at which a quorum is present. Approval of the PNC Proposal by the
requisite vote of the holders of PNC Capital Stock is a condition to, and
required for, consummation of the Merger. See "MEETING INFORMATION--Record Date;
Voting Rights."
As of a recent date, directors and executive officers of PNC and their
affiliates had voting power with respect to 600,506 shares of PNC Common Stock,
representing less than 1.0% of the aggregate voting power of the then
outstanding PNC Capital Stock. Each such director or executive officer of PNC
has indicated his or her intention to vote the PNC Capital Stock as to which
such person has voting power for approval of the PNC Proposal (and are the only
persons to indicate to PNC their voting intentions). Other than compensation
paid in connection with their executive duties or service as members of the PNC
Board, no compensation has been paid to any person who has indicated an
intention to vote in favor of the Merger. In addition, as of the Record Date,
PNC, through the asset management activities of its subsidiary banks, as
fiduciaries, custodians or agents, had sole or shared voting power with respect
to 16,061,368 shares of PNC Common Stock, 789 shares of PNC Preferred Stock-C
and 3,104 shares of PNC Preferred Stock-D, representing approximately 7.0% of
the aggregate voting power of the then outstanding PNC Capital Stock. PNC's
asset management units will vote the shares of PNC Capital Stock over which they
exercise sole or shared voting authority in
7
<PAGE> 11
accordance with the terms of the respective governing documents, applicable law
and PNC's fiduciary policies. A determination with respect to the manner in
which such shares will be voted will be made following their receipt of this
Joint Proxy Statement. In addition, as of the same date, Midlantic's directors
and executive officers as a group had voting power with respect to 54,388
shares, or less than .01% of the outstanding shares of PNC Common Stock. Each
such director or executive officer has indicated his or her intention to vote
for approval of the PNC Proposal. As of the same date, the trust division of
Midlantic Bank, as a fiduciary, custodian or agent, had sole or shared voting
power with respect to 103,422 shares of PNC Common Stock.
MIDLANTIC. Under applicable New Jersey law and the Certificate of
Incorporation of Midlantic, approval of the Midlantic Proposal will require the
affirmative vote of the holders of a majority of the shares of Midlantic Common
Stock cast by the holders of such shares entitled to vote thereon, at a meeting
at which a quorum is present. Approval of the Midlantic Proposal by the
requisite vote of the holders of Midlantic Common Stock is a condition to, and
required for, consummation of the Merger. See "MEETING INFORMATION--Record Date;
Voting Rights."
As of a recent date, directors and executive officers of Midlantic and
their affiliates had voting power with respect to 787,760 shares of Midlantic
Common Stock, representing approximately 1.5% of the shares of Midlantic Common
Stock then outstanding. Each such director or executive officer has indicated
his or her intention to vote for the Midlantic Proposal. Other than compensation
paid in connection with their executive duties or service as members of the
Midlantic Board, no compensation has been paid to any person who has indicated
an intention to vote in favor of the Merger. In addition, as of the same date,
the trust division of Midlantic Bank, as a fiduciary, custodian or agent, had
sole or shared voting power with respect to 872,193 shares of Midlantic Common
Stock, representing approximately 1.7% of the then outstanding Midlantic Common
Stock. The trust division of Midlantic Bank will vote the shares of Midlantic
Common Stock over which it exercises sole or shared voting authority in
accordance with the terms of the respective governing documents, applicable law
and the trust division's fiduciary policies. The trust division will make a
determination with respect to the manner in which such shares will be voted
following receipt of this Joint Proxy Statement.
As of a recent date, the various trust departments of PNC's subsidiary
banks held an aggregate of 143,313 shares of Midlantic Common Stock in fiduciary
accounts for the benefit of other persons and had voting power (sole or shared)
with respect to 44,113 of such shares. As of the same date, PNC's directors and
executive officers held no shares of Midlantic Common Stock.
CONDITIONS; AMENDMENT; TERMINATION
Consummation of the Merger is subject to satisfaction of certain
conditions, including, among other conditions, approval of the PNC Proposal and
the Midlantic Proposal by the requisite vote of the shareholders of PNC and
Midlantic, respectively; qualification of the Merger as a pooling-of-interests
transaction for financial accounting purposes; receipt by the parties of the
opinions described in "PROPOSED MERGER--Certain Federal Income Tax Consequences"
below; and the receipt of all regulatory approvals required by law or deemed
necessary by the parties in connection with the Merger, which approvals shall be
without any condition reasonably determined by the PNC Board or the Midlantic
Board to so materially and adversely affect the benefits of the Merger as to
render its consummation inadvisable. See "PROPOSED MERGER--Regulatory and Other
Approvals."
Except for required shareholder and regulatory approvals, the absence of
any order, decree or injunction enjoining or prohibiting the consummation of the
Merger, receipt of all state securities or "Blue Sky" permits or other
authorizations and the effectiveness of the Registration Statement under the
Securities Act and the absence of any "stop order" proceeding related thereto,
all of the conditions to consummation of the Merger may be waived at any time,
by the party for whose benefit they were created, and the Agreement may be
amended or supplemented at any time, by written agreement of the parties, except
that no such waiver, amendment or supplement executed after approval of the
Agreement by PNC's or Midlantic's shareholders shall change the Exchange Ratio.
In addition, the Agreement may be terminated, either before or after shareholder
approval, under certain circumstances. Under the Agreement, there are no
termination payments
8
<PAGE> 12
that would become payable by either PNC or Midlantic. However, PNC and Midlantic
have entered into stock option agreements, described below, which could survive
the date of termination by up to six months and, depending upon the reasons for
the termination, provide PNC or Midlantic with the right to purchase up to
16.67% of the Common Stock of the other (after giving effect to the issuance of
such shares pursuant to the stock option agreement). See "PROPOSED
MERGER--Representations and Warranties; Conditions to the Merger; Waiver";
"--Effective Date of the Merger; Termination"; and "--Stock Option Agreements."
REGULATORY APPROVALS
On September 26, 1995, PNC received approval of the Merger from the Board
of Governors of the Federal Reserve System ("Federal Reserve") under the BHCA.
The BHCA provides that the Merger may not be consummated until the 30th day
after Federal Reserve approval is received. On October 3, 1995, PNC also
received approval of the Merger from the Commissioner of Banking of New Jersey
("NJ Commissioner"). In addition, Midlantic will make all necessary filings with
the New Jersey Department of Environmental Protection pursuant to the New Jersey
Industrial Site Recovery Act, either for exemption from or to comply with the
statute, as appropriate. See "PROPOSED MERGER--Representations and Warranties;
Conditions to the Merger; Waiver" and "--Regulatory and Other Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to consummation of the Merger that each party receives an
opinion from its respective counsel, in form and substance reasonably
satisfactory to such party, that the Merger, when consummated in accordance with
the Agreement, will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended ("Code"), and that the
exchange of Midlantic Common Stock solely for PNC Common Stock will not give
rise to the recognition of gain or loss for federal income tax purposes to
Midlantic's shareholders with respect to such exchange. Gain or loss, if any,
generally will be recognized by a holder of Midlantic Common Stock with respect
to the receipt of cash in lieu of any fractional share of PNC Common Stock. See
"PROPOSED MERGER--Certain Federal Income Tax Consequences."
Because of the complexities of the federal income tax laws and because the
tax consequences may vary depending upon a holder's individual circumstances or
tax status, each shareholder of Midlantic should consult his or her tax advisor
concerning the federal (and any applicable state, local, foreign or other) tax
consequences of the Merger.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a pooling of interests under
generally accepted accounting principles. It is a condition to consummation of
the Merger that no event shall have occurred that would preclude the Merger from
being accounted for as a pooling of interests. See "PROPOSED MERGER--Accounting
Treatment."
NO DISSENTERS' RIGHTS
Holders of PNC Capital Stock and Midlantic Common Stock will not be
entitled to statutory dissenters' rights in connection with the Merger. See
"PROPOSED MERGER--Terms of the Merger."
EFFECTIVE DATE OF THE MERGER
The Effective Date shall be the date and time as set forth in the
certificate of merger to be delivered to and filed with the Delaware Secretary
of State and the New Jersey Secretary of State in accordance with Delaware and
New Jersey law, respectively. PNC and Midlantic each anticipate that the
Effective Date will occur and the Merger will be consummated by the end of 1995.
However, consummation of the Merger could be delayed and there can be no
assurances as to if or when the Merger will be consummated. See "PROPOSED
MERGER--Effective Date of the Merger; Termination."
9
<PAGE> 13
MIDLANTIC STOCK CERTIFICATES
MIDLANTIC SHAREHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES WITH
THEIR PROXY CARDS. If the Merger is approved and consummated, PNC's stock
transfer agent will send Midlantic shareholders instructions on where to send
and surrender their stock certificates. See "PROPOSED MERGER--Surrender of
Certificates."
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
On the Effective Date, shareholders of Midlantic will automatically become
shareholders of PNC and their rights as shareholders of PNC will be governed by
PNC's Articles of Incorporation and By-Laws, and by Pennsylvania law. The rights
of Midlantic shareholders currently are governed by Midlantic's Certificate of
Incorporation and Bylaws, and by applicable New Jersey law. The rights of
shareholders of PNC are different in certain respects from the rights of
shareholders of Midlantic. See "PROPOSED MERGER--Certain Differences in Rights
of Shareholders."
STOCK OPTION AGREEMENTS
As a condition to execution of the Agreement, Midlantic and PNC executed
(i) a stock option agreement ("Midlantic Option Agreement") pursuant to which
Midlantic granted PNC an option ("Midlantic Option") to purchase up to
10,425,000 authorized but unissued shares of Midlantic Common Stock at a price
of $48 per share and (ii) a stock option agreement ("PNC Option Agreement" and,
together with the Midlantic Option Agreement, the "Option Agreements") pursuant
to which PNC granted Midlantic an option ("PNC Option") to purchase up to
45,500,000 authorized but unissued shares of PNC Common Stock at a price of $35
per share; in the case of both the Midlantic Option and the PNC Option, such
number of shares and exercise price being subject to adjustment under certain
circumstances. Each of the Midlantic Option and the PNC Option is exercisable
only upon the occurrence of certain events that could jeopardize consummation of
the Merger pursuant to the terms of the Agreement, none of which has occurred as
of the date hereof to the best of PNC's and Midlantic's knowledge. Each of PNC
and Midlantic believes that the approval of the execution of the PNC Option
Agreement and the Midlantic Option Agreement, respectively, by its Board of
Directors was consistent with such Board's fiduciary obligations and will not
deter such Board from fulfilling its fiduciary obligations in the future. In
this regard, if either option were to become exercisable in circumstances
requiring the Board of either company to determine whether or not to take
action, such as in connection with an offer to acquire PNC or Midlantic, the PNC
Board or the Midlantic Board, as appropriate, would, in considering an
appropriate course of action, consider the impact of the relevant Option
Agreement. See "PROPOSED MERGER--Stock Option Agreements" and the text of the
Option Agreements attached hereto as Appendices B and C.
CERTAIN LEGAL PROCEEDINGS
A purported class action lawsuit has been filed in the Superior Court of
New Jersey against Midlantic, Midlantic's chief executive officer and its
directors and PNC. The lawsuit challenges the Merger and seeks to enjoin it.
Among other things, the complaint alleges that the Merger is unfair to
Midlantic's shareholders and that consideration to be paid in the Merger is
grossly unfair, inadequate, and substantially below the fair or inherent value
of Midlantic. The plaintiff also seeks unquantified compensatory damages and
costs and expenses of the action. Management of both PNC and Midlantic believes
that the plaintiff's allegations are without merit and intends to defend them
vigorously. See "CERTAIN LEGAL PROCEEDINGS."
10
<PAGE> 14
MARKETS AND MARKET PRICES
PNC Common Stock is listed and traded on the NYSE under the symbol "PNC."
Midlantic Common Stock is traded in the over-the-counter market and price
quotations therefor are reported in the NASDAQ/NMS under the symbol "MIDL."
The table below sets forth the high and low quarterly sale prices for PNC
and Midlantic Common Stock for the periods indicated.
<TABLE>
<CAPTION>
PNC COMMON STOCK MIDLANTIC COMMON STOCK
---------------- ----------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1995 QUARTER
First..................................... $25.750 $21.125 $34.875 $26.250
Second.................................... 28.125 24.250 40.250 33.875
Third..................................... 28.625 23.625 55.000 39.750
1994 QUARTER
First..................................... $29.875 $25.250 $30.875 $24.250
Second.................................... 31.625 26.125 31.875 27.500
Third..................................... 30.000 25.625 30.625 27.625
Fourth.................................... 26.375 20.000 28.625 24.000
1993 QUARTER
First..................................... $35.000 $27.000 $22.375 $18.125
Second.................................... 36.125 29.750 25.125 17.500
Third..................................... 32.750 28.500 27.750 21.125
Fourth.................................... 31.125 27.625 28.625 22.250
1992 QUARTER
First..................................... $25.750 $23.375 $ 9.125 $ 4.500
Second.................................... 27.687 23.812 15.000 5.875
Third..................................... 27.250 23.937 18.000 12.875
Fourth.................................... 29.125 25.875 21.875 13.250
</TABLE>
The information presented in the following table reflects the closing price
for PNC Common Stock and the last reported sale price for Midlantic Common Stock
on July 7, 1995, the last trading day preceding public announcement of the
proposed Merger, and on October 2, 1995 (the latest practicable trading day
before the printing of this Joint Proxy Statement). The Midlantic Common Stock
equivalent pro forma per share is calculated by multiplying the closing price of
PNC Common Stock on each such date by the Exchange Ratio.
<TABLE>
<CAPTION>
PNC MIDLANTIC
COMMON COMMON EQUIVALENT
STOCK STOCK PRO FORMA
----- ----- ---------
<S> <C> <C> <C>
Market value per share:
July 7, 1995.................................. $26.875 $41.375 $ 55.09
October 2, 1995............................... $27.875 $54.250 $ 57.14
</TABLE>
No assurance can be given as to what the market price of PNC Common Stock
will be if and when the Merger is consummated. Because the Exchange Ratio is
fixed and because the market price of PNC Common Stock is subject to
fluctuation, the value of the shares of PNC Common Stock that holders of
Midlantic Common Stock will receive in the Merger may increase or decrease prior
to and following the Merger. PNC AND MIDLANTIC SHAREHOLDERS ARE ADVISED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR PNC COMMON STOCK AND MIDLANTIC COMMON
STOCK.
11
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table presents at the dates and for the periods indicated (i)
historical and pro forma consolidated per share data for PNC Common Stock, and
(ii) historical and equivalent pro forma per share data for Midlantic Common
Stock. The information is based upon and should be read in conjunction with the
historical financial statements of PNC and Midlantic incorporated by reference
in this Joint Proxy Statement and the pro forma consolidated financial
information giving effect to the Merger appearing elsewhere herein. The pro
forma data are presented for informational purposes only and are not necessarily
indicative of the combined financial position or results of operations which
would have been realized had the Merger been consummated during the periods or
as of the dates for which the pro forma data are presented or which will be
attained in the future. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY
REFERENCE" and "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (Unaudited)."
<TABLE>
<CAPTION>
MIDLANTIC
PNC ------------------------
------------------------ EQUIVALENT
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(2)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE
BOOK VALUE:
December 31,...................... 1994 $18.76 $16.71 $25.19 $34.26
June 30,.......................... 1995 19.37 16.93 26.80 34.71
CASH DIVIDENDS DECLARED:(3)
Year Ended December 31,........... 1994 1.31 .40 2.69
1993 1.175 2.41
1992 1.08 2.21
Six Months Ended June 30,......... 1995 .70 .54 1.44
1994 .64 .10 1.31
FULLY DILUTED EARNINGS PER COMMON SHARE
BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES:
Year Ended December 31,........... 1994 2.56 2.54 5.11 5.21
1993 3.13 2.53 2.51 5.19
1992 2.34 1.70 .08 3.49
Six Months Ended June 30,......... 1995 1.13 1.08 2.02 2.21
1994 1.65 1.48 2.31 3.03
<FN>
- ---------
1 The pro forma per share data give effect to the Merger, but, except for pro
forma book value per share data as of June 30, 1995, do not reflect
anticipated expenses and nonrecurring charges which may result from the
Merger. The pro forma per share data also do not reflect estimated expense
savings and revenue enhancements anticipated to result from the Merger. See
"PROPOSED MERGER--Management and Operations After the Merger."
2 The equivalent pro forma per share data for Midlantic represent, in the case
of book value and fully diluted earnings per share, the pro forma data for PNC
multiplied by the Exchange Ratio and, in the case of cash dividends declared,
the historical data for PNC multiplied by the Exchange Ratio.
3 No assurance can be given that equivalent dividends will be paid in the
future. The amount of future dividends payable by PNC will depend upon the
earnings and financial condition of PNC and other factors, including, but not
limited to, applicable governmental regulations and policies.
</TABLE>
12
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain unaudited historical and selected
pro forma consolidated financial data ("selected financial data") for PNC and
Midlantic. Certain of the historical selected financial data for the five years
in the period ended December 31, 1994 are derived from the respective audited
consolidated financial statements of PNC and Midlantic. The selected financial
data for the six month periods ended June 30, 1995 and 1994 are derived from
unaudited consolidated interim financial statements and are not necessarily
indicative of the results for the remainder of the year or any future period. In
management's opinion, the consolidated interim financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
statement of the results for the interim periods presented. This summary should
be read in connection with the financial statements and other financial
information included in documents incorporated herein by reference. See
"AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
The pro forma selected financial data were developed giving effect to the
Merger on a pooling-of-interests accounting basis. For a description of the
pooling-of-interests accounting basis with respect to the Merger and the related
effects on the historical financial statements of PNC and Midlantic, see
"PROPOSED MERGER--Accounting Treatment." The pro forma consolidated financial
statements are presented for informational purposes only and may not be
indicative of the combined financial position or results of operations that
actually would have occurred had the Merger been consummated during the periods
or as of the dates indicated, or which will be attained in the future. See
"SUMMARY--Comparative Per Share Data" and "PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION (Unaudited)."
13
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
PNC BANK CORP.
(HISTORICAL)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS)
Interest income.................... $2,066,722 $1,830,098 $3,861,812 $3,201,120 $3,218,971 $3,657,533 $4,223,375
Interest expense................... 1,320,420 839,798 1,952,206 1,372,087 1,561,679 2,222,335 2,874,118
Net interest income................ 746,302 990,300 1,909,606 1,829,033 1,657,292 1,435,198 1,349,257
Provision for credit losses........ 50,045 60,123 203,944 323,531 428,038 760,507
Noninterest income................. 502,147 486,791 822,641 945,249 886,776 812,025 656,533
Noninterest expense................ 863,782 845,141 1,769,735 1,453,726 1,442,415 1,270,984 1,215,858
Income before cumulative effect of
changes in accounting
principles....................... 262,639 393,534 610,062 745,263 529,440 389,786 70,912
PER COMMON SHARE DATA
Primary earnings(1)................ 1.13 1.66 2.57 3.14 2.36 1.97 .37
Fully diluted earnings(1).......... 1.13 1.65 2.56 3.13 2.34 1.94 .37
Cash dividends declared............ .70 .64 1.31 1.175 1.08 .795(2) 1.06
AVERAGE BALANCES (IN MILLIONS)
Assets............................. 61,806 59,297 60,896 50,321 44,744 42,793 45,716
Earning assets..................... 57,333 55,625 57,187 47,340 42,192 40,096 42,544
Securities......................... 20,378 21,550 22,116 20,403 16,653 11,949 13,432
Loans, net of unearned income...... 35,755 32,278 33,511 25,959 24,520 26,954 27,867
Deposits........................... 33,422 31,996 32,852 28,442 28,476 31,202 30,791
Shareholders' equity............... 4,363 4,299 4,336 3,957 3,436 2,795 2,780
PERIOD END BALANCES (IN MILLIONS)
Assets............................. 62,763 63,967 64,145 62,080 51,380 44,892 45,533
Earning assets..................... 57,082 59,546 57,626 58,617 47,945 41,822 41,794
Securities......................... 19,105 23,207 20,921 23,060 20,741 14,173 12,189
Loans, net of unearned income...... 36,690 34,860 35,407 33,308 25,817 25,443 27,633
Deposits........................... 35,290 32,949 35,011 33,115 29,470 30,019 32,043
Shareholders' equity............... 4,436 4,349 4,394 4,325 3,745 3,317 2,601
SELECTED RATIOS:
FINANCIAL PERFORMANCE
Net interest margin (fully taxable
equivalent)...................... 2.65% 3.63% 3.40% 3.95% 4.03% 3.73% 3.40%
Return on average total assets..... .86 1.34 1.00 1.44 .95 .91 .16
Return on average common
shareholders' equity............. 12.16 18.51 14.10 18.40 12.47 14.02 2.46
CAPITAL
Tier 1 risk-based capital.......... 8.07 8.99 8.62 9.57 10.17 9.69 7.12
Total risk-based capital........... 11.63 11.88 11.45 12.11 12.09 12.13 9.35
Leverage........................... 6.29 6.99 6.59 7.85 7.62 7.81 5.62
Average shareholders' equity to
average total assets............. 7.06 7.25 7.12 7.86 7.68 6.53 6.08
PERIOD END
Allowance as a percent of:
Loans............................ 2.62 2.97 2.83 2.92 3.47 3.13 2.84
Nonperforming loans.............. 311.53 267.09 314.17 253.12 162.08 104.71 76.99
Nonperforming assets to loans and
foreclosed assets................ 1.21 1.55 1.25 1.65 3.14 4.21 4.67
Loans to deposits.................. 103.97 105.80 101.13 100.58 87.60 84.76 86.24
Securities to earning assets....... 33.47 38.97 36.30 39.34 43.26 33.89 29.16
<FN>
- ---------
1 Primary and fully diluted earnings per common share are before the cumulative
effect of changes in accounting principles.
2 During the second quarter of 1991, no common stock dividend was declared due
to a change in PNC's board of directors' meeting dates. However, a dividend of
$.265 per common share was paid during each quarter in 1991 and dividends paid
totaled $1.06 per common share.
</TABLE>
14
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
MIDLANTIC CORPORATION
(HISTORICAL)(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS)
Interest income............................ $489,198 $416,996 $863,484 $825,547 $1,062,207 $1,742,380 $2,208,119
Interest expense........................... 173,398 135,496 278,947 310,857 542,012 1,104,779 1,370,822
Net interest income........................ 315,800 281,500 584,537 514,690 520,195 637,601 837,297
Provision for credit losses................ 3,000 18,983 23,335 146,305 170,299 724,393 742,904
Noninterest income......................... 96,660 117,558 214,210 186,453 290,365 244,361 284,591
Noninterest expense........................ 233,993 239,947 471,407 534,485 630,389 744,348 674,823
Income (losses) before cumulative effect
of changes in accounting principles...... 109,716 125,632 279,105 131,396 7,028 (543,303) (195,005)
PER COMMON SHARE DATA
Primary earnings (losses)(2,3)............. 2.04 2.34 5.18 2.51 .08 (14.36) (5.22)
Fully diluted earnings (losses)(2,3)....... 2.02 2.31 5.11 2.51 .08 (14.36) (5.22)
Cash dividends declared.................... .54 .10 .40 1.19
AVERAGE BALANCES (IN MILLIONS)
Assets..................................... 13,264 13,684 13,443 13,708 16,244 21,763 23,845
Earning assets............................. 12,156 12,419 12,239 12,647 15,233 20,278 21,929
Securities................................. 3,179 2,244 2,236 1,931 2,742 2,839 2,417
Loans, net of unearned
income................................... 8,218 8,373 8,304 8,767 11,480 16,054 18,092
Deposits................................... 10,596 11,302 11,085 11,783 14,297 19,073 19,708
Shareholders' equity....................... 1,396 1,168 1,237 973 763 1,033 1,451
PERIOD END BALANCES (IN MILLIONS)
Assets..................................... 13,734 13,429 13,294 13,909 14,397 18,132 23,530
Earning assets............................. 12,541 12,210 12,127 12,679 13,442 16,790 21,184
Securities................................. 3,292 1,917 2,749 2,436 2,108 2,632 2,722
Loans, net of unearned income.............. 8,657 8,419 8,256 8,445 9,331 13,025 17,209
Deposits................................... 10,887 11,142 10,807 11,588 12,560 16,090 20,152
Shareholders' equity....................... 1,397 1,238 1,374 1,123 843 727 1,273
SELECTED RATIOS:
FINANCIAL PERFORMANCE
Net interest margin(4)..................... 5.36% 4.60% 4.81% 4.07% 3.41% 3.14% 3.82%
Return on average total assets............. 1.67 1.74 2.02 1.24 .04 (2.49) (.82)
Return on average common shareholders'
equity................................... 16.16 20.97 22.57 18.05 .47 (55.64) (14.19)
CAPITAL
Tier 1 risk-based capital.................. 12.57 10.85 13.07 9.28 6.83 4.29 5.93
Total risk-based capital................... 16.63 14.87 17.22 13.29 10.76 7.69 8.86
Leverage................................... 9.08 8.17 9.43 6.81 5.19 3.43 4.81
Average shareholders' equity to average
total assets............................. 10.52 8.54 9.20 7.08 4.69 4.74 6.07
PERIOD END
Allowance as a percent of:
Loans.................................... 3.91 4.43 4.23 4.74 7.19 6.51 4.31
Nonperforming loans...................... 203.19 105.26 143.69 84.67 53.63 50.14 51.32
Nonperforming assets to loans and
foreclosed assets........................ 2.58 5.19 3.70 6.67 14.95 13.78 8.59
Loans to deposits.......................... 79.51 75.57 76.40 72.88 74.30 80.95 85.39
Securities to earning assets............... 26.25 15.70 22.67 19.21 15.68 15.67 12.85
<FN>
- ---------
1 Certain reclassifications have been made to the historical financial
information to conform presentation.
2 Primary and fully diluted earnings (losses) per common share are before the
cumulative effect of changes in accounting principles.
3 Common share equivalents for both primary and fully diluted in 1991 and 1990
and convertible subordinated debentures for fully diluted in 1992, 1991 and
1990 were antidilutive and have been excluded from the per share computations.
4 Net interest margin for the year ended December 31, 1994 and for the six
months ended June 30, 1995 and 1994 is presented on a fully taxable equivalent
basis. Prior period amounts are not presented on a fully taxable equivalent
basis as Midlantic was not able to utilize the benefits of tax-exempt income.
</TABLE>
15
<PAGE> 19
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA1
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS)
Interest income............................ $2,555,920 $2,247,094 $4,725,296 $4,026,667 $4,281,178
Interest expense........................... 1,493,818 975,294 2,231,153 1,682,944 2,103,691
Net interest income........................ 1,062,102 1,271,800 2,494,143 2,343,723 2,177,487
Provision for credit losses................ 3,000 69,028 83,458 350,249 493,830
Noninterest income......................... 598,807 604,349 1,036,851 1,131,702 1,177,141
Noninterest expense........................ 1,097,775 1,085,088 2,241,142 1,988,211 2,072,804
Income before cumulative effect of changes
in accounting principles................. 372,355 519,166 889,167 876,659 536,468
PER COMMON SHARE DATA
Primary earnings(2)........................ 1.09 1.50 2.56 2.55 1.72
Fully diluted earnings(2).................. 1.08 1.48 2.54 2.53 1.70
AVERAGE BALANCES(3) (IN MILLIONS)
Assets..................................... 75,070 72,981 74,339 64,029 60,988
Earning assets............................. 69,489 68,044 69,426 59,987 57,425
Securities................................. 23,557 23,794 24,352 22,334 19,395
Loans, net of unearned income.............. 43,973 40,651 41,815 34,726 36,000
Deposits................................... 44,018 43,298 43,937 40,225 42,773
Shareholders' equity....................... 5,759 5,467 5,573 4,930 4,199
PERIOD END BALANCES(3) (IN MILLIONS)
Assets..................................... 76,548 77,396 77,439 75,989 65,777
Earning assets............................. 69,623 71,756 69,753 71,296 61,387
Securities................................. 22,397 25,124 23,670 25,496 22,849
Loans, net of unearned income.............. 45,347 43,279 43,663 41,753 35,148
Deposits................................... 46,177 44,091 45,818 44,703 42,030
Shareholders' equity....................... 5,754 5,587 5,768 5,448 4,588
SELECTED RATIOS:(3)
FINANCIAL PERFORMANCE
Net interest margin (fully taxable
equivalent).............................. 3.15% 3.82% 3.65% 3.99% 3.90%
Return on average total assets............. 1.00 1.41 1.19 1.40 .71
Return on average common shareholders'
equity................................... 13.10 19.02 15.93 18.33 10.39
CAPITAL
Average shareholders' equity to average
total assets............................. 7.67 7.49 7.50 7.70 6.88
PERIOD END
Allowance as a percent of:
Loans.................................... 2.87 3.26 3.10 3.29 4.46
Nonperforming loans...................... 273.80 189.76 240.38 160.17 86.87
Nonperforming assets to loans and
foreclosed assets........................ 1.47 2.26 1.72 2.67 6.30
Loans to deposits.......................... 98.20 98.16 95.30 93.40 83.63
Securities to earning assets............... 32.17 35.01 33.93 35.76 37.22
<FN>
- ---------
1 Pro forma consolidated financial data do not reflect the effect of estimated
expense savings and revenue enhancements associated with the consolidation of
operations of PNC and Midlantic.
2 Primary and fully diluted earnings per common share are before the cumulative
effect of changes in accounting principles.
3 Balance sheet data as of June 30, 1995 give effect to adjustments for
anticipated expenses and nonrecurring charges relating to the Merger, an
anticipated charge associated with the termination of PNC interest rate caps
and the exchange of PNC Common Stock for Midlantic Stock Options. Prior period
balance sheet and all income statement data do not give effect to such
adjustments. See "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (Unaudited)."
</TABLE>
16
<PAGE> 20
MEETING INFORMATION
DATE, PLACE AND TIME
The PNC Special Meeting will be held at 11:00 a.m. on November 17, 1995 on
the 15th floor of One PNC Plaza, Fifth Avenue and Wood Street, Pittsburgh,
Pennsylvania.
The Midlantic Special Meeting will be held at 10:00 a.m. on November 16,
1995 at the Sheraton at Woodbridge Place, 515 Route 1 South, Iselin, New Jersey.
RECORD DATE; VOTING RIGHTS
PNC. The close of business on September 29, 1995 has been fixed as the
Record Date for purposes of determining shareholders entitled to notice of, and
to vote at, the PNC Special Meeting. On that date, there were issued and
outstanding 228,598,590 shares of PNC Common Stock, 17,951 shares of PNC
Preferred Stock-A, 6,336 shares of PNC Preferred Stock-B, 361,363 shares of PNC
Preferred Stock-C and 479,383 shares of PNC Preferred Stock-D. The holders of
PNC Common Stock are entitled to one vote per share. The holders of PNC
Preferred Stock-A and PNC Preferred Stock-B are entitled to eight votes per
share and the holders of PNC Preferred Stock-C and PNC Preferred Stock-D are
entitled to four votes per 2.4 shares. Holders of PNC Capital Stock will vote
together as a single class at the PNC Special Meeting.
Although neither applicable Pennsylvania law nor the Articles of
Incorporation of PNC requires that the shareholders of PNC approve the PNC
Proposal, the rules and regulations of the NYSE require PNC shareholders'
approval for the issuance of shares of PNC Common Stock in connection with the
Merger. The affirmative vote of the holders of a majority of the votes cast by
the holders of PNC Capital Stock eligible to vote thereon, voting as a single
class, at a meeting at which a quorum is present will be required to approve the
PNC Proposal. Under Pennsylvania law and PNC's By-Laws, a quorum is constituted
by the presence, in person or by proxy, of shareholders entitled to cast at
least a majority of the votes which all shareholders are entitled to cast on the
particular matters to be voted on.
PNC intends to count the shares of PNC Capital Stock present in person at
the PNC Meeting but not voting, and shares of PNC Capital Stock for which it has
received proxies, but with respect to which holders of shares have abstained on
any matter, as present at the PNC Special Meeting for purposes of determining
the presence or absence of a quorum for the transaction of business. However,
such nonvoting shares and abstentions will not be counted as votes cast for
purposes of determining whether a majority has been attained and therefore will
have no effect on the vote to approve the PNC Proposal. In addition, under the
rules of the NYSE, brokers who hold shares in street name for customers who are
the beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers in favor of the approval of the PNC Proposal
without specific instruction from such customers. Accordingly, the failure of
such customers to provide instructions with respect to their shares of PNC
Capital Stock to their broker will have the effect of such shares not being
voted and therefore will have no effect on the vote to approve the PNC Proposal.
Such instances, if any, are referred to as broker non-votes. Broker non-votes,
if any, will be counted as present for determining the presence or the absence
of a quorum for the transaction of business.
MIDLANTIC. The close of business on September 29, 1995, has been fixed as
the Record Date for purposes of determining shareholders entitled to notice of,
and to vote at, the Midlantic Special Meeting. The holders of each of the
52,359,775 shares of Midlantic Common Stock outstanding on the Record Date will
be entitled to one vote for each share held of record upon each matter properly
submitted at the Midlantic Special Meeting. The affirmative vote of the holders
of a majority of the shares of Midlantic Common Stock cast by the holders of
such shares entitled to vote at the Midlantic Special Meeting is required to
approve the Midlantic Proposal under New Jersey law, assuming that a quorum is
present. Under New Jersey law and Midlantic's Bylaws, a quorum is constituted by
the presence, in person or by proxy, of a majority of the aggregate number of
shares of Midlantic Common Stock outstanding and entitled to vote on the Record
Date.
Midlantic intends to count shares of Midlantic Common Stock present in
person at the Midlantic Special Meeting but not voting, and shares of Midlantic
Common Stock for which it has received proxies but with respect to which holders
of shares have abstained on any matter, as present at the Midlantic Special
Meeting
17
<PAGE> 21
for purposes of determining the presence or absence of a quorum for the
transaction of business. However, such nonvoting shares and abstentions will not
be counted as votes cast with respect to the approval of the Midlantic Proposal
and therefore will have no effect on the vote to approve the Midlantic Proposal.
In addition, under the rules of the NYSE, brokers who hold shares in street name
for customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers in favor of the approval
of the Midlantic Proposal. Accordingly, the failure of such customers to provide
instructions with respect to their shares of Midlantic Common Stock to their
broker will have the effect of such shares not being voted and therefore will
have no effect on the vote to approve the Midlantic Proposal. However, broker
non-votes, if any, will be counted as present for determining the presence or
absence of a quorum for the transaction of business.
VOTING AND REVOCATION OF PROXIES
Shares of PNC Capital Stock or Midlantic Common Stock represented by a
proxy properly signed and returned at or prior to either Special Meeting and not
subsequently revoked prior to the vote will be voted at each respective Special
Meeting in accordance with the instructions thereon. If a proxy is signed and
returned without indicating any voting instructions, the shares of PNC Capital
Stock or Midlantic Common Stock represented by such proxy will be voted FOR
approval of the PNC Proposal in the case of PNC shareholders and FOR approval of
the Midlantic Proposal in the case of Midlantic shareholders. Any shareholder
giving a proxy may revoke it at any time before it is exercised. In order to
revoke a proxy, the shareholder must either give written notice of such
revocation to the Secretary of PNC or Midlantic or to the Secretary of the PNC
Special Meeting or the Midlantic Special Meeting, as appropriate, or vote the
shares of PNC Common Stock or Midlantic Common Stock subject to the proxy by a
later dated proxy or by written ballot at the appropriate Special Meeting. The
presence at a Special Meeting of any shareholder who has given a proxy will not,
in and of itself, revoke the proxy. Any shareholder of record attending either
the PNC Special Meeting or the Midlantic Special Meeting may vote in person
whether or not a proxy has been previously given.
The Boards of Directors of PNC and Midlantic are not aware of any other
business to be acted upon at the Special Meeting of their respective
shareholders other than as described herein. It is not anticipated that other
matters will be brought before either Special Meeting. If, however, other
matters are duly brought before either Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. The persons named as
proxies by a shareholder may propose and vote for one or more adjournments or
postponements of the PNC Special Meeting or Midlantic Special Meeting, as the
case may be, to permit another solicitation of proxies in favor of the PNC
Proposal or the Midlantic Proposal, as the case may be; provided, however, that
no proxy which is voted against the proposal to approve the Midlantic Proposal,
in the case of Midlantic shareholders, or against the PNC Proposal, in the case
of PNC shareholders, will be voted in favor of any such adjournment or
postponement.
SOLICITATION OF PROXIES
In addition to solicitation by mail, proxies may be solicited personally or
by telephone, and directors, officers and employees of PNC and Midlantic may
solicit proxies from the shareholders of PNC and Midlantic, respectively,
without additional compensation to them and at nominal cost to PNC and
Midlantic, respectively. Brokerage houses, nominees, fiduciaries and other
custodians have been requested to forward proxy materials to beneficial owners
of PNC Capital Stock and Midlantic Common Stock and such parties will be
reimbursed for the expenses incurred by them. PNC has retained D.F. King & Co.,
Inc. and Midlantic has retained Corporate Investor Communications, Inc. to
assist in the solicitation of proxies. It is anticipated that the base fees of
such firms will not exceed $15,000 and $10,500, respectively, plus reasonable
out-of-pocket costs, fees and expenses authorized by PNC or Midlantic, as the
case may be. PNC and Midlantic each will bear its own expenses in connection
with the solicitation of proxies, except that PNC and Midlantic each will bear
50% of all printing and mailing costs and filing fees associated with this Joint
Proxy Statement and the Registration Statement.
18
<PAGE> 22
PROPOSED MERGER
This section of the Joint Proxy Statement describes material aspects of the
Merger. The following description does not purport to be complete and is
qualified in its entirety by reference to the Agreement, which is attached as
Appendix A to this Joint Proxy Statement and is incorporated herein by
reference. All shareholders are urged to read the Agreement and the Option
Agreements carefully and in their entirety.
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF
DIRECTORS
BACKGROUND
PNC. PNC was formed in 1983 through the consolidation of Pittsburgh
National Corporation and Provident National Corporation. Since that time, PNC's
strategy has been to build a regional banking franchise with sufficient size to
absorb the substantial investments in technology and infrastructure necessary to
remain competitive while generating an appropriate return to shareholders. PNC
also made substantial investments in selected national financial service
businesses in order to expand product offerings and meet the competitive
challenge from nonbank financial service providers.
Since 1983, PNC has made a number of acquisitions in eastern Pennsylvania
and Delaware, including its acquisitions of Northeastern Bancorp, Inc.,
Scranton, Pennsylvania, in 1985 (approximately $1.4 billion in assets); The
First National Bank of Avoca, Avoca, Pennsylvania, in 1987 (approximately $50
million in assets); The First National Bank of Peckville, Peckville,
Pennsylvania, in 1988 (approximately $92 million in assets); Bank of Delaware
Corporation, Wilmington, Delaware, in 1989 (approximately $1.8 billion in
assets); Flagship Financial Corporation, Jenkintown, Pennsylvania, in 1992
(approximately $900 million in assets); and First Eastern Corporation,
Wilkes-Barre, Pennsylvania, in 1994 (approximately $2 billion in assets). As a
result, PNC created a sizable banking franchise which bordered the entire state
of New Jersey. Despite these actions, PNC had not been able to meaningfully
improve its competitive position in metropolitan Philadelphia and maintained
only a marginal de novo banking presence in southern New Jersey. The
metropolitan Philadelphia and New Jersey markets contain a higher concentration
of households, businesses and wealth than any other market served by PNC. For
this reason PNC had continually reaffirmed a desire to expand in these markets
and had discussions with and responded to inquiries from a number of other
financial institutions in addition to those discussed above. Except for the
acquisitions discussed above, none of the discussions led to an agreement on the
terms of a potential transaction. On March 7, 1995, PNC executed an agreement to
purchase a substantial portion of Chemical-New Jersey's banking operations,
which represented PNC's first significant entry into the New Jersey banking
market. PNC will acquire total assets and deposits of approximately $3.2 billion
and $2.7 billion, respectively, in markets contiguous to PNC's eastern
Pennsylvania and Delaware operations. The proposed Merger with Midlantic
provides PNC an opportunity to further expand in metropolitan Philadelphia and
capitalize on the Chemical-New Jersey investment.
MIDLANTIC. In the early 1990s, the results of a regional recession caused
significant asset quality problems at Midlantic, which in turn adversely
affected Midlantic's financial condition and results of operations. In 1991, a
new senior management team led by Garry J. Scheuring, Chairman of the Board,
President and Chief Executive Officer, was put in place by Midlantic. Mr.
Scheuring was directed by the Midlantic Board to take action to return Midlantic
to consistent profitability. The Midlantic Board and the new management team
concluded that this goal would be achieved by implementing strategies aimed at
restoring asset quality, improving capital adequacy, sharpening business focus
and enhancing operating efficiency.
Between mid-1991 and mid-1994, numerous actions were taken by Midlantic in
furtherance of these strategies. Certain non-strategic subsidiaries and
businesses of Midlantic located outside of its principal markets were divested;
many steps, including bulk sales of problem loans, were taken to improve asset
quality; Midlantic raised over $216 million through sales of over 13 million
shares of Midlantic Common Stock; and Midlantic undertook Focus '92, a program
aimed at achieving greater operating efficiencies. As a result of all of these
actions, by mid-1994 Midlantic had restored strong core operating profitability,
and its operating efficiency, asset quality and capital position had improved
dramatically, making Midlantic, by measures of financial condition and
performance, among the strongest institutions in its peer group.
