AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 2003
REGISTRATION NO. 333-[--]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE PNC FINANCIAL SERVICES GROUP, INC.
(Exact name of Registrant as Specified in Its Charter)
PENNSYLVANIA 6712 25-1435979
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
ONE PNC PLAZA
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2707
(412) 762-2000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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WILLIAM S. DEMCHAK
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
THE PNC FINANCIAL SERVICES GROUP, INC.
ONE PNC PLAZA
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2707
(412) 762-2000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
COPIES TO:
EDWARD D. HERLIHY, ESQ. TODD M. POLAND, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ HOWARD KAILES, ESQ.
51 WEST 52ND STREET MCCARTER & ENGLISH, LLP
NEW YORK, NEW YORK 10019 FOUR GATEWAY CENTER
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective and upon
completion of the merger described in the enclosed proxy statement/prospectus.
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If the securities registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER SHARE OFFERING PRICE(3) FEE(4)
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Common Stock, par value $5.00 per share,
together with Preferred Stock Purchase
Rights, if any............................. 6,900,000 N/A $326,485,504 $26,413
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(1) As of the date hereof, rights to purchase Series G Junior Participating
Preferred Stock, par value $1.00 per share, issued pursuant to the Rights
Agreement, dated as of May 15, 2000, and amended as of January 1, 2003,
between The PNC Financial Services Group, Inc., a Pennsylvania corporation
("PNC") and The Chase Manhattan Bank, as Rights Agent, (the "Rights"), are
attached to and trade with the common stock, par value $5.00 per share, of
PNC (the "PNC Common Stock"). The value of the attributable Rights, if any,
is reflected in the market price of PNC Common Stock.
(2) The maximum number of shares of PNC Common Stock issuable to shareholders of
United National Bancorp, a New Jersey corporation ("United National"), upon
consummation of the merger of United National with and into a subsidiary of
PNC.
(3) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act, and calculated pursuant to
Rule 457(f) under the Securities Act. Pursuant to Rule 457(c), (f)(1) and
(f)(3) under the Securities Act, based on the aggregate market value on
October 2, 2003 of the shares of United National common stock, par value
$1.25 per share ("United National Common Stock"), expected to be exchanged
in connection with the merger, the proposed maximum aggregate offering price
is $326,485,504, which equals (i) the product of (A) the average of the high
and low prices of United National Common Stock as reported on the Nasdaq
National Market on October 2, 2003 ($33.66) and (B) 19,596,969, representing
the maximum number of shares of United National Common Stock expected to be
exchanged in connection with the merger, less (ii) the amount of cash paid
by PNC in exchange for shares of United National Common Stock (which equals
$333,148,473).
(4) Calculated by multiplying (i) the proposed maximum aggregate offering price
for all securities to be registered ($326,485,504) by (ii) 0.00008090.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 9, 2003
[UNITED NATIONAL BANCORP LOGO]
[--], 2003
The board of directors of United National Bancorp has unanimously agreed to
merge with and into a subsidiary of The PNC Financial Services Group, Inc. If
the merger is completed, you will be entitled to elect to receive PNC common
stock or cash in the merger, subject to potential proration as described on
pages 24-25. THE VALUE OF THE MERGER CONSIDERATION WILL FLUCTUATE WITH THE VALUE
OF PNC COMMON STOCK AND WILL BE DETERMINED BASED ON THE FIVE-DAY AVERAGE CLOSING
PRICE OF PNC COMMON STOCK SHORTLY BEFORE THE COMPLETION OF THE MERGER. AS
EXPLAINED IN MORE DETAIL IN THIS DOCUMENT, WHETHER YOU MAKE A CASH ELECTION OR A
STOCK ELECTION, THE VALUE OF THE CONSIDERATION THAT YOU WILL RECEIVE AS OF THE
COMPLETION DATE WILL BE THE SAME BASED ON THE PNC STOCK PRICE USED TO CALCULATE
THE MERGER CONSIDERATION. Based on the closing price of PNC common stock on
[--], 2003, for each of your shares of United National common stock you would
receive either approximately $[--] in cash or approximately [--] shares of PNC
common stock. On August 20, 2003, the day before the merger agreement was
executed, the closing price of PNC common stock was $48.53, which would imply a
value per United National share of $33.89 in cash or approximately 0.698 shares
of PNC common stock.