19
<PAGE> 23
As Midlantic's financial strength was being restored, the Midlantic Board
from time to time considered possible strategies for further enhancing
shareholder value, including remaining independent and affiliating with either a
larger or a similar-sized bank holding company with a similar strategic focus
and business strengths complementary to those of Midlantic. As part of
Midlantic's assessment of which strategy would best enhance shareholder value,
Midlantic engaged in exploratory discussions with certain large regional bank
holding companies other than PNC concerning their interest in a potential
affiliation with Midlantic. However, none of the discussions resulted in a firm
merger proposal being submitted to Midlantic or being considered by the
Midlantic Board. Until the Midlantic Board approved the Agreement, the strategy
chosen to be pursued by Midlantic was to remain independent.
THE MERGER. Thomas H. O'Brien, PNC's Chairman and Chief Executive Officer,
and Mr. Scheuring have met on a number of occasions over the last few years to
discuss regional business issues and developments at their respective
organizations. Such meetings and discussions, although infrequent, continued
throughout 1994 and into 1995. However, each of those meetings ended without any
commitment on the part of either executive to pursue further discussions.
In late spring 1995, representatives of PNC and Merrill Lynch (see
"--Opinions of Financial Advisors") had several conversations regarding a
potential merger of PNC and Midlantic. On June 13, 1995, Mr. O'Brien and other
representatives of PNC reviewed the strategic, business and financial
implications of a potential PNC/Midlantic merger. On June 23, 1995, Mr. O'Brien
met with Mr. Scheuring to discuss a potential merger of the companies. Mr.
O'Brien and Mr. Scheuring subsequently held additional discussions to explore
the potential transaction structure and value of the potential merger.
Subsequent to this time, Messrs. O'Brien and Scheuring met with selected members
of their respective senior management teams and financial and legal advisors to
refine their evaluation of the transaction and possible terms of a merger
agreement and each company commenced its preliminary due diligence review of the
other. On July 3, 1995, meetings were held among selected members of senior
management of PNC and Midlantic and certain of their financial and legal
advisors. The purpose of these meetings was to review financial forecasts, asset
and liability risk profiles, material litigation, credit quality assessments,
employee benefits plans and other information, including long-term strategies
and potential operating synergies.
On July 5, 1995, members of PNC's management team made a presentation to
the PNC Board which reviewed the reasons for the merger and the benefits to PNC
and its shareholders. On July 6, 1995, the PNC Board reconvened to discuss the
transaction further. At the conclusion of the meeting, the PNC Board authorized
senior management to continue negotiations and to complete a due diligence
review. Representatives from Smith Barney, PNC's financial advisor, were present
at the July 5 and July 6 meetings and participated in the discussions.
On July 7, 1995, Mr. O'Brien and Mr. Scheuring met and reached tentative
agreement on the principal terms of the Merger. Over the following days,
negotiation of a definitive agreement proceeded while expanded due diligence
reviews were conducted by both PNC and Midlantic.
At meetings of the Midlantic Board held on July 8, 1995 and on July 9,
1995, the management of Midlantic, as well as Midlantic's legal and financial
advisors, reviewed, among other things, a summary of management's due diligence
findings concerning PNC, presentations by management concerning the strategic
alternatives available to Midlantic (which strategic alternatives are more fully
described below (see "--Reasons for the Merger--Recommendation of the Midlantic
Board")), the terms of the Agreement and Option Agreements negotiated between
the parties and Merrill Lynch's fairness opinion concerning the Exchange Ratio.
Based upon that review, and after consideration of other factors, the Midlantic
Board unanimously approved and authorized (with two directors absent) the
execution and delivery of the Agreement and the Option Agreements. The Midlantic
Board unanimously (with no directors absent) ratified and confirmed the
execution and delivery of the Agreement and the Option Agreements on July 19,
1995.
On July 10, 1995, the PNC Board met again. Mr. O'Brien reviewed the final
terms of the transaction which reflected a value per share of Midlantic Common
Stock of $55.09 based on PNC's closing price on July 7, 1995 (see
"SUMMARY--Markets and Market Prices"). The results of PNC's due diligence were
presented and PNC's legal advisors reviewed the terms of the proposed Merger
Agreement and Option
20
<PAGE> 24
Agreements. Smith Barney made presentations regarding the financial terms and
fairness, from a financial point of view, of the Exchange Ratio to PNC and its
shareholders. After consideration of these factors, among others, the PNC Board
unanimously approved and authorized (with no directors absent) execution and
delivery of the Agreement and the Option Agreements.
The Agreement and the Option Agreements were executed by the parties on
July 10, 1995. The terms of the Agreement, as executed, do not differ materially
from those of the tentative agreement reached by the parties on July 7, 1995.
REASONS FOR THE MERGER
GENERAL. The Merger is intended to create a regional banking franchise with
sufficient scale, product diversity, financial strength and national presence to
compete effectively in a consolidating financial services industry.
Each Board believes that each institution is well managed and possesses
compatible management philosophies, cultures and strategies, and that the strong
capitalization of PNC following the Merger will allow it to take advantage of
future opportunities for growth. In evaluating the Merger, each Board discussed
the critical importance of successfully integrating, and building on the
strength of, the management teams and cultures of both companies, and considered
the uncertainties inherent in any combination of two significant companies. No
member of the PNC Board has any interests in the Merger beyond those of PNC
shareholders generally. The Midlantic Board, in deciding to approve the Merger,
was aware of the interests of certain members of Midlantic management and the
Midlantic Board in the Merger. See "--Interests of Certain Persons in the
Merger--General."
PNC. In reaching its decision to approve the Agreement, the PNC Board
considered that the Merger would create a financial institution with greater
scale, breadth of services, efficiency, capital, earnings and growth potential
than either PNC or Midlantic would possess on a stand-alone basis. The PNC Board
also considered that the Merger would represent a strategic alliance between the
two companies and that PNC shareholders should realize the expected benefits of
such an alliance. Such benefits include, but are not limited to, the future
prospects of the combined company, the combined company's financial strength and
an enhanced ability to strengthen existing businesses and develop new products
and services, the cost efficiencies expected to be derived from the
consolidation of services in the metropolitan Philadelphia and southern New
Jersey markets and the elimination of redundant back office operations and staff
functions, the potential for cross-marketing products and services to customers
of the two companies, the opportunity to diversify earnings, the business
synergies that might be realized, and the potential effect of the Merger on the
perception of the combined companies' businesses by the financial markets.
MIDLANTIC. The Midlantic Board's decision to approve and adopt the
Agreement reflects its belief that the terms of the Agreement will provide
significant value to all Midlantic shareholders and will also enable them to
participate in the opportunities for growth that the Midlantic Board believes
the Merger makes possible. In reaching its decision, the Midlantic Board
considered the current and prospective economic, regulatory and competitive
environment facing financial institutions and the combined company's financial
strengths and earnings prospects.
RECOMMENDATION OF THE PNC BOARD
THE PNC BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, PNC AND ITS SHAREHOLDERS. THE PNC BOARD UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE PNC PROPOSAL.
In reaching its conclusion to approve the Agreement, the PNC Board
consulted with PNC management, as well as its financial and legal advisors, and
considered the factors described above under "General" and the following
additional factors, which together constitute all material factors considered by
the PNC Board:
(i) PNC's business, operations, financial condition, earnings, and
acquisition strategy, including the desirability of achieving a significant
position in the attractive New Jersey and metropolitan Philadelphia
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markets (PNC currently holds (after giving effect to the Chemical-New Jersey
acquisition) 2.3% and 8.2% of the total deposits in the New Jersey and
metropolitan Philadelphia markets, respectively, and will hold 8.9% and 14.6% of
the total deposits in the respective markets after the Merger) (see "THE
COMPANIES-- Combined Company"); the scarcity in these markets of bank and thrift
acquisitions that could deliver similar market share and scale benefits; and the
ability to leverage PNC's substantial investment in technology and products (see
"--Management and Operations After the Merger--Estimated Financial Impact");
(ii) the financial and/or strategic contributions of PNC's recent
acquisitions, including management's assessment that the financial performance
of such acquisitions substantially met or exceeded management's projections and
that the effect of such acquisitions was to diversify PNC's revenue base and
product lines;
(iii) the current and prospective economic, regulatory and competitive
climate facing financial institutions, including without limitation the
consolidation currently underway in the banking industry, competition from
nonbank providers of financial services and the need for financial institutions
to be low cost providers of quality financial services;
(iv) the presentations by PNC management and Smith Barney of (a) the
business, operations, earnings and financial condition of Midlantic, including
substantial improvement in Midlantic's profitability and asset quality and
factors that might adversely affect Midlantic's ability to maintain its recent
financial performance such as pressure on its net interest margin and increased
competition resulting from the pending acquisition of First Fidelity Bancorp,
the largest bank holding company in New Jersey, by First Union Corporation, and
(b) the historical price performance of Midlantic Common Stock (including the
substantial increases in the market price of Midlantic Common Stock reflected
under "SUMMARY--Markets and Market Prices");
(v) the anticipated pre-tax annual cost savings of approximately $150
million and net revenue enhancements of approximately $10 million available to
the combined institution from the Merger (see "--Management and Operations After
the Merger"); the relative importance of achieving the cost savings identified
to eliminate the pro forma earnings dilution arising from the Merger; and PNC's
performance in achieving targeted cost savings in previous acquisitions, as well
as PNC's prior experience with customer attrition;
(vi) the determination, based on the discounted cash flow analyses prepared
by PNC management (the results of which were consistent with Smith Barney's
analyses), that the indicated rate of return on the Merger exceeds 15%, which
was higher than other investment alternatives, including PNC's share repurchase
program (see "--Management and Operations After the Merger");
(vii) the effectiveness of the Merger in implementing and accelerating
certain of PNC's balance sheet objectives, including enhancements to PNC's core
deposit funding and capital position;
(viii) the common philosophy and culture of PNC and Midlantic particularly
with respect to customer satisfaction and segmentation strategies, efficiency
and credit quality and the performance of the current Midlantic senior
management team under Mr. Scheuring; the proposed arrangements with respect to
the PNC Board and the executive management structure following the Merger
including the role of Messrs. Scheuring and Atkins (see "--Management and
Operations After the Merger" and "--Interests of Certain Persons in the
Merger");
(ix) the Exchange Ratio in the Merger (2.05 shares of PNC Common Stock for
each share of Midlantic Common Stock valued at $55.09 per share of Midlantic
Common Stock based on stock prices on the last trading day prior to execution of
the Agreement) from a number of valuation perspectives, as presented by Smith
Barney (including a comparable company analysis assuming an acquisition premium
of 35%, selected comparable nationwide stock-for-stock merger transactions and a
discounted cash flow analysis assuming cost savings allocated to Midlantic); the
July 10, 1995 opinion of Smith Barney that the Exchange Ratio was fair to PNC
and its shareholders from a financial point of view and a review of the
significant financial information, projections, assumptions and other
information received by, and the significant assumptions and the methodologies
utilized by Smith Barney in arriving at such opinion (see "--Opinions of
Financial Advisors-PNC");
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(x) the terms of the Agreement and the Option Agreements; the regulatory
and shareholder approval processes; the treatment of the Merger as a
pooling-of-interests for financial accounting purposes; the resultant impact on
PNC's previously authorized share repurchase program (see "--Share Repurchase
Program"); and the nature of the Merger as a tax-free reorganization for federal
income tax purposes (see "--Certain Federal Income Tax Consequences");
(xi) the resultant capital of the combined institution and the positive
financial implications of the Merger in conjunction with PNC's pending
acquisition of Chemical-New Jersey (1996 estimated tangible equity to assets of
6.90% after giving effect to the issuance of debt in lieu of preferred stock for
the Chemical-New Jersey acquisition, which will result in income applicable to
common shareholders increasing by approximately $11 million); and a discussion
of options available in deploying excess capital including share repurchases,
increased lending and investment activity and purchase acquisitions; and
(xii) the potential effect of the Merger announcement on the market price
of PNC Common Stock, which the Board was advised would be negative in the short
term in view of the dilutive effect of the transaction on a pro forma historical
basis (without giving effect to potential cost savings and revenue
enhancements), the number of shares to be issued and the effect of risk
arbitrage transactions.
The foregoing discussion of the information and factors considered by the
PNC Board is not intended to be exhaustive but includes all material factors
considered by the PNC Board. In reaching its determination to approve and
recommend the Agreement, the PNC Board did not assign relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. Through its deliberations, the PNC Board
received the advice of in-house and outside counsel. After deliberating with
respect to the Merger and the other transactions contemplated by the Agreement,
considering, among other things, the matters discussed above and the opinion of
Smith Barney referred to above, the PNC Board, by unanimous vote of all
directors, approved the Agreement as being in the best interests of PNC and its
shareholders and directed that the PNC Proposal be submitted to the holders of
PNC Capital Stock to vote at the PNC Special Meeting. The PNC Board is unanimous
in its recommendation that holders of PNC Capital Stock vote for approval of the
PNC Proposal.
BASED ON THE FOREGOING, THE PNC BOARD CONCLUDED THAT THE PROPOSED MERGER
WOULD BE IN THE BEST INTERESTS OF PNC'S SHAREHOLDERS, CUSTOMERS AND COMMUNITIES
SERVED. ACCORDINGLY, THE PNC BOARD UNANIMOUSLY VOTED TO RECOMMEND THAT THE PNC
SHAREHOLDERS VOTE "FOR" THE PNC PROPOSAL.
RECOMMENDATION OF THE MIDLANTIC BOARD
THE MIDLANTIC BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, MIDLANTIC AND ITS SHAREHOLDERS. THE MIDLANTIC BOARD UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MIDLANTIC PROPOSAL.
In reaching its determination to approve and adopt the Agreement, the
Midlantic Board considered the factors described above under "General" and the
following additional factors, which, together, constitute all material factors
considered by the Midlantic Board:
(i) the Midlantic Board's familiarity with and review of Midlantic's
business, operations, financial condition and earnings;
(ii) the current and prospective economic, regulatory and competitive
environment facing financial institutions, including Midlantic and PNC,
including without limitation the consolidation currently underway in the banking
industry, the need of financial institutions to diversify revenue sources and
the difficulties faced by Midlantic in attempting to achieve such
diversification as a stand-alone entity;
(iii) the Midlantic Board's review, based on the advice of Midlantic's
management, of alternatives to the Merger (including the alternatives of
remaining independent while implementing strategies aimed at achieving both
internal and in-market acquisition growth and further cost savings, and the
alternative of affiliating with either a larger or similar-sized bank holding
company (other than PNC) with a similar
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strategic focus and business strengths complementary to those of Midlantic), and
the risks associated with such alternative strategies. With respect to a
strategy of continued independence, the Midlantic Board noted the difficulty in
achieving further significant cost savings given Midlantic's past successes in
this area, the time required in order for Midlantic to gain a significant
competitive edge in its markets, the high cost of investments in technology
necessary to obtain such an edge, and the scarcity of attractive bank and thrift
acquisition candidates in Midlantic's existing markets which were of meaningful
size and could be acquired at prices which would enhance the value of the
Midlantic Common Stock. With respect to affiliations with similarly sized
in-market bank holding companies, the Midlantic Board noted reasons why such a
transaction with the other potential merger partners might not be feasible or
beneficial to Midlantic's shareholders at this time;
(iv) the Midlantic Board's review, based in part on presentations by
Merrill Lynch and Midlantic management, of (a) the business, operations,
earnings and financial condition of PNC on both a historical and a prospective
basis (including the recent losses incurred by PNC in its securities and
derivative portfolios, the risk faced by PNC in these portfolios and PNC's
strategies for reducing this risk (see the documents previously filed with the
SEC by PNC and described under "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY
REFERENCE")) and (b) the historical market price of PNC Common Stock; (see
"SUMMARY--Market and Market Prices");
(v) the anticipated cost savings and operating efficiencies available to
the combined institution from the Merger and the potential for revenue
enhancements at the combined institution (see "--Management and Operations After
the Merger");
(vi) the Midlantic Board's belief that the terms of the Agreement are
attractive in that the Agreement allows Midlantic stockholders to become
shareholders in a combined institution which would be the eleventh largest bank
holding company in the United States on the basis of assets as of December 31,
1994;
(vii) the financial presentations of Merrill Lynch and the July 9, 1995
opinion of Merrill Lynch as to the fairness from a financial point of view of
the Exchange Ratio to the shareholders of Midlantic and a review of the
significant financial information, projections, assumptions and other
information provided to, and the significant assumptions and methodologies
utilized by, Merrill Lynch in arriving at such opinion (see "--Opinions of
Financial Advisors--Midlantic");
(viii) the expectation that the Merger will generally be a tax-free
transaction to Midlantic and its stockholders (see "--Certain Federal Income Tax
Consequences");
(ix) the interests of certain members of Midlantic management and the
Midlantic Board in the Merger (see "--Interests of Certain Persons in the
Merger--General"); and
(x) the terms of the Agreement and the Option Agreements, which were
generally reciprocal in nature, and certain other information regarding the
Merger, including the terms and structure of the Merger, the proposed
arrangements with respect to the PNC Board and the management structure of PNC
following the Merger (see "--Management and Operations After the Merger").
The foregoing discussion of the information and factors considered by the
Midlantic Board is not intended to be exhaustive but includes all material
factors considered by the Midlantic Board. In reaching its determination to
approve and recommend the Merger, the Midlantic Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. Throughout its
deliberations, the Midlantic Board received the advice of special counsel. After
deliberating with respect to the Merger and the other transactions contemplated
by the Agreement, considering, among other things, the matters discussed above
and the opinion of Merrill Lynch referred to above, the Midlantic Board, by
unanimous vote, approved and adopted the Agreement and the transactions
contemplated thereby, including the Option Agreements, as being in the best
interests of Midlantic and its shareholders. The Midlantic Board is unanimous in
its recommendation that holders of Midlantic Common Stock vote for approval and
adoption of the Merger.
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BASED ON THE FOREGOING, THE MIDLANTIC BOARD CONCLUDED THAT THE PROPOSED
MERGER WOULD BE IN THE BEST INTERESTS OF MIDLANTIC'S SHAREHOLDERS, CUSTOMERS,
EMPLOYEES AND COMMUNITIES SERVED. ACCORDINGLY, THE MIDLANTIC BOARD UNANIMOUSLY
VOTED TO RECOMMEND THAT THE MIDLANTIC SHAREHOLDERS VOTE "FOR" THE MIDLANTIC
PROPOSAL.
For information regarding certain interests of directors and executive
officers of Midlantic in the Merger, see "--Management and Operations After the
Merger" and "--Interests of Certain Persons in the Merger."
TERMS OF THE MERGER
On the Effective Date, Midlantic will be merged with and into PNC Bancorp
and the separate existence of Midlantic will cease. PNC Bancorp, as the
surviving entity, will continue its corporate existence. Also on the Effective
Date, each outstanding share of Midlantic Common Stock (except as otherwise
provided in the Agreement and as described below), including each attached stock
purchase right issued pursuant to the Rights Agreement, will be converted into
PNC Common Stock at the Exchange Ratio of 2.05 shares of PNC Common Stock for
each share of Midlantic Common Stock, and, with respect to the aggregate number
of shares of PNC Common Stock issuable to any shareholder of Midlantic, cash in
lieu of any fractional share of PNC Common Stock that such shareholder otherwise
would receive. Any such cash payment shall be in an amount equal to such
fraction multiplied by the reported closing price of PNC Common Stock in the
"NYSE--Composite Transactions List" on the last business day immediately
preceding the Effective Date. HOLDERS OF PNC CAPITAL STOCK AND MIDLANTIC COMMON
STOCK WILL NOT BE ENTITLED TO STATUTORY DISSENTERS' RIGHTS IN CONNECTION WITH
THE MERGER.
Midlantic has in effect the Midlantic Incentive Stock and Stock Option Plan
(the "1986 Plan"), the Midlantic Incentive Plan (the "Midlantic Plan") and the
Continental Bancorp, Inc. 1982 Stock Option Plan (the "Continental Plan")
(collectively, the "Option Plans") pursuant to which officers and key employees
of Midlantic have been granted options to purchase Midlantic Common Stock. The
Merger Agreement provides for the treatment of options outstanding under the
Option Plans on the Effective Date as follows:
1. On the Effective Date, Midlantic's obligations under the Option Plans
with respect to stock options granted thereunder to any Insider (which is
defined in the Merger Agreement as any person who is, on the date
Midlantic's shareholders approve the Merger, subject to the reporting
requirements of Section 16(a) of the Exchange Act with respect to equity
securities of Midlantic and which will include certain of Midlantic's
executive officers) shall, as to the portion of such Insider's options that
is a Vested MC Option (as defined in the Merger Agreement) and that has not
been exercised prior to the Merger, be assumed by PNC and each such option
shall become an option that entitles the Insider to receive, upon payment
of the exercise price, 2.05 shares of PNC Common Stock for each share of
Midlantic Common Stock covered by the Vested MC Option; provided, however,
that immediately after the Effective Date, such option shall be cancelled
in exchange for the number of shares of PNC Common Stock having an
aggregate "fair market value" (as defined in the Merger Agreement) equal to
the product of (1) the number of shares of PNC Common Stock subject to such
option and (2) the excess, if any, of the fair market value of a share of
PNC Common Stock on the Effective Date over the exercise price of such
option.
2. Any options (or portions thereof) held by an Insider that do not
constitute a Vested MC Option shall automatically become exercisable in
accordance with the terms of the Option Plans immediately prior to the
Effective Date and shall be cancelled on the Effective Date if not
theretofore exercised.
3. Each option to purchase a share of Midlantic Common Stock held by any
person who is not an Insider and that has not been exercised prior to the
Merger shall be cancelled at the Effective Date and PNC shall deliver to
the holder of each such option, in respect thereof, the number of shares of
PNC Common Stock having an aggregate fair market value equal to the product
of (1) the number of shares of Midlantic Common Stock subject to such
option and (2) the excess, if any, of the fair market value of a share of
Midlantic Common Stock on the Effective Date over the exercise price of
such option.
For additional information, see "--Interests of Certain Persons in the
Merger--Option Plans."
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At September 30, 1995, Midlantic had outstanding $68,650,000 aggregate
principal amount of 8 1/4% Convertible Subordinated Debentures Due 2010 (the
"Midlantic Debentures"), which are currently convertible into one share of
Midlantic Common Stock for each $48 of aggregate principal amount. At the
Effective Date of the Merger, subject to execution and delivery of a
supplemental indenture, the Midlantic Debentures will be assumed by PNC Bancorp
and PNC and each $48 of aggregate principal amount will be convertible into 2.05
shares of PNC Common Stock.
In the event that prior to the Effective Date the outstanding shares of PNC
Common Stock shall have been increased, decreased or changed into or exchanged
for a different number or kind of shares or securities by reorganization,
recapitalization, reclassification, stock dividend, stock split or other like
changes in PNC's capitalization, all without PNC receiving adequate
consideration therefor, then an appropriate and proportionate adjustment shall
be made in the number and kind of shares of PNC Common Stock to be thereafter
delivered pursuant to the Agreement.
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Date, the stock transfer agent
of PNC (currently, Chemical Bank), acting in the capacity of exchange agent,
will mail to all holders of Midlantic Common Stock a letter of transmittal,
together with instructions for the exchange of their Midlantic Common Stock
certificates for certificates representing PNC Common Stock and, if applicable,
a check representing the amount paid in lieu of issuing any fractional share.
Until so exchanged, each certificate representing Midlantic Common Stock
outstanding immediately prior to the Effective Date shall be deemed for all
purposes to evidence ownership of the number of shares of PNC Common Stock into
which such shares have been converted; provided, however, that no dividends or
other distributions declared after the Effective Date with respect to PNC Common
Stock shall be paid to the holder of any unsurrendered certificate until the
holder surrenders that certificate. MIDLANTIC SHAREHOLDERS SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE FURTHER INSTRUCTIONS.
OPINIONS OF FINANCIAL ADVISORS
PNC. Smith Barney was retained by PNC to act as its financial advisor in
connection with the Merger. As part of such engagement, PNC requested that Smith
Barney evaluate the fairness, from a financial point of view, to PNC and its
shareholders of the consideration to be paid by PNC in the Merger. On July 10,
1995, Smith Barney delivered to the PNC Board a written opinion to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the Exchange Ratio was fair, from a financial point of
view, to PNC and its shareholders. Smith Barney confirmed such opinion by
delivery of a written opinion to the PNC Board dated the date of this Joint
Proxy Statement.
In arriving at its opinion, Smith Barney reviewed the Agreement and certain
ancillary documents related thereto and held discussions with certain senior
officers, directors and other representatives and advisors of PNC and with
certain senior officers and other representatives and advisors of Midlantic
concerning the businesses, operations and prospects of PNC and Midlantic. Smith
Barney examined certain publicly available business and financial information
relating to PNC and Midlantic as well as certain financial forecasts and other
data for PNC and Midlantic which were provided to it by, or otherwise discussed
with, the respective managements of PNC and Midlantic, including information
relating to certain strategic implications and operational benefits anticipated
from the Merger. Smith Barney reviewed the current and historical market prices
and trading volumes of PNC Common Stock and Midlantic Common Stock, historical
and projected earnings and operating data of PNC and Midlantic, and the
capitalization and financial condition of PNC and Midlantic. Additionally, Smith
Barney evaluated the potential pro forma financial impact of the Merger on PNC.
Smith Barney also considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected which Smith Barney
considered comparable to the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations Smith Barney considered comparable to those of PNC
and Midlantic. In addition to the foregoing, Smith Barney conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Smith Barney deemed appropriate in arriving at its opinion.
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In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with Smith Barney. With respect to financial forecasts and other
information and data furnished to or otherwise reviewed by or discussed with
Smith Barney, including, without limitation, projected cost savings, revenue
enhancements and other operating synergies resulting from the Merger, Smith
Barney was advised by the management of PNC that such forecasts and other
information and data were prepared on reasonable bases reflecting the best
currently available estimates and judgments of the management of PNC as to the
future financial performance of PNC and Midlantic and the potential strategic
implications and operational benefits anticipated from the Merger. Smith Barney
assumed, with the consent of the PNC Board, that the Merger will be treated as a
pooling of interests in accordance with generally accepted accounting principles
and as a tax-free reorganization for federal income tax purposes. Smith Barney
noted that it is not an expert in the evaluation of loan portfolios or the
allowances for loan losses with respect thereto and Smith Barney assumed, with
the consent of the PNC Board, that such allowances for Midlantic were in the
aggregate adequate to cover such losses. In addition, Smith Barney did not
review individual credit files nor did it make or was it provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of PNC or Midlantic, nor did Smith Barney make any physical
inspection of the properties or assets of PNC or Midlantic. Smith Barney was not
asked to consider, and its opinion did not address, the relative merits of the
Merger as compared to any alternative business strategies that might have
existed for PNC or the effect of any other transaction in which PNC might have
engaged. Smith Barney's opinion was necessarily based upon information available
to it, and financial, stock market and other conditions and circumstances
existing and disclosed to Smith Barney, as of the date of its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY, DATED THE DATE OF
THIS JOINT PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS
APPENDIX D AND IS INCORPORATED HEREIN BY REFERENCE. PNC SHAREHOLDERS ARE URGED
TO READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF
VIEW AND HAS BEEN PROVIDED FOR THE USE OF THE PNC BOARD IN ITS EVALUATION OF THE
MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY PNC SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE PNC SPECIAL MEETING. THE SUMMARY OF THE OPINION
OF SMITH BARNEY SET FORTH IN THIS JOINT PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the PNC Board, Smith Barney performed a variety
of financial and comparative analyses. The following discussion summarizes all
of the material financial and comparative analyses presented to the PNC Board at
the July 10 meeting at which Smith Barney's July 10 opinion was delivered. The
summary of such analyses does not purport to be a complete description of the
analyses underlying Smith Barney's opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analyses and the application
of those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. In arriving at its opinion,
Smith Barney did not attribute any particular weight to any specific analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering them in
their entirety, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Smith Barney made
numerous assumptions with respect to PNC, Midlantic, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of PNC and Midlantic. The estimates
contained in such analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Transaction Summary. Smith Barney multiplied the closing price of $26.875
for PNC Common Stock on July 7, 1995 (the last trading day prior to the
announcement of the Merger) by the Exchange Ratio of
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2.05x, which resulted in consideration of $55.09 per share of Midlantic Common
Stock (the "Imputed Per Share Value") and noted that the aggregate transaction
price was $2.96 billion, assuming none of the Midlantic Debentures was converted
into Midlantic Common Stock prior to the Merger, and $3.05 billion, assuming all
outstanding Debentures were converted into Midlantic Common Stock prior to the
Merger. Smith Barney also noted that the Imputed Per Share Value represented a
multiple of (i) 14.3x Midlantic's latest 12 months adjusted earnings per share
("EPS") of $3.85 (adjusted to reflect an assumed tax rate of 38%); (ii) 14.4x
Midlantic's estimated 1995 EPS of $3.82; (iii) 13.3x Midlantic's estimated 1996
EPS of $4.14; (iv) 2.10x Midlantic's book value per share (assuming that none of
the Debentures was converted into Midlantic Common Stock prior to the Merger);
and (v) 2.26x Midlantic's tangible book value per share (assuming that none of
the Debentures was converted into Midlantic Common Stock prior to the Merger).
Smith Barney noted by comparison that the purchase price payable by First
Union Corporation in the First Union Corporation/First Fidelity Bancorporation
("First Fidelity") transaction, announced on June 19, 1995, represented a
multiple of: (i) 12.4x First Fidelity's latest 12 months EPS; (ii) 11.8x First
Fidelity's estimated 1995 EPS; (iii) 10.8x First Fidelity's estimated 1996 EPS;
(iv) 1.92x First Fidelity's book value per share; and (v) 2.72x First Fidelity's
tangible book value per share.
Smith Barney noted in addition that the mean purchase prices in certain
nationwide stock-for-stock bank merger and acquisition transactions and in
certain bank merger and acquisition transactions involving a New Jersey target
corporation (see "Selected Merger and Acquisition Transaction Analysis" below)
represented multiples for nationwide and New Jersey transactions of: (i) 15.0x
and 19.2x latest 12 months EPS, respectively; (ii) 14.2x and 14.9x the price as
a multiple of estimated EPS for the fiscal year ending the year in which the
transaction was announced, respectively; (iii) 12.9x and 13.0x the price as a
multiple of estimated EPS for the following fiscal year, respectively; (iv)
2.05x and 2.27x book value per share, respectively; and (v) 2.33x and 2.40x
tangible book value per share, respectively.
Comparable Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the stock price, market value and trading
multiples of Midlantic relative to: BayBanks, Inc; Central Fidelity Banks, Inc.;
CoreStates Financial Corporation; Crestar Financial Corporation; First Virginia
Banks, Inc.; Integra Financial Corporation; Meridian Bancorp, Inc.; UJB
Financial Corporation and Star Banc Corporation (the "Midlantic Comparables").
Among other things, Smith Barney made the following comparisons of multiples of
the price of Midlantic Common Stock prior to the Merger to multiples of the
stock prices of the Midlantic Comparables: (i) book value per share (which was
1.60x for Midlantic and 1.73x mean for the Midlantic Comparables); (ii) tangible
book value per share (which was 1.72x for Midlantic, and 1.93x mean for the
Midlantic Comparables); (iii) latest 12 months EPS (which was 10.7x for
Midlantic and 12.4x mean for the Midlantic Comparables); (iv) estimated 1995 EPS
(which was 10.8x for Midlantic and 10.8x mean for the Midlantic Comparables);
and (v) estimated 1996 EPS (which was 10.0x for Midlantic, and 9.8x mean for the
Midlantic Comparables). EPS projections for Midlantic and the Midlantic
Comparables were based on estimates of selected investment banking firms. All
multiples were based on closing stock prices on July 7, 1995.
Based on the foregoing comparative company data, Smith Barney developed the
following ranges of valuation multiples for Midlantic per share data: (i) latest
12 months EPS, 11.5x to 13.5x; (ii) estimated 1995 EPS, 10.0x to 12.0x; (iii)
estimated 1996 EPS, 9.0x to 11.0x; (iv) book value per share, 1.65x to 1.85x;
and (v) tangible book value per share, 1.85x to 2.05x. On the basis of such
multiples, Smith Barney developed implied values for Midlantic Common Stock of
approximately $41 to $48 per share, assuming no acquisition premium, and
approximately $55 to $65 per share, assuming an acquisition premium of 35% (see
"Premium Analysis" below), in each case assuming that none of the Debentures was
converted into Midlantic Common Stock prior to the Merger.
Selected Merger and Acquisition Transaction Analysis. Using publicly
available information, Smith Barney analyzed the implied purchase price
multiples and certain other ratios in the following selected nationwide
stock-for-stock merger and acquisition transactions in the banking industry
completed or announced since January 1, 1992 (acquiror/target): First Union
Corporation/First Fidelity Bancorporation; US Bancorp/West One Bancorp; Fleet
Financial Group, Inc./Shawmut National Corporation; Banc One
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Corporation/Liberty National Bancorp Inc.; KeyCorp/Society Corporation; Marshall
& Ilsley Corporation/Valley Bancorporation; First Union Corporation/Dominion
Bankshares Corporation; Barnett Banks, Inc./First Florida Banks, Inc.; Banc One
Corporation/Valley National Corporation; Banc One Corporation/Team Bancshares,
Inc.; NBD Bancorp, Inc./INB Financial Corporation; KeyCorp/Puget Sound Bancorp
("Nationwide Transactions"). Smith Barney also separately analyzed the implied
purchase price multiples and certain other ratios in the following selected bank
merger and acquisition transactions involving a New Jersey target corporation
completed or announced since January 1, 1994 (acquiror/target): First Union
Corporation/First Fidelity Bancorporation; Summit Bancorp/Garden State
Bancshares, Inc.; Meridian Bancorp/United Counties Bancorporation; HUBCO,
Inc./Urban National Bank; United National Bancorp/New Era Bank; Valley National
Bancorp/Rock Financial Corporation; National Westminster Bancorp/Central Jersey
Bancorp; Mellon Bank Corporation/Glendale Bancorporation; National Westminster
Bancorp/Citizens First Bancorp ("New Jersey Transactions" and, together with the
Nationwide Transactions, "Comparable Transactions").
Smith Barney made the following comparisons, among others: (i) price per
share as a multiple of book value per share (2.05x mean for Nationwide
Transactions, 2.27x mean for New Jersey Transactions); (ii) price per share as a
multiple of tangible book value per share (2.33x mean for Nationwide
Transactions, 2.40x mean for New Jersey Transactions); (iii) price per share as
a multiple of latest 12 months EPS (15.0x mean for Nationwide Transactions;
19.2x mean for New Jersey Transactions); (iv) price per share as a multiple of
estimated EPS for the fiscal year ending the year in which the transaction was
announced (14.2x mean for Nationwide Transactions, 14.9x mean for New Jersey
Transactions); and (v) price per share as a multiple of estimated EPS for the
following fiscal year (12.9x mean for Nationwide Transactions, 13.0x mean for
New Jersey Transactions). All multiples for the Comparable Transactions were
based on information available at the time of announcement of such transactions.
Certain data pertaining to the Comparable Transactions deemed not representative
were excluded from the calculation of the foregoing mean multiples and values.
Based on the foregoing comparative transaction data, Smith Barney developed
the following ranges of valuation multiples for Midlantic per share data: (i)
latest 12 months EPS, 13.5x to 16.5x; (ii) estimated 1995 EPS, 12.5x to 15.5x;
(iii) estimated 1996 EPS, 11.5x to 14.5x; (iv) book value per share, 1.80x to
2.20x; and (v) tangible book value per share, 2.20x to 2.40x. On the basis of
such multiples, Smith Barney developed implied values for Midlantic Common Stock
of approximately $49 to $59 per share, assuming that none of the Debentures was
converted into Midlantic Common Stock prior to the Merger.
No company or transaction used in the comparable company and selected
merger and acquisition transaction analysis as a comparison is identical to PNC,
Midlantic, the pro forma combined entity or the Merger. Accordingly, the
foregoing analyses were not entirely mathematical; rather, they involved complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other value of the comparable companies or transactions to which PNC
and Midlantic were compared.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected free cash flows of Midlantic for the fiscal years
ending December 31, 1996 through 2000 based on projected earnings and utilizing
discount rates of 13.0%, 14.0%, 15.0% and 16.0% and terminal multiples of
trailing net income of 8.0x, 9.0x and 10.0x. On the basis of such analysis,
Smith Barney developed implied values for Midlantic Common Stock ranging from
approximately $41 to $50 per share assuming that none of the cost savings and
operational synergies anticipated from the Merger was achieved, and
approximately $55 to $68 per share assuming approximately $108 million in 1996
and $159 million in 1997 of after-tax benefits resulting from cost savings and
operational synergies anticipated from the Merger were achieved, and that
after-tax benefits generally consistent with the 1997 levels were achieved in
1998 to 2000, all of which were allocated to Midlantic.
Premium Analysis. Smith Barney compared the implied premium over the market
price of Midlantic Common Stock payable in the Merger with the premiums paid in
11 selected stock-for-stock transactions based on stock prices one day, one
month and three months prior to the announcement date of such
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transactions. Among the conclusions of the premium analysis were that mean
premiums paid in such transactions one day, one month and three months prior to
the announcement date of such transactions were approximately 37.7%, 51.1% and
67.1%, respectively, as compared to the implied premiums payable in the Merger,
as of such dates, of approximately 33.2%, 54.9% and 62%, respectively.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on PNC's: (i) projected EPS for the fiscal years 1996 and 1997 based on
estimates of selected investment banking firms and projections provided by the
managements of PNC and Midlantic and assumptions provided by PNC management
regarding the phase-in of cost reductions (including benefits related to
decreased reliance by PNC upon hedging transactions to reduce its interest rate
sensitivity), revenue enhancements, leverage from increased excess capital,
savings associated with the avoidance by PNC of a planned preferred stock issue
and the impact of merger expenses resulting from the Merger; (ii) tangible book
value; and (iii) book value. Assuming that approximately $108 million and $159
million of after-tax benefits were generated in 1996 and 1997 respectively,
Smith Barney performed a pro forma merger analysis which suggested that the
Merger would be accretive to PNC's EPS in fiscal years 1996 and 1997, and
dilutive to PNC's tangible book value and book value for such fiscal years. The
actual results achieved by the combined company may vary from projected results
and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and other comparative analyses,
including, among other things, analyses of: (i) the historical financial results
and historical growth rates of PNC and Midlantic; (ii) the projected financial
results of PNC and Midlantic, as provided by PNC and Midlantic, including the
levels of projected cost savings, revenue enhancements and other operating
synergies resulting from the Merger; (iii) the history of trading prices and
volume for PNC Common Stock and Midlantic Common Stock; (iv) the pro forma
market share ranking of the combined company; (v) the stock prices, market value
and trading multiples of PNC relative to those of a selected peer group of
publicly traded bank holding companies; and (vi) the pro forma share ownership
of the combined company by current PNC shareholders and former Midlantic
shareholders (approximately 67.4% and 32.6%, respectively, assuming no
conversion of Debentures prior to the Merger and 66.8% and 33.2%, respectively,
assuming all outstanding Debentures were converted prior to the Merger).
Pursuant to the terms of Smith Barney's engagement, PNC has agreed to pay
Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee of $3,750,000 as follows: (i) $250,000, which was paid
upon execution of the engagement letter; (ii) $750,000, which was paid upon the
delivery by Smith Barney of its fairness opinion, (iii) $1,000,000, payable upon
the mailing of proxies by PNC related to the Merger; and (iv) $1,750,000,
payable upon the closing of the Merger. PNC has also agreed to reimburse Smith
Barney for reasonable travel and other out-of-pocket expenses incurred by Smith
Barney in performing its services, including the reasonable fees and expenses of
its legal counsel, and to indemnify Smith Barney and related persons against
certain liabilities, including liabilities under the federal securities laws,
arising out of Smith Barney's engagement.
Smith Barney has advised PNC that, in the ordinary course of business,
Smith Barney and its affiliates may actively trade the securities of PNC and
Midlantic for its own account or for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Smith Barney has in the past provided financial advisory and investment banking
services to PNC and its affiliates unrelated to the Merger and has received fees
for such services. In addition, Smith Barney and its affiliates (including
Travelers Group Inc. and its affiliates) maintain business relationships with
PNC and may also retain business relationships with Midlantic.
Smith Barney is a nationally recognized investment banking firm and was
selected by PNC based on Smith Barney's experience and expertise. Smith Barney
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
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MIDLANTIC. Midlantic has retained Merrill Lynch to act as its financial
advisor in connection with rendering a fairness opinion with respect to the
Merger. Merrill Lynch has rendered its oral opinion (the "July Opinion") that,
based upon and subject to the various considerations set forth therein, as of
July 9, 1995, the Exchange Ratio was fair, from a financial point of view, to
the holders of Midlantic Common Stock. Merrill Lynch confirmed the July Opinion
by delivery of its written opinion dated the date of this Joint Proxy Statement
(the "October Opinion" and, together with the July Opinion, the "Merrill Lynch
Opinions") that, as of the date of such opinion, the Exchange Ratio was fair,
from a financial point of view, to the holders of Midlantic Common Stock.
The full text of the October Opinion, which sets forth assumptions made,
matters considered and limits on the review undertaken by Merrill Lynch, is
attached hereto as Appendix E. Midlantic shareholders are urged to read the
October Opinion in its entirety. The summary set forth in this Joint Proxy
Statement of the Merrill Lynch Opinions is qualified in its entirety by
reference to the full text of the October Opinion.
The Merrill Lynch Opinions were addressed to the Board of Directors of
Midlantic and do not constitute a recommendation to any shareholder of Midlantic
as to how such shareholder should vote with respect to the Merger.
In connection with the October Opinion, Merrill Lynch reviewed, among other
things: (i) Midlantic's Annual Reports on Form 10-K and related financial
information for the five fiscal years ended December 31, 1994, and Midlantic's
Quarterly Reports on Form 10-Q and related unaudited financial information for
the quarterly periods ended March 31, 1995 and June 30, 1995; (ii) PNC's Annual
Reports on Form 10-K and related financial information for the five fiscal years
ended December 31, 1994, and PNC's Quarterly Reports or Form 10-Q and related
unaudited financial information for the quarterly periods ended March 31, 1995
and June 30, 1995; (iii) certain information concerning the respective
businesses, operations, regulatory condition and prospects of Midlantic and PNC,
including financial forecasts, relating to the business, earnings, assets and
prospects of Midlantic and PNC, furnished to Merrill Lynch by Midlantic and PNC,
which Merrill Lynch discussed with members of senior management of Midlantic and
PNC; (iv) historical market prices and trading activity for the Midlantic Common
Stock and PNC Common Stock and similar data for certain publicly traded
companies which Merrill Lynch deemed to be relevant; (v) the results of
operations of Midlantic and PNC and similar data for certain companies which
Merrill Lynch deemed to be relevant; (vi) the financial terms of the Merger
contemplated by the Agreement and the financial terms of certain other mergers
and acquisitions which Merrill Lynch deemed to be relevant; (vii) the pro forma
impact of the Merger on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of PNC; (viii)
the Agreement; (ix) the Option Agreements; and (x) such other matters as Merrill
Lynch deemed necessary. Merrill Lynch also met with certain members of senior
management and other representatives of Midlantic and PNC to discuss the
foregoing as well as other matters Merrill Lynch deemed relevant. Merrill Lynch
also considered such financial and other factors as it deemed appropriate under
the circumstances and took into account its assessment of general economic,
market and financial conditions, and its experience in similar transactions, as
well as its experience in securities valuation and its knowledge of the banking
industry generally. Merrill Lynch's opinions are necessarily based upon
conditions as they existed and could be evaluated on the respective dates
thereof and the information made available to Merrill Lynch through the
respective dates thereof.
In preparing the Merrill Lynch Opinions, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by Midlantic and PNC, and it did not assume any responsibility
for independently verifying such information or for undertaking an independent
evaluation or appraisal of the assets or liabilities of Midlantic or PNC or any
of their subsidiaries nor was Merrill Lynch furnished with any such evaluation
or appraisal. Merrill Lynch also relied upon the managements of Midlantic and
PNC as to the reasonableness and achievability of the financial operating
forecasts (and the assumptions and bases therefor) provided to Merrill Lynch. In
that regard, Merrill Lynch assumed that such forecasts, including without
limitation, financial forecasts, projected cost savings and operating synergies
resulting from the Merger and projections regarding future economic conditions
and results of operations, reflected the best currently available estimates and
judgments of such respective managements and that such projections and forecasts
would be realized in the amounts and the time periods estimated by the
managements of Midlantic
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and PNC. Merrill Lynch is not an expert in the evaluation of allowances for loan
losses and did not assume any responsibility for making an independent
evaluation of the adequacy of the allowance for loan losses of Midlantic and PNC
nor did Merrill Lynch review any individual credit files.
In connection with rendering its July Opinion to the Midlantic Board,
Merrill Lynch performed a variety of financial analyses, which are summarized
below. Merrill Lynch believes that its analyses must be considered as a whole
and that selecting portions of such analyses and the factors considered therein,
without considering all factors and analyses, could create an incomplete view of
the analyses and the processes underlying Merrill Lynch's opinions. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Merrill Lynch also took into account its
assessment of general economic, market, and financial conditions and its
experience in other merger transactions, as well as its experience in securities
valuation and its knowledge of the banking industry generally. With respect to
the peer group analysis and selected merger transaction analysis summarized
below, no public company or transaction utilized as a comparison is identical to
Midlantic or PNC or the Merger, and such analyses necessarily involve complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and transactions, and other factors
that could affect the companies concerned. Any estimates contained in Merrill
Lynch's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates. Estimates
of values of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities actually may be sold. None of
the analyses performed by Merrill Lynch was assigned a greater significance by
Merrill Lynch than any other.
The following is a summary of the analyses presented to the Midlantic Board
by Merrill Lynch in connection with the rendering of the July Opinion to the
Midlantic Board on July 9, 1995 and reflects all material valuation
methodologies used by Merrill Lynch:
Overview of PNC. Merrill Lynch reviewed with the Midlantic Board a
financial overview of PNC. Merrill Lynch described the key businesses, financial
attributes and deposit franchise of PNC, described certain recent merger
transactions that had been undertaken by PNC and reviewed with the Midlantic
Board PNC's recent asset/liability management, deleveraging and hedging
initiatives. Merrill Lynch also reviewed the 1995 and 1996 earnings estimates
for PNC of the various investment banking research analysts. The mean earnings
per share estimate for 1995 was $2.42 per share and the mean earnings per share
estimate for 1996 was $2.81 per share. Merrill Lynch also reviewed the trading
ranges for the PNC Common Stock over the prior 52-week period and the 1-year,
3-year, 5-year and 10-year compounded returns to shareholders holding PNC Common
Stock (including the reinvestment of dividends). Merrill Lynch noted that PNC's
stock had recently underperformed the S&P 500 index in terms of total returns to
shareholders. Merrill Lynch explained that PNC's recent performance was due in
part to concerns about the impact of its securities and derivatives portfolios
on net interest margin and overall profitability, and described PNC's strategies
for addressing these matters.
Transaction Summary. Merrill Lynch reviewed with the Midlantic Board the
key financial terms of the proposed Merger. Merrill Lynch noted that based on
PNC's closing stock price of $26.875 on July 7, 1995, the then current market
value of the proposed Merger to Midlantic shareholders was $55.09 per share,
representing a 33% premium to Midlantic's July 7, 1995 closing market price of
$41.375 per share. Merrill Lynch stated that the $55.09 value per share
represented a multiple of 2.14 times Midlantic's fully diluted book value per
share as of March 31, 1995 and a multiple of 2.30 times Midlantic's fully
diluted tangible book value per share. Merrill Lynch also explained that the
$55.09 value represented a multiple of 14.58 times Midlantic's latest 12-months
pre-tax earnings per share as of March 31, 1995 tax effected at 38%, a multiple
of 14.42 times the mean Wall Street analyst estimates for Midlantic's 1995
earnings per share and a multiple of 13.24 times the mean Wall Street analyst
estimates for Midlantic's 1996 earnings per share.
Pro Forma Analysis. Merrill Lynch reviewed the preliminary estimates for
cost savings, revenue enhancements and enhanced earnings from leveraging excess
capital that had been prepared by PNC management and discussed the potential
impact of such synergies on PNC's 1996 and 1997 pre-tax earnings. Merrill Lynch
also reviewed the pro forma impact of the proposed Merger on various balance
sheet data and
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capital, asset quality and profitability ratios of PNC, Midlantic and the pro
forma company as of March 31, 1995. Merrill Lynch reviewed the pro forma impact
of the proposed Merger on PNC's and Midlantic's book value per share and
estimated 1996 and 1997 earnings per share. This analysis showed that the
proposed Merger would be slightly dilutive to PNC's estimated 1996 earnings per
share, but would be accretive to PNC's estimated 1997 earnings per share, after
giving effect to estimated Merger synergies. The analysis showed that the Merger
was significantly accretive to Midlantic's estimated 1996 and 1997 earnings per
share. The analysis also showed that the Merger was dilutive to PNC's book value
and tangible book value per share and accretive to Midlantic's book value and
tangible book value per share. Merrill Lynch also explained that based upon
PNC's and Midlantic's current dividend payments, Midlantic shareholders would
have a dividend increase of 124%. Merrill Lynch also reviewed the pro forma
business rankings and pro forma deposit franchise of the combined company.
Contribution Analysis. Merrill Lynch reviewed the contribution made by each
of PNC and Midlantic to various balance sheet items and net income of the
combined company at the proposed exchange ratio based on balance sheet data at
March 31, 1995 and latest 12-month earnings as of March 31, 1995. For Midlantic,
latest twelve-month earnings are the latest 12-month pre-tax earnings tax
effected at 38%. This analysis showed that Midlantic shareholders would own
approximately 32.9% of the aggregate fully diluted outstanding shares of the
combined company and that Midlantic was contributing 17.66% of total assets,
18.25% of total loans (net), 16.38% of investment securities, 23.30% of total
deposits, 24.60% of fully diluted common equity, 27.51% of tangible common
equity, 26.79% of the fully diluted market capitalization and 28.09% of latest
twelve months net income, respectively, of the pro forma combined company as of
March 31, 1995.
Summary Comparison of Selected Institutions. Merrill Lynch compared
selected balance sheet data, asset quality, capitalization and profitability
ratios and market statistics using financial data at or for the 12 months ended
March 31, 1995 and market data as of July 7, 1995 for Midlantic to a group of 10
selected bank holding companies consisting of BayBanks Inc., Crestar Financial
Corporation, Central Fidelity Banks, Inc., First American Corporation, First
Empire State Corporation, First Tennessee National Corp., First Virginia Banks,
Inc., Integra Financial Corp., Meridian Bancorp, Inc. and UJB Financial Corp.
(the "Midlantic Peer Group"). This analysis showed that (i) Midlantic had a
ratio of noninterest expense to average assets of 3.48% compared to a mean ratio
of 3.62% and a median ratio of 3.46% for the Midlantic Peer Group; (ii)
Midlantic had a ratio of noninterest income to average assets of 1.42% compared
to a mean ratio of 1.52% and a median ratio of 1.23% for the Midlantic Peer
Group; (iii) Midlantic had a net interest margin of 5.04% compared to a mean
margin of 4.56% and a median margin of 4.68% for the Midlantic Peer Group; (iv)
Midlantic had an efficiency ratio (defined as noninterest expense divided by the
sum of noninterest income plus net interest income before provision for loan
losses) of 57.06% compared to a mean ratio of 61.50% and a median ratio of
60.78% for the Midlantic Peer Group; (v) Midlantic had a return on average
assets of 1.58% compared to a mean and median return of 1.17% for the Midlantic
Peer Group; (vi) Midlantic had a return on average equity of 14.85% compared to
a mean return of 15.24% and a median return of 15.20% for the Midlantic Peer
Group; (vii) Midlantic had a ratio of tangible common equity to tangible assets
of 9.68% compared to a mean ratio of 7.17% and a median ratio of 7.21% for the
Midlantic Peer Group; (viii) Midlantic had a ratio of nonperforming loans to
total loans of 2.34% compared to a mean ratio of 1.03% and a median ratio of
0.98% for the Midlantic Peer Group; (ix) Midlantic had a ratio of nonperforming
assets to total assets of 1.85% compared to a mean ratio of 0.70% and a median
ratio of 0.67% for the Midlantic Peer Group; (x) Midlantic had a ratio of loan
loss reserve to nonperforming assets of 133.50% compared to a mean ratio of
244.62% and a median ratio of 213.85% for the Midlantic Peer Group; (xi)
Midlantic had a price to 1996 estimated earnings per share multiple of 9.95x
compared to a mean multiple of 9.70x and a median multiple of 9.46x for the
Midlantic Peer Group; (xii) Midlantic had a price to book value multiple of
1.60x compared to a mean multiple of 1.68x and a median multiple of 1.60x for
the Midlantic Peer Group; (xiii) Midlantic had a price to tangible book value of
1.72x compared to a mean multiple of 1.85x and a median multiple of 1.78x for
the Midlantic Peer Group; and (xiv) Midlantic had a dividend yield of 3.20%
compared to a mean yield of 3.42% and a median yield of 3.75% for the Midlantic
Peer Group. Merrill Lynch then computed an imputed value for the Midlantic
Common Stock based upon current trading multiples for the Midlantic Peer Group
as of July 7, 1995. This analysis yielded a range of imputed values of $39.36 to
$44.44 per share using the mean and median of the trading multiples for the
Midlantic Peer Group and a
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range of imputed values of $36.62 to $59.86 per share using the full range of
low and high multiples for the Midlantic Peer Group.
Merrill Lynch also compared selected balance sheet data, asset quality,
capitalization and profitability ratios and market statistics using financial
data at or for the 12 months ended March 31, 1995 and market data as of July 7,
1995 for PNC to a group of 14 selected bank holding companies consisting of Bank
of New York Company, Bank of Boston Corporation, Fleet Financial Group, Inc.,
NBD Bancorp, Inc., Barnett Banks, Inc., First Chicago Corporation, First Union
Corporation, First Interstate Bancorp, KeyCorp, Norwest Corporation, Banc One
Corporation, Republic New York Corporation, SunTrust Banks, Inc., and Wells
Fargo & Company (the "PNC Peer Group"). This analysis showed that (i) PNC had a
ratio noninterest expense to average assets of 2.81% compared to a mean ratio of
3.58% and a median ratio of 3.52% for the PNC Peer Group; (ii) PNC had a ratio
of noninterest income to average assets of a 1.57% compared to a mean ratio of
1.90% and a median ratio of 1.86% for the PNC Peer Group; (iii) PNC had a net
interest margin of 3.17% compared to a mean margin of 4.52% and a median margin
of 4.67% for the PNC Peer Group; (iv) PNC had an efficiency ratio of 59.38%
compared to a mean ratio of 58.89% and a median ratio of 58.96% for the PNC Peer
Group; (v) PNC had a return on average assets of 0.86% compared to a mean return
of 1.28% and a median return of 1.29% for the PNC Peer Group; (vi) PNC had a
return on average equity of 12.20% compared to a mean return of 17.22% and a
median return of 17.00% for the PNC Peer Group; (vii) PNC had a ratio of
tangible common equity to tangible assets of 5.66% compared to a mean ratio of
6.21% and a median ratio of 6.04% for the PNC Peer Group; (viii) PNC had a ratio
of nonperforming loans to total loans of 0.85% compared to a mean ratio of 0.83%
and a median ratio of 0.66% for the PNC Peer Group; (ix) PNC had a ratio of
nonperforming assets to total assets of 0.72% compared to a mean ratio of 0.66%
and a median ratio of 0.59% for the PNC Peer Group; (x) PNC had a ratio of loan
loss reserves to nonperforming assets of 219.46% compared to a mean ratio of
274.25% and a median ratio of 233.22% for the PNC Peer Group; (xi) PNC had a
price to 1996 estimated earnings per share multiple of 9.56x compared to a mean
multiple of 8.61x and a median multiple of 8.37x for the PNC Peer Group; (xii)
PNC had a price to book value multiple of 1.41x compared to a mean multiple of
1.71x and a median multiple of 1.57x for the PNC Peer Group; (xiii) PNC had a
price to tangible book value of 1.64x compared to a mean multiple of 2.10x and a
median multiple of 1.98x for the PNC Peer Group; and (xiv) PNC had a dividend
yield of 5.31% compared to a mean yield of 3.53% and a median yield of 3.67% for
the PNC Peer Group. Merrill Lynch then computed an imputed value for the PNC
Common Stock based upon current trading multiples for the PNC Peer Group as of
July 7, 1995. This analysis yielded a range of imputed values of $21.92 to
$34.30 per share using the mean and median of the trading multiples for the PNC
Peer Group and a range of imputed values of $17.57 to $59.05 per share using the
full range of low and high multiples for the PNC Peer Group.
Summary of Selected Bank Merger and Acquisition Transactions. Merrill Lynch
compared the ratios of price/market, price/latest 12 months earnings,
price/book, price/tangible book, deposit premium (defined as: (transaction
value--book value)/deposits, price/normalized book (which assumes the acquiror
pays the corresponding book multiple up to the mean equity/asset ratio of
announced transactions and then dollar for dollar on equity thereafter), and
price/normalized tangible book (which assumes the acquiror pays the
corresponding tangible book multiple up to the mean tangible equity/asset ratio
of announced transactions and then dollar for dollar on equity thereafter), for
the proposed Merger to the high, mean, median and low ratios for selected
nationwide bank acquisitions announced since January 1, 1994 with a transaction
value of greater than $500 million (the "Selected Transactions") and to the then
recently announced First Union/First Fidelity transaction. This analysis showed
that (i) the price/market paid in the proposed Merger was 1.33x compared to a
mean of 1.37x and a median of 1.41x for the Selected Transactions and 1.29x for
the First Union/First Fidelity transaction; (ii) the price/earnings paid in the
proposed Merger was 14.58x compared to a mean of 14.50x and a median of 14.49x
for the Selected Transactions and 12.44x for the First Union/First Fidelity
transaction; (iii) the price/book value paid for the proposed Merger was 2.14x
compared to a mean of 1.86x and a median of 1.88x for the Selected Transactions
and 1.92x for the First Union/First Fidelity transaction; (iv) the
price/tangible book value paid in the proposed Merger was 2.30x compared to a
mean of 2.14 and a median of 2.13 for the Selected Transactions and a 2.72x for
the First Union/First Fidelity transaction; and (v) the deposit premium paid in
the proposed Merger was 15.42% compared to a mean of 9.76% and a median of 9.36%
for the Selected Transactions and 9.56% for the First Union/First Fidelity
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transaction. The imputed values per share for the Midlantic Common Stock based
upon the various transaction multiples reviewed by Merrill Lynch yielded a range
of imputed values of $43.52 to $53.77 based upon the median and mean of the
Selected Transactions multiples and a range of $43.90 to $64.94 based upon the
First Union/First Fidelity transaction multiples.
Discounted Dividend Analysis. Merrill Lynch performed a discounted dividend
analysis for Midlantic and PNC, each on a stand-alone basis, and for the pro
forma combined company, using assumed growth rates for Midlantic and PNC
earnings per share of 8% and 7%, respectively, discount rates ranging from 13.0%
to 15.0% for Midlantic and 14.0% to 16.0% for PNC and the pro forma combined
company, and terminal price to earnings multiples of 9.0x and 10.0x applied to
the year 2000 forecasted earnings, and projecting the maximum dividends that
would permit the maintenance of their existing tangible common equity ratio.
This analysis showed a range of present values per share of Midlantic Common
Stock from $39.94 to $46.26, a range of present values per share of PNC Common
Stock from $25.12 to $28.97 and a range of present values per Midlantic
equivalent shares (e.g., 2.05 shares of the combined company) from $53.74 to
$61.51 after giving effect to PNC's preliminary cost savings and revenue
enhancement estimates, prior to leveraging excess capital. This analysis did not
purport to be indicative of actual values or expected values of the shares of
Midlantic Common Stock or PNC Common Stock before or after the Merger. Merrill
Lynch noted that the discounted cash flow analysis was included because it is a
widely used valuation methodology, but noted that the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth rates, dividend payout rates, terminal values,
and discount rates.
In connection with rendering its October Opinion, Merrill Lynch performed
procedures to update certain of the foregoing analyses and reviewed the
assumptions on which such analyses were based, and the factors considered in
connection therewith.
Merrill Lynch is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses and securities in connection
with the mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, and
valuations for estate, corporate and other purposes. Midlantic selected Merrill
Lynch as a financial advisor in connection with the Merger because of its
reputation and because Merrill Lynch has substantial experience in transactions
such as the Merger.
In addition to the financial advisory services referred to above, Merrill
Lynch has from time to time provided underwriting, financial advisory and/or
brokerage services to Midlantic and PNC, for all of which Merrill Lynch has
received customary compensation. In the ordinary course of business, Merrill
Lynch makes a market in Midlantic Common Stock and PNC Common Stock and trades
the debt and equity securities of Midlantic and PNC for its own account and for
the account of its customers and may at any time hold a long or short position
in such securities.
Midlantic and Merrill Lynch have entered into a letter agreement relating
to the services to be provided by Merrill Lynch in connection with the Merger.
Midlantic has agreed to pay Merrill Lynch fees as follows: (1) a cash fee of
$250,000, which was paid upon execution of the letter agreement, (2) an
additional cash fee of $2,400,000, which was paid upon the delivery by Merrill
Lynch of the October Opinion and (3) an additional cash fee equal to
approximately $8,250,000, payable at the Effective Time of the Merger. In such
letter, Midlantic also agreed to reimburse Merrill Lynch for its reasonable and
necessary out-of-pocket expenses and to indemnify Merrill Lynch against certain
liabilities, including liabilities under the federal securities laws.
Merrill Lynch has filed a written consent with the Commission relating to
the inclusion of their fairness opinion and the references to such opinion and
to Merrill Lynch in the Registration Statement in which this Joint Proxy
Statement is included. In giving such consent, Merrill Lynch did not admit that
they come within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations thereunder nor did they
admit that they are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act, or the rules and regulations of the Commission thereunder.
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REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER; WAIVER
The Agreement contains representations and warranties by PNC and Midlantic
regarding, among other things, their capitalization, organization, ownership and
capitalization of their subsidiaries, qualification to do business, authority to
enter into the Agreement, the PNC Stock Option Agreement and Midlantic Stock
Option Agreement, regulatory filings, financial statements, compliance with
applicable laws and regulations, loans, taxes, employee benefit plans, certain
contracts, undisclosed liabilities, properties, the accuracy of information
prepared and provided by them in connection with the Merger and the absence of
certain legal proceedings and other events, including material adverse changes
in the parties' respective businesses, financial condition or results of
operations. Except as otherwise provided in the Agreement, these representations
and warranties will not survive the Effective Date.
The respective obligations of PNC, PNC Bancorp and Midlantic to consummate
the Merger are subject to the fulfillment, at or prior to the Effective Date, of
the following conditions: (i) approval of the PNC Proposal and the Midlantic
Proposal by the requisite vote of the shareholders of PNC and Midlantic,
respectively; (ii) receipt of all requisite regulatory approvals for the Merger,
the expiration of all waiting periods and the satisfaction of all
pre-consummation conditions in any such approval, without any condition which,
in the reasonable opinion of the PNC Board or the Midlantic Board, so materially
and adversely affects the anticipated benefits to a party as to render
consummation of the transactions inadvisable (see "--Regulatory and Other
Approvals"); (iii) the receipt of certain federal income tax opinions described
under "--Certain Federal Income Tax Consequences"; (iv) the absence of any
order, decree or injunction enjoining or prohibiting the consummation of the
Merger; (v) receipt of approval to list the shares of PNC Common Stock that may
be issued in the Merger on the NYSE; (vi) the absence of any event that would
preclude the Merger from being accounted for as a pooling-of-interests
transaction; (vii) receipt of all state securities or "Blue Sky" permits or
other authorizations; (viii) the effectiveness of the Registration Statement and
the absence of any "stop order" proceeding related thereto; (ix) the
representations and warranties of the other party to the Agreement shall be true
and correct in all material respects as of the date of the Agreement and (except
to the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on the Closing Date, provided, however,
that in determining the satisfaction of this condition, no effect shall be given
to any exceptions in such representations and warranties relating to materiality
or Material Adverse Effect (as defined in the Agreement) and the condition shall
be deemed to be satisfied unless the failure of such representations and
warranties to be true and correct constitute a Material Adverse Effect on the
party making such representation and warranty; (x) each party shall have
performed in all material respects all obligations required to be performed by
it under the Agreement at or prior to the Closing Date; (xi) in the case of PNC
and PNC Bancorp, the rights issued pursuant to the Rights Agreement shall not
have become nonredeemable, exercisable, distributed or triggered pursuant to the
terms of such agreement (see "--Certain Differences in the Rights of
Shareholders--Rights Agreement"); and (xii) receipt of routine certificates,
legal opinions, auditors' "comfort letters," approvals and consents.
Except with respect to any required shareholder or regulatory approvals,
the absence of any order, decree or injunction enjoining or prohibiting the
consummation of the Merger, receipt of all state securities or "Blue Sky"
permits or other authorizations and the effectiveness of the Registration
Statement under the Securities Act and the absence of any "stop order"
proceeding related thereto, all of the conditions to consummation of the Merger
may be waived at any time by the party for whose benefit they were created, and
the Agreement may be amended or supplemented at any time by written agreement of
the parties, except that no such waiver, amendment or supplement executed after
approval of the Agreement by PNC's or Midlantic's shareholders shall alter the
Exchange Ratio.
REGULATORY AND OTHER APPROVALS
On September 26, 1995, PNC received approval of the Merger from the Federal
Reserve under the BHCA, which required that the Federal Reserve take into
consideration the financial and managerial resources and future prospects of the
existing and proposed companies and their subsidiary banks and the convenience
and needs of the communities to be served. The Merger may not be consummated
until the
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30th day after such approval. On October 3, 1995, PNC received approval of the
Merger from the NJ Commissioner under the applicable provisions of the New
Jersey banking laws.
Consummation of the Merger will be subject to the compliance requirements
of the New Jersey Industrial Site Recovery Act, if the Merger is determined to
constitute a change in ownership of an industrial establishment. Such compliance
requirements could apply to all branch and other bank facilities of Midlantic
and any of Midlantic's tenants or subtenants at those facilities, as well as
properties obtained by Midlantic or its subsidiaries in satisfaction of
previously contracted debts.
PNC and Midlantic are not aware of any other governmental approvals or
actions that are required for consummation of the Merger except as described
above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained, would
not delay consummation of the Merger and would not be conditioned in a manner
that would cause PNC or Midlantic to abandon the Merger. Furthermore, there can
be no assurance that no action will be brought challenging the Merger on
anti-trust or other grounds.
The Agreement also provides that to the extent that rights of Midlantic
Bank under any investment advisory contract with funds in the Compass Capital
Group (Midlantic Bank's family of proprietary mutual funds) may not be assigned
without the consent or approval of another party to such contract, Midlantic
shall cause Midlantic Bank to use its reasonable best efforts to obtain any such
consent, including seeking to obtain the approval of directors and shareholders
of the funds to new contracts, effective as of the Effective Date. The new
contracts will be with Midlantic Bank or an affiliate of PNC, as PNC may elect,
on substantially the same terms as the existing contracts except that PNC may
otherwise request that Midlantic Bank seek the necessary approvals to merge one
or more of Compass Capital Group funds into a similar fund in PNC's family of
funds.
To the extent that the foregoing information describes statutes and
regulations, it is qualified in its entirety by reference to the particular
statutes and the regulations promulgated under such statutes. See
"--Representations and Warranties; Conditions to the Merger; Waiver" and
"--Effective Date of the Merger; Termination."
BUSINESS PENDING THE MERGER
Under the terms of the Agreement, each of PNC, Midlantic and their
respective subsidiaries generally is required to use its best efforts to
preserve its properties, business and relationships with customers, employees
and others and to carry on its respective business in the usual, regular and
ordinary course in substantially the same manner as conducted prior to the
execution of the Agreement. In addition, each party may not, without the prior
written consent of PNC or Midlantic, as the case may be, or as otherwise
provided in the Agreement, increase compensation or fringe benefits of
directors, officers or employees beyond customary limits; declare or pay any
dividends or other distributions on capital stock other than pursuant to certain
specified limits; or take other actions, other than in the ordinary course of
business, that might impact the financial condition or business of the entity.
PNC and Midlantic have mutually agreed that certain of the restrictions set
forth in the Agreement will not apply, or will apply only to a limited extent;
provided that the activities of PNC or Midlantic in light of this mutual
agreement do not have a material and adverse effect on the anticipated economic
and business benefits to Midlantic and its shareholders or PNC and its
shareholders, respectively, of the transactions contemplated by the
Reorganization Agreement.
The Agreement obligates PNC and Midlantic to coordinate with each other the
declaration of any dividends in respect of PNC Common Stock or Midlantic Common
Stock and the relevant record dates and payment dates in order to prevent
holders of PNC Common Stock and Midlantic Common Stock from receiving two
dividends, or failing to receive one dividend, for any single calendar quarter
with respect to their shares of PNC Common Stock or Midlantic Common Stock and
any shares of PNC Common Stock that a holder of Midlantic Common Stock receives
in exchange therefor in the Merger.
In addition, PNC and Midlantic have agreed that neither they nor any of
their officers or directors will solicit or encourage any inquiries or proposals
with respect to an acquisition, business combination or similar transaction
involving, or any purchase of all or any substantial portion of the assets or
equity securities of, PNC, Midlantic or any of their respective subsidiaries,
or, except to the extent legally required for the
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discharge of the fiduciary duties of its Board of Directors, recommend or
endorse any such transaction, participate in any discussions or negotiations, or
provide third parties with any nonpublic information, relating to any such
inquiry or proposal or otherwise facilitate any effort or attempt to carry out
such a transaction. Each party has also agreed to notify the other party
immediately if it receives any inquiries or proposals with respect to the
foregoing types of transactions.
Midlantic also has agreed that, if so requested by PNC, it will take all
necessary action to facilitate the merger of Midlantic's subsidiaries with
subsidiaries of PNC on or after the Effective Date; provided, however, that in
no event shall the Closing Date (as defined below) be delayed in order to
facilitate any such merger and that Midlantic will not be required to take any
action that could adversely affect the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
EFFECTIVE DATE OF THE MERGER; TERMINATION
The Effective Date shall be the date and time as set forth in the
certificate of merger to be delivered and filed with the Delaware Secretary of
State and the New Jersey Secretary of State in accordance with Delaware and New
Jersey law, respectively, on the closing date (the "Closing Date"). The Closing
Date will be the first business day following satisfaction of the conditions to
consummation of the Merger (other than such conditions relating to the receipt
of officers' certificates and legal opinions) or such later date during such
month in which such business day shall occur (or, if such business day shall
occur within 10 days prior to the end of such month, during the next following
month) thereafter as may be specified by PNC.
PNC and Midlantic each anticipate that the Merger will be consummated by
the end of 1995. However, consummation of the Merger could be delayed as a
result of delays in obtaining the necessary governmental and regulatory
approvals or if any other condition to consummation of the Merger is not
satisfied. There can be no assurances as to if or when such approvals will be
obtained or that the Merger will be consummated. Certain regulatory approvals
have been received. See "--Regulatory and Other Approvals."
The Agreement may be terminated by any party, whether before or after
shareholder approval: (i) in the event of a material breach by the other party
of any covenant, agreement, representation or warranty in the Agreement which
has not been cured within the period specified in the Agreement; (ii) if any
application for any required federal or state regulatory approval has been
denied, and the time for all appeals and requests for reconsideration of such
denial has run; (iii) if the shareholders of PNC or Midlantic do not approve the
PNC Proposal or the Midlantic Proposal, respectively, at the respective Special
Meetings called for such purpose; or (iv) in the event that the Merger is not
consummated by March 31, 1996 unless the failure of the closing to occur by such
date is due to the failure of the party seeking to terminate the Agreement to
perform or observe the covenants and agreements set forth therein. The Agreement
also may be terminated at any time by the mutual written consent of the parties.
In the event of termination, the Agreement shall become null and void, except
that certain provisions thereof relating to expenses and confidentiality of
information exchanged between the parties shall survive any such termination and
any termination resulting from a material breach of a covenant or agreement in
the Agreement shall not relieve any breaching party from liability for any
uncured willful breach of any such covenant or agreement giving rise to such
termination.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
BOARD OF DIRECTORS. From and after the Effective Date, the Board of
Directors of PNC and PNC Bancorp shall consist of those persons serving as
directors immediately prior thereto, except that, on the Effective Date, Mr.
Scheuring and three other persons, selected by Midlantic and approved by PNC,
who are serving on the Midlantic Board prior to the Merger, will be appointed
directors of an expanded PNC Board. Information regarding the current directors
of PNC and Midlantic is included in documents incorporated herein by reference.
See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
MANAGEMENT. After the Merger, certain executive officers of Midlantic will
become executive officers of PNC. Mr. Scheuring, in addition to his appointment
to the Board of Directors of PNC, will become a Vice Chairman of PNC, will
assume responsibility for the New Jersey and Philadelphia markets and the retail
line of business corporate wide and will also be a member of a newly created
Office of the Chairman, which will
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include Thomas H. O'Brien, Chairman of the Board and Chief Executive Officer of
PNC, and James E. Rohr, President of PNC. In addition, Howard I. Atkins,
Midlantic's current Executive Vice President and Chief Financial Officer, will
become Executive Vice President of Asset and Liability Management/Treasury at
PNC. Except for Mr. Scheuring and Mr. Atkins, it has not yet been determined
which members of Midlantic's senior management will become executive officers of
PNC following the Merger or what such persons' titles or functions will be. From
time to time prior to consummation of the Merger, decisions may be made with
respect to the management and operations of PNC following the Merger, including
the selection of executive officers of PNC. It is contemplated that Mr.
Scheuring and Mr. Atkins will enter into employment agreements with PNC. See
"--Interests of Certain Persons in the Merger--New Employment Agreements."
OPERATIONS. On the Effective Date, Midlantic will merge with and into PNC
Bancorp, whereupon Midlantic Bank will become a wholly-owned subsidiary of PNC
Bancorp. Immediately following consummation of the Merger, and for some limited
period of time thereafter, PNC will operate two banks in New Jersey and
Pennsylvania, PNC Bank and Midlantic Bank. PNC anticipates that it will merge or
otherwise combine Midlantic Bank and PNC Bank, subject to required regulatory
approvals, in the second half of 1996 upon conversion of Midlantic's customer
accounts to PNC's data processing systems. The planned combination of Midlantic
Bank and PNC Bank and the receipt of any regulatory approvals that may be
required in connection therewith are not required for, and are not a condition
to, the consummation of the Merger.
Under the terms of an agreement between Chemical and PNC, Chemical-New
Jersey will be merged with and into PNC Bank, creating an interstate national
bank with offices in both Pennsylvania and New Jersey. This acquisition is
expected to occur in early October 1995. The Chemical-New Jersey acquisition
will add 82 New Jersey branch offices to PNC Bank's nearly 400 Pennsylvania
branch offices. As of September 23, 1995, Midlantic Bank had 260 branch offices
in New Jersey and 76 branch offices in Pennsylvania.
While no assurance can be given, PNC and Midlantic expect to achieve
approximately $150 million of combined pre-tax annual cost savings within 12 to
15 months following consummation of the Merger. Such cost savings are expected
to be realized primarily through reductions in staffing; elimination,
consolidation or divestiture of branches and duplicate facilities; and the
consolidation of certain businesses, data processing and other redundant
operations and staff functions. Cost reductions and branch consolidations will
come from both companies, particularly in areas where there are overlapping
operations.
The increased size and scale of operations in New Jersey and eastern
Pennsylvania resulting from the Merger will provide further opportunities to
realize productivity improvements as new product and technology investments will
be spread over a larger customer base. In addition, the marketing of PNC's
products and services to Midlantic's customers will provide greater
opportunities for incremental revenue growth. While no assurances can be given,
PNC and Midlantic expect to achieve approximately $10 million in net revenue
enhancements during the first full year of operations following consummation of
the Merger.
These revenue enhancements are expected to largely reflect the marketing of
PNC products and services to Midlantic customers where Midlantic offers no such
product or service or provides a less competitive offering. Products and
services identified include credit and debit cards, residential mortgage
lending, certain investment products, public finance and treasury management.
PNC's revenue enhancement projections reflect estimates of the negative impact
associated with customer attrition primarily resulting from the conversion of
bank systems.
PNC and Midlantic also anticipate that the capital position of the combined
company will provide additional opportunities to enhance future earnings. PNC
currently expects that the $300 million in preferred stock originally
anticipated to be issued to finance the Chemical-New Jersey acquisition will not
be used. It is now anticipated that the Chemical-New Jersey acquisition will be
financed by the issuance of additional debt. The substitution of debt for
preferred stock is expected to result in an $11 million increase in income
applicable to common shareholders.
The extent and timing of cost savings and revenue enhancements to be
achieved is dependent upon various factors, some of which are beyond the control
of PNC and Midlantic. Therefore, no assurances can be
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given with respect to the ultimate level of cost savings and revenue
enhancements to be realized, or that such amounts will be realized in the time
frame currently anticipated.
In addition to potential cost savings and revenue enhancements, certain
balance sheet initiatives can be accomplished. Based upon a preliminary review
of Midlantic's asset and liability management position, PNC anticipates
terminating its interest rate cap position concurrent with or shortly after
consummation of the Merger. Termination of these interest rate caps is expected
to result in a $60 million pre-tax loss, measured by the difference between the
unamortized premium and the estimated fair value. The write-off of the
unamortized premium is expected to have the effect of increasing net interest
income over the following two years by approximately $46 million and $39
million, respectively.
PNC is continuing to review Midlantic's asset and liability management
position and is considering various other actions to maintain PNC's existing
interest rate risk position. As a result of further analysis, certain
reclassifications or sales of investment securities currently classified in the
held to maturity portfolio may occur. PNC's management has not made a
determination with respect to such matters. See "PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION (Unaudited)."
PNC and Midlantic also anticipate that they will incur expenses and
nonrecurring charges related to the Merger. These costs are estimated to
approximate $130 million on a pre-tax basis and represent expenses to be
incurred in connection with anticipated staff reductions and elimination of
overlapping and duplicative facilities resulting from the Merger. It is intended
that substantially all of these charges will be recognized upon consummation of
the Merger and be paid in 1995 and/or 1996. The estimated charges pertain to the
following areas: operations and facilities, $56 million; personnel, $40 million;
and other, $34 million. Operations and facilities charges consist primarily of
lease termination costs and other related costs resulting from the consolidation
of overlapping branches and elimination of redundant operational facilities as
well as write-offs of computer hardware and software, signage and
telecommunications equipment due to incompatibility or duplication. Personnel
costs consist primarily of charges related to employee severance, termination of
certain employee benefit plans and employee outplacement assistance. Other
charges include investment banking fees, legal and accounting fees, proxy
registration/filing fees and mailing costs and adjustment of state deferred tax
assets relating to the Merger. PNC management continues to review these charges
and there can be no assurance that such expenses and charges will not exceed the
amounts described above.
ESTIMATED FINANCIAL IMPACT. To further illustrate the potential impact of
the Merger, PNC has made certain forward looking estimates based on various
factors and assumptions. In PNC's opinion, the most significant assumptions
include: the realization of each company's internal stand-alone projections; the
consummation of the Chemical-New Jersey transaction prior to year end 1995
financed by the issuance of additional debt in lieu of preferred stock; the
consummation of the Merger by year end 1995; the attainment of projected cost
savings and net revenue enhancements; and the termination of the interest rate
caps in 1995; each as discussed above. See "--Management and Operations After
the Merger--Operations." In this regard, PNC has estimated tangible book value
dilution to approximate 6.9% and has estimated that its earnings for 1996 could
approximate $983 million or $2.87 per share, and that earnings for 1997 could
increase by more than 10% over the 1996 earnings estimate. The 1996 pro forma
financial results are accretive to shareholders compared with the PNC
stand-alone 1996 earnings estimate of $2.80 per share. Estimated 1996 earnings
would result in a return on equity of approximately 16%, a return on assets of
approximately 1.30% and an after tax profit margin of approximately 25%. Based
on the discounted cash flow analyses prepared by PNC management (the results of
which were consistent with Smith Barney's analyses), the indicated rate of
return on the Merger exceeds 15%, which was higher than other investment
alternatives, including PNC's share repurchase program. See "--Opinions of
Financial Advisors--PNC."
While such forward looking estimates have been prepared on reasonable bases
and in good faith, they are based on many factors and assumptions, including
economic and business conditions, many of which are beyond PNC's control, as
well as management's strategies, which are subject to change. There will be
differences between estimates and actual results, which could be material. These
estimates are necessarily speculative in nature and no assurance can be given
that they will be realized. Further, information with respect to 1997 is subject
to even greater uncertainty because of the increased likelihood of changes in
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underlying factors and assumptions. This forward looking information has been
presented for illustrative purposes in connection with this Joint Proxy
Statement. Accordingly, PNC does not intend to update these estimates.
EMPLOYEES. On the Effective Date (or as soon thereafter as may be
practicable), all employees of Midlantic and its subsidiaries on that date shall
be employed by subsidiaries of PNC, upon terms and conditions (including
benefits) which in the aggregate are no less favorable than those generally
afforded to other employees of such PNC subsidiaries holding similar positions,
subject to the terms and conditions under which those employee benefits are made
available to such employees and to certain other provisions of the Agreement.
PNC may elect to continue coverage of the employees of Midlantic and its
subsidiaries under employee benefit plans maintained by Midlantic immediately
prior to the Merger during a transition period following the Merger, provided
that there is no material reduction, on an overall basis, in the benefits
provided under such Midlantic plans. Under the terms of the Agreement, PNC will,
or will cause PNC Bancorp to, provide a severance plan for Midlantic employees.
This severance plan shall, for a period of one year following the Effective
Date, be the Midlantic Severance Pay Policy as currently in effect (the
"Severance Policy"), and, thereafter, shall be PNC's employee severance plan.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Certain members of Midlantic management and the Midlantic Board
have interests in the Merger that are in addition to any interests they may have
as shareholders of Midlantic generally. The Midlantic Board was aware of these
interests in approving the Merger Agreement and the transactions contemplated
thereby.
DIRECTORS AND MANAGEMENT. As described above, upon consummation of the
Merger, Mr. Scheuring and three other members of the Midlantic Board will become
members of the PNC Board and Mr. Scheuring also will become a Vice Chairman of
PNC. In addition, Mr. Atkins will become Executive Vice President of Asset and
Liability Management/Treasury at PNC. See "--Management and Operations After the
Merger--Board of Directors" and "--Management".
MIDLANTIC EMPLOYMENT AGREEMENT. Midlantic and Mr. Scheuring have entered
into an employment contract dated April 11, 1991 (the "Midlantic Employment
Agreement"), which provides, among other things, that if Mr. Scheuring
terminates his employment for "Good Reason" because of the occurrence of a
"change in control" of Midlantic (which, as defined in the Midlantic Employment
Agreement, would include the approval of the Midlantic Proposal by the
shareholders of Midlantic), Mr. Scheuring would be entitled to, among other
things, a payment equal to 2.99 times his "base amount", as defined in Section
280G of the Code, payable over a period of 36 months. The Midlantic Employment
Agreement provides that payments received in connection with a change in control
will be reduced to the extent necessary to avoid the imposition of an excise tax
under federal tax laws. It is anticipated that, on the Effective Date, the New
Employment Agreement (as defined below) will replace the Midlantic Employment
Agreement. However, the amounts payable described above have generally been
incorporated into, and may be paid to Mr. Scheuring pursuant to, the New
Employment Agreement described below.