We expect the merger to be generally tax-free with respect to PNC common
stock you receive and generally taxable with respect to cash you receive.
Regardless of your election to receive PNC common stock or cash in the
merger, upon completion of the merger, each outstanding option to purchase or
receive United National common stock granted under a United National stock plan
will be cancelled and automatically converted into the right to receive from
PNC, subject to applicable withholding taxes, an amount equal to the cash to be
paid by PNC to each holder of United National common stock electing to receive
cash in the merger less the per share exercise price for each share of United
National common stock subject to those United National stock options.
This proxy statement/prospectus contains detailed information about the
proposed merger, and we urge you to read it carefully. In particular, you should
carefully consider the discussion in "Risk Factors" beginning on page 16 of this
proxy statement/prospectus. In addition, you may obtain information about PNC
and United National from documents that each has filed with the Securities and
Exchange Commission.
The United National board of directors has unanimously determined that the
merger is advisable and in the best interests of United National and its
shareholders, and has approved the merger agreement. Accordingly, the United
National board recommends that United National's shareholders vote FOR approval
and adoption of the merger agreement.
We have scheduled a special meeting of our shareholders to vote on the
merger agreement, and you are cordially invited to attend the meeting at United
National's offices located at 1130 Route 22 East, Bridgewater, New Jersey
08807-0010, on [DAY], [DATE], 2003 at 10:00 a.m., local time.
YOUR VOTE IS VERY IMPORTANT. A majority of the votes cast at the United
National special meeting is required to approve the merger agreement, and a
majority of the outstanding United National common stock entitled to vote is
necessary to constitute a quorum in order to transact business at the special
meeting. Whether or not you plan to attend the special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If your
shares are held in "street name," you must instruct your broker in order to
vote.
[SIGNATURE BLOCK INSERT]
Thomas C. Gregor
Chairman of the Board, Chief Executive
Officer and President
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE SECURITIES TO BE ISSUED IN THE MERGER, AS DESCRIBED
IN THIS PROXY STATEMENT/PROSPECTUS, NOR HAVE THEY DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. FURTHERMORE, THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT DETERMINED THE FAIRNESS OR MERITS OF THE MERGER. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated [--], 2003, and is first being
mailed to shareholders on or about [--], 2003.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about United National Bancorp and The PNC Financial
Services Group, Inc. from other documents that are not included in or delivered
with this proxy statement/prospectus. This information is available to you
without charge upon your written or oral request. You can obtain those documents
incorporated by reference in this proxy statement/prospectus by accessing the
Securities and Exchange Commission's website maintained at "http://www.sec.gov"
or by requesting copies in writing or by telephone from the appropriate company
at the following addresses:
UNITED NATIONAL BANCORP THE PNC FINANCIAL SERVICES GROUP, INC.
1130 Route 22 East One PNC Plaza
Bridgewater, New Jersey 08807-0010 249 Fifth Avenue
Attention: Shareholder Relations Pittsburgh, Pennsylvania 15222-2707
(908) 429-2406 Attention: Shareholder Services
(800) 982-7652
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY [--], 2003 IN ORDER
TO RECEIVE THEM BEFORE THE UNITED NATIONAL SPECIAL SHAREHOLDER MEETING. IF YOU
REQUEST ANY DOCUMENTS INCORPORATED BY REFERENCE FROM US, WE WILL MAIL THEM TO
YOU PROMPTLY BY FIRST-CLASS MAIL, OR SIMILAR MEANS.
See "Where You Can Find More Information" on page 61.