NEW EMPLOYMENT AGREEMENTS. The Agreement provides that PNC will offer to
enter into an employment agreement with Mr. Scheuring on or prior to the
Effective Date (the "New Employment Agreement"). The New Employment Agreement
will replace the Midlantic Employment Agreement and will include the following
terms and conditions: (i) a term commencing on the Closing Date (as defined in
the Agreement) and ending on the third anniversary thereof; (ii) annual base
salary in an amount not less than currently in effect at Midlantic ($650,000);
(iii) a bonus for 1996 in an amount equal to the greater of 1996 salary and the
amount that would otherwise be payable under PNC's incentive bonus plan and,
thereafter, as described in the following clause; (iv) participation in all of
PNC's compensation and benefit (including perquisite and, after 1996, annual
bonus) plans or arrangements at a level, in each case, that is no less favorable
than the level at which provided to any other member of PNC's Office of the
Chairman (other than the Chairman); and (v) non-competition and confidentiality
covenants by Mr. Scheuring.
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If the New Employment Agreement is terminated by Mr. Scheuring (for any
reason other than by reason of death or disability) or by PNC other than for
"cause" (as defined in the Midlantic Employment Agreement), Mr. Scheuring will
be entitled to receive, among other things, his full base salary through the
date of termination at the highest annual rate in effect during the 12 months
immediately preceding the time notice of termination is given, and a cash
severance payment equal to 2.99 times his "base amount" as defined in Section
280G of the Code, but excluding from the computation of Mr. Scheuring's base
amount income from the exercise or settlement of stock options during 1995 and
1996. Generally, such amounts are to be paid in a lump sum no later than the
fifth day following the date of termination. The New Employment Agreement will
provide that payments received in connection with a change in control will be
reduced to the extent necessary to avoid the imposition of the excise tax (the
"Excise Tax") imposed on excess parachute payments under federal tax laws. If
the Effective Date were to occur on the date of this Joint Proxy Statement, the
amount payable to Mr. Scheuring under the New Employment Agreement, were his
employment to terminate on that day under circumstances entitling him to a
benefit thereunder, would be approximately $3 million.
Although not required under the terms of the Agreement to enter into any
employment agreement with any executive officer of Midlantic other than Mr.
Scheuring, PNC has agreed to enter into an employment agreement with Mr. Atkins,
and is engaged in discussions with respect to the terms of such agreement.
SEVERANCE ARRANGEMENTS. The parties are working to identify operational
efficiencies that may be obtained through the consolidation of the entities. It
is anticipated that some positions will be eliminated following the Effective
Date. Fifteen officers of Midlantic, including 11 executive officers (including
Messrs. Atkins, Lynch, Schiavetti and Silberstein, who are the executive
officers (other than Mr. Scheuring) named in Midlantic's most recent annual
meeting proxy statement), participate in the Midlantic Corporation Executive
Severance Plan (the "Executive Severance Plan"). Under the terms of the
Executive Severance Plan, each officer covered by the plan is entitled to
benefits thereunder in the event that the officer's employment is terminated by
the officer for "good reason," or by Midlantic other than for "cause," death,
"disability" or "retirement," as such terms are defined in the Executive
Severance Plan, at any time during a specified period ending three years after a
change in control of Midlantic. In the case of three executive officers, the
benefits described below may be payable if the officer's employment is
terminated under any of the circumstances described above prior to a change in
control of Midlantic. Approval of the Midlantic Proposal by the shareholders of
Midlantic will constitute a change in control of Midlantic under the Executive
Severance Plan. Benefits payable under the Executive Severance Plan generally
include, subject to certain limitations, (i) for a two-year period, base salary
less amounts received by the officer as severance pay under the Severance
Policy, subject to partial mitigation in the event of reemployment, (ii) a lump
sum payment equal to the sum of (A) any unpaid incentive award under Midlantic's
Annual Incentive and Bonus Plan, (B) a pro rata incentive award for the calendar
year in which the officer's employment is terminated based on the higher of the
award paid during the year of a change in control or the year prior to the
change in control (together with the amount described in clause (A), the
"Severance Payment"), and (C) the amount of all cash awards and deferred cash
compensation payable to the executive, (iii) life insurance and health benefits
for a period of two years after the date of termination, subject to mitigation
in the event of receiving certain alternate coverage, and (iv) upon retirement,
an amount of additional retirement benefits equal to that which the officer
would have received from Midlantic's retirement plans if the officer's
employment had continued for two years and the officer's rights were fully
vested. Generally, payments under the Executive Severance Plan are limited to
the largest amount that will result in no portion of such payment being deemed
an "excess parachute payment" under the Code. However, in no event may the
officer's payment under the Severance Plan be reduced to less than his or her
annual base salary less amounts paid under the Severance Policy. In the event
that any portion of such payment (as so reduced) would subject the officer to
the Excise Tax, the officer would be entitled to be reimbursed on an after-tax
basis for the amount of such Excise Tax. PNC has agreed to honor the Executive
Severance Plan in accordance with its terms. If the Effective Date were to occur
on the date of this Joint Proxy Statement and the employment of each officer was
terminated on the next business day under circumstances entitling them to
benefits under the Executive Severance Plan, the Severance Payments thereunder
to Messrs. Atkins, Lynch, Schiavetti and Silberstein and to all officers in the
aggregate would be approximately $750,000, $450,000, $850,000, $850,000 and $6.7
million, respectively.
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OPTION PLANS. The provisions of the Merger Agreement relating to treatment
of stock options outstanding under the Option Plans are described under "--Terms
of the Merger." The 1986 Plan and the Midlantic Plan provide that, in the event
of a transaction such as the Merger, (i) unless substitute stock options are
provided by the corporation surviving the merger, all non-qualified stock
options will terminate, provided that, immediately prior to such merger, any
theretofore unexercisable stock options will become exercisable, and (ii) all
theretofore unexercisable incentive non-qualified stock options will become
exercisable. The Continental Plan provides that, in the event of a transaction
such as the Merger, all stock options will be equitably adjusted. All of the
options under the Midlantic Plan and the Continental Plan are currently vested.
As of October 2, 1995, Mr. Scheuring held Midlantic Stock Options with
respect to an aggregate of 490,000 shares of Midlantic Common Stock. Of this
total amount, options with respect to 415,000 shares (with a weighted average
exercise price of $12.75) are currently exercisable and options with respect to
75,000 shares (with an exercise price of $28.3125 per share) will become
exercisable in connection with the Merger. Of the Midlantic Stock Options held
as of October 2, 1995 by Messrs. Atkins, Lynch, Schiavetti and Silberstein,
options with respect to 30,000, 25,000, 30,000 and 30,000 shares, respectively,
all with an exercise price of $28.3125, will become exercisable in connection
with the Merger. Based upon the closing price of PNC Common Stock on July 7,
1995 (the last trading day preceding public announcement of the proposed Merger)
and the Exchange Ratio of 2.05, the value of the options held by Messrs.
Scheuring, Atkins, Lynch, Schiavetti and Silberstein that will become
exercisable as a result of the Merger was $2,008,594, $803,438, $669,531,
$803,438 and $803,438, respectively.
INDEMNIFICATION AND INSURANCE. The Agreement provides that for a period of
six years following the Effective Date, PNC will, or will cause PNC Bancorp to,
provide indemnification to the fullest extent permitted by law, to any person
who prior to the Effective Date, is, has at any time been, or becomes a director
or officer of Midlantic with respect to claims arising in whole or in part out
of, or pertaining to, (i) the fact that such person is or was a director,
officer or employee of Midlantic or any of Midlantic's subsidiaries or any of
their respective predecessors or (ii) the Agreement, the PNC Option Agreement,
the Midlantic Option Agreement, or any of the transactions contemplated thereby.
The Agreement also provides that all rights to indemnification and all
limitations on liabilities existing in favor of the directors, officers and
employees of Midlantic and its subsidiaries as provided in their respective
Certificates of Incorporation, bylaws or similar governing documents as in
effect on the date of the Agreement with respect to matters occurring prior to
the Effective Date shall survive the Merger and shall continue in full force and
effect and shall be honored by such entities or their respective successors as
if they were the indemnifying party thereunder, without any amendment thereto,
for a period of six years following the Effective Date.
In addition, PNC has agreed to use its best efforts for a period of not
less than six years following the Effective Date, directly or indirectly, to
cause those persons who served as directors or officers of Midlantic or its
subsidiaries, on or before the Effective Date, to be covered by Midlantic's
existing directors' and officers' liability insurance policy against liabilities
and claims (and related expenses) made against them resulting from their service
as such prior to the Effective Date, or comparable substitute coverage if
reasonably available at reasonable cost. It is currently anticipated that
coverage can be obtained at a total cost of approximately $1.1 million. In no
event shall PNC be obligated to provide insurance coverage to an insured person
on more favorable terms than is currently provided to him or her in such
capacities. Midlantic agrees to renew any such existing insurance or to purchase
any "discovery period" insurance provided for thereunder at PNC's request.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
PNC is a Pennsylvania corporation subject to the provisions of the
Pennsylvania Business Corporation Law. Midlantic is a New Jersey corporation
subject to the provisions of the New Jersey Business Corporation Act. Upon
consummation of the Merger, shareholders of Midlantic, whose rights are governed
by Midlantic's Certificate of Incorporation and By-Laws and by the New Jersey
Business Corporation Act, will become shareholders of PNC, and their rights will
be governed by PNC's Articles of Incorporation and By-Laws, each as amended, and
by the Pennsylvania Business Corporation Law.
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The following is a summary of the material differences between the rights
of shareholders of PNC and Midlantic. This summary does not purport to be a
complete discussion of, and is qualified in its entirety by reference to, the
governing law and the certificate or articles of incorporation and bylaws of
each corporation.
AUTHORIZED COMMON STOCK. PNC is authorized to issue 450,000,000 shares of
PNC Common Stock, 228,061,462 of which were issued and outstanding, and
8,425,134 of which were held in treasury, as of June 30, 1995. Midlantic is
authorized to issue 150,000,000 shares of Midlantic Common Stock, 52,128,214 of
which were issued and outstanding, and 633,883 of which were held in treasury,
as of June 30, 1995.
AUTHORIZED PREFERRED STOCK. PNC is authorized to issue 17,562,360 shares of
PNC Preferred Stock, 881,802 of which were issued and outstanding in four
series, as of June 30, 1995. The rights and preferences evidenced by shares of
PNC Common Stock are limited or qualified by the rights and preferences
evidenced by shares of PNC Preferred Stock. Information with respect to the
relative rights and preferences of PNC Common Stock and PNC Preferred Stock is
included in the description of PNC Common Stock incorporated herein by
reference. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
PNC's Board of Directors may establish and designate additional series of PNC
Preferred Stock and fix and determine the terms thereof by resolution. Midlantic
is authorized to issue 40,000,000 shares of Midlantic Preferred Stock, none of
which is outstanding.
ISSUANCE OF AUTHORIZED SHARES. The PNC Board generally may authorize the
issuance of authorized and unissued shares of PNC Capital Stock upon a majority
vote of the PNC Board present at a meeting at which a quorum is present. PNC is
required by the rules of the NYSE to submit certain transactions to a vote of
its shareholders, including, without limitation, those in which the issuance of
shares of PNC Common Stock could result in an increase in the number of
outstanding shares by 20% or more. The Midlantic Board also may authorize the
issuance of authorized and unissued shares of Midlantic Common Stock or
Midlantic Preferred Stock upon a majority vote of the Midlantic Board present at
a meeting at which a quorum is present. Midlantic is required by rules
applicable to companies with shares quoted in the NASDAQ/NMS to submit certain
transactions to a vote of its shareholders, including, without limitation, those
in which the issuance of shares of Midlantic Common Stock could result in an
increase in the number of outstanding shares by 20% or more.
AMENDMENT OF ARTICLES. An amendment to PNC's Articles of Incorporation can
be proposed either by adoption of a resolution by the PNC Board or by a petition
of shareholders entitled to cast at least 10% of the votes that all shareholders
are entitled to cast thereon. The amendment then must be submitted to a vote and
be approved by a majority of the shareholders entitled to vote thereon and, if
any class or series of shares is entitled to vote thereon as a class, the
affirmative vote of a majority of the votes cast in each such class vote, except
for amendments on matters specified in Section 1914(c) of the Pennsylvania
Business Corporation Law which do not require shareholder approval. Amendments
affecting the relative rights and preferences of shares are subject to special
restrictions. An amendment to Midlantic's Certificate of Incorporation must be
approved by the Midlantic Board and then submitted to a vote at a meeting of the
shareholders where it must receive an affirmative vote of a majority of the
votes entitled to vote thereon and, if any class of shares is entitled to vote
thereon as a class, the affirmative vote of a majority of the votes cast in each
class. Amendments on certain matters require a greater shareholder vote and are
subject to special procedures.
AMENDMENT OF BY-LAWS. PNC's By-Laws may be altered, amended, added to or
repealed by a vote of a majority of the PNC Board at any regular meeting of the
PNC Board or at any special meeting of the PNC Board called for that purpose.
The PNC Board may not adopt or change a bylaw on certain subjects committed
expressly to the shareholders by the Pennsylvania Business Corporation Law.
Midlantic's Bylaws may be altered or repealed, and new Bylaws may be adopted, by
the Midlantic Board, but Bylaws so adopted by the Midlantic Board may be altered
or repealed, and new Bylaws made, by the shareholders entitled to vote thereon.
NOTICE OF SHAREHOLDER MEETINGS. PNC's By-Laws provide that written notice
of every meeting of the shareholders shall be given to each shareholder of
record entitled to vote at the meeting at least five days prior to the meeting
date, unless a greater notice period is required by law. The Pennsylvania
Business Corporation Law states that five days' notice is sufficient unless the
meeting will consider a "fundamental change," in
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which case 10 days' notice is required. "Fundamental changes" include, without
limitation, amendments of articles of incorporation, mergers, consolidations,
divisions, conversions, voluntary dissolutions, and involuntary liquidations.
Midlantic's Bylaws provide that written notice of the time, place and purpose of
every meeting of shareholders shall be given not less than 10 nor more than 60
days before the date of the meeting to each shareholder entitled to vote at the
meeting.
RECORD DATE. PNC's By-Laws state that the PNC Board shall fix a record date
not more than 90 days prior to the date of any meeting of shareholders, the date
fixed for the payment of any dividend or distribution, the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares will be made or go into effect. Midlantic's Bylaws provide that, for
purposes of determining the shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or to express consent to or
dissent from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or allotment of any
right, or for the purpose of any other action, the Midlantic Board shall fix in
advance a record date not more than 60 nor less than 10 days before the date of
a meeting of shareholders, nor more than 60 days prior to any other action.
SPECIAL SHAREHOLDERS' MEETINGS. PNC's By-Laws provide that a special
meeting of shareholders can be called at any time by the PNC Board, the Chairman
of the Board, the President, a Vice Chairman of the Board, or when requested in
writing by shareholders entitled to cast at least one-fifth of the votes which
all shareholders are entitled to cast at the meeting. Midlantic's Bylaws provide
that a special meeting of shareholders can be called by the Midlantic Board or
the Chief Executive Officer, and shall be called by the Chief Executive Officer
or the Secretary at the written demand of the holders of at least 25% of all
outstanding shares entitled to vote on the action proposed to be taken at such
meeting, which demand shall state the purpose or purposes of the proposed
meeting.
NOMINATING DIRECTORS. PNC's By-Laws contain no restrictions on the ability
of PNC shareholders to nominate one or more persons for election as directors.
Midlantic's Bylaws provide that, subject to any rights of holders of stock
having a preference over Midlantic Common Stock as to dividends or upon
liquidation, nominations for the election of directors may be made by any
shareholder entitled to vote in the election of directors generally who complies
with certain provisions of the Bylaws. Those provisions provide that any
Midlantic shareholder entitled to vote in the election of directors generally
may nominate one or more persons for election as directors at a shareholders'
meeting only if written notice of such shareholder's intent to make such
nomination or nominations has been given to the Secretary of Midlantic not later
than, with respect to an election to be held at an annual meeting of
shareholders, 90 days prior to the anniversary date of the immediately preceding
annual meeting, and with respect to an election to be held at a special meeting
of shareholders, the close of business on the tenth day following the date on
which notice of such meeting is first given to the shareholders. Each such
notice shall set forth certain information specified in Midlantic's Bylaws.
REMOVAL OF DIRECTORS. The Pennsylvania Business Corporation Law provides
that any director, or all of them, may be removed by a vote of shareholders
entitled to elect such director or directors. Shareholder removal of directors
is restricted if the board of directors is classified, if shareholders vote
cumulatively when electing directors, or if the bylaws contain provisions
addressing shareholder removal of directors, but none of these restrictions
applies to PNC. Directors may remove a fellow director if he or she has been
judicially declared of unsound mind, has been convicted of an offense punishable
by imprisonment for more than one year or any other proper cause which the
bylaws may specify, or has failed to accept the office. The court may remove a
director upon application in a derivative suit in case of fraudulent or
dishonest acts, gross abuse of authority or discretion, or for any other proper
cause. The New Jersey Business Corporation Act states that any director, or all
of them, may be removed with or without cause by a majority of the votes cast by
the shares entitled to vote for the election of directors. Shareholder removal
of directors is restricted if, among other things, the Board of Directors is
classified, if shareholders vote cumulatively when electing directors, in the
case of any director elected by a class vote, if the certificate of
incorporation contains provisions addressing shareholder removal of directors,
or if more than a plurality of the votes cast are required to elect directors,
but none of these restrictions applies to Midlantic.
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LIMITATIONS OF LIABILITY OF DIRECTORS AND OFFICERS. The shareholders of a
Pennsylvania corporation may adopt a bylaw which eliminates the personal
liability of a director, except when the director breaches or fails to perform
the duties of his or her office under Subchapter 17B of the Pennsylvania
Business Corporation Law, and the breach or failure to perform constitutes
self-dealing, willful misconduct, or recklessness. PNC's By-Laws contain a
provision that limits a director's liability to the fullest extent permitted by
law. Under the New Jersey Business Corporation Act, a New Jersey corporation may
provide that a director or officer shall not be personally liable to the
corporation or its shareholders for damages for breach of any duty owed to the
corporation or its shareholders, except that such provision shall not relieve a
director or officer from liability for any breach of duty based upon an act or
omission (a) in breach of such person's duty of loyalty to the corporation or
its shareholders, (b) not in good faith or involving a knowing violation of law,
or (c) resulting in receipt by such person of an improper personal benefit. The
Certificate of Incorporation of Midlantic contains a provision that limits a
director's or officer's liability to the fullest extent permitted by law.
SHAREHOLDER CONSENTS. Under the Pennsylvania Business Corporation Law, any
action required or permitted to be taken at a meeting of the shareholders of PNC
may be taken without a meeting only if written consents are obtained from all
shareholders who would be entitled to vote at a meeting. Under the New Jersey
Business Corporation Act, any action required or permitted to be taken at a
meeting of shareholders of Midlantic may be taken without a meeting upon the
written consent of shareholders who would have been entitled to cast the minimum
number of votes necessary to authorize such action at a meeting at which all
shareholders entitled to vote thereon were present and voting, except that
unanimous consent is required for mergers, consolidations, sales of
substantially all assets, and the annual election of directors.
DISTRIBUTIONS. Under the Pennsylvania Business Corporation Law, PNC may
pay dividends and purchase, redeem, or otherwise acquire its own shares unless,
after giving effect thereto, it would be unable to pay its debts as they became
due in the usual course of business, or its total assets would be less than the
sum of its total liabilities plus the amount that would be needed to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distributions. Under PNC's Articles of
Incorporation, PNC may not pay dividends, purchase, redeem or otherwise acquire
PNC Common Stock until all past dividends on PNC Preferred Stock (to the extent
cumulative) have been paid, or declared and set apart for payment, in full.
Under the New Jersey Business Corporation Act, Midlantic may not pay dividends
or purchase, redeem, or otherwise acquire its own shares if, after giving effect
thereto, it would be unable to pay its debts as they become due in the usual
course of business or its total assets would be less than its total liabilities.
RIGHTS AGREEMENT. On February 23, 1990, the Midlantic Board declared a
dividend distribution of one Right for each outstanding share of Midlantic's
Common Stock, to shareholders of record at the close of business on March 12,
1990 (the "Rights Record Date") and authorized the issuance of one Right for
each share of Midlantic Common Stock issued between the Rights Record Date and
the Distribution Date (as defined in the Rights Agreement) and, in certain
circumstances, after the Distribution Date. After the Distribution Date, each
Right will initially entitle the registered holder to purchase from Midlantic a
unit consisting of one one-hundredth of a share (a "Unit") of Series B Junior
Participating Preferred Stock, without par value, at an exercise price of $125
per Unit, subject to adjustment (the "Exercise Price"). Upon the occurrence of
certain events set forth below, none of which has occurred as of the date
hereof, the Rights may become exercisable for the Midlantic Common Stock and/or
other consideration. The description and terms of the Rights are set forth in
the Rights Agreement, a copy of which was filed as an exhibit to the Midlantic
registration statement on Form 8-A dated February 27, 1990, as amended by a Form
8-A/A dated July 20, 1995, which is incorporated by reference herein. See
"AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
In connection with the execution of the Merger Agreement, Midlantic
executed an amendment to the Rights Agreement in order to (x) amend the
definition of "Acquiring Person" set forth in the Rights Agreement to provide
that neither PNC nor any of its subsidiaries will be deemed to be an Acquiring
Person by virtue of the fact that PNC is the Beneficial Owner (as defined in the
Rights Agreement) solely of Midlantic Common Stock (i) of which PNC or such
subsidiary was the Beneficial Owner on July 10, 1995, together with up to 1%
more of Midlantic Common Stock acquired after July 10, 1995 by PNC's Affiliates
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and Associates (as such terms are defined in the Rights Agreement), (ii)
acquired or acquirable pursuant to the grant or exercise of the option granted
pursuant to the Midlantic Option Agreement, (iii) held directly or indirectly in
trust accounts, managed accounts and the like or otherwise held in a fiduciary
capacity for third parties and (iv) held in respect of a debt previously
contracted.
PNC has not adopted a shareholder rights plan.
CERTAIN ANTITAKEOVER PROVISIONS. Midlantic's Certificate of Incorporation
and Bylaws contain provisions which may have the effect of discouraging a change
in control of Midlantic that is not supported by the Midlantic Board. None of
these provisions apply to the Merger. PNC's Articles of Incorporation and Bylaws
do not contain similar provisions. In the case of both PNC and Midlantic, the
existence of authorized but unissued preferred stock could have the effect of
discouraging an attempt to acquire control of the respective corporation. For
example, stock could be issued to persons, firms or entities known to be
friendly to management. A summary of certain of the provisions in Midlantic's
Certificate of Incorporation and Bylaws is set forth below.
BUSINESS COMBINATIONS. Midlantic's Certificate of Incorporation contains a
"supermajority provision" and a "fair price provision." The supermajority
provision requires the affirmative vote of not less than 80% of the combined
voting power (voting as a class) of all outstanding voting stock of Midlantic to
approve certain business transactions, including a merger or consolidation of
Midlantic, or a sale of substantially all of its assets, unless the transaction
is approved by the greater of (i) three-fourths of the "disinterested directors"
or (ii) three disinterested directors. For purposes of the supermajority
provision, a disinterested director is any member of the Midlantic Board who is
not affiliated with the other party to the transaction and who was either named
as a director in Midlantic's original certificate of incorporation or was
recommended for election to the Midlantic Board, or elected to fill a vacancy on
the Midlantic Board, by a majority of the disinterested directors at the time of
such election.
The fair price provision requires the same 80% vote of shareholders to
approve a certain business transaction involving an "interested shareholder"
unless the transaction is approved by three-fourths of the "continuing
directors" or meets certain minimum price and procedural criteria. Transactions
to which the fair price provisions apply include any merger or consolidation of
Midlantic or any of its subsidiaries, or other disposition involving any assets
or securities of Midlantic, to, with or by any interested shareholder or any
affiliate or associate (as defined in Midlantic's Certificate of Incorporation)
of an interested shareholder. For these purposes, an interested shareholder
includes any person or group that is the beneficial owner of 10% or more of
Midlantic's voting stock, other than Midlantic, its subsidiaries or employee
benefit plans and the trustees of such plans. A continuing director is any
member of the Midlantic Board who is not affiliated with an interested
shareholder and who was either named as a director in Midlantic's original
certificate of incorporation or was recommended for election to the Midlantic
Board, or elected to fill a vacancy on the Midlantic Board, by a majority of the
disinterested directors at the time of such election.
The consideration to be paid to the shareholders of Midlantic in a business
combination to which the fair price provision applies must be either cash or the
same type of consideration used by the interested shareholder to acquire
beneficial ownership of the largest portion of Midlantic stock beneficially
owned by the interested shareholder. In the case of a transaction that provides
for the payment of cash or other consideration to holders of Midlantic Common
Stock, such shareholders must receive at least the fair market value of their
Midlantic Common Stock, determined pursuant to a specified formula that is
designed to ensure that such shareholders receive the economic benefit of the
highest prices paid for Midlantic Common Stock during defined time periods.
The procedural requirements of the fair price provision are intended to
inhibit transactions that might favor an interested shareholder. These
requirements are intended to ensure that other shareholders continue to receive
the benefits of their stock ownership prior to the consummation of a business
transaction to which the fair price provision applies, and obtain full
information, in the form of a proxy or information statement, regarding the
proposed transaction.
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APPROVAL OF MERGERS BY SHAREHOLDERS OF SURVIVING CORPORATION.
Notwithstanding the requirements for shareholder approval of a merger set forth
above, no such approval is required with respect to mergers of either PNC or
Midlantic where the corporation in question is the surviving corporation (or,
in the case of PNC, a new domestic corporation) and certain criteria are
satisfied. For example, the surviving or new corporation continues to operate
under a charter that is identical to the pre-merger charter, except for
amendments that do not require shareholder approval, and the number of shares
and rights associated with such shares held by premerger shareholders remain
unchanged after the merger. In addition, in the case of PNC it is a requirement
the PNC shareholders will hold in the aggregate shares of the surviving or new
corporation entitled to cast at least a majority of the votes for the election
of directors. Under the New Jersey Business Corporation Act and pursuant to
Midlantic's Certificate of Incorporation, the merger must have been approved by
a prescribed number of "disinterested directors" (as defined in the preceding
subsection) and the number of shares outstanding immediately after the merger,
plus shares issued as the result of the conversion of securities or exercise of
rights or warrants issued in connection with the merger, does not exceed the
number of shares of the surviving corporation outstanding immediately prior to
the merger by more than 40%.
LONG-TERM INTERESTS. PNC has opted out of the provisions of the
Pennsylvania Takeover Act of 1990 that authorize directors, in discharging their
fiduciary duties, to consider, in a broader fashion than might otherwise be the
case, the long-term interests of the corporation, including benefits that may
accrue to a corporation from its long-term plans and the possibility that these
interests may be best served by the continued independence of the corporation.
Midlantic is subject to a provision of the New Jersey Business Corporation Act
which states that a director shall be entitled to consider the effects of the
action on the corporation's employees, suppliers, creditors and customers, the
effects of the action on the community in which the corporation operates and
both the long-term and short-term interests of the corporation and its
shareholders when taking action which may involve or relate to a change or
potential change in the control of the corporation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material federal income tax
consequences of the Merger to holders of Midlantic Common Stock.
It is a condition to the obligation of Midlantic to consummate the Merger
that Midlantic shall have received an opinion from Skadden, Arps, Slate, Meagher
& Flom, counsel to Midlantic, in form and substance reasonably satisfactory to
Midlantic, as to certain federal income tax consequences of the Merger.
Similarly, it is a condition to the obligation of PNC to consummate the Merger
that PNC shall have received an opinion from Arnold & Porter, counsel to PNC, in
form and substance reasonably satisfactory to PNC, as to certain federal income
tax consequences of the Merger. Those opinions will be based on laws,
regulations, rulings and judicial decisions as they will exist as of the date of
the opinions. These authorities are all subject to change and such change may be
made with retroactive effect. Neither Skadden, Arps, Slate, Meagher & Flom nor
Arnold & Porter can give any assurance that, after any such change, its opinion
would not be different, and neither of them will undertake any responsibility to
update or supplement its opinion. The opinions will not be a complete
description of the federal income tax consequences of the Merger; for example,
the rules set out in the opinions may not apply to a holder of Midlantic Common
Stock in light of his particular circumstances or to holders subject to special
rules, such as foreign persons, financial institutions, tax-exempt
organizations, insurance companies and persons who acquired shares of Midlantic
Common Stock pursuant to the exercise of employee stock options or rights or
otherwise as compensation.
The federal income tax laws are complex, and each shareholder's individual
circumstances may affect the tax consequences to the shareholder. In addition,
no information is provided with respect to the tax consequences of the Merger
under applicable state, local, foreign and other tax laws. Consequently, each
shareholder is urged to consult a tax adviser regarding the federal, state,
local, foreign and other tax consequences of the Merger to such shareholder.
On the basis of facts, representations and assumptions which will be
referred to or set forth in their opinions and will be consistent with the state
of facts that Midlantic and PNC believe will be existing on the
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Effective Date, Skadden, Arps, Slate, Meagher & Flom and Arnold & Porter are
expected to opine that, for federal income tax purposes: (i) the Merger, when
consummated in accordance with the Agreement, will constitute a reorganization
within the meaning of Section 368(a) of the Code, and (ii) no gain or loss will
be recognized by the stockholders of Midlantic who exchange all of their
Midlantic Common Stock solely for PNC Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional share interest in
PNC Common Stock). Subject to the same conditions described in the preceding
sentence, Skadden, Arps, Slate, Meagher & Flom is also expected to opine
substantially to the effect that, for federal income tax purposes: (i) no gain
or loss will be recognized by Midlantic as a result of the Merger, and (ii) the
tax basis of the PNC Common Stock received by shareholders who exchange all of
their Midlantic Common Stock solely for PNC Common Stock in the Merger will be
the same as the tax basis of the Midlantic Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest for
which cash is received). See "--Representations and Warranties; Conditions to
the Merger; Waiver."
Any cash received by a holder of Midlantic Common Stock in lieu of a
fractional share interest in PNC Common Stock will be treated as received in
exchange for such fractional share interest, and gain or loss generally will be
recognized for federal income tax purposes measured by the difference between
the amount of cash received and the portion of the basis of the shares of
Midlantic Common Stock allocable to such fractional share interest. Such gain or
loss should be long-term capital gain or loss if such shares of Midlantic Common
Stock are held as capital assets and have been held for more than one year at
the Effective Date.
RESALE OF PNC COMMON STOCK
The shares of PNC Common Stock issuable to shareholders of Midlantic
pursuant to the Merger and those issuable in connection with stock options
granted under the Option Plans as described under "--Terms of the Merger" have
been registered under the Securities Act pursuant to the Registration Statement.
It is anticipated, and it is a condition to each of the parties' obligations to
effect the Merger, that such shares will be approved for listing, upon official
notice of issuance, on the NYSE. Such shares may be traded freely by those
shareholders not deemed to be "affiliates" of Midlantic under Rule 145
promulgated under the Securities Act ("Rule 145") or "affiliates" of PNC under
Rule 144 promulgated under the Securities Act ("Rule 144"). The term "affiliate"
will generally include each person who, controls, is controlled by or is under
common control with, or is a member of a group that controls, is controlled by
or is under common control with, (i) Midlantic at the time of the Midlantic
Special Meeting or (ii) PNC after the Effective Date, and could be deemed to
include all executive officers, directors and 10% shareholders of Midlantic and
PNC.
Rule 145 will restrict the sale of PNC Common Stock received in the Merger
and beneficially owned by those shareholders who are deemed to be affiliates of
Midlantic and certain of their family members and related interests. Such
affiliates, provided they are not affiliates of PNC at or following the
Effective Date, may publicly resell PNC Common Stock received by them in the
Merger subject to certain limitations, principally as to, among other things,
the number of shares sold and the manner of sale, during the two years following
the Effective Date. After the two-year period, such affiliates may resell their
shares without restriction so long as there is adequate current public
information with respect to PNC as required by the Rule 145. Persons who become
affiliates of PNC prior to, at or after the Effective Date may publicly resell
the PNC Common Stock received by them in the Merger subject to similar
limitations and subject to certain filing requirements specified in Rule 144.
Affiliates also would be permitted to resell PNC Common Stock received in the
Merger pursuant to an effective registration statement under the Securities Act
or another available exemption from the Securities Act registration
requirements. This Joint Proxy Statement does not cover any resales of PNC
Common Stock received in the Merger by persons who may be deemed to be
affiliates of PNC or Midlantic.
In addition, shares of PNC Common Stock issued to affiliates of Midlantic
or PNC in the Merger will not be transferable until financial results covering
at least 30 days of post-Merger combined operations of PNC and Midlantic have
been published, in order to satisfy certain requirements of the Commission in
transactions, such as the Merger, to be accounted for using pooling-of-interests
accounting treatment. Under the Agreement, PNC has agreed to use its best
efforts to publish no later than 90 days after the end of the first month after
the Effective Date in which there are at least 30 days of post-Merger combined
operations (which
49
<PAGE> 53
may be the month in which the Effective Date occurs), combined sales and net
income figures as contemplated by and in accordance with the Commission's
Accounting Series Release No. 135.
The Agreement provides that PNC and Midlantic shall cooperate and use their
best efforts to identify those persons who may be deemed to be affiliates of
Midlantic or PNC, and to cause such persons so identified to deliver to PNC or
Midlantic, as appropriate, at least 30 days prior to the Effective Date, a
written agreement providing that such persons will not dispose of any Midlantic
Common Stock or any PNC Capital Stock except in compliance with the Securities
Act, the rules and regulations promulgated thereunder and the Commission's rules
relating to pooling-of-interests accounting treatment. It is anticipated that
each director and executive officer of PNC and Midlantic will execute such an
agreement. See "--Accounting Treatment." Receipt of such a written agreement
shall not affect the restriction on transfer, as discussed in the preceding
paragraph, which exists prior to the publication of certain post-Merger
financial results.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
PNC has a Dividend Reinvestment and Stock Purchase Plan, which provides,
for those shareholders who elect to participate, that dividends on PNC Capital
Stock may be invested in additional shares of PNC Common Stock at then-current
market price without payment of brokerage commissions, fees or service charges.
The plan also permits participants to invest voluntary cash payments, within
certain dollar limitations, in additional shares of PNC Common Stock at
then-current market prices. It is anticipated that, after the Effective Date,
PNC will continue to offer such a Dividend Reinvestment and Stock Purchase Plan,
and that shareholders of Midlantic who receive PNC Common Stock in the Merger
will have the right to participate therein. Shareholders of Midlantic who
currently participate in Midlantic's Dividend Reinvestment and Stock Purchase
Plan will receive notice prior to the Effective Date regarding their
participation under the PNC plan.
SHARE REPURCHASE PROGRAM
In the latter half of 1994, PNC's strategic focus included realignment of
the balance sheet through downsizing the securities portfolio and reducing
wholesale funding to reduce interest rate sensitivity. At the January 5, 1995
PNC Board meeting, management recommended, and the PNC Board authorized, a
common share repurchase program of up to 24 million shares over a two-year
period in order to utilize the excess capital arising from the balance sheet
downsizing and offset the negative earnings impact associated with a reduced
investment portfolio. However, any determination as to the amount and timing of
share repurchases would be subject to an evaluation of alternative investment
returns and overall capitalization levels. Shares repurchased were to be held as
treasury stock for such corporate purposes as may be determined, including to
fund existing employee benefit and related share plans of PNC. Upon such
approval, PNC began a pattern of open-market common stock repurchase activity.
At June 30, 1995, PNC had 8.4 million common shares held in treasury. In order
to satisfy pooling-of-interests accounting requirements associated with the
Merger, PNC has not acquired any shares since the second quarter of 1995.
Management believes that the repurchase of shares is an effective tool for
managing shareholder capital.
ACCOUNTING TREATMENT
It is a condition precedent to the obligations of PNC, PNC Bancorp and
Midlantic to consummate the Merger that no event shall have occurred that will
preclude the Merger from being accounted for as a "pooling-of-interests"
transaction. In order to account for a business combination as a
pooling-of-interests transaction, specific criteria must be met. The criteria
for use of the pooling-of-interests accounting method relate to the attributes
of the combining entities before the combination, the manner of combining the
enterprises and the absence of certain plans or transactions following the
combination. Under the pooling-of-interests method of accounting, the historical
basis of the assets, liabilities and shareholders' equity of PNC and Midlantic
will be combined at the Effective Date and carried forward at their previously
recorded amounts and no goodwill will be created. Revenue and expenses of PNC
and Midlantic will be combined at historically recorded amounts.
50
<PAGE> 54
In order for the pooling method to apply, affiliates of PNC and Midlantic
cannot reduce their holdings of PNC Capital Stock or Midlantic Common Stock (or
PNC Common Stock received in the Merger) for a period generally beginning 30
days prior to the Effective Date and ending upon the publication of at least 30
days of post-Merger combined operations of PNC and Midlantic. See "--Resale of
PNC Common Stock." Midlantic and PNC have agreed that they will not take, or to
the best of their respective abilities cause or permit to be taken, any action
that would adversely affect the qualification of the Merger for pooling-of-
interests accounting treatment; provided that nothing shall preclude either PNC
or Midlantic, as the case may be, from exercising its rights under the Midlantic
Option Agreement or the PNC Option Agreement, respectively. In the event either
PNC or Midlantic has taken any action that would adversely affect such
qualification, each party will take such action as the other party may
reasonably request to cure such effect to the extent curable without a material
adverse effect on either of the parties. All unaudited pro forma financial
information contained in this Joint Proxy Statement has been prepared using the
pooling-of-interests method to account for the Merger. See "PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Unaudited)."
STOCK OPTION AGREEMENTS
THE SUMMARY INFORMATION BELOW IN THIS JOINT PROXY STATEMENT CONCERNING THE
MATERIAL TERMS OF THE OPTION AGREEMENTS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH AGREEMENTS, WHICH ARE ATTACHED HERETO AS
APPENDICES B AND C.
As a condition to the execution of the Agreement, PNC and Midlantic entered
into the PNC Option Agreement and the Midlantic Option Agreement. Under the
Midlantic Option Agreement, Midlantic has granted to PNC the Midlantic Option,
an option to purchase up to 10,425,000 authorized but unissued shares of
Midlantic Common Stock (or 19.99% of the Midlantic Common Stock issued and
outstanding prior to giving effect to the issuance of Midlantic Common Stock
upon exercise of the Midlantic Option) at a price of $48 per share. Under the
PNC Option Agreement, PNC has granted to Midlantic the PNC Option, an option to
purchase up to 45,500,000 authorized but unissued shares of PNC Common Stock (or
19.99% of the PNC Common Stock issued and outstanding prior to giving effect to
the issuance of PNC Common Stock upon exercise of the PNC Option) at a price of
$35 per share. In the case of either the PNC Option or the Midlantic Option
(either, an "Option" or, together, the "Options"), if the party granting the
Option issues any shares of its common stock in breach of its obligations under
the Agreement at a price per share less than the specified Option exercise
price, then the exercise price shall be reduced to such lower price. In
addition, the number of the shares of Midlantic Common Stock subject to the
Midlantic Option may be reduced solely to the extent necessary to prevent PNC
from becoming an interested stockholder for purposes of the New Jersey
Shareholders Protection Act, becoming an Acquiring Person as such term is
defined in the Rights Agreement or becoming an "Interested Shareholder,"
"Affiliate" or Associate" for purposes of Midlantic's Certificate of
Incorporation. See "--Certain Differences in Rights of Shareholders."
In the event of any change in PNC Common Stock or Midlantic Common Stock by
reason of stock dividends, split-ups, recapitalizations, combinations, exchanges
of shares or the like, the type and number of shares subject to the respective
Option and the purchase price therefor shall be adjusted to reflect such change.
If any additional shares of PNC or Midlantic Common Stock are issued after the
date of the respective Option Agreement (other than as contemplated in such
Option Agreement), the number of shares of PNC or Midlantic Common Stock subject
to such Option shall be adjusted so that, after such issuance, it equals 19.99%
of the number of shares of PNC Common Stock or Midlantic Common Stock then
issued and outstanding without giving effect to any shares subject or issued
pursuant to the Option. The $48 exercise price for the Midlantic Option and the
$35 exercise price for the PNC Option were negotiated prices, each representing
a premium to the market price of the respective company's common stock
immediately prior to the announcement of the Merger.
The purpose of the Options is to increase the likelihood that the Merger
will be consummated in accordance with the terms of the Agreement. Certain
aspects of the Option Agreements may have the effect of discouraging persons who
might be interested in acquiring control of PNC or Midlantic even, in the case
of Midlantic, where such persons were prepared to pay consideration to Midlantic
shareholders in excess of what
51
<PAGE> 55
such shareholders will receive pursuant to the Agreement. In addition, PNC and
Midlantic management, after consultation with their respective advisors, believe
that the exercise of an Option would likely prohibit any third party acquiror of
PNC or Midlantic from accounting for such acquisition as a pooling-of-interests
transaction for a period of two years, which in turn may have the effect of
deterring or precluding an acquisition of PNC or Midlantic by certain other
banking organizations.
Each Option is exercisable only upon the occurrence of certain "Purchase
Events" that might jeopardize consummation of the Merger pursuant to the terms
of the Agreement. The term "Purchase Event" in the Option Agreements generally
relates to attempts by one or more third parties to acquire a significant
interest in the party granting the Option (the "Issuer") and refers to any of
the following events: (i) the Issuer entering into an agreement providing for
the merger of, the sale of substantially all of the assets of, or the sale of
securities representing 20% or more of the voting power of, the Issuer, (ii) a
third party acquiring 20% or more of the then outstanding shares of the Issuer's
common stock, or (iii) the making of an acquisition proposal or an offer to
purchase 20% or more of the then outstanding shares of the Issuer's common stock
or the filing of an application or notice with any federal or state regulatory
agency for clearance or approval to engage in any transaction described in
clause (i) or (ii) above, and thereafter the holders of the Issuer's common
stock shall have not approved the Agreement and the transactions contemplated
thereby at the meeting of such shareholders held for such purpose or such
meeting shall not have been held or shall have been cancelled prior to
termination of the Agreement. As of the date of this Joint Proxy Statement, to
the best knowledge of PNC or Midlantic, no Purchase Event has occurred.
Each Option would terminate upon the earliest to occur of (i) the Effective
Date of the Merger; (ii) termination of the Agreement in accordance with the
provisions thereof prior to the occurrence of a Purchase Event, other than a
termination resulting from a willful breach by the other party of any covenant
contained in the Agreement; or (iii) six months after termination of the
Agreement if such termination follows the occurrence of a Purchase Event or is
due to a willful breach by the other party of any covenant contained in the
Agreement.
Although the shares issuable upon exercise of each Option represent
approximately 16.67% of the PNC Common Stock or Midlantic Common Stock that
would be outstanding after such exercise, neither PNC nor Midlantic may acquire
more than 5% of the common stock of the other, pursuant to the exercise of the
Option or otherwise, without prior approval of the Federal Reserve. PNC and
Midlantic have applied to the Federal Reserve for prior approval to exercise the
Options following any Purchase Event triggering the Options.
52
<PAGE> 56
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited pro forma consolidated financial information gives effect to
the Merger to be accounted for as a pooling of interests. The consolidated
financial information on the following pages presents (i) the historical
consolidated balance sheets of both PNC and Midlantic at June 30, 1995, and the
pro forma consolidated balance sheet as of June 30, 1995, giving effect to the
Merger as if it had occurred on that date; and (ii) the historical consolidated
statements of income of both PNC and Midlantic for the six months ended June 30,
1995 and 1994 and for each of the three years in the period ended December 31,
1994, and the pro forma consolidated statements of income for the six months
ended June 30, 1995 and 1994 and for each of the three years in the period ended
December 31, 1994, giving effect to the Merger as if it had been effected for
all periods presented. Certain reclassifications have been made to the
historical financial information to conform presentation. Intercompany
transactions between PNC and Midlantic are immaterial and, accordingly, have not
been eliminated.
The pro forma consolidated balance sheet gives effect to anticipated
expenses and nonrecurring charges related to the Merger and assumes each of the
outstanding shares of Midlantic Common Stock is converted into 2.05 shares of
PNC Common Stock. In addition, the pro forma consolidated balance sheet assumes
that all Midlantic stock options are exchanged for PNC Common Stock, in
accordance with the terms of the Agreement. However, pro forma consolidated
financial information excludes the estimated effect of revenue enhancements and
expense savings associated with the consolidation of the operations of PNC and
Midlantic. See "PROPOSED MERGER--Management and Operations After the Merger."
During 1995 and 1994, PNC and Midlantic completed, or have pending, various
other acquisitions (including the Chemical-New Jersey transaction) which
individually and in the aggregate were and are not acquisitions of "significant
subsidiaries" in relation to PNC. Accordingly, pro forma financial information
with respect to those acquisitions is not included herein.
The pro forma consolidated financial statements are intended for
informational purposes and may not be indicative of the combined financial
position or results of operations that actually would have occurred had the
transaction been consummated during the periods or as of the dates indicated, or
which will be attained in the future. The pro forma consolidated financial
information should be read in conjunction with the 1994 Annual Reports on Form
10-K and the Quarterly Reports on Form 10-Q for the quarterly period ended June
30, 1995 of PNC and Midlantic (see "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE") and the discussions relating to the Merger (See
"PROPOSED MERGER").
53
<PAGE> 57
PNC BANK CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO
IN MILLIONS PNC MIDLANTIC ADJUSTMENTS FORMA
- ----------- --- --------- ----------- -----
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 2,612 $ 834 $ 13 (A) $ 3,484
25 (B)
Short-term investments....................... 502 593 1,095
Loans held for sale.......................... 773 773
Securities available for sale................ 2,447 814 3,261
Investment securities........................ 16,658 2,478 19,136
Loans, net of unearned income................ 36,690 8,657 45,347
Allowance for credit losses............. (961) (339) (1,300)
------- ------- -------
Net loans............................... 35,729 8,318 44,047
Other assets................................. 4,042 697 32 (A) 4,752
21 (B)
(85)(B)
45 (C)
------- ------- ------ -------
Total assets....................... $62,763 $13,734 $ 51 $76,548
======= ======= ====== =======
LIABILITIES
Deposits
Noninterest-bearing..................... $ 6,660 $ 2,798 $ 9,458
Interest-bearing........................ 28,630 8,089 36,719
------- ------- -------
Total deposits..................... 35,290 10,887 46,177
Borrowed funds
Federal funds purchased................. 2,154 68 2,222
Repurchase agreements................... 5,793 785 6,578
Commercial paper........................ 576 576
Other................................... 3,863 30 3,893
------- ------- -------
Total borrowed funds............... 12,386 883 13,269
Notes and debentures.................... 8,995 373 9,368
Accrued expenses and other
liabilities........................... 1,656 194 $ 130 (C) 1,980
------- ------- ------ -------
Total liabilities.................. 58,327 12,337 130 70,794
SHAREHOLDERS' EQUITY
Preferred stock.............................. 1 1
Common stock................................. 1,182 158 (158)(A) 1,736
554 (A)
Capital surplus.............................. 461 620 (620)(A) 707
246 (A)
Retained earnings............................ 3,119 638 (39)(B) 3,633
(85)(C)
Deferred ESOP benefit expense................ (83) (83)
Net unrealized securities gains (losses)..... (41) 4 (37)
Common stock held in treasury at cost........ (203) (23) 23 (A) (203)
------- ------- ------ -------
Total shareholders' equity......... 4,436 1,397 (79) 5,754
------- ------- ------ -------
Total liabilities and shareholders'
equity........................... $62,763 $13,734 $ 51 $76,548
======= ======= ====== =======
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
54
<PAGE> 58
PNC BANK CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PRO
IN THOUSANDS, EXCEPT PER SHARE DATA PNC MIDLANTIC FORMA(D)
- ----------------------------------- --- --------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans................................ $1,445,006 $361,703 $1,806,709
Securities............................................. 578,787 104,374 683,161
Other.................................................. 42,929 23,121 66,050
---------- -------- ---------
Total interest income............................. 2,066,722 489,198 2,555,920
INTEREST EXPENSE
Deposits............................................... 612,618 135,857 748,475
Borrowed funds......................................... 418,867 20,371 439,238
Notes and debentures................................... 288,935 17,170 306,105
---------- ------- ---------
Total interest expense............................ 1,320,420 173,398 1,493,818
---------- -------- ---------
Net interest income............................... 746,302 315,800 1,062,102
Provision for credit losses............................ 3,000 3,000
---------- -------- ---------
Net interest income less provision for credit
losses.......................................... 746,302 312,800 1,059,102
NONINTEREST INCOME
Investment management and trust........................ 176,649 22,870 199,519
Service charges, fees and commissions.................. 180,408 38,375 218,783
Mortgage banking....................................... 95,320 95,320
Net securities gains................................... 9,036 184 9,220
Other.................................................. 40,734 35,231 75,965
---------- -------- ---------
Total noninterest income.......................... 502,147 96,660 598,807
NONINTEREST EXPENSE
Staff expense.......................................... 406,448 124,129 530,577
Net occupancy.......................................... 69,712 21,720 91,432
Equipment.............................................. 67,047 12,792 79,839
Amortization of intangibles............................ 43,186 4,004 47,190
Federal deposit insurance.............................. 36,649 11,888 48,537
Other.................................................. 240,740 59,460 300,200
---------- -------- ---------
Total noninterest expense......................... 863,782 233,993 1,097,775
---------- -------- ---------
Income before income taxes........................ 384,667 175,467 560,134
Applicable income taxes................................ 122,028 65,751 187,779
---------- -------- ---------
Net income........................................ $ 262,639 $109,716 $ 372,355
========== ======== =========
EARNINGS PER COMMON SHARE
Primary........................................... $1.13 $2.04 $1.09
Fully diluted..................................... 1.13 2.02 1.08
AVERAGE COMMON SHARES OUTSTANDING
Primary........................................... 231,388 52,790 339,608
Fully diluted..................................... 233,412 54,461 345,056
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
55
<PAGE> 59
PNC BANK CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
PRO
IN THOUSANDS, EXCEPT PER SHARE DATA PNC MIDLANTIC FORMA(D)
- ----------------------------------- --- --------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans................................ $1,166,847 $331,021 $1,497,868
Securities............................................. 612,455 53,786 666,241
Other.................................................. 50,796 32,189 82,985
---------- -------- ----------
Total interest income............................. 1,830,098 416,996 2,247,094
INTEREST EXPENSE
Deposits............................................... 417,516 107,395 524,911
Borrowed funds......................................... 207,311 10,822 218,133
Notes and debentures................................... 214,971 17,279 232,250
---------- -------- ---------
Total interest expense............................ 839,798 135,496 975,294
---------- -------- ---------
Net interest income............................... 990,300 281,500 1,271,800
Provision for credit losses............................ 50,045 18,983 69,028
---------- -------- ---------
Net interest income less provision for credit
losses.......................................... 940,255 262,517 1,202,772
NONINTEREST INCOME
Investment management and trust........................ 146,461 20,642 167,103
Service charges, fees and commissions.................. 180,041 37,966 218,007
Mortgage banking....................................... 80,363 80,363
Net securities gains (losses).......................... 30,307 (3,374) 26,933
Other.................................................. 49,619 62,324 111,943
---------- -------- ---------
Total noninterest income.......................... 486,791 117,558 604,349
NONINTEREST EXPENSE
Staff expense.......................................... 410,871 114,115 524,986
Net occupancy.......................................... 66,562 23,055 89,617
Equipment.............................................. 65,580 12,915 78,495
Amortization of intangibles............................ 37,830 3,225 41,055
Federal deposit insurance.............................. 36,339 14,381 50,720
Other.................................................. 227,959 72,256 300,215
---------- -------- ---------
Total noninterest expense......................... 845,141 239,947 1,085,088
---------- -------- ---------
Income before income taxes........................ 581,905 140,128 722,033
Applicable income taxes................................ 188,371 14,496 202,867
---------- -------- ---------
Income before cumulative effect of change
in accounting principle $ 393,534 $125,632 $ 519,166
========== ======== =========
EARNINGS PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
Primary........................................... $1.66 $2.34 $1.50
Fully diluted..................................... 1.65 2.31 1.48
AVERAGE COMMON SHARES OUTSTANDING
Primary........................................... 236,974 52,868 345,353
Fully diluted..................................... 238,887 54,445 350,498
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
56
<PAGE> 60
PNC BANK CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO
IN THOUSANDS, EXCEPT PER SHARE DATA PNC MIDLANTIC FORMA(D)
- ----------------------------------- --- --------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans................................ $2,479,093 $676,741 $3,155,834
Securities............................................. 1,290,998 116,887 1,407,885
Other.................................................. 91,721 69,856 161,577
---------- -------- ----------
Total interest income............................. 3,861,812 863,484 4,725,296
INTEREST EXPENSE
Deposits............................................... 935,876 223,366 1,159,242
Borrowed funds......................................... 499,252 21,128 520,380
Notes and debentures................................... 517,078 34,453 551,531
---------- -------- ---------
Total interest expense............................ 1,952,206 278,947 2,231,153
---------- -------- ---------
Net interest income............................... 1,909,606 584,537 2,494,143
Provision for credit losses............................ 60,123 23,335 83,458
---------- -------- ---------
Net interest income less provision for credit
losses.......................................... 1,849,483 561,202 2,410,685
NONINTEREST INCOME
Investment management and trust........................ 292,052 43,263 335,315
Service charges, fees and commissions.................. 370,146 77,337 447,483
Mortgage banking....................................... 198,548 198,548
Net securities losses.................................. (134,919) (6,663) (141,582)
Other.................................................. 96,814 100,273 197,087
---------- -------- ---------
Total noninterest income.......................... 822,641 214,210 1,036,851
NONINTEREST EXPENSE
Staff expense.......................................... 835,672 226,676 1,062,348
Net occupancy.......................................... 147,713 44,354 192,067
Equipment.............................................. 132,724 23,542 156,266
Amortization of intangibles............................ 82,237 6,460 88,697
Federal deposit insurance.............................. 73,902 28,407 102,309
Other.................................................. 497,487 141,968 639,455
---------- -------- ---------
Total noninterest expense......................... 1,769,735 471,407 2,241,142
---------- -------- ---------
Income before income taxes........................ 902,389 304,005 1,206,394
Applicable income taxes................................ 292,327 24,900 317,227
---------- -------- ---------
Income before cumulative effect of change
in accounting principle......................... $ 610,062 $279,105 $ 889,167
========== ======== =========
EARNINGS PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
Primary........................................... $2.57 $5.18 $2.56
Fully diluted..................................... 2.56 5.11 2.54
AVERAGE COMMON SHARES OUTSTANDING
Primary........................................... 236,610 52,978 345,215
Fully diluted..................................... 238,448 54,522 350,218
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
57
<PAGE> 61
PNC BANK CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO
IN THOUSANDS, EXCEPT PER SHARE DATA PNC MIDLANTIC FORMA(D)
- ----------------------------------- --- --------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans................................ $1,950,937 $ 663,410 $2,614,347
Securities............................................. 1,203,151 92,048 1,295,199
Other.................................................. 47,032 70,089 117,121
---------- --------- ----------
Total interest income............................. 3,201,120 825,547 4,026,667
INTEREST EXPENSE
Deposits............................................... 742,772 262,886 1,005,658
Borrowed funds......................................... 362,995 11,586 374,581
Notes and debentures................................... 266,320 36,385 302,705
---------- --------- ----------
Total interest expense............................ 1,372,087 310,857 1,682,944
---------- --------- ----------
Net interest income............................... 1,829,033 514,690 2,343,723
Provision for credit losses............................ 203,944 146,305 350,249
---------- --------- ----------
Net interest income less provision for credit
losses.......................................... 1,625,089 368,385 1,993,474
NONINTEREST INCOME
Investment management and trust........................ 273,849 41,459 315,308
Service charges, fees and commissions.................. 354,297 78,815 433,112
Mortgage banking....................................... 50,590 50,590
Net securities gains................................... 187,694 7,005 194,699
Other.................................................. 78,819 59,174 137,993
---------- --------- ----------
Total noninterest income.......................... 945,249 186,453 1,131,702
NONINTEREST EXPENSE
Staff expense.......................................... 685,388 219,332 904,720
Net occupancy.......................................... 115,354 44,622 159,976
Equipment.............................................. 113,954 26,881 140,835
Amortization of intangibles............................ 31,589 6,334 37,923
Federal deposit insurance.............................. 65,488 33,841 99,329
Other.................................................. 441,953 203,475 645,428
---------- --------- ----------
Total noninterest expense......................... 1,453,726 534,485 1,988,211
---------- --------- ----------
Income before income taxes............................. 1,116,612 20,353 1,136,965
Applicable income taxes (benefits)..................... 371,349 (111,043) 260,306
---------- --------- ----------
Income before cumulative effect of changes
in accounting principles........................ $ 745,263 $ 131,396 $ 876,659
========== ========= ==========
EARNINGS PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES
Primary........................................... $3.14 $2.51 $2.55
Fully diluted..................................... 3.13 2.51 2.53
AVERAGE COMMON SHARES OUTSTANDING
Primary........................................... 236,386 50,943 340,820
Fully diluted..................................... 238,421 52,569 346,187
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
58
<PAGE> 62
PNC BANK CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
PRO
IN THOUSANDS, EXCEPT PER SHARE DATA PNC MIDLANTIC FORMA(D)
- ----------------------------------- --- --------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans............................... $1,964,248 $ 844,240 $2,808,488
Securities............................................ 1,203,643 181,421 1,385,064
Other................................................. 51,080 36,546 87,626
---------- ---------- ----------
Total interest income............................ 3,218,971 1,062,207 4,281,178
INTEREST EXPENSE
Deposits.............................................. 1,063,422 483,154 1,546,576
Borrowed funds........................................ 352,162 17,341 369,503
Notes and debentures.................................. 146,095 41,517 187,612
---------- ---------- ----------
Total interest expense........................... 1,561,679 542,012 2,103,691
---------- ---------- ----------
Net interest income.............................. 1,657,292 520,195 2,177,487
Provision for credit losses........................... 323,531 170,299 493,830
---------- ---------- ----------
Net interest income less provision for credit
losses......................................... 1,333,761 349,896 1,683,657
NONINTEREST INCOME
Investment management and trust....................... 260,113 46,776 306,889
Service charges, fees and commissions................. 330,317 79,478 409,795
Mortgage banking...................................... 30,476 6,361 36,837
Net securities gains.................................. 193,503 52,753 246,256
Other................................................. 72,367 104,997 177,364
---------- ---------- ----------
Total noninterest income......................... 886,776 290,365 1,177,141
NONINTEREST EXPENSE
Staff expense......................................... 668,403 257,221 925,624
Net occupancy......................................... 104,407 51,410 155,817
Equipment............................................. 102,153 35,776 137,929
Amortization of intangibles........................... 18,294 7,696 25,990
Federal deposit insurance............................. 65,629 34,090 99,719
Other................................................. 483,529 244,196 727,725
---------- ---------- ----------
Total noninterest expense........................ 1,442,415 630,389 2,072,804
---------- ---------- ----------
Income before income taxes....................... 778,122 9,872 787,994
Applicable income taxes............................... 248,682 2,844 251,526
---------- ---------- ----------
Income before cumulative effect of change
in accounting principle........................ $ 529,440 $ 7,028 $ 536,468
========== ========== ==========
EARNINGS PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
Primary.......................................... $2.36 $.08 $1.72
Fully diluted.................................... 2.34 .08 1.70
AVERAGE COMMON SHARES OUTSTANDING
Primary.......................................... 224,023 41,569 309,240
Fully diluted.................................... 227,125 41,954 316,333
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
59
<PAGE> 63
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(A) The pro forma consolidated balance sheet gives effect to the proposed
Merger of PNC and Midlantic by combining the respective balance sheets of the
two companies at June 30, 1995 on a pooling-of-interests basis. Cash and other
assets have been adjusted to reflect the exercise of Midlantic stock options for
$13 million in cash and a current tax benefit of $32 million related to the
exchange of PNC Common Stock for outstanding Midlantic options. See "PROPOSED
MERGER--Terms of the Merger." The capital accounts have been adjusted to reflect
the issuance of 110.8 million shares of PNC Common Stock in exchange for all the
outstanding shares of Midlantic Common Stock (Midlantic Common Stock held in
treasury was assumed to be canceled) and the assumed exchange of PNC Common
Stock for outstanding Midlantic stock options. Midlantic Debentures, which
approximate $73 million, are convertible into Midlantic Common Stock at a
conversion price of $48 per share. For purposes of this pro forma consolidated
balance sheet, conversion of these Midlantic Debentures has not been assumed.
(B) Based upon a preliminary review of Midlantic's asset and liability
management position, PNC anticipates terminating its interest rate cap position
concurrent with or shortly after consummation of the Merger. Interest rate caps
are accounted for on the accrual basis under PNC's accounting policies because
they are designated to certain interest bearing assets which modify their
interest rate characteristics. Upon termination, any losses, measured by the
difference between the unamortized premium and the fair value payment to PNC,
would be recognized immediately in the results of operations. This is because
the predominant characteristic of the interest rate cap is that of a purchased
option for which losses are expensed upon termination under PNC's accounting
policies. An adjustment of $60 million (unamortized premium of $85 million net
of estimated fair value payment of $25 million to PNC) has been recorded in the
pro forma consolidated balance sheet to reflect the anticipated loss. This
adjustment resulted in a $39 million after-tax charge to retained earnings in
the pro forma balance sheet.
PNC is continuing this review of Midlantic's asset and liability management
position and is considering various other actions to maintain its existing
interest rate risk position. As a result of further analysis, certain
reclassifications or sales of investment securities currently classified in the
held to maturity portfolio may occur. Reclassifications, if any, will be
accounted for at fair value with any unrealized gain or loss, net of taxes, at
the date of transfer recognized as a separate component of shareholders' equity.
If any such securities are sold, gains or losses from such transactions would be
reflected in results of operations. At June 30, 1995, securities held to
maturity, on a pro forma basis, had a total net unrealized pretax loss of $274
million.
Additionally, certain interest rate swaps are associated with investment
securities which are currently classified in the held to maturity portfolio. If,
as a result of the aforementioned review, such securities are reclassified to
the available for sale portfolio or are sold, the fair value or the gain or loss
on sale of such securities will also reflect the fair value of the related
interest rate swaps, if any. At June 30, 1995, interest rate swaps designated to
held to maturity securities, on a pro forma basis, had a total net unrealized
pretax loss of $249 million.
No adjustments have been made in the accompanying pro forma consolidated
balance sheet to reflect the potential reclassification or sale of investment
securities, including the effect, if any, of the related interest rate swaps, as
PNC's management has not made a determination with respect to such matters.
(C) A liability of $130 million has been recorded in the pro forma
consolidated balance sheet to reflect management's estimate of anticipated
expenses and nonrecurring charges related to the Merger. This liability resulted
in an $85 million after-tax adjustment to retained earnings in the pro forma
consolidated balance
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<PAGE> 64
sheet. It is anticipated that substantially all of these charges will be
recognized upon consummation of the Merger and paid in 1995 and/or 1996. The
following table provides details of the estimated charges by type:
<TABLE>
<CAPTION>
TYPE OF COST
(IN MILLIONS) PRE-TAX AMOUNT
--------------------------------------------------------- ---------------
<S> <C>
Operations and Facilities................................ $ 56
Personnel Related........................................ 40
Other.................................................... 34
------
$ 130
</TABLE>
Operations and facilities charges consist of lease termination costs and
other related costs resulting from the consolidation of overlapping branches and
elimination of redundant operational facilities as well as write-offs of
computer hardware and software, signage and telecommunications equipment due to
incompatibility or duplication. Personnel related costs consist primarily of
charges related to employee severance, termination of certain employee benefit
plans and employee outplacement assistance. Other charges include investment
banking fees, legal and accounting fees, proxy registration/filing fees and
mailing costs and adjustment of state deferred tax assets relating to the
Merger. Management continues to review these charges and there can be no
assurance that such expenses and charges will not exceed the amounts described
above.
(D) The pro forma consolidated statements of income give effect to the
proposed Merger by combining the respective statements of income of the two
companies for the six months ended June 30, 1995 and 1994 and for each of the
three years in the period ended December 31, 1994. The pro forma consolidated
statements of income do not give effect to anticipated expenses and nonrecurring
charges related to the Merger and the estimated effect of revenue enhancements
and expense savings associated with the consolidation of the operations of PNC
and Midlantic.
Earnings per common share amounts for PNC and Midlantic are based on the
historical fully diluted weighted average number of common shares outstanding
for each company during the period. With respect to the pro forma earnings per
share computation, shares of Midlantic have been adjusted to the equivalent
shares of PNC for each period. Midlantic Debentures were excluded from the 1992
historical earnings per share calculation as their effect was antidilutive.
Adjustments were made to the pro forma computation to reflect the dilutive
impact of such Debentures on a combined basis.
CERTAIN LEGAL PROCEEDINGS
A purported class action lawsuit was filed in July 1995 in the Superior
Court of New Jersey, Middlesex County, against Midlantic, Midlantic's chief
executive officer and its directors and PNC, on behalf of a purported class of
persons who own securities of Midlantic. The amended complaint alleges, among
other things, that the Merger, as announced on July 10, 1995, is unfair to
Midlantic's public shareholders and that consideration to be paid in the Merger
is grossly unfair, inadequate, and substantially below the fair or inherent
value of Midlantic. PNC is alleged to have aided and abetted the breach of
fiduciary duties by the other defendants. The lawsuit seeks, among other things:
an injunction preliminarily and then permanently enjoining the Merger; in the
event the Merger is consummated, rescission of the Merger; an accounting for all
profits realized and to be realized by defendants as a result of the Merger; an
order requiring defendants to permit a shareholders' committee to participate in
any process undertaken in connection with the sale of Midlantic; and
unquantified compensatory damages. The plaintiff also seeks costs and
disbursements of the action, including reasonable attorneys' and experts' fees
and expenses. Management of both PNC and Midlantic believes that the allegations
contained in the amended complaint are without merit and intends to defend them
vigorously.
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CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Bank holding companies, banks and many of their nonbank affiliates are
extensively regulated under both federal and state law. The following
information describes certain aspects of that regulation. To the extent that the
following information describes statutory provisions, it is qualified in its
entirety by reference to the particular statutory provisions and any regulations
promulgated thereunder. The following is not intended to be an exhaustive
description of the statutes and regulations applicable to PNC's or Midlantic's
business. Additional information regarding supervision and regulation is
included in documents incorporated herein by reference. See "AVAILABLE
INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
PNC is a legal entity separate and distinct from its subsidiary banks
("Banks," which will include Midlantic Bank following the Merger), and its
nonbanking subsidiaries. Accordingly, the right of PNC, and consequently the
right of creditors and shareholders of PNC, to participate in any distribution
of the assets or earnings of any subsidiary is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of PNC
in its capacity as a creditor may be recognized. The principal source of PNC's
revenue and cash flows is dividends from its Banks and nonbank subsidiaries.
There are legal limitations on the extent to which the Banks can finance or
otherwise supply funds to PNC and its nonbanking subsidiaries.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Because PNC derives substantially all of its income from the payment of
dividends by the Banks and by its nonbanking subsidiaries, its ability to pay
dividends is affected by the ability of its subsidiaries to pay dividends. The
Banks are subject to various statutory and contractual restrictions on their
ability to pay dividends to PNC. In the case of PNC Bank and other Banks that
are national banking associations (including Midlantic Bank after the Merger),
these restrictions include a requirement that no such Bank may, without the
prior approval of the Office of the Comptroller of the Currency (the "OCC"), pay
a dividend if the total of all dividends declared by the Bank in any calendar
year exceeds the total of its net profits for the preceding two calendar years,
less any required transfers to surplus or to a fund for the retirement of any
preferred stock. Under such restrictions, the aggregate amount available for
payment of dividends to PNC by the Banks was $660.7 million at June 30, 1995. In
addition, the OCC, in the case of national bank subsidiaries, and the FDIC or
the Federal Reserve, in the case of state bank subsidiaries, have authority to
prohibit any such Bank from engaging in an unsafe or unsound practice in
conducting its business. The payment of dividends, depending upon the financial
condition of the Bank in question, could be deemed to constitute such an unsafe
or unsound practice. The Federal Reserve has stated that it generally would be
an unsafe and unsound practice for state-member banks to pay dividends except
out of current earnings. The OCC has stated that a national bank's dividends
should be consistent with the bank's projections, capital plan and strategic
plan, and that it can be an unsafe and unsound practice for the bank to pay a
dividend even when such dividend complies with statutory and regulatory
requirements. The ability of the Banks to pay dividends in the future is
presently, and could be further, influenced by bank regulatory policies or
agreements and by regulatory capital guidelines.
In addition, consistent with its policy regarding bank holding companies
serving as a source of strength for their subsidiary banks, the Federal Reserve
has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fund fully the
dividends, and the prospective rate of earnings retention appears to be
consistent with such holding company's capital needs, asset quality and overall
financial condition.
AFFILIATE TRANSACTION RESTRICTIONS
The Banks are subject to affiliate transaction restrictions under federal
law which limit the transactions by subsidiary banks to or on behalf of their
parent company and to or on behalf of any non-bank subsidiaries, whether in the
form of loans, extensions of credit, issuances of guaranties, acceptances or
letters of credit, investments or asset purchases. Such transactions by a
subsidiary bank to its parent company or to any non-
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<PAGE> 66
bank subsidiary are limited to 10% of a bank subsidiary's capital and surplus
and, with respect to such parent company and all such non-bank subsidiaries, to
an aggregate of 20% of such bank subsidiary's capital and surplus. Further, such
loans and extensions of credit generally are required to be secured by eligible
collateral in specified amounts. Federal law also prohibits subsidiary banks
from purchasing "low-quality" assets from affiliates.
CROSS-GUARANTEE AND HOLDING COMPANY LIABILITY
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
contains a "cross-guarantee" provision which could result in insured depository
institutions "commonly controlled" by PNC being liable for losses incurred by
the FDIC in connection with assistance provided to, or the failure of, any other
insured depository institution owned by PNC. Such liability could have a
material adverse effect on the financial condition of any assessed Bank and PNC.
Under Federal Reserve policy, PNC is expected to act as a source of financial
strength to each Bank and to commit resources to support each Bank. This support
may be required at times when, absent such policy, PNC might not otherwise
provide such support. In addition, any capital loans by PNC to any of the Banks
would be subordinate in right of payment to deposits and to certain other
indebtedness of the Banks.
Under the prompt corrective action provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") and the Federal
Reserve's source of strength policy, a bank holding company may be required to
infuse sufficient capital into a subsidiary insured depository institution to
ensure that such subsidiary is in compliance with its minimum capital
requirements. See "--Enforcement Powers of the Federal Banking Agencies;
Corrective Action" and "--Capital Guidelines." Further, in the event of a bank
holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the
trustee will be deemed to have assumed and is required to cure immediately any
deficit under any commitment by the debtor holding company to any of the federal
banking agencies to maintain the capital of an insured depository institution,
and any claim for breach of such obligation will generally have priority over
most other unsecured claims.
FDIC INSURANCE ASSESSMENTS
Since the deposits of the Banks are insured by the FDIC, the Banks are
subject to FDIC insurance assessments. The amount of FDIC assessments paid by
individual insured depository institutions is based on their relative risk as
measured by regulatory capital ratios and certain other factors. Until recently,
FDIC regulations provided for a minimum assessment of 23 cents per $100 of
eligible deposits for the best-rated banks and savings associations, with a
maximum of 31 cents per $100 of eligible deposits for the weakest-rated
institutions. On August 8, 1995, the FDIC's Board of Directors voted to reduce
the assessment rates for deposits insured by the Bank Insurance Fund (the
"BIF"), which includes rates paid by most banks, and to keep existing assessment
rates intact for deposits insured by the Savings Association Insurance Fund (the
"SAIF"). Under the new rate structure, the best-rated BIF-insured banks will pay
4 cents per $100 of deposits, while the weakest ones will continue to pay 31
cents per $100 of deposits. The new rate structure will apply from the first day
of the month after which the BIF was recapitalized. Such recapitalization was
confirmed by the FDIC to have occurred at May 31, 1995. BIF members (including
each of the Banks and Midlantic Bank) that have overpaid their assessments based
on the newly adopted premium rate can expect to receive a refund of any
overpayment plus interest.
Under the old regulations, the rate assessed for each of the PNC subsidiary
banks and Midlantic Bank was 23 cents per $100 of eligible deposits. Under the
new rate structure, the rate assessed for such banks is expected to be 4 cents
per $100 of Bank deposits. The assessment rate for the PNC savings association
deposits insured under the SAIF will continue to be 23 cents per $100 of
eligible deposits.
Congress and various governmental agencies are reported to be considering a
number of proposals to recapitalize the SAIF, including a one time assessment of
up to approximately $6.6 billion on all SAIF-insured deposits and the merger of
the SAIF and the BIF. PNC and Midlantic cannot predict the likelihood of any of
the proposals being adopted or the effect, if any, that the adoption of such
proposals would have on PNC or Midlantic.
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<PAGE> 67
ENFORCEMENT POWERS OF THE FEDERAL BANKING AGENCIES; CORRECTIVE ACTION
Failure to comply with applicable laws, regulations and supervisory
agreements could subject PNC and its subsidiary banks, which will include
Midlantic Bank following the Merger, as well as officers, directors and
institution-affiliated parties of these institutions to administrative sanctions
and potentially substantial civil money penalties.
Neither PNC, Midlantic nor any of their subsidiaries is subject to formal
written agreements with state or federal regulators. Written agreements with
federal regulators to which Midlantic and Midlantic Bank had been subject were
terminated in March 1994.
Under FDICIA, the federal banking agencies possess broad powers to take
corrective action as deemed appropriate for an insured depository institution
and its holding companies. The extent of these powers depends upon whether the
institution in question is considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." As of June 30, 1995, all of the Banks, as well as
Midlantic Bank, exceeded the required ratios for classification as "well
capitalized." The categorization of depository institutions under the uniform
regulations is solely for the purpose of applying the federal bank agencies'
prompt corrective action powers and is not intended to be, and should not be
interpreted as, a representation of the depository institution's overall
financial condition or prospects.
Generally, as an institution is deemed to be less well capitalized, the
scope and severity of the agencies' powers increase. The agencies' corrective
powers can include, among other things, requiring an insured financial
institution to adopt a capital restoration plan which cannot be approved unless
guaranteed by the institution's parent holding company; placing limits on asset
growth and restrictions on activities; placing restrictions on transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
prohibiting the institution from accepting deposits from correspondent banks;
prohibiting the payment of principal or interest on subordinated debt;
prohibiting the holding company from making capital distributions without prior
regulatory approval; and, ultimately, appointing a receiver for the institution.
Business activities may also be influenced by an institution's capital
classification. For instance, only a "well capitalized" depository institution
may accept brokered deposits without prior regulatory approval and only
adequately capitalized institutions may accept brokered deposits with prior
regulatory approval.
CAPITAL GUIDELINES
PNC and Midlantic each are subject to capital adequacy guidelines of the
Federal Reserve. Under the Federal Reserve's capital guidelines, a holding
company's capital is divided into two tiers. Tier 1 and Tier 2, the respective
components of which are described in materials incorporated herein by reference.
See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE." Holding
companies are required to maintain a minimum ratio of total capital (Tier 1 plus
Tier 2 capital) to total risk-adjusted assets (which include the credit risk
equivalents of certain off-balance sheet items) of 8%, of which half (4%) must
be Tier 1 capital. In addition, the Federal Reserve Board requires a leverage
ratio (Tier 1 capital to average total consolidated assets) of 3%. The Federal
Reserve's risk-based and leverage ratios are minimum supervisory ratios
generally applicable to bank holding companies that meet certain specified
criteria, including that they have the highest regulatory rating. Banking
organizations not meeting these criteria are expected to operate with capital
positions well above the minimum ratios. Each depository institution subsidiary
of PNC and Midlantic is also subject to similar minimum capital guidelines
established by the subsidiary's primary federal regulator. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances warrant.
Effective January 17, 1995, the Federal Reserve and the other federal
banking agencies have amended their respective risked-based capital standards by
explicitly identifying concentrations of credit risk and the risk arising from
non-traditional activities, as well as an institution's ability to manage those
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy. The federal banking agencies have
also recently adopted a new rule that amends, effective September 1, 1995, the
capital standards to include explicitly an institution's exposure to declines in
the economic value of its capital
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<PAGE> 68
due to changes in interest rates as a factor to be considered in evaluating
capital adequacy. This rule does not codify a measurement framework for
assessing the level of interest rate exposure. Such agencies have issued for
comment a joint policy statement that describes the process to be used to
measure and assess the exposure of an institution's net economic value to
changes in interest rates. It is anticipated that at some future date such
agencies would propose the establishment of an explicit minimum capital
requirement to account for such interest rate risks.
Under federal banking laws, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including, in the most
severe cases, the termination of deposit insurance by the FDIC and seizure of
the institution.
As of June 30, 1995, PNC's and Midlantic's capital ratios and the capital
ratios of each of their subsidiary depository institutions exceeded the minimum
regulatory capital requirements established by the appropriate federal
regulatory agency. It is anticipated that, after the consummation of the Merger,
PNC and its depository institution subsidiaries, including Midlantic Bank, will
continue to exceed minimum requirements.
RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994
On September 29, 1994, the President signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"), which permits
adequately capitalized and adequately managed bank holding companies to acquire
banks in any state. The IBBEA also permits banks in separate states to
consolidate into single entities with branches in multiple states. Consequently,
effective September 29, 1995, PNC has the authority to acquire any bank or bank
holding company, and can be acquired by any bank or bank holding company,
located anywhere in the United States. Further, effective June 1, 1997, the
Banks will have the authority, subject to certain restrictions, including state
opt-out provisions, to consolidate with other banking subsidiaries of PNC.
States may affirmatively opt in earlier, which Delaware and Pennsylvania, among
other states, have done. Among other provisions, the IBBEA provides that
interstate branches of national banks will be subject to host state laws, such
as intrastate branching, consumer protection, fair lending and community
reinvestment laws, unless any such law is preempted by federal law or is
discriminatory in effect. The IBBEA provides that interstate branches of state
banks will be subject to the laws of the host state. In addition, among other
things, the IBBEA also increases the community reinvestment requirements
applicable to multi-state depository institutions. This legislation may increase
competition as banks branch across state lines and enter new markets.
RELATIONSHIPS WITH INDEPENDENT AUDITORS
The PNC Board has appointed Ernst & Young LLP as independent auditors for
PNC for the fiscal year ending December 31, 1995. Ernst & Young LLP has served
as independent auditors of PNC and Pittsburgh National Corporation, a
predecessor, continuously since 1972. A representative of Ernst & Young LLP is
expected to be present at the Special Meeting of PNC shareholders, will have an
opportunity to make a statement if he or she desires and will be available to
respond to questions.
The Midlantic Board has appointed Coopers & Lybrand L.L.P. as independent
auditors for Midlantic for the fiscal year ending December 31, 1995. Coopers &
Lybrand L.L.P. has served as Midlantic's independent auditors continuously since
1974. A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Special Meeting of Midlantic shareholders, will have an opportunity to make
a statement if he or she desires and will be available to respond to questions.
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EXPERTS
The consolidated financial statements of PNC incorporated by reference in
PNC's Annual Report (Form 10-K) for the year ended December 31, 1994, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon incorporated by reference 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.
The consolidated financial statements of Midlantic and subsidiaries,
included in the Annual Report on Form 10-K of Midlantic for the year ended
December 31, 1994 have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report dated January 18, 1995 and January 20,
1995 as to Note 28, which includes an explanatory paragraph relating to changed
methods of accounting for postemployment benefits and investment securities in
1994 and postemployment benefits other than pensions and income taxes in 1993,
accompanying such financial statements, and are incorporated herein by
reference. Such report is given upon their authority as experts in accounting
and auditing.
Documents incorporated herein by reference in the future will include
financial statements, related schedules (if required) and auditors' reports,
which financial statements and schedules will have been audited to the extent
and for the periods set forth in such reports by the firm or firms rendering
such reports, and, to the extent so audited and consent to incorporation by
reference is given, will be incorporated herein by reference in reliance upon
such reports given upon the authority of such firms as experts in accounting and
auditing.
LEGAL OPINION
A legal opinion which states that the issuance of the shares of PNC Common
Stock offered hereby, when issued in accordance with the terms of the Agreement,
will be validly issued, fully paid and nonassessable, has been rendered by
William F. Strome, Esq., Senior Vice President, Deputy General Counsel and
Corporate Secretary of PNC. As of September 25, 1995, Mr. Strome owned 2,093
shares of PNC Common Stock, including shares held in his PNC Incentive Savings
Plan account, and held options granted under an employee stock option plan
covering 24,800 shares of PNC Common Stock, 19,300 of which are currently
exercisable.
SUBMISSION OF SHAREHOLDER PROPOSALS
PNC shareholders may submit proposals to be considered for shareholder
action at the 1996 Annual Meeting of Shareholders if they do so in accordance
with the applicable SEC rules. Any such proposals must be in writing and
received by the Corporate Secretary of PNC no later than November 21, 1995 in
order to be considered for inclusion in 1996 proxy materials.
With respect to the shareholders of Midlantic, proposals must be received
by November 25, 1995 in order to be considered for inclusion in proxy materials
for Midlantic 1996 Annual Meeting. If the Merger is effective prior to the 1996
Annual Meeting of Shareholders of Midlantic, shareholder proposals submitted in
accordance with the above instructions for Midlantic will be considered for
inclusion in proxy materials for PNC's 1996 Annual Meeting.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
(AS AMENDED)
AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement" or
"Agreement") dated as of July 10, 1995, among MIDLANTIC CORPORATION ("MC"), a
New Jersey corporation having its principal executive office at Metro Park
Plaza, P.O. Box 600, Edison, New Jersey 08818, PNC BANK CORP. ("PNC"), a
Pennsylvania corporation having its principal executive office at One PNC Plaza,
Pittsburgh, Pennsylvania 15265, and PNC BANCORP, INC. ("Bancorp"), a Delaware
corporation and a wholly-owned subsidiary of PNC having its registered office at
222 Delaware Avenue, Wilmington, Delaware 19899.
WITNESSETH
WHEREAS, the parties hereto desire that MC shall be merged with and into
Bancorp ("Merger") pursuant to an Agreement and Plan of Merger substantially in
the form attached hereto as Annex A ("Plan of Merger"); and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1. "Bank Holding Company Act" shall mean the Bank Holding Company Act of
1956, as amended.
1.2. "Closing Date" shall mean the date specified pursuant to Section 4.8
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.3. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4. "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.5. "Department of Banking" shall mean the Pennsylvania Department of
Banking.
1.6. "Effective Date" shall mean the date specified pursuant to Section
4.8 hereof as the effective date of the Merger.
1.7. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.8. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.9. "FDIA" shall mean the Federal Deposit Insurance Act.
1.10. "FDIC" shall mean the Federal Deposit Insurance Corporation.
1.11. "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.12. "Intellectual Property" means domestic and foreign letters patent,
patents, patent applications, patent licenses, software licensed or owned,
know-how licenses, trade names, common law and other trademarks, service marks,
licenses of trademarks, trade names and/or service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications.
1.13. "Investment Companies" means the Compass Capital Group of open-end
mutual funds.
1.14. "Investment Company Act" means the Investment Company Act of 1940, as
amended.
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1.15. "Material Adverse Effect" shall mean, with respect to MC or PNC, as
the case may be, a material adverse effect on the business, results of
operations or financial condition of such party and its Subsidiaries taken as a
whole.