[UNITED NATIONAL BANCORP LOGO -- TO COME]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders of United National Bancorp will be held
at United National's offices located at 1130 Route 22 East, Bridgewater, New
Jersey 08807-0010, on [DAY], [DATE], 2003 at 10:00 a.m., local time, to consider
and vote upon the following proposals:
- To approve and adopt the Agreement and Plan of Merger, dated as of August
21, 2003, by and among The PNC Financial Services Group, Inc., PNC
Bancorp, Inc., a wholly owned subsidiary of The PNC Financial Services
Group, Inc., and United National Bancorp, which provides for, among other
things, the merger of United National Bancorp with and into PNC Bancorp,
Inc.
- To adjourn the special meeting, if necessary, to solicit additional
proxies in favor of the merger.
- To transact such other business as may properly come before the special
meeting and any adjournment or postponement of the special meeting.
The proposed merger is described in more detail in the accompanying proxy
statement/prospectus, which you should read carefully in its entirety before
voting. A copy of the merger agreement is attached as Annex A to that document.
The United National board of directors has set the close of business (5:00
p.m., Eastern time) on [--], 2003 as the record date for determining
shareholders entitled to notice of and to vote at the special meeting. Only
shareholders of record on that date are entitled to notice of, and to vote at,
the United National special meeting and any adjournments or postponements of the
United National special meeting.
The United National board of directors has unanimously determined that the
merger is advisable and in the best interests of United National and its
shareholders. Accordingly, the United National board has approved the merger
agreement and recommends that United National's shareholders vote FOR approval
and adoption of the merger agreement at the special meeting.
It is important that the enclosed proxy card be signed, dated and promptly
returned in the enclosed envelope so that your shares will be represented,
whether or not you plan to attend the special meeting. If you do attend the
meeting and wish to vote, you may withdraw your proxy at that time. Please do
not send your stock certificates with your proxy card.
By Order of the Board of Directors,
[SIGNATURE BLOCK INSERT]
Leonard G. Gleason
Vice President, Acting General Counsel
& Acting Secretary
TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL
MEETING................................................... i
SUMMARY..................................................... 1
MARKET PRICE AND DIVIDEND INFORMATION....................... 9
Market Price Data......................................... 9
Historical Market Prices and Dividends.................... 9
Comparative Unaudited Per Share Data...................... 11
Condensed Consolidated Financial Data of PNC and
Subsidiaries........................................... 13
Condensed Consolidated Financial Data of United National
and Subsidiaries....................................... 15
RISK FACTORS................................................ 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 18
THE SHAREHOLDERS MEETING.................................... 20
Purpose, Time and Place................................... 20
Record Date; Voting Power................................. 20
Votes Required............................................ 20
Share Ownership of Management and Certain Shareholders.... 20
Voting of Proxies......................................... 21
Revocability of Proxies................................... 21
Adjournments.............................................. 21
Solicitation of Proxies................................... 21
THE MERGER AGREEMENT........................................ 22
General................................................... 22
Form of the Merger........................................ 22
Timing of Completion of the Merger........................ 22
Merger Consideration...................................... 22
Conversion of Shares; Exchange of Certificates; Elections
as to Form of Consideration............................ 25
Fractional Shares......................................... 27
Board of Directors and Officers Following the Merger...... 27
Representations and Warranties............................ 27
Certain Covenants......................................... 28
No Solicitation........................................... 30
Indemnification and Insurance............................. 31
Conditions to the Consummation of the Merger.............. 32
Termination of the Merger Agreement....................... 32
Termination Fee........................................... 33
Adjustments to the Merger Consideration................... 34
THE MERGER.................................................. 34
Background of the Merger.................................. 34
Reasons for the Merger; Recommendation of PNC's and United
National's Board of Directors.......................... 36
Opinion of United National's Financial Advisor............ 38
Public Trading Markets.................................... 46
PNC Dividends............................................. 46
Absence of Appraisal Rights............................... 46
PAGE
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Material Federal Income Tax Consequences of the Merger.... 47
Accounting Treatment...................................... 49
Regulatory Approvals...................................... 50
Interests of Certain Persons in the Merger................ 50
Restrictions on Resales by Affiliates..................... 53
COMPARISON OF RIGHTS OF SHAREHOLDERS OF PNC AND UNITED
NATIONAL.................................................. 53
Authorized Capital........................................ 54
Voting Rights............................................. 54
Board of Directors........................................ 54
Shareholder Action........................................ 55
Committees of the Board of Directors...................... 56
Officers.................................................. 57
Approval of Certain Transactions.......................... 57
Rights of Dissenting Shareholders......................... 59
Amendment of Governing Documents.......................... 59
Charitable Contributions.................................. 60
Shareholders Rights Plan.................................. 60
EXPERTS..................................................... 60
LEGAL MATTERS............................................... 61
SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS.................. 61
WHERE YOU CAN FIND MORE INFORMATION......................... 61
ANNEX A -- AGREEMENT AND PLAN OF MERGER
ANNEX B -- OPINION OF KEEFE, BRUYETTE & WOODS, INC.