1.16. "MB" means Midlantic Bank, N.A., a wholly owned subsidiary of MC.
1.17. "MC Financial Statements" shall mean (i) the consolidated balance
sheets of MC as of March 31, 1995 and as of December 31, 1994 and 1993 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the three months
ended March 31, 1995 and each of the three years ended December 31, 1994, 1993
and 1992 as filed by MC in SEC Documents and (ii) the consolidated balance
sheets of MC and related consolidated statements of income, cash flows and
changes in shareholders' equity (including related notes, if any) as filed by MC
in SEC Documents with respect to periods ended subsequent to March 31, 1995.
1.18. "MC Option Agreement" shall mean the Stock Option Agreement dated of
even date herewith between MC and PNC pursuant to which MC will grant PNC the
right to purchase certain shares of MC Common Stock (as defined below), approval
of the Merger by MC's Board of Directors having been received on a prior date.
1.19. "Option Agreements" shall mean the MC Option Agreement and the PNC
Option Agreement.
1.20. "PNC Financial Statements" shall mean (i) the consolidated balance
sheets of PNC as of March 31, 1995 and as of December 31, 1994 and 1993 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the three months
ended March 31, 1995 and each of the three years ended December 31, 1994, 1993
and 1992 as filed by PNC in SEC Documents and (ii) the consolidated balance
sheets of PNC and related consolidated statements of income, cash flows and
changes in shareholders' equity (including related notes, if any) as filed by
PNC in SEC Documents with respect to periods ended subsequent to March 31, 1995.
1.21. "PNC Option Agreement" shall mean the Stock Option Agreement dated of
even date herewith between PNC and MC pursuant to which PNC will grant MC the
right to purchase certain shares of PNC Common Stock (as defined below).
1.22. "Pennsylvania Banking Code" shall mean the Pennsylvania Banking Code
of 1965, as amended.
1.23. "Previously Disclosed" shall mean disclosed prior to the execution
hereof in (i) an SEC Document filed with the SEC subsequent to January 1, 1994
and prior to the date hereof or (ii) a letter dated of even date herewith from
the party making such disclosure and delivered to the other party prior to the
execution hereof. Any information disclosed by one party to the other for any
purpose hereunder shall be deemed to be disclosed for all purposes hereunder.
The inclusion of any matter in information Previously Disclosed shall not be
deemed an admission or otherwise to imply that any such matter is material for
purposes of this Agreement.
1.24. "Proxy Statement" shall mean the joint proxy statement/prospectus (or
similar documents) together with any supplements thereto sent to the
shareholders of PNC and MC to solicit their votes in connection with this
Agreement and the Plan of Merger.
1.25. "Registration Statement" shall mean the registration statement with
respect to the PNC Common Stock to be issued in connection with the Merger as
declared effective by the Commission under the Securities Act.
1.26. "Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock, and stock appreciation rights, performance
units and other similar stock-based rights whether they obligate the issuer
thereof to issue stock or other securities or to pay cash.
1.27. "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
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1.28. "Securities Act" shall mean the Securities Act of 1933, as amended.
1.29. "Securities Laws" shall mean the Securities Act; the Exchange Act;
the Investment Company Act; the Investment Advisers Act of 1940, as amended; the
Trust Indenture Act of 1939, as amended; and the rules and regulations of the
Commission promulgated thereunder.
Other terms used herein are defined in the preamble and the recitals to
this Reorganization Agreement and in Articles II, III and IV hereof.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF MC
MC hereby represents and warrants to PNC and Bancorp as follows:
2.1. CAPITAL STRUCTURE OF MC
The authorized capital stock of MC consists of (i) 40,000,000 shares of
preferred stock, no par value ("MC Preferred Stock"), none of which is issued
and outstanding, and (ii) 150,000,000 shares of common stock, par value $3 per
share ("MC Common Stock"), of which, as of June 30, 1995, 52,128,214 shares are
issued and outstanding and 633,883 shares are held in treasury. As of June 30,
1995, no shares of MC Preferred Stock or MC Common Stock were reserved for
issuance, except that (i) 1,389,333 shares of MC Common Stock were reserved for
issuance pursuant to MC's dividend reinvestment and stock purchase plans, (ii)
5,830,616 shares of MC Common Stock were reserved for issuance upon the exercise
of stock options heretofore granted pursuant to MC's stock option plans, (iii)
500,000 shares of MC's Series B Junior Participating Preferred Stock were
reserved for issuance upon exercise of rights pursuant to the Rights Agreement
dated as of February 23, 1990 between MC and MB, as amended (the "MC Rights
Agreement"), (iv) 10,425,000 shares of MC Common Stock were reserved for
issuance pursuant to the MC Option Agreement and (v) 1,517,500 shares of MC
Common Stock were reserved for issuance pursuant to MC's 8 1/4% Convertible
Subordinated Debentures due 2010. All outstanding shares of MC Common Stock have
been duly issued and are validly outstanding, fully paid and nonassessable. MC
does not have and is not bound by any Rights which are authorized, issued or
outstanding with respect to the capital stock of MC except for the MC Option
Agreement and as Previously Disclosed and except for Rights issued pursuant to
the MC Rights Agreement. None of the shares of MC's capital stock has been
issued in violation of the preemptive rights of any person. MC has taken all
action necessary so that the execution of this Reorganization Agreement, the
Plan of Merger and the MC Option Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not result in the
grant of any rights to any person under the MC Rights Agreement or enable or
require the Rights thereunder to be exercised, distributed or triggered.
2.2. ORGANIZATION, STANDING AND AUTHORITY OF MC
MC is a duly organized corporation, validly existing and in good standing
under the laws of New Jersey with full corporate power and authority to carry on
its business as now conducted and is duly licensed or qualified to do business
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on MC. MC is registered as a bank holding company
under the Bank Holding Company Act.
2.3. OWNERSHIP OF MC SUBSIDIARIES; CAPITAL STRUCTURE OF MC SUBSIDIARIES
MC does not own, directly or indirectly, 5% or more of the outstanding
capital stock or other voting securities of any corporation, bank or other
organization except as Previously Disclosed (collectively the "MC Subsidiaries"
and individually a "MC Subsidiary"). The outstanding shares of capital stock of
each MC Subsidiary are validly issued and outstanding, fully paid and (except as
provided in 12 U.S.C. Section 55) nonassessable and, except as Previously
Disclosed, all such shares are directly or indirectly owned by MC free and clear
of all liens, claims and encumbrances. No MC Subsidiary has or is bound by any
Rights which are
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authorized, issued or outstanding with respect to the capital stock of any MC
Subsidiary and, except as Previously Disclosed, there are no agreements,
understandings or commitments relating to the right of MC to vote or to dispose
of said shares. None of the shares of capital stock of any MC Subsidiary has
been issued in violation of the preemptive rights of any person.
2.4. ORGANIZATION, STANDING AND AUTHORITY OF MC SUBSIDIARIES
Each MC Subsidiary is a duly organized corporation or banking association,
validly existing and in good standing under applicable laws. Each MC Subsidiary
(i) has full power and authority to carry on its business as now conducted, and
(ii) is duly licensed or qualified to do business in the states of the United
States and foreign jurisdictions where its ownership or leasing of property or
the conduct of its business requires such licensing or qualification and where
failure to be so licensed or qualified would have a Material Adverse Effect on
MC. Each MC Subsidiary 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 where the failure to
be so authorized would not have a Material Adverse Effect on MC.
2.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) MC has all requisite corporate power and authority to enter into and
perform all of its obligations under this Reorganization Agreement, the Plan of
Merger and the MC Option Agreement. The execution and delivery of this
Reorganization Agreement, the Plan of Merger and the MC Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of MC, except that the affirmative vote of the holders of a majority of
the shares of MC Common Stock cast by the holders of such shares entitled to
vote thereon is the only shareholder vote required to approve the Plan of Merger
pursuant to the New Jersey Business Corporation Act and MC's Restated
Certificate of Incorporation and Bylaws. The Board of Directors of MC has
directed that this Agreement and the Plan of Merger be submitted to MC's
stockholders for approval at a special meeting to be held as soon as
practicable.
(b) Assuming the accuracy of the representation contained in Section 3.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of MC, enforceable against it in accordance with
their respective terms, subject as to enforceability, to bankruptcy, insolvency
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(c) Except as Previously Disclosed, neither the execution and delivery of
this Reorganization Agreement, the Plan of Merger or the MC Option Agreement,
nor consummation of the transactions contemplated hereby or thereby, nor
compliance by MC with any of the provisions hereof or thereof shall (i) conflict
with or result in a breach of any provision of the articles or certificate of
incorporation or association, charter or by-laws of MC or any MC Subsidiary,
(ii) assuming the consents and approvals contemplated by Section 4.3(b) hereof
and which are Previously Disclosed are duly obtained, constitute or result in a
breach of any term, condition or provision of, or constitute a default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon any
property or asset of MC or any MC Subsidiary pursuant to, any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation, or
(iii) assuming the consents and approvals contemplated by Section 4.3(b) hereof
and which are Previously Disclosed are duly obtained, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to MC or any MC
Subsidiary, except (in the case of clauses (ii) and (iii) above) for such
violations, rights, conflicts, breaches, creations or defaults which, either
individually or in the aggregate, will not have a Material Adverse Effect on MC.
(d) Other than as contemplated by Section 4.3(b) hereof and except as
Previously Disclosed, no consent, approval or authorization of, or declaration,
notice, filing or registration with, any governmental or regulatory authority,
or any other person, is required to be made or obtained by MC or any MC
Subsidiary on or prior to the Closing Date in connection with the execution,
delivery and performance of this Agreement and the Plan of Merger or the
consummation of the transactions contemplated hereby or thereby.
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2.6. SEC DOCUMENTS; REGULATORY FILINGS
MC has filed all SEC Documents required by the Securities Laws and such SEC
Documents complied, as of their respective dates, in all material respects with
the Securities Laws. MC and each of the MC Subsidiaries has filed all reports
required by statute or regulation to be filed with any federal or state bank
regulatory agency, except where the failure to so file would not have a Material
Adverse Effect on MC, and such reports were prepared in accordance with the
applicable statutes, regulations and instructions in existence as of the date of
filing of such reports in all material respects.
2.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The MC Financial Statements fairly present the consolidated financial
position of MC and its consolidated Subsidiaries as of the dates indicated and
the consolidated results of operations, changes in shareholders' equity and cash
flows of MC and its consolidated Subsidiaries for the periods then ended in
conformity with generally accepted accounting principles applicable to financial
institutions applied on a consistent basis except as disclosed therein. The
books and records of MC and each MC Subsidiary fairly reflect in all material
respects the transactions to which it is a party or by which its properties are
subject or bound. Such books and records have been properly kept and maintained
and are in compliance in all material respects with all applicable legal and
accounting requirements. The minute books of MC and the MC Subsidiaries contain
records which are accurate in all material respects of all corporate actions of
its shareholders and Board of Directors (including committees of its Board of
Directors).
2.8. MATERIAL ADVERSE CHANGE
MC has not, on a consolidated basis, suffered any material adverse change
in its financial condition, results of operations or business since December 31,
1994.
2.9. ABSENCE OF UNDISCLOSED LIABILITIES
Neither MC nor any MC Subsidiary has any liability (contingent or
otherwise), excluding contractually assumed contingencies, that is material to
MC on a consolidated basis, or that, when combined with all similar liabilities,
would be material to MC on a consolidated basis, except as Previously Disclosed,
as disclosed in the MC Financial Statements filed with the SEC prior to the date
hereof and except for liabilities incurred in the ordinary course of business
subsequent to March 31, 1995.
2.10. PROPERTIES
MC and the MC Subsidiaries have good and marketable title free and clear of
all liens, encumbrances, charges, defaults or equitable interests to all of the
properties and assets, real and personal, which, individually or in the
aggregate, are material to the business of MC and its Subsidiaries taken as a
whole, and which are reflected on the MC Financial Statements as of December 31,
1994 or acquired after such date, except (i) liens for taxes not yet due and
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount or
extent and (iv) dispositions and encumbrances for adequate consideration in the
ordinary course of business. All leases pursuant to which MC or any MC
Subsidiary, as lessee, leases real and personal property which, individually or
in the aggregate, are material to the business of MC and its Subsidiaries taken
as a whole are valid and enforceable in accordance with their respective terms.
2.11. LOANS
Each loan reflected as an asset in the MC Financial Statements (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting
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creditors' rights and to general equity principles, in each case other than
loans as to which the failure to satisfy the foregoing standards would not have
a Material Adverse Effect on MC.
2.12. TAX MATTERS
(a) MC and each MC Subsidiary have timely filed federal income tax returns
for each year through December 31, 1993 and have timely filed, or caused to be
filed, all other federal, state, local and foreign tax returns (including,
without limitation, estimated tax returns, returns required under Sections
1441-1446 and 6031-6060 of the Code and the regulations thereunder and any
comparable state, foreign and local laws, any other information returns,
withholding tax returns, FICA and FUTA returns and back up withholding returns
required under Section 3406 of the Code and any comparable state, foreign and
local laws) required to be filed with respect to MC or any MC Subsidiary, except
where the failure to file timely such federal income and other tax returns would
not, in the aggregate, have a Material Adverse Effect on MC. All taxes due in
respect of the periods covered by such tax returns have been paid or adequate
reserves have been established for the payment of such taxes, except where any
such failure to pay or establish adequate reserves would not, in the aggregate,
have a Material Adverse Effect on MC and, as of the Closing Date, all taxes due
in respect of any subsequent periods ending on or prior to the Closing Date will
have been paid or adequate reserves will have been established for the payment
thereof, except where any such failure to pay or establish adequate reserves
would not, in the aggregate, have a Material Adverse Effect on MC. Except as
Previously Disclosed, no material (i) audit examination, (ii) deficiency, or
(iii) refund litigations with respect to such returns is pending. Not later than
60 days after the date hereof, MC shall deliver to PNC a list of all (i) audit
examinations, (ii) deficiencies, and (iii) refund litigation with respect to
such returns. Neither MC nor any MC Subsidiary will have any material liability
for any such taxes in excess of the amounts so paid or reserves or accruals so
established.
(b) All federal, state and local (and, if applicable, foreign) tax returns
filed by MC and each MC Subsidiary are complete and accurate in all material
respects. Neither MC nor any MC Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge, and, except as Previously
Disclosed, none of them has requested any extension of time within which to file
any tax returns in respect of any fiscal year or portion thereof which have not
since been filed. Except as Previously Disclosed, no material deficiencies for
any tax, assessment or governmental charge have been proposed, asserted or
assessed (tentatively or otherwise) against MC or any MC Subsidiary which have
not been settled and paid. Except as Previously Disclosed, there are currently
no agreements in effect with respect to MC or any MC Subsidiary to extend the
period of limitations for the assessment or collection of any tax.
(c) Except as Previously Disclosed, neither the transactions contemplated
hereby nor the termination of the employment of any employees of MC or any MC
Subsidiary prior to or following consummation of the transactions contemplated
hereby could result in MC or any MC Subsidiary making or being required to make
any "excess parachute payment" as that term is defined in Section 280G of the
Code.
(d) For purposes of this Section 2.12, references to MC and any MC
Subsidiary shall include predecessors thereof.
2.13. EMPLOYEE BENEFIT PLANS
(a) MC has made available true and complete copies of all qualified pension
or profit-sharing plans, any deferred compensation, consulting, bonus or group
insurance contract or any other incentive, welfare or employee benefit plan or
agreement maintained for the benefit of employees or former employees of MC or
any MC Subsidiary, and will make available to PNC (i) the most recent actuarial
and financial reports prepared with respect to any qualified plans, (ii) the
most recent annual reports filed with any government agency and (iii) all
rulings and determination letters and any open requests for rulings or letters
that pertain to any qualified plan.
(b) Neither MC nor any MC Subsidiary (nor any pension plan maintained by
any of them) has incurred or reasonably expects to incur any material liability
to the Pension Benefit Guaranty Corporation or to the Internal Revenue Service
with respect to any pension plan qualified under Section 401 of the Code except
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liabilities to the Pension Benefit Guaranty Corporation pursuant to Section 4007
of ERISA, all of which have been fully paid. No reportable event under Section
4043(b) of ERISA has occurred with respect to any such pension plan, other than
a reportable event that occurs by reason of the transactions contemplated by
this Agreement or an event for which the 30 day notice requirement has been
waived by the Pension Benefit Guaranty Corporation.
(c) Neither MC nor any MC Subsidiary participates in, or has incurred any
liability under Section 4201 of ERISA for a complete or partial withdrawal from,
a multiemployer plan as such term is defined in ERISA.
(d) Except as Previously Disclosed, a favorable determination letter has
been issued by the Internal Revenue Service with respect to each "employee
pension plan" (as defined in Section 3(2) of ERISA) of MC or any MC Subsidiary
which is intended to be a qualified plan to the effect that such plan is
qualified under Section 401 of the Code and tax exempt under Section 501 of the
Code. No such letter has been revoked or threatened to be revoked and neither MC
nor any MC Subsidiary knows of any reasonable ground on which such revocation
may be based. Such plans have been operated in all material respects in
accordance with their terms and applicable law.
(e) No prohibited transaction (which shall mean any transaction prohibited
by Section 406 of ERISA and not exempt under Section 408 of ERISA) has occurred
with respect to any "employee benefit plan" (as defined in Section 3(3) of
ERISA) maintained by MC or any MC Subsidiary which would result in the
imposition, directly or indirectly, of an excise tax under Section 4975 of the
Code that would have, individually or in the aggregate, a Material Adverse on
MC.
(f) The actuarial present value of accrued benefit obligations, whether or
not vested, under each "employee pension plan" maintained by MC or any MC
Subsidiary did not exceed as of the most recent actuarial valuation date the
then current fair market value of the assets of such plan and no material
adverse change has occurred with respect to the funded status of any such plan
since such date.
2.14. CERTAIN CONTRACTS
(a) Except as Previously Disclosed, neither MC nor any MC Subsidiary is a
party to, or is bound by, (i) any material contract as defined in Item
601(b)(10) of Regulation S-K of the SEC or, to the knowledge of the executive
officers of MC involved in the negotiation of, or conduct of PNC's due diligence
with respect to, this Agreement, any other material contract or similar
arrangement whether or not made in the ordinary course of business (other than
loans or loan commitments and funding transactions in the ordinary course of
business of the MC Subsidiaries) or any agreement restricting the nature or
geographic scope of its business activities in any material respect, (ii) any
agreement, indenture or other instrument relating to the borrowing of money by
MC or any MC Subsidiary or the guarantee by MC or any MC Subsidiary of any such
obligation, other than instruments relating to transactions entered into in the
customary course, (iii) any agreement, arrangement or commitment relating to the
employment of a consultant who was formerly a director or executive officer or
the employment, election, retention in office or severance of any present or
former director or officer, or (iv) any contract, agreement or understanding
with a labor union, in each case whether written or oral.
(b) Except as Previously Disclosed, neither MC nor any MC Subsidiary is in
default under any material agreement, commitment, arrangement, lease, insurance
policy or other instrument whether entered into in the ordinary course of
business or otherwise and whether written or oral, and there has not occurred
any event that, with the lapse of time or giving of notice or both, would
constitute such a default, except for such defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on MC.
2.15. LEGAL PROCEEDINGS
Except as Previously Disclosed, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of MC, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against MC or any MC
Subsidiary or against any asset, interest or right of MC or any MC Subsidiary as
to which there is a reasonable probability of
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an unfavorable outcome and which, if such an unfavorable outcome was rendered,
would, individually or in the aggregate, have a Material Adverse Effect on MC.
To the knowledge of MC, there are no actual or threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or to impose any material liability in connection therewith
as to which there is a reasonable probability of an unfavorable outcome and
which, if such an unfavorable outcome was rendered, would, individually or in
the aggregate, have a Material Adverse Effect on MC. Except as Previously
Disclosed, there are no actions, suits or proceedings instituted, pending or, to
the knowledge of MC, threatened (or unasserted but considered probable of
assertion and which if asserted would be reasonably expected to have an
unfavorable outcome) against any present or former director or officer of MC,
that might give rise to a claim for indemnification and that (i) has a
reasonable probability of an unfavorable outcome and (ii) in the event of an
unfavorable outcome, would, individually or in the aggregate, have a Material
Adverse Effect on MC.
2.16. COMPLIANCE WITH LAWS
Except as Previously Disclosed, MC and each MC Subsidiary is in compliance
in all material respects with all statutes and regulations applicable to the
conduct of its business, and neither MC nor any MC Subsidiary has received
notification from any agency or department of federal, state or local government
(i) asserting a material violation of any such statute or regulation, (ii)
threatening to revoke any license, franchise, permit or government authorization
or (iii) restricting or in any way limiting its operations, except for such
noncompliance, violations, revocations and restrictions which would not,
individually or in the aggregate, have a Material Adverse Effect on MC. Neither
MC nor any MC Subsidiary is subject to any regulatory or supervisory cease and
desist order, agreement, directive, memorandum of understanding or commitment
which could be reasonably anticipated to have a Material Adverse Effect on MC,
and none of them has received any communication requesting that they enter into
any of the foregoing.
2.17. LABOR MATTERS
With respect to their employees, neither MC nor any MC Subsidiary is a
party to any labor agreement with any labor organization, group or association
and has not engaged in any unfair labor practice. Since January 1, 1994 and
prior to the date hereof, MC and the MC Subsidiaries have not experienced any
attempt by organized labor or its representatives to make MC or any MC
Subsidiary conform to demands of organized labor relating to their employees or
to enter into a binding agreement with organized labor that would cover the
employees of MC or any MC Subsidiary. There is no unfair labor practice charge
or other complaint by any employee or former employee of MC or any MC Subsidiary
against any of them pending before any governmental agency arising out of MC's
or such MC Subsidiary's activities, which charge or complaint (i) has a
reasonable probability of an unfavorable outcome and (ii) in the event of an
unfavorable outcome would, individually or in the aggregate, have a Material
Adverse Effect on MC; there is no labor strike or labor disturbance pending or
threatened against any of them; and neither MC nor any MC Subsidiary has
experienced a work stoppage or other labor difficulty since January 1, 1994.
2.18. BROKERS AND FINDERS
Neither MC nor any MC Subsidiary, nor any of their respective officers,
directors or employees, has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein or the Plan of Merger, except for MC's
retention of Merrill Lynch & Co. to perform certain financial advisory services.
2.19. INSURANCE
MC and the MC Subsidiaries each currently maintains insurance in amounts
reasonably necessary for their operations. Neither MC nor any MC Subsidiary has
received any notice of a premium increase or cancellation with respect to any of
its insurance policies or bonds, and within the last three years, neither MC nor
any MC Subsidiary has been refused any insurance coverage sought or applied for,
and MC has no reason to believe that existing insurance coverage cannot be
renewed as and when the same shall expire, upon terms and conditions as
favorable as those presently in effect, other than possible increases in
premiums or
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unavailability in coverage that have not resulted from any extraordinary loss
experience of MC or any MC Subsidiary. The deposits of MB are insured by the
FDIC in accordance with the FDIA, and MB has paid all assessments and filed all
reports required by the FDIA.
2.20. ENVIRONMENTAL LIABILITY
Neither MC nor any MC Subsidiary has received any written notice of any
legal, administrative, arbitral or other proceeding, claim or action and, to the
knowledge of MC and the MC Subsidiaries, there is no governmental investigation
of any nature ongoing, in each case that could reasonably be expected to result
in the imposition, on MC or any MC Subsidiary of any liability arising under any
local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, which liability would have a
Material Adverse Effect on MC; except as Previously Disclosed, there are no
facts or circumstances which could reasonably be expected to form the basis for
any such proceeding, claim, action or governmental investigation that would
impose any such liability; and neither MC nor any MC Subsidiary is subject to
any agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
2.21. ADMINISTRATION OF TRUST ACCOUNTS
Each MC Subsidiary has properly administered all accounts for which it acts
as a fiduciary or agent, including but not limited to accounts for which it
serves as a trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law,
except where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on MC. Neither MC, any MC Subsidiary, nor any
director, officer or employee of MC or any MC Subsidiary acting on behalf of MC
or an MC Subsidiary, has committed any breach of trust with respect to any such
fiduciary or agency account, and the accountings for each such fiduciary or
agency account are true and correct in all material respects and accurately
reflect the assets of such fiduciary or agency account, except for such breaches
and failures to be true, correct and accurate which would not, individually or
in the aggregate, have a Material Adverse Effect on MC.
2.22. INTELLECTUAL PROPERTY
Except as Previously Disclosed, MC or an MC Subsidiary owns the entire
right, title and interest in and to, or has valid licenses with respect to, all
of the Intellectual Property necessary in all material respects to conduct the
business and operations of MC and the MC Subsidiaries as presently conducted,
except where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on MC. None of such Intellectual Property is
subject to any outstanding order, decree, judgment, stipulation, settlement,
lien, charge, encumbrance or attachment, which order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment would have a
Material Adverse Effect on MC.
2.23. CERTAIN INFORMATION
When the Registration Statement or any post-effective amendment thereto
shall become effective, and at all times subsequent to such effectiveness up to
and including the time of the MC shareholders' meeting to vote upon the Merger,
such Registration Statement and all amendments or supplements thereto, with
respect to all information set forth therein furnished by MC relating to MC and
the MC Subsidiaries, (i) shall comply in all material respects with the
applicable provisions of the Securities Laws, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading.
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2.24. POOLING OF INTERESTS
As of the date of this Agreement, MC knows of no reason relating to it or
any of its Subsidiaries which would reasonably cause it to believe that the
Merger will not qualify as a pooling of interests for financial accounting
purposes.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PNC AND BANCORP
PNC and Bancorp hereby jointly and severally represent and warrant to MC as
follows:
3.1. CAPITAL STRUCTURE OF PNC
The authorized capital stock of PNC consists at June 30, 1995 of (i)
17,562,360 shares of preferred stock, par value $1 per share (the "PNC Preferred
Stock"), of which at such date the following series and respective number of
shares were issued and outstanding: 18,362 shares of $1.80 Cumulative
Convertible Preferred Stock, Series A; 6,336 shares of $1.80 Cumulative
Convertible Preferred Stock, Series B; 365,114 shares of $1.60 Cumulative
Convertible Preferred Stock, Series C; and 491,990 shares of $1.80 Cumulative
Convertible Preferred Stock, Series D and (ii) 450,000,000 shares of common
stock, par value $5 per share ("PNC Common Stock"), of which 227,915,764 shares
were issued and outstanding and 8,570,832 shares were held in treasury. All
outstanding shares of PNC capital stock have been duly issued and are validly
outstanding, fully paid and nonassessable. None of the shares of PNC's capital
stock has been issued in violation of the preemptive rights of any person. The
shares of PNC Common Stock to be issued in connection with the Merger have been
duly authorized and, when issued in accordance with the terms of this
Reorganization Agreement and the Plan of Merger, will be validly issued, fully
paid, nonassessable and free and clear of any preemptive rights. As of June 30,
1995, no shares of PNC Preferred Stock or PNC Common Stock were reserved for
issuance, except that (i) 2,178,965 shares of PNC Common Stock were reserved for
issuance pursuant to PNC's dividend reinvestment and stock purchase plans, (ii)
22,752,023 shares of PNC Common Stock were reserved for issuance pursuant to PNC
employee benefit and stock incentive plans, (iii) 1,693,527 shares of PNC Common
Stock were reserved for issuance upon conversion of the shares of PNC Preferred
Stock and convertible debentures, and (iv) 45,500,000 shares of PNC Common Stock
were reserved for issuance pursuant to the PNC Option Agreement.
3.2. ORGANIZATION, STANDING AND AUTHORITY OF PNC
PNC is a duly organized corporation, validly existing and in good standing
under the laws of Pennsylvania, with full corporate power and authority to carry
on its business as now conducted and is duly licensed or qualified to do
business in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on PNC. Each of PNC and Bancorp is registered as
a bank holding company under the Bank Holding Company Act.
3.3. OWNERSHIP OF PNC SUBSIDIARIES; CAPITAL STRUCTURE OF PNC SUBSIDIARIES
PNC does not own, directly or indirectly, 25% or more of the outstanding
capital stock or other voting securities of any corporation, bank or other
organization except as Previously Disclosed (collectively the "PNC Subsidiaries"
and individually a "PNC Subsidiary"). The outstanding shares of capital stock of
the PNC Subsidiaries are validly issued and outstanding, fully paid and (except
as provided in 12 U.S.C. Section 55) nonassessable and all such shares are
directly or indirectly owned by PNC free and clear of all liens, claims and
encumbrances. No PNC Subsidiary has or is bound by any Rights which are
authorized, issued or outstanding with respect to the capital stock of any PNC
Subsidiary and, except as Previously Disclosed, there are no agreements,
understandings or commitments relating to the right of PNC to vote or to dispose
of said shares. None of the shares of capital stock of any PNC Subsidiary has
been issued in violation of the preemptive rights of any person.
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3.4. ORGANIZATION, STANDING AND AUTHORITY OF PNC SUBSIDIARIES
Each PNC Subsidiary is a duly organized corporation or banking association,
validly existing and in good standing under applicable laws. Each PNC Subsidiary
(i) has full power and authority to carry on its business as now conducted, and
(ii) is duly licensed or qualified to do business in the states of the United
States and foreign jurisdictions where its ownership or leasing of property or
the conduct of its business requires such licensing or qualification and where
failure to be licensed or qualified would have a Material Adverse Effect on PNC.
Each PNC Subsidiary 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 where the failure to
be so authorized would not have a Material Adverse Effect on PNC.
3.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Each of PNC and Bancorp has all requisite corporate power and authority
to enter into and perform all of its obligations under this Reorganization
Agreement, the Plan of Merger and the PNC Option Agreement. The execution and
delivery of this Reorganization Agreement, the Plan of Merger and the PNC Option
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of PNC and Bancorp, except that the affirmative
vote of the holders of a majority of the votes cast by the holders of PNC
capital stock eligible to vote thereon is required to authorize the issuance of
PNC Common Stock pursuant to this Reorganization Agreement and the Plan of
Merger in accordance with New York Stock Exchange ("NYSE") policy. The Board of
Directors of PNC has directed that this Agreement and the Plan of Merger be
submitted to PNC's stockholders for approval at a special meeting to be held as
soon as practicable.
(b) Assuming the accuracy of the representation contained in Section 2.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of PNC and Bancorp, in each case enforceable
against it in accordance with their respective terms subject, as to
enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(c) Except as Previously Disclosed, neither the execution and delivery of
this Reorganization Agreement, the Plan of Merger or the PNC Option Agreement,
nor consummation of the transactions contemplated hereby or thereby, nor
compliance by PNC or Bancorp with any of the provisions hereof or thereof shall
(i) conflict with or result in a breach of any provision of the articles or
certificate of incorporation or association, charter or by-laws of PNC or any
PNC Subsidiary, (ii) assuming the consents and approvals contemplated by Section
4.3(a) hereof and which are Previously Disclosed are duly obtained, constitute
or result in a breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon any property or asset of PNC or any PNC Subsidiary pursuant to,
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation, or (iii) assuming the consents and approvals contemplated by Section
4.3(a) hereof and which are Previously Disclosed are duly obtained, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to PNC
or any PNC Subsidiary, except (in the case of clauses (ii) and (iii) above) for
such violations, rights, conflicts, breaches, creations or defaults which,
either individually or in the aggregate, will not have a Material Adverse Effect
on PNC.
(d) Except for approvals specified in Section 4.3(a) hereof, except as
Previously Disclosed and except as expressly referred to in this Reorganization
Agreement, no consent, approval or authorization of, or declaration, notice,
filing or registration with, any governmental or regulatory authority, or any
other person, is required to be made or obtained by PNC or Bancorp on or prior
to the Closing Date in connection with the execution, delivery and performance
of this Agreement and the Plan of Merger or the consummation of the transactions
contemplated hereby or thereby.
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3.6. SEC DOCUMENTS; REGULATORY FILINGS
PNC has filed all SEC Documents required by the Securities Laws and such
SEC Documents complied, as of their respective dates, in all material respects
with the Securities Laws. PNC and each of the PNC Subsidiaries has filed all
reports required by statute or regulation to be filed with any federal or state
bank regulatory agency, except where the failure to so file would not have a
Material Adverse Effect on PNC, and such reports were prepared in accordance
with the applicable statutes, regulations and instructions in existence as of
the date of filing of such reports in all material respects.
3.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The PNC Financial Statements fairly present the consolidated financial
position of PNC and its consolidated Subsidiaries as of the dates indicated and
the consolidated results of operations, changes in shareholders' equity and cash
flows of PNC and its consolidated Subsidiaries for the periods then ended in
conformity with generally accepted accounting principles applicable to financial
institutions applied on a consistent basis except as disclosed therein. The
books and records of PNC and each PNC Subsidiary fairly reflect in all material
respects the transactions to which it is a party or by which its properties are
subject or bound. Such books and records have been properly kept and maintained
and are in compliance in all material respects with all applicable legal and
accounting requirements. The minute books of PNC and the PNC Subsidiaries
contain records which are accurate in all material respects of all corporate
actions of its shareholders and Board of Directors (including committees of its
Board of Directors).
3.8. MATERIAL ADVERSE CHANGE
PNC has not, on a consolidated basis, suffered any material adverse change
in its financial condition, results of operations or business since December 31,
1994.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES
Neither PNC nor any PNC Subsidiary has any liability (contingent or
otherwise), excluding contractually assumed contingencies, that is material to
PNC on a consolidated basis, or that, when combined with all similar
liabilities, would be material to PNC on a consolidated basis, except as
Previously Disclosed, as disclosed in the PNC Financial Statements filed with
the SEC prior to the date hereof and except for liabilities incurred in the
ordinary course of business subsequent to March 31, 1995.
3.10. PROPERTIES
PNC and the PNC Subsidiaries have good and marketable title free and clear
of all liens, encumbrances, charges, defaults or equitable interests to all of
the properties and assets, real and personal, which, individually or in the
aggregate, are material to the business of PNC and its Subsidiaries taken as a
whole, and which are reflected on the PNC Financial Statements as of December
31, 1994 or acquired after such date, except (i) liens for taxes not yet due and
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount or
extent and (iv) dispositions and encumbrances for adequate consideration in the
ordinary course of business. All leases pursuant to which PNC or any PNC
Subsidiary, as lessee, leases real and personal property which, individually or
in the aggregate, are material to the business of PNC and its Subsidiaries taken
as a whole are valid and enforceable in accordance with their respective terms.
3.11. LOANS
Each loan reflected as an asset in the PNC Financial Statements (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting
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creditors' rights and to general equity principles, in each case other than
loans as to which the failure to satisfy the foregoing standards would not have
a Material Adverse Effect on PNC.
3.12. TAX MATTERS
(a) PNC and each PNC Subsidiary have timely filed federal income tax
returns for each year through December 31, 1993 and have timely filed, or caused
to be filed, all other federal, state, local and foreign tax returns (including,
without limitation, estimated tax returns, returns required under Sections
1441-1446 and 6031-6060 of the Code and the regulations thereunder and any
comparable state, foreign and local laws, any other information returns,
withholding tax returns, FICA and FUTA returns and back up withholding returns
required under Section 3406 of the Code and any comparable state, foreign and
local laws) required to be filed with respect to PNC or any PNC Subsidiary,
except where the failure to file timely such federal income and other tax
returns would not, in the aggregate, have a Material Adverse Effect on PNC. All
taxes due in respect of the periods covered by such tax returns have been paid
or adequate reserves have been established for the payment of such taxes, except
where any such failure to pay or establish adequate reserves would not, in the
aggregate, have a Material Adverse Effect on PNC and, as of the Closing Date,
all taxes due in respect of any subsequent periods ending on or prior to the
Closing Date will have been paid or adequate reserves will have been established
for the payment thereof, except where any such failure to pay or establish
adequate reserves would not, in the aggregate, have a Material Adverse Effect on
PNC. Except as Previously Disclosed, no material (i) audit examination, (ii)
deficiency, or (iii) refund litigation with respect to such returns is pending.
Not later than 60 days after the date hereof, PNC shall deliver to MC a list of
all (i) audit examinations, (ii) deficiencies, and (iii) refund litigations with
respect to such returns. Neither PNC nor any PNC Subsidiary will have any
material liability for any such taxes in excess of the amounts so paid or
reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign) tax returns
filed by PNC and each PNC Subsidiary are complete and accurate in all material
respects. Neither PNC nor any PNC Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge, and, except as Previously
Disclosed, none of them has requested any extension of time within which to file
any tax returns in respect of any fiscal year or portion thereof which have not
since been filed. Except as Previously Disclosed, no material deficiencies for
any tax, assessment or governmental charge have been proposed, asserted or
assessed (tentatively or otherwise) against PNC or any PNC Subsidiary which have
not been settled and paid. Except as Previously Disclosed, there are currently
no agreements in effect with respect to PNC or any PNC Subsidiary to extend the
period of limitations for the assessment or collection of any tax.
(c) For purposes of this Section 3.12, references to PNC and any PNC
Subsidiary shall include predecessors thereof.
3.13. EMPLOYEE BENEFIT PLANS
(a) PNC has made available to MC true and complete copies of all qualified
pension or profit-sharing plans, any deferred compensation, bonus or group
insurance contract or any other incentive, welfare or employee benefit plan or
agreement maintained for the benefit of employees or former employees of PNC or
any PNC Subsidiary, and will make available to MC (i) the most recent actuarial
and financial reports prepared with respect to any qualified plans, (ii) the
most recent annual reports filed with any government agency and (iii) all
rulings and determination letters and any open requests for rulings or letters
that pertain to any qualified plan.
(b) Neither PNC nor any PNC Subsidiary (nor any pension plan maintained by
any of them) has incurred or reasonably expects to incur any material liability
to the Pension Benefit Guaranty Corporation or to the Internal Revenue Service
with respect to any pension plan qualified under Section 401 of the Code except
liabilities to the Pension Benefit Guaranty Corporation pursuant to Section 4007
of ERISA, all of which have been fully paid. No reportable event under Section
4043(b) of ERISA has occurred with respect to any such pension plan, other than
a reportable event that occurs by reason of the transactions contemplated
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by this Agreement or an event for which the 30 day notice requirement has been
waived by the Pension Benefit Guaranty Corporation.
(c) Neither PNC nor any PNC Subsidiary participates in, or has incurred any
liability under Section 4201 of ERISA for a complete or partial withdrawal from,
a multiemployer plan as such term is defined in ERISA.
(d) Except as Previously Disclosed, a favorable determination letter has
been issued by the Internal Revenue Service with respect to each "employee
pension plan" (as defined in Section 3(2) of ERISA) of PNC or any PNC Subsidiary
which is intended to be a qualified plan to the effect that such plan is
qualified under Section 401 of the Code and tax exempt under Section 501 of the
Code. No such letter has been revoked or threatened to be revoked and neither
PNC nor any PNC Subsidiary knows of any reasonable ground on which such
revocation may be based. Such plans have been operated in all material respects
in accordance with their terms and applicable law.
(e) No prohibited transaction (which shall mean any transaction prohibited
by Section 406 of ERISA and not exempt under Section 408 of ERISA) has occurred
with respect to any "employee benefit plan" (as defined in Section 3(3) of
ERISA) maintained by PNC or any PNC Subsidiary which would result in the
imposition, directly or indirectly, of an excise tax under Section 4975 of the
Code that would have, individually or in the aggregate, a Material Adverse
Effect on PNC.
(f) The actuarial present value of accrued benefit obligations, whether or
not vested, under each "employee pension plan" maintained by PNC or any PNC
Subsidiary did not exceed as of the most recent actuarial valuation date the
then current fair market value of the assets of such plan and no material
adverse change has occurred with respect to the funded status of any such plan
since such date.
3.14. CERTAIN CONTRACTS
(a) Except as Previously Disclosed, neither PNC nor any PNC Subsidiary is a
party to, or is bound by, (i) any material contract required to be filed by PNC
under Item 601(b)(10) of Regulation S-K of the SEC, any agreement restricting in
any material respect the nature of its current business activities or the
geographic scope of its business activities in New Jersey or in Philadelphia,
Montgomery, Delaware, Chester or Bucks Counties in Pennsylvania, (ii) any
agreement, indenture or other instrument relating to the borrowing of money by
PNC or any PNC Subsidiary of an amount exceeding $100 million or the guarantee
by PNC or any PNC Subsidiary of any such obligation, other than instruments
relating to transactions entered into in the customary course, (iii) any
agreement, arrangement or commitment relating to the employment of a consultant
who was formerly a director or executive officer or the employment, election,
retention in office or severance of any present or former director or executive
officer of PNC, or (iv) any contract, agreement or understanding with a labor
union, in each case whether written or oral.
(b) Neither PNC nor any PNC Subsidiary is in default under any material
agreement, commitment, arrangement, lease, insurance policy or other instrument
whether entered into in the ordinary course of business or otherwise and whether
written or oral, and there has not occurred any event that, with the lapse of
time or giving of notice or both, would constitute such a default, except for
such defaults which would not, individually or in the aggregate, have a Material
Adverse Effect on PNC.
3.15. LEGAL PROCEEDINGS
Except as Previously Disclosed, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of PNC and Bancorp, threatened (or
unasserted but considered probable of assertion and which if asserted would have
at least a reasonable probability of an unfavorable outcome) against PNC,
Bancorp or any PNC Subsidiary or against any asset, interest or right of PNC or
any PNC Subsidiary as to which there is a reasonable probability of an
unfavorable outcome and which, if such an unfavorable outcome was rendered,
would, individually or in the aggregate, have a Material Adverse Effect on PNC.
To the knowledge of PNC and Bancorp, there are no actual or threatened actions,
suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or to impose any material liability in
connection therewith as
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to which there is a reasonable probability of an unfavorable outcome and which,
if such an unfavorable outcome was rendered, would, individually or in the
aggregate, have a Material Adverse Effect on PNC.
3.16. COMPLIANCE WITH LAWS
Except as Previously Disclosed, each of PNC and the PNC Subsidiaries is in
compliance in all material respects with all statutes and regulations applicable
to the conduct of its business, and none of them has received notification from
any agency or department of federal, state or local government (i) asserting a
material violation of any such statute or regulation, (ii) threatening to revoke
any license, franchise, permit or government authorization or (iii) restricting
or in any way limiting its operations, except for such noncompliance,
violations, revocations and restrictions which would not, individually or in the
aggregate, have a Material Adverse Effect on PNC. None of PNC or any PNC
Subsidiary is subject to any regulatory or supervisory cease and desist order,
agreement, directive, memorandum of understanding or commitment which could be
reasonably anticipated to have a Material Adverse Effect on PNC, and none of
them has received any communication requesting that they enter into any of the
foregoing.
3.17. LABOR MATTERS
With respect to their employees, neither PNC nor any PNC Subsidiary is a
party to any labor agreement with any labor organization, group or association
and has not engaged in any unfair labor practice. Since January 1, 1994, and
prior to the date hereof, PNC and the PNC Subsidiaries have not experienced any
attempt by organized labor or its representatives to make PNC or any PNC
Subsidiary conform to demands of organized labor relating to their employees or
to enter into a binding agreement with organized labor that would cover the
employees of PNC or any PNC Subsidiary. There is no unfair labor practice charge
or other complaint by any employee or former employee of PNC or any PNC
Subsidiary against any of them pending before any governmental agency arising
out of PNC's or such PNC Subsidiary's activities, which charge or complaint (i)
has a reasonable probability of an unfavorable outcome and (ii) in the event of
an unfavorable outcome, would, individually or in the aggregate, have a Material
Adverse Effect on PNC; there is no labor strike or labor disturbance pending or
threatened against any of them; and neither PNC nor any PNC Subsidiary has
experienced a work stoppage or other labor difficulty since January 1, 1994.
3.18. BROKERS AND FINDERS
Neither PNC nor any PNC Subsidiary, nor any of their respective officers,
directors or employees, has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein or the Plan of Merger, except for PNC's
retention of Smith Barney Inc. to perform certain financial advisory services.
3.19. INSURANCE
PNC and the PNC Subsidiaries each currently maintains insurance in amounts
reasonably necessary for their operations and, to the best knowledge of PNC,
similar in scope and coverage to that maintained by other entities similarly
situated. Neither PNC nor any PNC Subsidiary has received any notice of a
premium increase or cancellation with respect to any of its insurance policies
or bonds, and within the last three years, neither PNC nor any PNC Subsidiary
has been refused any insurance coverage sought or applied for, and PNC has no
reason to believe that existing insurance coverage cannot be renewed as and when
the same shall expire, upon terms and conditions as favorable as those presently
in effect, other than possible increases in premiums or unavailability in
coverage that have not resulted from any extraordinary loss experience of PNC or
any PNC Subsidiary. The deposits of those PNC Subsidiaries that are insured
depository institutions within the meaning of the FDIA are insured by the FDIC
in accordance with the FDIA, and such institutions have paid all assessments and
filed all reports required by the FDIA.
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3.20. ENVIRONMENTAL LIABILITY
Neither PNC nor any PNC Subsidiary has received any written notice of any
legal, administrative, arbitral or other proceeding, claim or action and, to the
knowledge of PNC and the PNC Subsidiaries, there is no governmental
investigation of any nature ongoing, in each case that could reasonably be
expected to result in the imposition, on PNC or any PNC Subsidiary of any
liability arising under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
which liability would have a Material Adverse Effect on PNC; except as
Previously Disclosed, there are no facts or circumstances which could reasonably
be expected to form the basis for any such proceeding, claim, action or
governmental investigation that would impose any such liability; and neither PNC
nor any PNC Subsidiary is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
3.21. ADMINISTRATION OF TRUST ACCOUNTS
Each PNC Subsidiary has properly administered all accounts for which it
acts as a fiduciary or agent, including but not limited to accounts for which it
serves as a trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law,
except where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on PNC. Neither PNC, any PNC Subsidiary, nor any
director, officer or employee of PNC or any PNC Subsidiary acting on behalf of
PNC or an PNC Subsidiary, has committed any breach of trust with respect to any
such fiduciary or agency account, and the accountings for each such fiduciary or
agency account are true and correct in all material respects and accurately
reflect the assets of such fiduciary or agency account, except for such breaches
and failures to be true, correct and accurate which would not, individually or
in the aggregate, have a Material Adverse Effect on PNC.
3.22. CERTAIN INFORMATION
When the Registration Statement or any post-effective amendment thereto
shall become effective, and at all times subsequent to such effectiveness up to
and including the time of the PNC shareholders' meeting to vote upon the Merger,
such Registration Statement and all amendments or supplements thereto, with
respect to all information set forth therein furnished by PNC relating to PNC
and the PNC Subsidiaries, (i) shall comply in all material respects with the
applicable provisions of the Securities Laws, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading.
3.23. POOLING OF INTERESTS
As of the date of this Agreement, PNC knows of no reason relating to it or
any of its Subsidiaries which would reasonably cause it to believe that the
Merger will not qualify as a pooling of interests for financial accounting
purposes.
ARTICLE 4
COVENANTS
4.1. SHAREHOLDERS' MEETING
PNC and MC shall submit this Reorganization Agreement and the Plan of
Merger and, in the case of PNC, the issuance of PNC Common Stock thereunder, to
their respective shareholders for approval at special meetings to be held as
soon as practicable. Subject to the fiduciary duties of the respective boards of
directors of MC and PNC as determined by each after consultation with such
board's counsel, the boards of directors of PNC and MC shall recommend at the
respective shareholders' meetings that the shareholders vote in favor of such
approval.
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4.2. PROXY STATEMENT; REGISTRATION STATEMENT
As promptly as practicable after the date hereof, PNC and MC shall
cooperate in the preparation of the Proxy Statement to be mailed to the
shareholders of MC and PNC in connection with the Merger and the transactions
contemplated thereby and to be filed by PNC as part of the Registration
Statement. PNC will advise MC, promptly after it receives notice thereof, of the
time when the Registration Statement or any post-effective amendment thereto has
become effective or any supplement or amendment has been filed, of the issuance
of any stop order, of the suspension of qualification of the PNC Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or the initiation or threat of any proceeding for any such purpose, or of any
request by the SEC for the amendment or supplement of the Registration Statement
or for additional information. PNC shall take all actions necessary to register
or qualify the shares of PNC Common Stock to be issued in the Merger pursuant to
all applicable state "blue sky" or securities laws and shall maintain such
registrations or qualifications in effect for all purposes hereof. PNC shall
apply for approval to list the shares of PNC Common Stock to be issued in the
Merger on the NYSE, subject to official notice of issuance, prior to the
Effective Date.
4.3. APPLICATIONS
(a) As promptly as practicable after the date hereof, Bancorp and, if
required, PNC, shall submit any requisite applications for prior approval of the
transactions contemplated herein and in the Plan of Merger (i) to the Federal
Reserve Board pursuant to Sections 3 and 4 of the Bank Holding Company Act, (ii)
to the Department of Banking pursuant to Section 116 of the Pennsylvania Banking
Code, and (iii) to the Commissioner of Banking of New Jersey pursuant to N.J.
Stat. Ann. Section 17:9A-370, et seq., and the regulations promulgated
thereunder, and each of the parties hereto shall, and they shall cause their
respective subsidiaries to, submit any applications, notices or other filings to
any other state or federal government agency, department or body the approval of
which is required for consummation of the Merger. MC and PNC each represents and
warrants to the other that all information concerning it and its directors,
officers, shareholders and subsidiaries included (or submitted for inclusion) in
any such application and furnished by it shall be true, correct and complete in
all material respects.
(b) To the extent that the rights of MB under any investment advisory
contract with the Investment Companies may not be assigned without the consent
or approval of another party thereto, MC shall cause MB to use its reasonable
best efforts to obtain any such consent, which obligation may be satisfied by
seeking to obtain the approval of directors and shareholders of the Investment
Companies to new contracts, effective as of the Effective Date with MB or with
an affiliate of PNC, as PNC may elect, on substantially the same terms as
existing contracts at meetings of shareholders to be held as soon as
practicable, except as PNC may otherwise request that MB seek the requisite
approvals to merge one or more of the Investment Companies into a similar fund
in the PNC Family of Funds. MC and PNC each represents and warrants that none of
the information or data in the proxy materials required for the shareholder
approvals referred to in this Section 4.3(b) and provided by it or any of its
Subsidiaries will contain at the time of the related meeting of shareholders any
untrue statement of a material fact or any omission of any material fact, the
omission of which would be misleading in the circumstances in which made.
4.4. BEST EFFORTS
(a) PNC, Bancorp, and MC shall each use its best efforts in good faith, and
each of them shall cause its subsidiaries to use their best efforts in good
faith, to (i) furnish such information as may be required in connection with the
preparation of the documents referred to in Sections 4.2 and 4.3 above, and (ii)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (1) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that neither MC nor any MC Subsidiary shall agree
to make any payments or modifications to agreements in connection therewith
without the prior written consent of PNC, which consent shall not be
unreasonably withheld and (2) requesting the delivery of appropriate opinions,
consents and letters from its counsel and independent auditors. No
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party hereto shall take or fail to take, or cause or permit its Subsidiaries to
take or fail to take, or to the best of its ability permit to be taken or
omitted to be taken by any third persons, any action that would substantially
impair the prospects of completing the Merger pursuant to this Reorganization
Agreement and the Plan of Merger, that would materially delay such completion,
or that would adversely affect the qualification of the Merger for pooling of
interests accounting treatment or as a reorganization within the meaning of
Section 368(a) of the Code; provided that nothing herein contained shall
preclude PNC or MC, as the case may be, from exercising its rights under the PNC
Option Agreement or the MC Option Agreement, respectively. In the event that
either party has taken any action, whether before, on or after the date hereof,
that would adversely affect such qualification, each party shall take such
action as the other party may reasonably request to cure such effect to the
extent curable without a Material Adverse Effect on either of the parties.
(b) MC shall give prompt notice to PNC, and PNC shall give prompt notice to
MC, of (i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Closing Date and (ii) any material failure of MC or
PNC, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, and each party shall
use all reasonable efforts to remedy such failure.
(c) Each party shall provide and shall request its auditors to provide the
other party with such historical financial information regarding it (and related
audit reports and consents) as the other party may reasonably request for
securities disclosure purposes.
4.5. INVESTIGATION AND CONFIDENTIALITY
MC and PNC each will keep the other advised of all material developments
relevant to its business and to consummation of the transactions contemplated
herein and in the Plan of Merger. PNC and MC each may make or cause to be made
such investigation of the financial and legal condition of the other as such
party reasonably deems necessary or advisable in connection with the
transactions contemplated herein and in the Plan of Merger, provided, however,
that such investigation shall be reasonably related to such transactions and
shall not interfere unnecessarily with normal operations. PNC and MC agree to
furnish the other and the other's advisors with such financial data and other
information with respect to its business and properties as such other party
shall from time to time reasonably request. No investigation pursuant to this
Section 4.5 shall affect or be deemed to modify any representation or warranty
made by, or the conditions to the obligations to consummate the Merger of, any
party hereto. Each party hereto shall hold all information furnished by the
other party or any of such party's Subsidiaries or representatives pursuant to
Section 4.5 in confidence to the extent required by, and in accordance with, the
provisions of the confidentiality agreement, dated June 27, 1995 between MC and
PNC (the "Confidentiality Agreement").
4.6. PRESS RELEASES
MC and PNC shall agree with each other as to the form and substance of any
press release related to this Reorganization Agreement and the Plan of Merger or
the transactions contemplated hereby or thereby, and shall consult each other as
to the form and substance of other public disclosures related thereto, provided,
however, that nothing contained herein shall prohibit any party, following
notification to the other parties, from making any disclosure which is required
by applicable law or the rules of the NYSE.
4.7. COVENANTS OF MC AND PNC
(a) Prior to the Closing Date, and except as otherwise provided for by this
Reorganization Agreement, the Merger Agreement, the Option Agreements, or
consented to or approved by the other parties hereto, each of PNC and MC shall,
and shall cause each of its respective subsidiaries to, use its best efforts to
preserve its properties, business and relationships with customers, employees
and other persons.
(b) Neither PNC nor MC shall, and neither PNC nor MC shall permit any of
their respective subsidiaries to, except with the prior written consent of the
other and except as Previously Disclosed or expressly contemplated or permitted
by this Agreement, the Merger Agreement, or the Option Agreements:
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(1) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(2) in the case of MC only, declare, set aside, make or pay any
dividend or other distribution in respect of its capital stock other than
its regular quarterly cash dividends on MC Common Stock in amounts not in
excess of $.32 per share, or, in the case of PNC only, declare, set aside,
make or pay any dividend or other distribution in respect of its capital
stock other than (x) its regular quarterly cash dividend on PNC Common
Stock in amounts not in excess of $.35 per share, except as may be
increased by PNC's Board of Directors at a regularly scheduled meeting,
such increase not to exceed 20%, or (y) any dividends payable on any PNC
Preferred Stock in accordance with the provisions of the applicable
certificate of incorporation or certificate of designation relating to such
preferred stock;
(3) issue any shares of its capital stock or permit any treasury
shares to become outstanding other than pursuant to the Option Agreements,
the MC Rights Agreement or Rights outstanding at the date hereof; provided,
however, that MC may issue shares of MC Common Stock or permit treasury
shares to become outstanding in accordance with the terms of its Dividend
Reinvestment and Stock Purchase Plan and its Savings and Investment Plan;
(4) incur any additional debt obligation or other obligation for
borrowed money other than in the ordinary course of business consistent
with past practice;
(5) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like
change in capitalization, or redeem, repurchase or otherwise acquire any
shares of its capital stock;
(6) amend its articles or certificate of incorporation or association
or by-laws; impose, or suffer the imposition, on any share of stock held by
such party in any Subsidiary of such party of any lien, charge or
encumbrance, or permit any such lien, charge or encumbrance to exist;
(7) merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge into it
or consolidate with any other corporation, savings association or bank;
acquire control over any other firm, bank, corporation, savings association
or organization or create any subsidiary;
(8) except in the ordinary course of business, waive or release any
material right or cancel or compromise any material debt or claim;
(9) liquidate or sell or dispose of any material assets or acquire any
material assets; except as Previously Disclosed, make any capital
expenditure in excess of $250,000 in any instance or $500,000 in the
aggregate; or, except as Previously Disclosed, establish new branches or
other similar facilities or enter into or modify any leases or other
contracts relating thereto that involve annual payments by such party or
any Subsidiary of such party that exceed $100,000 in any instance or
$500,000 in the aggregate, except with respect to renewals of leases in the
ordinary course of business;
(10) increase the rate of compensation of, pay or agree to pay any
bonus to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees except (i) in a manner consistent with
past practice, (ii) for bonuses in respect of 1995 pursuant to the MC
Annual Incentive and Bonus Plan (including without limitation the
provisions thereof providing MC with discretion in determining the amounts
payable thereunder), provided, however, that in no event shall the
aggregate amount paid pursuant to such plan in respect of 1995 exceed 140%
of the aggregate amount paid pursuant to such plan in respect of 1994,
consistent with the terms of such plan, and (iii) MC and its Subsidiaries
may in their discretion increase the salaries of any or all of their
respective employees who were employees on or prior to December 31, 1994,
in the ordinary course of business but only to the extent that the
aggregate amount paid by MC and its Subsidiaries as salaries during the
1995 calendar year to such employees is equal to or less than 104% of the
aggregate amount paid by MC and its Subsidiaries to such employees during
the 1994 calendar year; enter into or modify any employment or severance
contracts with any of its present or former directors, officers or
employees; or enter into or substantially modify
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(except as may be required by applicable law) any pension, retirement,
stock option, stock purchase, stock appreciation right, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, plan or arrangement, or
any trust agreement related thereto, in respect of any of its directors,
officers or other employees;
(11) change its lending, investment, asset/liability management or
other material banking policies in any material respect except as may be
required by changes in applicable law;
(12) change its methods of accounting in effect at December 31, 1994,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any
of its methods of reporting income and deductions for federal income tax
purposes from those employed in the preparation of its federal income tax
returns for the year ended December 31, 1994, except as required by law;
(13) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
"takeover proposal" (as defined below), or, except to the extent legally
required for the discharge of the fiduciary duties of its Board of
Directors, recommend or endorse any takeover proposal, or participate in
any discussions or negotiations, or provide third parties with any
nonpublic information, relating to any such inquiry or proposal or
otherwise facilitate any effort or attempt to make or implement a takeover
proposal; provided, however, that each party may communicate information
about any such takeover proposal to its stockholders if, in the judgment of
such party's Board of Directors, based upon the advice of outside counsel,
such communication is required under applicable law. Each party will take
all actions necessary or advisable to inform the appropriate individuals or
entities referred to in the first sentence hereof of the obligations
undertaken herein. Each party will notify the other immediately if any such
inquiries or takeover proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, such party, and such party will promptly
inform the other party in writing of all of the relevant details with
respect to the foregoing. As used in this Agreement, "takeover proposal"
shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving PNC or MC or any of
their respective Subsidiaries or any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of the
assets of, PNC or MC or any of their respective Subsidiaries other than the
transactions contemplated or permitted by this Agreement, the Plan of
Merger and the Option Agreements; or
(14) agree to do any of the foregoing.
(c) Unless such action would prevent the Merger from being accounted for as
a pooling of interests, and if PNC shall request such action, then, on or before
the Closing Date, MC shall call for redemption and cause to be redeemed (or
converted by the holders thereof into MC Common Stock) and cancelled by MC the
total outstanding principal amount of MC's 8 1/4% Convertible Subordinated
Debentures Due 2010 (the "Debentures"), all in accordance with the terms and
conditions of the Indenture (the "Indenture") dated June 15, 1985 and
supplemented January 30, 1987 between MC and Morgan Guaranty Trust Company of
New York as Trustee. In the event such redemption and cancellation shall not
occur prior to the Closing Date, PNC and Bancorp shall, by Supplemental
Indenture, jointly and severally assume all of the obligations of MC under the
outstanding Debentures.
4.8. CLOSING; ARTICLES OF MERGER
The transactions contemplated by this Reorganization Agreement and the Plan
of Merger shall be consummated at a closing to be held at the executive offices
of PNC, One PNC Plaza, Pittsburgh, Pennsylvania, on the first business day
following satisfaction of the conditions to consummation of the Merger set forth
in Article 5 hereof (other than such conditions relating to the receipt of
officers' certificates and legal opinions) or such later date during such month
in which such business day shall occur (or, if such business day shall occur
within 10 days prior to the end of such month, during the next following month)
thereafter as may be specified by PNC. In connection with such Closing, Bancorp
and MC shall execute a certificate of
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merger and shall cause such certificate to be delivered to the New Jersey
Secretary of State in accordance with Section 14A:10-4.1 of the New Jersey
Business Corporation Act and Bancorp shall execute a certificate of merger and
shall cause such certificate to be delivered to the Delaware Secretary of State
in accordance with Section 252(c) of the Delaware General Corporation Law. The
Merger shall be effective at the time and on the date specified in such
certificates of merger.
4.9. AFFILIATES
(a) MC and PNC shall cooperate and use their best efforts to identify those
persons who may be deemed to be "affiliates" of MC or PNC within the meaning of
Rule 145 promulgated by the Commission under the Securities Act and for purposes
of qualifying the "Merger" for "pooling of interests" accounting treatment. MC
and PNC shall use its respective best efforts to cause each person so identified
to deliver to PNC or MC, as the case may be, no later than 30 days prior to the
Effective Date, a written agreement (which agreement shall be substantially in
the form of Exhibit 4.9(a) (in the case of MC affiliates) and 4.9(b) (in the
case of PNC affiliates) hereof). Shares of PNC Common Stock issued to such MC
and PNC affiliates in exchange for MC Common Stock or previously owned by them
shall not be transferable until such time as financial results covering at least
30 days of combined operations of PNC and MC have been published within the
meaning of Section 201.01 of the Commission's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this section.
(b) PNC shall use its best efforts to publish no later than ninety (90)
days after the end of the first month after the Effective Date in which there
are at least thirty (30) days of post-Merger combined operations (which month
may be the month in which the Effective Date occurs), combined sales and net
income figures as contemplated by and in accordance with the terms of SEC
Accounting Series Release No. 135.
4.10. MC EMPLOYEES; DIRECTORS AND MANAGEMENT; INDEMNIFICATION
(a) On and after the Effective Date (or as soon thereafter as may be
practicable), all persons who are employed by MC and/or MC Subsidiaries on such
date shall be employed upon terms and conditions (including benefits) which in
the aggregate are no less favorable with respect to their employment by PNC and
its subsidiaries after the Effective Date than those generally afforded to other
employees of PNC subsidiaries holding similar positions, subject to the terms
and conditions under which those employee benefits are made available to such
employees and provided that for purposes of determining eligibility for and
vesting of such employee benefits only (and not for pension benefit accrual
purposes) and, if applicable, for purposes of satisfying any waiting periods
concerning "preexisting conditions" and the satisfaction of any "copayment" or
deductible requirements, service with MC or a MC Subsidiary or any predecessor
thereto prior to the Effective Date shall be treated as service with an
"employer" to the same extent as if such persons had been employees of PNC, and
provided further that this Section 4.10(a) shall not be construed (i) to limit
the ability of PNC and its affiliates to terminate the employment of any
employee or to review employee benefits programs from time to time and to make
such changes as they deem appropriate or (ii) to require PNC or its affiliates
to provide employees or former employees of MC or any of its Subsidiaries with
post-retirement medical benefits more favorable than those provided to new hires
at PNC (except that such persons who are employed by MC and/or MC Subsidiaries
on the Effective Date ("MC Employees") shall receive credit for service with MC
and/or MC Subsidiaries and their predecessors for purposes of eligibility for
such post-retirement medical benefits to the extent that MC provided such credit
with respect to comparable plans). PNC agrees to honor in accordance with their
terms all employment, severance and employee benefit plans, contracts,
agreements, arrangements, and understandings Previously Disclosed, provided,
however, that the foregoing shall not prevent PNC from amending or terminating
any such plan, contract, agreement, arrangement or understanding in accordance
with its terms. The continued coverage of the MC Employees under the employee
benefit plans maintained by MC and/or the MC Subsidiaries immediately prior to
the Effective Date (the "MC Plans") during a transition period shall be deemed
to provide the MC Employees with benefits that are no less favorable than those
offered to other employees of PNC and its Subsidiaries, provided that after the
Effective Date there is no material reduction (determined on an overall basis)
in the
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benefits provided under the MC Plans. Notwithstanding anything in this Section
4.10 to the contrary, following the Effective Date, PNC shall or shall cause
Bancorp to provide a severance plan to MC Employees. Such severance plan shall
(i) for a period of one year following the Effective Date, be either the MC
severance plan as Previously Disclosed or the PNC severance plan as in effect on
the date hereof, as MC may elect on or prior to July 19, 1995 and (ii)
thereafter, under the PNC severance plan (as in effect from time to time).
(b) On or prior to the Effective Date, PNC shall offer to enter into an
employment agreement with Mr. Garry J. Scheuring on the terms Previously
Disclosed.
(c) PNC's Board of Directors shall take all requisite action to elect as
directors of PNC effective as of the Effective Date Garry J. Scheuring and three
other persons serving as directors of MC immediately prior to the Effective
Date, which three persons shall be selected by MC subject to approval by PNC.
(d) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Date, a
director or officer of MC (the "Indemnified Parties") is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he is or was a director, officer or
employee of MC, any of the MC Subsidiaries or any of their respective
predecessors or (ii) this Agreement, the Merger Agreement, the Option Agreements
or any of the transactions contemplated hereby or thereby, whether in any case
asserted or arising before or after the Effective Date, the parties hereto agree
to cooperate and use their best efforts to defend against and respond thereto.
It is understood and agreed that after the Effective Date, PNC shall (or shall
cause Bancorp to) indemnify and hold harmless, as and to the fullest extent
permitted by law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Date), the Indemnified Parties
may retain counsel reasonably satisfactory to them after consultation with PNC;
provided, however, that (1) PNC shall have the right to assume the defense
thereof and upon such assumption PNC shall not be liable to any Indemnified
Party for any legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense thereof, except
that if PNC elects not to assume such defense or counsel for the Indemnified
Parties reasonably advises the Indemnified Parties that there are issues which
raise conflicts of interest between PNC and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with PNC, and PNC shall pay the reasonable fees and expenses of
such counsel for the Indemnified Parties, (2) PNC shall be obligated pursuant to
this paragraph to pay for only one firm of counsel for all Indemnified Parties,
(3) PNC shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld) and (4) PNC
shall have no 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 indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. Any Indemnified Party wishing to claim Indemnification under this Section
4.10(d), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify PNC thereof, provided that the failure of
any Indemnified Party to so notify PNC shall not relieve it of its obligations
hereunder except (and only) to the extent that such failure materially
prejudices PNC. PNC's obligations under this Section 4.10(d) continue in full
force and effect for a period of six (6) years from the Effective Date;
provided, however, that all rights to indemnification in respect of any claim (a
"Claim") asserted or made within such period shall continue until the final
disposition of such Claim.
(e) PNC agrees that all rights to indemnification and all limitations on
liability existing in favor of the directors, officers and employees of MC and
its Subsidiaries (the "Covered Parties") as provided in their respective
Certificates of Incorporation, By-Laws or similar governing documents as in
effect as of the date of
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this Agreement with respect to matters occurring prior to the Effective Date
shall survive the Merger and shall continue in full force and effect, and shall
be honored by such entities or their respective successors as if they were the
indemnifying party thereunder, without any amendment thereto, for a period of
six years from the Effective Date; provided, however, that all rights to
indemnification in respect of any Claim asserted or made within such period
shall continue until the final disposition of such Claim; provided, further,
however, that nothing contained in this Section 4.10(e) shall be deemed to
preclude the liquidation, consolidation or merger of MC or any MC Subsidiary, in
which case all of such rights to indemnification and limitations on liability
shall be deemed to so survive and continue notwithstanding any such liquidation,
consolidation or merger.
(f) PNC, from and after the Effective Date will use its best efforts
directly or indirectly to cause the persons who served as directors or officers
of MC on or before the Effective Date to be covered by MC's existing directors'
and officers' liability insurance policy (provided that PNC may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous than such policy) but in no event
shall any insured person be entitled under this Section 4.10(e) to insurance
coverage more favorable than that provided to him or her in such capacities at
the date hereof with respect to acts or omissions resulting from their service
as such on or prior to the Effective Date. Such insurance coverage, if
reasonably available at a reasonable cost relative to the coverage obtained,
shall commence on the Effective Date and will be provided for a period of no
less than six (6) years after the Effective Date; provided, however, that in no
event shall PNC be required to expend more than 125% of the current amount
expended by MC (the "Insurance Amount") to maintain or procure insurance
coverage pursuant hereto and further provided that the Insurance Amount shall be
deemed reasonable for purposes of this Section 4.10(f). MC agrees to renew any
such existing insurance or to purchase any "discovery period" insurance provided
for thereunder at PNC's request.
(g) In the event PNC or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of PNC assume the
obligations set forth in this section.
(h) The provisions of Section 4.10(d), (e) and (f) are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives. The provisions of Section 4.10(b) are
intended to be for the benefit of, and shall be enforceable by Mr. Scheuring and
his heirs and representatives.
4.11. MC SUBSIDIARIES
MC undertakes and agrees that, if so requested by PNC, it shall take all
necessary action to facilitate the merger of MC Subsidiaries with subsidiaries
of PNC effective on or after the Effective Date; provided however, that in no
event shall the Closing be delayed in order to facilitate any such merger and
provided further, however, that MC shall not be required to take any action that
could adversely affect the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
4.12. DIVIDENDS
After the date of this Agreement, each of PNC and MC shall coordinate with
the other the declaration of any dividends in respect of PNC Common Stock and MC
Common Stock and the record dates and payment dates relating thereto, it being
the intention of the parties hereto that holders of PNC Common Stock or MC
Common Stock shall not receive two dividends, or fail to receive one dividend,
for any single calendar quarter with respect to their shares of PNC Common Stock
and/or MC Common Stock and any shares of PNC Common Stock any such holder
receives in exchange therefor in the Merger.
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ARTICLE 5
CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT - PNC, BANCORP AND MC
The respective obligations of the parties to effect the Merger shall be
subject to satisfaction or waiver of the following conditions at or prior to the
Closing Date:
(a) All corporate action necessary to authorize the execution, delivery and
performance of this Reorganization Agreement and the Plan of Merger and
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken;
(b) The parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by this Reorganization Agreement and the Plan of Merger, all notice
periods and waiting periods required after the granting of any such approvals
shall have passed and all conditions contained in any such approval required to
have been satisfied prior to consummation of such transactions shall have been
satisfied, provided, however, that no such approval shall have imposed any
condition or requirement which, in the reasonable opinion of the Board of
Directors of PNC or MC so materially and adversely affects the anticipated
economic and business benefits to PNC or MC, respectively, of the transactions
contemplated by this Agreement as to render consummation of such transactions
inadvisable;
(c) The Registration Statement (including any post-effective amendment
thereto) shall be effective under the Securities Act, and no proceeding shall be
pending or to the knowledge of PNC threatened by the Commission to suspend the
effectiveness of such Registration Statement, and PNC shall have received all
state securities or "Blue Sky" permits or other authorizations, or confirmations
as to the availability of an exemption from registration requirements as may be
necessary;
(d) To the extent that any lease, license, loan, financing agreement or
other contract or agreement to which MC or any MC Subsidiary is a party requires
the consent of or waiver from the other party thereto as a result of the
transactions contemplated by this Agreement, such consent or waiver shall have
been obtained, unless the failure to obtain such consents or waivers,
individually or in the aggregate, would not have a Material Adverse Effect on
MC;
(e) None of the parties 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 transactions contemplated by this
Reorganization Agreement and the Plan of Merger; and
(f) The shares of PNC Common Stock that may be issued in the Merger shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
5.2. CONDITIONS PRECEDENT - MC
The obligations of MC to effect the Merger shall be subject to satisfaction
of the following additional conditions at or prior to the Closing Date unless
waived by MC pursuant to Section 6.4 hereof:
(a) The representations and warranties of PNC and Bancorp set forth in
Article 3 hereof shall be true and correct in all material respects as of the
date of this Reorganization Agreement and as of the Closing Date as though made
on and as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by MC; provided, however, that (i) in determining whether or not
the condition contained in this paragraph (a) shall be satisfied, no effect
shall be given to any exceptions in such representations and warranties relating
to materiality or Material Adverse Effect and (ii) the condition contained in
this paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on PNC;
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(b) PNC and Bancorp shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger;
(c) Each of PNC and Bancorp shall have delivered to MC a certificate, dated
the Closing Date and signed by its respective Chairman, President, Executive
Vice President or Senior Vice President to the effect that the conditions set
forth in paragraphs (a) and (b) of this section have been satisfied;
(d) No event shall have occurred that shall preclude the Merger from being
accounted for as a pooling of interests;
(e) MC shall have received from Ernst & Young letters dated not more than
five days prior to (i) the effective date of the Registration Statement and (ii)
the Closing Date, with respect to certain financial information regarding PNC,
each in form and substance which is customary in transactions of the nature
contemplated by this Agreement;
(f) MC shall have received opinions of Arnold & Porter and William F.
Strome, Esquire, dated the Closing Date, as to the matters specified in Exhibit
5.2(f) hereto; and
(g) MC shall have received an opinion of Skadden, Arps, Slate, Meagher &
Flom, in form and substance reasonably satisfactory to MC 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 on the Effective Date, 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 MC as a result of the
Merger;
(ii) No gain or loss will be recognized by the stockholders of MC who
exchange all of their MC Common Stock solely for PNC Common Stock
in the Merger (except with respect to cash received in lieu of a
fractional share interest in PNC Common Stock); and
(iii) The tax basis of the PNC Common Stock received by stockholders
who exchange all of their MC Common Stock solely for PNC Common
Stock in the Merger will be the same as the tax basis of the MC
Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash
is received).
5.3. CONDITIONS PRECEDENT - PNC AND BANCORP
The respective obligations of PNC and Bancorp to effect the Merger shall be
subject to satisfaction of the following additional conditions at or prior to
the Closing Date unless waived by PNC pursuant to Section 6.4 hereof:
(a) The representations and warranties of MC set forth in Article 2 hereof
shall be true and correct in all material respects as of the date of this
Reorganization Agreement and as of the Closing Date as though made on and as of
the Closing Date (or on the date when made in the case of any representation and
warranty which specifically relates to an earlier date), except as otherwise
contemplated by this Reorganization Agreement or consented to in writing by PNC;
provided, however, that (i) in determining whether or not the condition
contained in this paragraph (a) shall be satisfied, no effect shall be given to
any exceptions in such representations and warranties relating to materiality or
Material Adverse Effect and (ii) the condition contained in this paragraph (a)
shall be deemed to be satisfied unless the failure of such representations and
warranties to be so true and correct constitute, individually or in the
aggregate, a Material Adverse Effect on MC;
(b) MC shall have in all material respects performed all obligations and
complied with all covenants required by this Reorganization Agreement and the
Plan of Merger;
(c) MC shall have delivered to PNC and Bancorp a certificate, dated the
Closing Date and signed by its Chairman, President and Chief Executive Officer
or any Executive Vice President to the effect that the conditions set forth in
this section have been satisfied;
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(d) The Rights issued pursuant to the MC Rights Agreement shall not have
become nonredeemable, exercisable, distributed or triggered pursuant to the
terms of such agreement;
(e) No event shall have occurred that shall preclude the Merger from being
accounted for as a pooling of interests;
(f) PNC shall have received from Coopers & Lybrand letters dated not more
than five days prior to (i) the effective date of the Registration Statement and
(ii) the Closing Date, with respect to certain financial information regarding
MC, each in form and substance which is customary in transactions of the nature
contemplated by this Agreement;
(g) PNC and Bancorp shall have received opinions of Skadden, Arps, Slate,
Meagher & Flom, Joseph Kott, Esquire and local counsel reasonably satisfactory
to PNC, dated the Closing Date, as to the matters specified in Exhibit 5.3(g)
hereto; and
(h) PNC shall have received an opinion of Arnold & Porter, reasonably
satisfactory in form and substance to PNC substantially to the effect that the
Merger when consummated in accordance with the terms hereof and the Plan of
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code, and that the exchange of MC Common Stock to the extent exchanged for
PNC Common Stock will not give rise to recognition of gain or loss for federal
income tax purposes to the shareholders of MC.
ARTICLE 6
TERMINATION, WAIVER AND AMENDMENT
6.1. TERMINATION
This Reorganization Agreement and the Plan of Merger may be terminated,
either before or after approval by the shareholders of PNC and MC:
(a) At any time on or prior to the Effective Date, by the mutual consent in
writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by PNC in writing, if MC
has, or by MC in writing, if PNC or Bancorp has, in any material respect,
breached (i) any covenant or agreement contained herein or in the Plan of Merger
or (ii) any representation or warranty contained herein, and in either case if
(x) such breach has not been cured by the earlier of 30 days after the date on
which written notice of such breach is given to the party committing such breach
or the Closing Date and (y) such breach would entitle the non-breaching party
not to consummate the transactions contemplated hereby under Article V hereof.
(c) At any time, by any party hereto in writing, if the applications for
prior approval referred to in Section 4.3 hereof have been denied, and the time
period for appeals and requests for reconsideration has run, or if any
governmental entity of competent jurisdiction shall have issued a final
non-appealable order enjoining or otherwise prohibiting the Merger;
(d) At any time, by any party hereto in writing, if the shareholders of PNC
or MC do not approve the transactions contemplated herein at the special
meetings duly called for that purpose; or
(e) By any party hereto in writing, if the Closing Date has not occurred by
the close of business on March 31, 1996, unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements set forth
herein.
6.2. EFFECT OF TERMINATION
In the event this Reorganization Agreement or the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Agreement and the Plan of Merger
shall become void and have no effect, except that (i) the provisions relating to
confidentiality and expenses set forth in Sections 4.5 and 7.1 hereof,
respectively, shall survive any such termination and (ii) a termination pursuant
to Section 6.1(b)(i) shall not relieve the breaching party from liability for an
uncured willful breach of such covenant or agreement giving rise to such
termination.
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6.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant hereto
or thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date, provided that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive PNC,
Bancorp or MC (or any director, officer or controlling person thereof) of any
defense in law or equity which otherwise would be available against the claims
of any person, including, without limitation, any shareholder or former
shareholder of either PNC or MC, the aforesaid representations, warranties and
covenants being material inducements to the consummation by PNC, Bancorp and MC
of the transactions contemplated herein.
6.4. WAIVER
Except with respect to any required shareholder or regulatory approval, PNC
and MC, respectively, by written instrument signed by an executive officer of
such party, may at any time (whether before or after approval of this
Reorganization Agreement and the Plan of Merger by the shareholders of PNC and
MC) extend the time for the performance of any of the obligations or other acts
of MC, on the one hand, or PNC or Bancorp, on the other hand, and may waive (i)
any inaccuracies of such parties in the representations or warranties contained
in this Agreement, the Plan of Merger or any document delivered pursuant hereto
or thereto, (ii) compliance with any of the covenants, undertakings or
agreements of such parties, or satisfaction of any of the conditions precedent
to its obligations, contained herein or in the Plan of Merger or (iii) the
performance by such parties of any of its obligations set out herein or therein;
provided, however, that no such waiver executed after approval of this
Reorganization Agreement and the Plan of Merger by the shareholders of PNC or MC
shall change the number of shares of PNC Common Stock into which each share of
MC Common Stock shall be converted pursuant to the Merger.
6.5. AMENDMENT OR SUPPLEMENT
This Reorganization Agreement and the Plan of Merger may be amended or
supplemented at any time by mutual agreement of the parties hereto or thereto.
Any such amendment or supplement must be in writing and approved by their
respective boards of directors and/or officers authorized thereby and shall be
subject to the proviso in Section 6.4 hereof.
ARTICLE 7
MISCELLANEOUS
7.1. EXPENSES
Each party hereto shall bear and pay all costs and expenses incurred by it
in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel, except that PNC and MC each shall bear and pay 50% of
all printing and mailing costs and filing fees associated with the Registration
Statement and the Proxy Statement.
7.2. ENTIRE AGREEMENT
This Reorganization Agreement, the Plan of Merger and the Option Agreements
contain the entire agreement between the parties with respect to the
transactions contemplated hereunder and thereunder and supersede all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein or therein and the Confidentiality Agreement. The
terms and conditions of this Reorganization Agreement and the Plan of Merger
shall inure to the benefit of and be binding upon the parties hereto and thereto
and their respective successors. Except as specifically set forth herein, or in
the Plan of Merger, nothing in this Reorganization Agreement or the Plan of
Merger, expressed or implied, is intended to confer upon any party, other than
the parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities.
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7.3. NO ASSIGNMENT
No party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other person.
7.4. NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
facsimile transmission or overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to MC:
Midlantic Corporation
Metro Park Plaza
P.O. Box 600
Edison, New Jersey 08818
Attention: Garry J. Scheuring
Chairman, President and
Chief Executive Officer
Facsimile No.: 908-321-8518
With a required copy to:
Midlantic Corporation
Metro Park Plaza
P.O. Box 600
Edison, New Jersey 08818
Attention: Joseph H. Kott
Executive Vice President and
General Counsel
Facsimile No.: 908-321-8518
and to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: William S. Rubenstein, Esquire
Facsimile No.: 212-735-2000
If to PNC or Bancorp:
PNC Bank Corp.
One PNC Plaza
Pittsburgh, Pennsylvania 15265
Attention: Thomas H. O'Brien
Chairman and Chief Executive Officer
Facsimile No.: 412-762-4507
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With a required copy to:
PNC Bank Corp.
One PNC Plaza
Pittsburgh, Pennsylvania 15265
Attention: Walter E. Gregg, Jr., Esquire
Executive Vice President,
Finance and Administration
Facsimile No.: 412-762-4507
and to:
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Attention: Steven Kaplan, Esquire
Facsimile No.: 202-942-5999
7.5. CAPTIONS
The captions contained in this Reorganization Agreement are for reference
purposes only and are not part of this Reorganization Agreement.
7.6. COUNTERPARTS
This Reorganization Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
7.7. GOVERNING LAW
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and entirely to be performed within such jurisdiction, except to
the extent federal law may be applicable.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed in counterparts
by their duly authorized officers and their corporate seal to be hereunto
affixed and attested by their officers thereunto duly authorized, all as of the
day and year first above written.
Attest
/s/ WILLIAM F. STROME, JR.
- ------------------------------------------------
William F. Strome
Secretary
(SEAL)
PNC BANK CORP.
By /s/ WALTER E. GREGG, JR.
----------------------------------------------------
Walter E. Gregg, Jr.
Executive Vice President
Attest
/s/ WILLIAM F. STROME, JR.
- ------------------------------------------------
William F. Strome
Assistant Secretary
(SEAL)
PNC BANCORP, INC.
By /s/ WALTER E. GREGG, JR.
----------------------------------------------------
Walter E. Gregg, Jr.
Executive Vice President
Attest
/s/ JOHN M. SPERGER
- ------------------------------------------------
John M. Sperger
Secretary
(SEAL)
MIDLANTIC CORPORATION
By /s/ GARRY J. SCHEURING
----------------------------------------------------
Garry J. Scheuring
Chairman, President and
Chief Executive Officer
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ANNEX A
AGREEMENT AND PLAN OF MERGER OF
MIDLANTIC CORPORATION
WITH AND INTO PNC BANCORP, INC.
(AS AMENDED)
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of July 10, 1995,
by and between MIDLANTIC CORPORATION ("MC"), a New Jersey corporation having its
principal executive office at Metro Park Plaza, P.O. Box 600, Edison, New Jersey
08818 and PNC BANCORP, INC. ("Bancorp"), a Delaware corporation having its
registered office at 222 Delaware Avenue, Wilmington, Delaware 19899, and joined
in by PNC BANK CORP. ("PNC"), a Pennsylvania corporation having its principal
executive office at One PNC Plaza, Pittsburgh, Pennsylvania 15265.
WITNESSETH
WHEREAS, the respective Boards of Directors of MC, Bancorp and PNC deem the
merger of MC with and into Bancorp, under and pursuant to the terms and
conditions herein set forth or referred to, desirable and in the best interests
of the respective corporations and their respective shareholders, and the
respective Boards of Directors of MC, Bancorp and PNC have adopted resolutions
approving this Plan of Merger and an Agreement and Plan of Reorganization dated
of even date herewith ("Reorganization Agreement"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree as follows:
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of Merger, on the
Effective Date (as hereinafter defined), MC shall be merged with and into
Bancorp, pursuant to the provisions of, and with the effect provided in, Chapter
10 of the New Jersey Business Corporation Act, N.J. Rev. Stat. Section 14A:10-1
et seq. and 8 Del. Code Ch. 1, subchapter IX (said transaction being hereinafter
referred to as the "Merger"). On the Effective Date, the separate existence of
MC shall cease and Bancorp, as the surviving entity, shall continue unaffected
and unimpaired by the Merger. (Bancorp as existing on and after the Effective
Date being hereinafter sometimes referred to as the "Surviving Corporation.")
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and the By-Laws of Bancorp in effect
immediately prior to the Effective Date shall be the Certificate of
Incorporation and the By-Laws of the Surviving Corporation, in each case until
amended in accordance with applicable law.
ARTICLE III
BOARD OF DIRECTORS
On the Effective Date, the Board of Directors of the Surviving Corporation
shall consist of those persons serving as directors of Bancorp immediately prior
to the Effective Date.
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ARTICLE IV
CAPITAL
The shares of capital stock of the Surviving Corporation issued and
outstanding immediately prior to the Effective Date shall, on the Effective
Date, continue to be issued and outstanding.
ARTICLE V
CONVERSION AND EXCHANGE OF MC
SHARES; FRACTIONAL SHARE INTERESTS
1. On the Effective Date, each share of the common stock of MC, par value
$3 per share ("MC Common Stock"), outstanding immediately prior to the Effective
Date (except as provided in Paragraphs 2, 5 and 7 of this Article), including
each attached right issued pursuant to the Rights Agreement dated as of February
23, 1990 between MC and Midlantic Bank, N.A. (as amended), shall by virtue of
the Merger be converted into 2.05 shares of common stock, par value $5 per
share, of PNC ("PNC Common Stock").
2. On the Effective Date, all shares of MC Common Stock held in the
treasury of MC or owned beneficially by any subsidiary of MC other than in a
fiduciary capacity or in connection with a debt previously contracted and all
shares of MC Common Stock owned by PNC or owned beneficially by any subsidiary
of PNC other than in a fiduciary capacity or in connection with a debt
previously contracted shall be canceled and no cash, stock or other property
shall be delivered in exchange therefor.
3. On and after the Effective Date, each holder of a certificate or
certificates theretofore representing outstanding shares of MC Common Stock (any
such certificate being hereinafter referred to as a "Certificate") may surrender
the same to PNC or its agent for cancellation and each such holder shall be
entitled upon such surrender to receive in exchange therefor certificate(s)
representing the number of shares of PNC Common Stock to which such holder is
entitled as provided herein and a check in an amount equal to the amount of cash
to be paid pursuant to Paragraph 7 of this Article V, without interest, to which
such holder is entitled. Until so surrendered, each Certificate shall be deemed
for all purposes to evidence ownership of the number of shares of PNC Common
Stock into which the shares represented by such Certificates have been changed
or converted as aforesaid. No dividends or other distributions declared after
the Effective Date with respect to PNC Common Stock shall be paid to the holder
of any unsurrendered Certificate until the holder thereof shall surrender such
Certificate in accordance with this Article V. After the surrender of a
Certificate in accordance with this Article V, the record holder thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
PNC Common Stock represented by such Certificate. Certificates surrendered for
exchange by any person who is an "affiliate" of MC for purposes of Rule 145(c)
under the Securities Act of 1933, as amended, shall not be exchanged for
certificates representing shares of PNC Common Stock until PNC has received the
written agreement of such person contemplated by Section 4.9 of the
Reorganization Agreement. If any certificate for shares of MC Common Stock is to
be issued in a name other than that in which a certificate surrendered for
exchange is issued, the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and the person requesting such
exchange shall affix any requisite stock transfer tax stamps to the certificate
surrendered or provide funds for their purchase or establish to the reasonable
satisfaction of PNC or its agent that such taxes are not payable.
4. Upon the Effective Date, the stock transfer books of MC shall be closed
and no transfer of MC Common Stock shall thereafter be made or recognized. Any
other provision of this Plan of Merger notwithstanding, neither PNC or its agent
nor any party to the Merger shall be liable to a holder of MC Common Stock for
any amount paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat or similar law.
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5. In the event that prior to the Effective Date the outstanding shares of
PNC Common Stock shall have been increased, decreased or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in PNC's capitalization, all without PNC receiving
adequate consideration therefor, then an appropriate and proportionate
adjustment shall be made in the number and kind of shares of PNC Common Stock to
be thereafter delivered pursuant to this Plan of Merger.
6. On the Effective Date, MC's obligations under its Incentive Stock and
Stock Option Plan (1986) (the "1986 Plan"), the Midlantic Banks, Inc. Incentive
Plan and the Continental Bancorp, Inc. 1982 Stock Option Plan (the "Option
Plans") and each stock option granted under the Option Plans and outstanding on
the Effective Date (an "MC Option") shall be treated as follows:
(i) Each MC Option granted to any person who is, on the date MC's
shareholders approve the Merger, subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934, as amended, with respect
to equity securities of MC (an "Insider") shall, as to the portion of the MC
Option that is then exercisable under the Option Plans (in the case of MC
Options granted under the 1986 Plan, determined by giving effect to the
acceleration provisions of Section 4(d)(ii) of the 1986 Plan but without regard
to the acceleration provisions of Section 4(d)(i) of the 1986 Plan) (a "Vested
MC Option") be assumed by PNC and each such option shall become an option (a
"PNC Option") that entitles such Insider to receive, upon payment of the
exercise price, 2.05 shares of PNC Common Stock for each share of MC Common
Stock covered by the Vested MC Option. Each such PNC Option shall be subject to
the same terms and conditions as were applicable to the Vested MC Option, except
that immediately following the Effective Date, the PNC Option shall be cancelled
in exchange for the number of shares of PNC Common Stock having an aggregate
"fair market value" equal to the product of (1) the number of shares of PNC
Common Stock subject to such PNC Option and (2) the excess, if any, of the fair
market value of a share of PNC Common Stock on the Effective Date over the
exercise price of the PNC Option.
(ii) The portion of each MC Option held by an Insider that is not a Vested
MC Option shall automatically become exercisable in accordance with Section 4(d)
of the 1986 Plan and shall be cancelled on the Effective Date if not theretofore
exercised.
(iii) Each MC Option held by any person who is not an Insider shall be
cancelled at the Effective Date and PNC shall deliver to the holder of each such
option, in respect thereof, the number of shares of PNC Common Stock having an
aggregate fair market value equal to the product of (1) the number of shares of
MC Common Stock subject to such option and (2) the excess, if any, of the fair
market value of a share of MC Common Stock on the Effective Date over the
exercise price of such option.
For purposes of this Paragraph 6, (1) "fair market value" with respect to a
share of MC Common Stock shall have the meaning assigned to such term in the
Option Plan under which the related MC Option was granted and (2) "fair market
value" with respect to a share of PNC Common Stock shall have the meaning
ascribed to the term "market value" in Paragraph 7 of this Article.
7. Notwithstanding any other provision hereof, each holder of shares or of
Stock Options who would otherwise have been entitled to receive a fraction of a
share of PNC Common Stock (after taking into account all Certificates delivered
by such holder or all shares to be delivered to such holder upon termination of
Stock Options) shall receive, in lieu thereof, cash in an amount equal to such
fractional part of a share of PNC Common Stock multiplied by the market value of
such Common Stock. The market value of one share of PNC Common Stock on the
Effective Date shall be the closing price of such Common Stock in the New York
Stock Exchange--Composite Transactions List (as reported by The Wall Street
Journal or other authoritative source) on the last business day preceding such
date. No such holder shall be entitled to dividends, voting rights or any other
shareholder right in respect of any fractional share.
8. The provisions pertaining to Stock Options contained in Paragraphs 6 and
7 of this Article V are intended to be for the benefit of, and shall be
enforceable by, the respective holders of Stock Options and his or her heirs and
representatives.
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ARTICLE VI
EFFECTIVE DATE OF THE MERGER
Certificates of merger evidencing the transactions contemplated herein
shall be delivered to the Delaware and New Jersey Secretaries of State for
filing as provided in the Reorganization Agreement. The Merger shall be
effective at the time and on the date specified in such certificates of merger
(such date and time being herein referred to as the "Effective Date").
ARTICLE VII
FURTHER ASSURANCES
If at any time the Surviving Corporation shall consider or be advised that
any further assignments, conveyances or assurances are necessary or desirable to
vest, perfect or confirm in the Surviving Corporation title to any property or
rights of MC, or otherwise carry out the provisions hereof, the proper officers
and directors of MC, as of the Effective Date, and thereafter the officers of
the Surviving Corporation acting on behalf of MC, shall execute and deliver any
and all proper assignments, conveyances and assurances, and do all things
necessary or desirable to vest, perfect or confirm title to such property or
rights in the Surviving Corporation and otherwise carry out the provisions
hereof.
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of PNC, Bancorp and MC to effect the Merger as herein
provided shall be subject to satisfaction, unless duly waived, of the conditions
set forth in the Reorganization Agreement.
ARTICLE IX
TERMINATION
Anything contained in the Plan of Merger to the contrary notwithstanding,
and notwithstanding adoption hereof by the shareholders of MC, this Plan of
Merger may be terminated and the Merger abandoned as provided in the
Reorganization Agreement.
ARTICLE X
MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time prior to
its Effective Date by mutual agreement of Bancorp, PNC and MC. Any such
amendment or supplement must be in writing and approved by their respective
Boards of Directors and/or by officers authorized thereby and shall be subject
to the proviso in Section 6.4 of the Reorganization Agreement.
2. Any notice or other communication required or permitted under this Plan
of Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3. The headings of the several Articles herein are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in accordance
with the laws of New Jersey and Delaware applicable to the internal affairs of
MC and Bancorp, respectively.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement and Plan of Merger to be executed in
counterparts by their duly authorized officers and their corporate seals to be
hereunto affixed and attested by their officers thereunto duly authorized, all
as of the day and year first above written.
Attest
/s/ WILLIAM F. STROME, JR.
- ------------------------------------------------
William F. Strome
Secretary
(SEAL)
PNC BANK CORP.
By /s/ WALTER E. GREGG, JR.
----------------------------------------------------
Walter E. Gregg, Jr.
Executive Vice President
Attest
/s/ WILLIAM F. STROME, JR.
- ------------------------------------------------
William F. Strome
Assistant Secretary
(SEAL)
PNC BANCORP, INC.
By /s/ WALTER E. GREGG, JR.
----------------------------------------------------
Walter E. Gregg, Jr.
Executive Vice President
Attest
/s/ JOHN M. SPERGER
- ------------------------------------------------
John M. Sperger
Secretary
(SEAL)
MIDLANTIC CORPORATION
By /s/ GARRY J. SCHEURING
----------------------------------------------------
Garry J. Scheuring
Chairman, President and
Chief Executive Officer
A-35
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APPENDIX B
PNC STOCK OPTION AGREEMENT
This PNC STOCK OPTION AGREEMENT ("Option Agreement") dated as of July 10,
1995, between MIDLANTIC CORPORATION ("MC"), a New Jersey corporation registered
as a bank holding company under the Bank Holding Company Act of 1956, as amended
("Bank Holding Company Act"), and PNC BANK CORP. ("PNC"), a Pennsylvania
corporation registered as a bank holding company under the Bank Holding Company
Act.
WITNESSETH
WHEREAS, the Boards of Directors of MC and PNC, together with the Board of
Directors of PNC Bancorp, Inc., have approved an Agreement and Plan of
Reorganization ("Reorganization Agreement") and have adopted a related Agreement
and Plan of Merger dated as of the date hereof (together referred to herein as
the "Merger Agreements"), providing for certain transactions pursuant to which
MC would be merged with and into PNC Bancorp, Inc., a subsidiary of PNC;
WHEREAS, as a condition to MC's entry into the Merger Agreements and to
induce such entry, PNC has agreed to grant to MC the option set forth herein to
purchase authorized but unissued shares of PNC Common Stock;
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. DEFINITIONS.
Capitalized terms defined in the Merger Agreements and used herein shall
have the same meanings as in the Merger Agreements.
2. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, PNC hereby grants to
MC an option ("Option") to purchase up to 45,500,000 shares of PNC Common Stock,
at a price of $35 per share payable in cash as provided in Section 4 hereof;
provided, however, that in the event PNC issues or agrees to issue any shares of
PNC Common Stock in breach of its obligations under the Merger Agreements at a
price less than $35 per share (as adjusted pursuant to Section 6 hereof), the
exercise price shall be equal to such lesser price.
3. EXERCISE OF OPTION.
(a) MC may exercise the Option, in whole or part, at any time or from time
to time if a Purchase Event (as defined below) shall have occurred and be
continuing; provided that to the extent the Option shall not have been
exercised, it shall terminate and be of no further force and effect upon the
earliest to occur of (i) the Effective Date of the Merger or (ii) termination of
the Merger Agreements in accordance with the provisions thereof prior to the
occurrence of a Purchase Event (other than a termination resulting from a
willful breach by PNC of any covenant contained therein) or (iii) six months
after termination of the Merger Agreements if such termination follows the
occurrence of a Purchase Event or is due to a willful breach by PNC of any
covenant contained therein; and provided further that any such exercise shall be
subject to compliance with applicable provisions of law.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) PNC or any PNC Subsidiary, without having received MC's prior
written consent and except as permitted by the Merger Agreements,
shall have entered into an agreement with any person (other than MC
or any MC Subsidiary) to (x) merge or consolidate, or enter into any
similar transaction, with PNC or any PNC Subsidiary, (y) purchase,
lease or otherwise acquire all or substantially all of the assets of
PNC or any PNC Subsidiary or (z) purchase or otherwise
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acquire (including by way of merger, consolidation, share exchange
or any similar transaction) securities representing 20% or more of
the voting power of PNC or any PNC Subsidiary; provided, however,
that in no event shall any merger, consolidation, purchase or
similar transaction involving only PNC and one or more of its
Subsidiaries or involving only any two or more of such
Subsidiaries, be deemed to be a Purchase Event, provided any such
transaction is not entered into in violation of the terms of the
Merger Agreements;
(ii) any person (other than PNC, any PNC Subsidiary, the PNC
Subsidiaries in a fiduciary capacity, MC, affiliates of MC or
subsidiaries of MC 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 PNC Common Stock (the
term "beneficial ownership" for purposes of this Option Agreement
having the meaning assigned thereto in Section 13(d) of the
Exchange Act and the regulations promulgated thereunder); or
(iii) any person (other than PNC, any PNC Subsidiary, MC or any MC
affiliate) (x) shall have made a bona fide proposal to PNC by
public announcement or written communication that is or becomes
the subject of public disclosure to acquire PNC or any PNC
Subsidiary by merger, consolidation, purchase of all or
substantially all of its assets or any other similar transaction,
(y) shall have commenced a bona fide tender or exchange offer to
purchase shares of PNC Common Stock such that upon consummation of
such offer such person would own or control 20% or more of the
outstanding shares of PNC Common Stock, or (z) shall have filed an
application or notice with the Federal Reserve Board or any other
federal or state regulatory agency for clearance or approval to
engage in any transaction described in clause (i) or (ii) above,
and thereafter the holders of PNC Common Stock shall have not
approved the Merger Agreements and the transactions contemplated
thereby at the meeting of such stockholders held for such purpose
or such meeting shall not have been held or shall have been
cancelled prior to termination of the Merger Agreements.
If more than one of the transactions giving rise to a Purchase Event under this
Section 3(b) is undertaken or effected, then all such transactions shall give
rise only to one Purchase Event, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions are abandoned. As used in
this Option Agreement, "person" shall have the meanings specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event MC wishes to exercise the Option, it shall send to PNC a
written notice (the date of which being herein referred to as "Notice Date")
specifying (i) the total number of shares it will purchase pursuant to such
exercise, and (ii) a place and date not earlier than three business days nor
later than 60 business days from the Notice Date for the closing of such
purchase ("Closing Date"); provided that if prior notification to or approval of
any federal or state regulatory agency is required in connection with such
purchase, MC 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 period has expired or been terminated or such approval has
been obtained and any requisite waiting period shall have passed.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) At the closing referred to in Section 3 hereof, MC shall pay to PNC the
aggregate purchase price for the shares of PNC Common Stock purchased pursuant
to the exercise of the Option in immediately available funds by a wire transfer
to a bank account designated by PNC.
(b) At such closing, simultaneously with the delivery of cash as provided
in subsection (a), PNC shall deliver to MC a certificate or certificates
representing the number of shares of PNC Common Stock purchased by MC, and MC
shall deliver to PNC a letter agreeing that MC will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Option Agreement.
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(c) Certificates for PNC Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend which 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 PNC Bank Corp. and to resale restrictions arising under the
Securities Act of 1933, as amended, a copy of which agreement is on file
at the principal office of PNC Bank Corp. A copy of such agreement will
be provided to the holder hereof without charge upon receipt by PNC Bank
Corp. of a written request."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if MC shall have delivered to
PNC a copy of a letter from the staff of the Commission, or an opinion of
counsel, in form and substance satisfactory to PNC, to the effect that such
legend is not required for purposes of the Securities Act.
5. REPRESENTATIONS.
PNC hereby represents, warrants and covenants to MC as follows:
(a) PNC shall at all times maintain sufficient authorized but unissued
shares of PNC Common Stock so that the Option may be exercised without
authorization of additional shares of PNC Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part, of the
Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
In the event of any change in PNC Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations, exchanges of shares or
the like, the type and number of shares subject to the Option, and the purchase
price per share, as the case may be, shall be adjusted appropriately. In the
event that any additional shares of PNC Common Stock are issued or otherwise
become outstanding after the date of this Option Agreement (other than pursuant
to this Option Agreement), the number of shares of PNC Common Stock subject to
the Option shall be adjusted so that, after such issuance, it equals 19.99% of
the number of shares of PNC Common Stock then issued and outstanding without
giving effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 6 shall be deemed to authorize PNC to breach any
provision of the Merger Agreements.
7. REGISTRATION RIGHTS.
PNC shall, if requested by MC, as expeditiously as possible following the
occurrence of a Purchase Event and prior to the second anniversary thereof, file
a registration statement on a form of general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of PNC
Common Stock that have been acquired upon exercise of the Option in accordance
with the intended method of sale or other disposition requested by MC. MC shall
provide all information reasonably requested by PNC for inclusion in any
registration statement to be filed hereunder. PNC 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 as may be reasonably necessary to
effect such sales or other dispositions. The obligations of PNC hereunder to
file a registration statement and to maintain its effectiveness may be suspended
for one or more periods of time not exceeding 60 days in the aggregate if the
Board of Directors of PNC shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
disclosure of nonpublic information that would materially and adversely affect
PNC. The first registration effected under this Section 7 shall be at PNC's
expense except for underwriting commissions and the fees and disbursements of
MC's counsel attributable to the registration of such PNC Common Stock. A second
registration may be requested hereunder at MC's expense. In no event shall PNC
be required to effect more than two registrations hereunder. The filing of any
registration statement hereunder may be delayed for such period of time as may
reasonably be required to facilitate any public distribution by PNC of PNC
Common Stock. If requested by MC, in connection with any such
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<PAGE> 108
registration, PNC will become a party to any underwriting agreement relating to
the sale of such shares, but only to the extent of obligating itself in respect
of representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements. Upon receiving any request from MC or
assignee thereof under this Section 7, PNC agrees to send a copy thereof to MC
and to any assignee thereof known to PNC, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
8. SEVERABILITY.
If any term, provision, covenant or restriction contained in this Option
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 Option
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 Option will not permit the holder to acquire the full
number of shares of PNC Common Stock provided in Section 2 hereof (as adjusted
pursuant to Section 6 hereof), it is the express intention of PNC to allow the
holder to acquire or to require PNC to repurchase such lesser number of shares
as may be permissible, without any amendment or modification hereof.
9. MISCELLANEOUS.
(a) Expenses. Except as otherwise 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.
(b) Entire Agreement. Except as otherwise expressly provided herein, this
Option Agreement contains the entire agreement between the parties with respect
to the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Notwithstanding
anything to the contrary contained in this Agreement or the Merger Agreements,
this Agreement shall be deemed to amend the Confidentiality Agreement so as to
permit MC to enter into this Agreement and exercise all of its rights hereunder,
including its right to acquire PNC Common Stock upon exercise of the Option. The
terms and conditions of this Option Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(c) Assignment. 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 Purchase Event shall have occurred and be continuing MC may
assign in whole or in part its rights and obligations hereunder; provided,
however, that until the date 30 days following the date on which the Federal
Reserve Board approves an application by MC under the Bank Holding Company Act
to acquire the shares of PNC Common Stock subject to the Option, MC 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 PNC, (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 MC's behalf, or (iv) any
other manner approved by the Federal Reserve Board.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by overnight express or by registered or certified mail, postage
prepaid, addressed as provided in the Reorganization Agreement. A party may
change its address for notice purposes by written notice to the other party
hereto.
(e) Counterparts. This Option Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
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(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by and construed
in accordance with the laws of Pennsylvania applicable to agreements made and
entirely to be performed within such state and such federal laws as may be
applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
PNC BANK CORP.
By /s/ THOMAS H. O'BRIEN
---------------------------------
Thomas H. O'Brien
Chairman and Chief
Executive Officer
MIDLANTIC CORPORATION
By /s/ GARRY J. SCHEURING
---------------------------------
Garry J. Scheuring
Chairman, President and
Chief Executive Officer
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APPENDIX C
MC STOCK OPTION AGREEMENT
This MC STOCK OPTION AGREEMENT ("Option Agreement") dated as of July 10,
1995, between MIDLANTIC CORPORATION ("MC"), a New Jersey corporation registered
as a bank holding company under the Bank Holding Company Act of 1956, as amended
("Bank Holding Company Act"), and PNC BANK CORP. ("PNC"), a Pennsylvania
corporation registered as a bank holding company under the Bank Holding Company
Act.
WITNESSETH
WHEREAS, the Boards of Directors of MC and PNC, together with the Board of
Directors of PNC Bancorp, Inc., have approved an Agreement and Plan of
Reorganization ("Reorganization Agreement") and have adopted a related Agreement
and Plan of Merger dated as of the date hereof (together referred to herein as
the "Merger Agreements"), providing for certain transactions pursuant to which
MC would be merged with and into PNC Bancorp, Inc., a subsidiary of PNC;
WHEREAS, as a condition to PNC's entry into the Merger Agreements and to
induce such entry, MC has agreed to grant to PNC the option set forth herein to
purchase authorized but unissued shares of MC Common Stock;
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. DEFINITIONS.
Capitalized terms defined in the Merger Agreements and used herein shall
have the same meanings as in the Merger Agreements.
2. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, MC hereby grants to
PNC an option ("Option") to purchase up to 10,425,000 shares of MC Common Stock,
at a price of $48 per share payable in cash as provided in Section 4 hereof;
provided, however, that in the event MC issues or agrees to issue any shares of
MC Common Stock in breach of its obligations under the Merger Agreements at a
price less than $48 per share (as adjusted pursuant to Section 6 hereof), the
exercise price shall be equal to such lesser price. Notwithstanding anything
else in this Agreement to the contrary, the number of shares of MC Common Stock
subject to the Option shall be reduced to such lesser number, if any, as may
from time-to-time be necessary, but only for so long as may be necessary, to
cause PNC not to (a) become an interested stockholder for purposes of the New
Jersey Shareholders Protection Act, (b) become an Acquiring Person as such term
is defined in the MC Rights Agreement or (c) become an "Interested Shareholder"
or an "Affiliate" or "Associate" thereof for purposes of Article EIGHTH of the
Restated Certificate of Incorporation of MC.
3. EXERCISE OF OPTION.
(a) PNC may exercise the Option, in whole or part, at any time or from time
to time if a Purchase Event (as defined below) shall have occurred and be
continuing; provided that to the extent the Option shall not have been
exercised, it shall terminate and be of no further force and effect upon the
earliest to occur of (i) the Effective Date of the Merger or (ii) termination of
the Merger Agreements in accordance with the provisions thereof prior to the
occurrence of a Purchase Event (other than a termination resulting from a
willful breach by MC of any covenant contained therein) or (iii) six months
after termination of the Merger Agreements if such termination follows the
occurrence of a Purchase Event or is due to a willful breach by MC of any
covenant contained therein; and provided further that any such exercise shall be
subject to compliance with applicable provisions of law.
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(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) MC or any MC Subsidiary, without having received PNC's prior written
consent, shall have entered into an agreement with any person (other
than PNC or any PNC Subsidiary) to (x) merge or consolidate, or
enter into any similar transaction, with MC or any MC Subsidiary,
(y) purchase, lease or otherwise acquire all or substantially all of
the assets of MC or any MC Subsidiary or (z) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange
or any similar transaction) securities representing 20% or more of
the voting power of MC or any MC Subsidiary; provided, however, that
in no event shall any merger, consolidation, purchase or similar
transaction involving only MC and one or more of its Subsidiaries or
involving only any two or more of such Subsidiaries, be deemed to be
a Purchase Event, provided any such transaction is not entered into
in violation of the terms of the Merger Agreements;
(ii) any person (other than MC, any MC Subsidiary, the MC Subsidiaries
in a fiduciary capacity, PNC, affiliates of PNC or subsidiaries of
PNC 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 MC Common Stock (the term
"beneficial ownership" for purposes of this Option Agreement having
the meaning assigned thereto in Section 13(d) of the Exchange Act
and the regulations promulgated thereunder); or
(iii) any person (other than MC, any MC Subsidiary, PNC or any PNC
affiliate) (x) shall have made a bona fide proposal to MC by
public announcement or written communication that is or becomes
the subject of public disclosure to acquire MC or any MC
Subsidiary by merger, consolidation, purchase of all or
substantially all of its assets or any other similar transaction,
(y) shall have commenced a bona fide tender or exchange offer to
purchase shares of MC Common Stock such that upon consummation of
such offer such person would own or control 20% or more of the
outstanding shares of MC Common Stock, or (z) shall have filed an
application or notice with the Federal Reserve Board or any other
federal or state regulatory agency for clearance or approval to
engage in any transaction described in clause (i) or (ii) above,
and thereafter the holders of MC Common Stock shall have not
approved the Merger Agreements and the transactions contemplated
thereby at the meeting of such stockholders held for such purpose
or such meeting shall not have been held or shall have been
cancelled prior to termination of the Merger Agreements.
If more than one of the transactions giving rise to a Purchase Event under this
Section 3(b) is undertaken or effected, then all such transactions shall give
rise only to one Purchase Event, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions are abandoned. As used in
this Option Agreement, "person" shall have the meanings specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event PNC wishes to exercise the Option, it shall send to MC a
written notice (the date of which being herein referred to as "Notice Date")
specifying (i) the total number of shares it will purchase pursuant to such
exercise, and (ii) a place and date not earlier than three business days nor
later than 60 business days from the Notice Date for the closing of such
purchase ("Closing Date"); provided that if prior notification to or approval of
any federal or state regulatory agency is required in connection with such
purchase, PNC 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 period has expired or been terminated or such
approval has been obtained and any requisite waiting period shall have passed.
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4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) At the closing referred to in Section 3 hereof, PNC shall pay to MC the
aggregate purchase price for the shares of MC Common Stock purchased pursuant to
the exercise of the Option in immediately available funds by a wire transfer to
a bank account designated by MC.
(b) At such closing, simultaneously with the delivery of cash as provided
in subsection (a), MC shall deliver to PNC a certificate or certificates
representing the number of shares of MC Common Stock purchased by PNC, and PNC
shall deliver to MC a letter agreeing that PNC will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Option Agreement.
(c) Certificates for MC Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend which 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
Midlantic Corporation and to resale restrictions arising under the
Securities Act of 1933, as amended, a copy of which agreement is on file at
the principal office of Midlantic Corporation. A copy of such agreement will
be provided to the holder hereof without charge upon receipt by Midlantic
Corporation of a written request."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if PNC shall have delivered to
MC a copy of a letter from the staff of the Commission, or an opinion of
counsel, in form and substance satisfactory to MC, to the effect that such
legend is not required for purposes of the Securities Act.
5. REPRESENTATIONS.
MC hereby represents, warrants and covenants to PNC as follows:
(a) MC shall at all times maintain sufficient authorized but unissued
shares of MC Common Stock so that the Option may be exercised without
authorization of additional shares of MC Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part, of the
Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
In the event of any change in MC Common Stock by reason of stock dividends,
split-ups, recapitalizations, combinations, exchanges of shares or the like, the
type and number of shares subject to the Option, and the purchase price per
share, as the case may be, shall be adjusted appropriately. In the event that
any additional shares of MC Common Stock are issued or otherwise become
outstanding after the date of this Option Agreement (other than pursuant to this
Option Agreement), the number of shares of MC Common Stock subject to the Option
shall be adjusted so that, after such issuance, it equals 19.99% of the number
of shares of MC Common Stock then issued and outstanding without giving effect
to any shares subject or issued pursuant to the Option. Nothing contained in
this Section 6 shall be deemed to authorize MC to breach any provision of the
Merger Agreements.
7. REGISTRATION RIGHTS.
MC shall, if requested by PNC, as expeditiously as possible following the
occurrence of a Purchase Event and prior to the second anniversary thereof, file
a registration statement on a form of general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of MC
Common Stock that have been acquired upon exercise of the Option in accordance
with the intended method of sale or other disposition requested by PNC. PNC
shall provide all information reasonably requested by MC for inclusion in any
registration statement to be filed hereunder. MC 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 as may be reasonably necessary to
effect such sales or other dispositions. The obligations of MC hereunder to file
a registration statement and to maintain its
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effectiveness may be suspended for one or more periods of time not exceeding 60
days in the aggregate if the Board of Directors of MC shall have determined that
the filing of such registration statement or the maintenance of its
effectiveness would require disclosure of nonpublic information that would
materially and adversely affect MC. The first registration effected under this
Section 7 shall be at MC's expense except for underwriting commissions and the
fees and disbursements of PNC's counsel attributable to the registration of such
MC Common Stock. A second registration may be requested hereunder at PNC's
expense. In no event shall MC be required to effect more than two registrations
hereunder. The filing of any registration statement hereunder may be delayed for
such period of time as may reasonably be required to facilitate any public
distribution by MC of MC Common Stock. If requested by PNC, in connection with
any such registration, MC will become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating itself
in respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements. Upon receiving any request
from PNC or assignee thereof under this Section 7, MC agrees to send a copy
thereof to PNC and to any assignee thereof known to MC, in each case by promptly
mailing the same, postage prepaid, to the address of record of the persons
entitled to receive such copies.
8. SEVERABILITY.
If any term, provision, covenant or restriction contained in this Option
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 Option
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 Option will not permit the holder to acquire the full
number of shares of MC Common Stock provided in Section 2 hereof (as adjusted
pursuant to Section 6 hereof), it is the express intention of MC to allow the
holder to acquire or to require MC to repurchase such lesser number of shares as
may be permissible, without any amendment or modification hereof.
9. MISCELLANEOUS.
(a) Expenses. Except as otherwise 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.
(b) Entire Agreement. Except as otherwise expressly provided herein, this
Option Agreement contains the entire agreement between the parties with respect
to the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Notwithstanding
anything to the contrary contained in this Agreement or the Merger Agreements,
this Agreement shall be deemed to amend the Confidentiality Agreement so as to
permit PNC to enter into this Agreement and exercise all of its rights
hereunder, including its right to acquire MC Common Stock upon exercise of the
Option. The terms and conditions of this Option Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Option Agreement, expressed or implied,
is intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Option Agreement, except as expressly
provided herein.
(c) Assignment. 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 Purchase Event shall have occurred and be continuing PNC may
assign in whole or in part its rights and obligations hereunder; provided,
however, that until the date 30 days following the date on which the Federal
Reserve Board approves an application by PNC under the Bank Holding Company Act
to acquire the shares of MC Common Stock subject to the Option, PNC 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 MC, (iii) an assignment to a
single party (e.g., a broker or investment banker) for the purpose of conducting
a
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widely dispersed public distribution on PNC's behalf, or (iv) any other manner
approved by the Federal Reserve Board.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by overnight express or by registered or certified mail, postage
prepaid, addressed as provided in the Reorganization Agreement. A party may
change its address for notice purposes by written notice to the other party
hereto.
(e) Counterparts. This Option Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by and construed
in accordance with the laws of New Jersey applicable to agreements made and
entirely to be performed within such state and such federal laws as may be
applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
PNC BANK CORP.
By /s/ THOMAS H. O'BRIEN
---------------------------------
Thomas H. O'Brien
Chairman and Chief
Executive Officer
MIDLANTIC CORPORATION
By /s/ GARRY J. SCHEURING
---------------------------------
Garry J. Scheuring
Chairman, President and
Chief Executive Officer
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APPENDIX D
[SMITH BARNEY LETTERHEAD]
October 3, 1995
The Board of Directors
PNC Bank Corp.
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Members of the Board:
We understand that PNC Bank Corp. ("PNC") and Midlantic Corporation
("Midlantic") have entered into an Agreement and Plan of Reorganization and an
Agreement and Plan of Merger, each dated as of July 10, 1995 (together, the
"Merger Agreement") pursuant to which PNC will acquire Midlantic (the "Merger").
You have requested our opinion as to the fairness, from a financial point of
view, to PNC and its shareholders of the exchange ratio (the "Exchange Ratio")
of 2.05 shares of the common stock, par value $5.00 per share, of PNC (the "PNC
Common Stock") for each share of the common stock, par value $3.00 per share, of
Midlantic (the "Midlantic Common Stock") to be paid in the Merger.
In arriving at our opinion, we reviewed the Merger Agreement and certain
ancillary documents related thereto and held discussions with certain senior
officers, directors and other representatives and advisors of PNC and with
certain senior officers and other representatives and advisors of Midlantic
concerning the businesses, operations and prospects of PNC and Midlantic. We
examined certain publicly available business and financial information relating
to PNC and Midlantic as well as certain financial forecasts and other data for
PNC and Midlantic which were provided to us by or otherwise discussed with the
respective managements of PNC and Midlantic, including information relating to
certain strategic implications and operational benefits anticipated from the
Merger. We reviewed the current and historical market prices and trading volumes
of the PNC Common Stock and Midlantic Common Stock, historical and projected
earnings and operating data of PNC and Midlantic, and the capitalization and
financial condition of PNC and Midlantic. We also evaluated the potential pro
forma financial impact of the Merger on PNC. We also considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected which we considered comparable to the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations we considered
comparable to those of PNC and Midlantic. In addition to the foregoing, we
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we deemed appropriate in arriving at
our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. With respect to financial forecasts and other information and
data furnished to or otherwise reviewed by or discussed with us, including,
without limitation, projected cost savings, revenue enhancements and other
operating synergies resulting from the Merger, we have been advised by the
management of PNC that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of PNC as to the future financial performance of
PNC and Midlantic and the potential strategic implications and operational
benefits anticipated from the Merger. We have assumed, with your consent, that
the Merger will be treated as a pooling of interests in accordance with
generally accepted accounting principles and as a tax-free reorganization for
federal income tax purposes. We are not experts in the evaluation of loan
portfolios or the allowances
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for loan losses with respect thereto and have assumed with your consent that
such allowances for Midlantic are in the aggregate adequate to cover such
losses. In addition, we have not reviewed individual credit files nor have we
made or been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of PNC or Midlantic nor have we made
any physical inspection of the properties or assets of PNC or Midlantic. We were
not asked to consider, and our opinion does not address, the relative merits of
the Merger as compared to any alternative business strategies that might exist
for PNC or the effect of any other transaction in which PNC might engage. Our
opinion is necessarily based upon information available to us, and financial,
stock market and other conditions and circumstances existing and disclosed to
us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to PNC with
respect to the Merger and will receive a fee for such services, a significant
portion of which is payable upon the delivery of this opinion. In the ordinary
course of business, we and our affiliates may actively trade the securities of
PNC and Midlantic for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
We are familiar with PNC and its business and have in the past provided
financial advisory and investment banking services to PNC and its affiliates
unrelated to the Merger and have received fees for such services. In addition,
we and our affiliates (including Travelers Group Inc. and its affiliates)
maintain business relationships with PNC and may also maintain business
relationships with Midlantic.
Our advisory services and the opinion expressed herein are provided for the use
of the Board of Directors of PNC in evaluating the proposed Merger, and our
opinion is not intended to be and does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed Merger. Our
opinion may not be published or otherwise used or referred to, nor shall any
public references to Smith Barney be made, without our prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion and
reference thereto in any registration statement or proxy statement used in
connection with the Merger so long as the opinion is included in its entirety in
such registration statement or proxy statement; provided, further, however, that
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to PNC and its shareholders.
Very truly yours,
SMITH BARNEY INC.
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APPENDIX E
[MERRILL LYNCH LETTERHEAD]
October 3, 1995
Board of Directors
Midlantic Corporation
Metro Park Plaza
Edison, New Jersey 08810
Members of the Board:
Midlantic Corporation ("Midlantic") and PNC Bank Corp. ("PNC") have entered
into an Agreement and Plan of Reorganization and a related Agreement and Plan of
Merger (collectively the "Agreement") dated July 10, 1995, pursuant to which
Midlantic will be merged with a wholly owned subsidiary of PNC, in a transaction
(the "Merger") in which each outstanding share of Midlantic's common stock, par
value $3.00 per share (the "Midlantic Shares"), will be converted into the right
to receive 2.05 shares (the "Exchange Ratio") of the common stock, par value
$5.00 per share, of PNC (the "PNC Shares"). In connection with the Merger, the
parties have also entered into agreements, dated July 10, 1995 (the "Option
Agreements") pursuant to which Midlantic and PNC have granted to the other an
option to acquire approximately 19.9% of their respective common shares
outstanding (all as set forth more fully in the Option Agreements).
You have asked us whether, in our opinion, the proposed Exchange Ratio in
the Merger is fair to the holders of Midlantic Shares from a financial point of
view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Midlantic's Annual Reports on Form 10-K and related financial
information for the five fiscal years ended December 31, 1994 and
Midlantic's Quarterly Reports on Form 10-Q and the related unaudited
financial information for the quarterly periods ended March 31, 1995
and June 30, 1995;
(2) Reviewed PNC's Annual Reports on Form 10-K and related financial
information for the five fiscal years ended December 31, 1994 and PNC's
Quarterly Reports on Form 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1995 and June 30,
1995;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, assets and prospects of Midlantic and PNC,
furnished to us by Midlantic and PNC;
(4) Conducted discussions with members of senior management of Midlantic
and PNC concerning their respective businesses, operations, regulatory
condition and prospects;
(5) Reviewed the historical market prices and trading activity for the
Midlantic Shares and the PNC Shares and compared them with that of
certain publicly traded companies which we deemed to be relevant;
(6) Compared the results of operations of Midlantic and PNC with that of
certain companies which we deemed to be relevant;
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(7) Compared the proposed financial terms of the Merger contemplated by the
Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Analyzed the pro forma impact of the transaction on the earnings and
book value per share, consolidated capitalization and certain balance
sheet and profitability ratios of PNC;
(9) Participated in discussions and negotiations among representatives of
Midlantic and PNC;
(10) Reviewed the Agreement;
(11) Reviewed the Option Agreements; and
(12) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary to the rendering of this opinion.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by Midlantic and
PNC, and we have not assumed any responsibility for independently verifying such
information or undertaking an independent evaluation or appraisal of the assets
or liabilities of Midlantic or PNC or any of their subsidiaries, nor have we
been furnished any such evaluation or appraisal. We have also relied upon the
managements of Midlantic and PNC as to the reasonableness and achievability of
the financial operating forecasts (and the assumptions and bases therefor)
provided to us. In that regard, we have assumed with your consent that such
forecasts, including, without limitation, financial forecasts, projected cost
savings and operating synergies resulting from the Merger and projections
regarding future economic conditions and results of operations reflect the best
currently available estimates and judgments of such respective managements and
that such projections and forecasts will be realized in the amounts and the time
periods currently estimated by the managements of Midlantic and PNC. Our opinion
is necessarily based on economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof. We are not
experts in the evaluation of allowances for loan losses and we have not assumed
any responsibility for making an independent evaluation of the adequacy of the
allowance for loan losses of Midlantic and PNC, nor have we reviewed any
individual credit files.
We have been retained by the Board of Directors of Midlantic as an
independent contractor to act as financial advisor to Midlantic with respect to
the Merger and will receive a fee for our services. We have, in the past,
provided financial advisory and financing services to Midlantic and PNC and have
received fees for the rendering of such services. In addition, in the ordinary
course of business, we may actively trade debt and/or equity securities of
Midlantic and PNC and their respective affiliates for our own account and the
accounts of our customers, and we therefore may from time to time hold a long or
short position in such securities.
Our opinion is directed to the Board of Directors of Midlantic and does not
constitute a recommendation to any shareholder of Midlantic as to how such
shareholder should vote at any shareholder meeting of Midlantic held in
connection with the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to the holders of Midlantic
Shares from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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