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHAT DO I NEED TO DO NOW?
A: With respect to the meeting -- after you have carefully read this document,
indicate on your proxy card how you want to vote and sign and mail it in the
enclosed return envelope as soon as possible so that your shares will be
represented at the shareholders meeting.
If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be counted as a vote in favor of the proposals. For purposes
of determining the number of votes cast with respect to a matter, only those
votes cast "for" or "against" a proposal are counted. "Broker non-votes," if
any are submitted by brokers or nominees in connection with the special
meeting, will not be counted as votes "for" or "against" for purposes of
determining the number of votes cast but will be treated as present for
quorum purposes. "Broker non-votes" are shares held by brokers or nominees
as to which voting instructions have not been received from the beneficial
owners or the persons entitled to vote those shares and the broker or
nominee does not have discretionary voting power under the applicable Nasdaq
National Market rules. Abstentions will be treated as shares that are
present for purposes of determining the presence of a quorum but will not be
counted "for" or "against" a proposal.
With respect to the merger -- you should complete and return the election
form, together with your stock certificates, to [--], the exchange agent for
the merger, according to the instructions printed on the form or, if your
shares are held in "street name," according to your broker's instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES WITH MY PROXY CARD?
A: No. Please DO NOT send your stock certificates with your proxy card. Rather,
prior to the election deadline of [--], 2003, you should send your United
National common stock certificates to the exchange agent, together with your
completed, signed election form, or, if your shares are held in "street
name," according to your broker's instructions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not vote your United National shares unless you follow the
directions your broker or bank provides to you regarding how to vote your
shares on the merger proposal.
Q: WHAT DOES THE UNITED NATIONAL BOARD OF DIRECTORS RECOMMEND?
A: United National's board of directors has unanimously approved the merger
agreement and recommends that United National's shareholders vote FOR the
proposal to approve and adopt the merger agreement.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A: A majority of the votes cast at the special meeting is required to approve
the merger agreement.
Q: HOW IMPORTANT IS MY VOTE?
A: Because the merger cannot be completed without the affirmative vote of a
majority of the votes cast at the special meeting, and because a majority of
the outstanding United National common stock entitled to vote is necessary
to constitute a quorum in order to transact business at the special meeting,
every shareholder's vote is important.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: PNC and United National are working to complete the merger promptly, and
hope to complete the merger in January 2004. However, delays in satisfying
the conditions to the obligations of PNC and United National to complete the
merger could delay completion.
i
Q: CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
A: Yes, you can change your vote at any time before your proxy is voted at the
special meeting. You can do this in three ways:
- You can send a written statement that you would like to revoke your proxy
to the [Secretary] of United National;
- You can send United National a valid, later-dated proxy card; or
- You can attend the special meeting and vote in person. However, your
attendance alone will not revoke your proxy -- you must also vote in
person.
You should send your revocation or new proxy card to United National's
Corporate Secretary at the address on the cover page.
If you instructed a broker to vote your shares, you must follow your
broker's directions for changing those instructions.
Q: CAN I CHANGE MY ELECTION AFTER I SUBMIT MY CERTIFICATES?
A: You can revoke your election and submit new election materials prior to the
election deadline, which will be 5:00 p.m., Eastern time on [--], 2003, the
day prior to the date of the special meeting. You may do so by submitting a
written notice to the Exchange Agent that is received prior to the deadline
at the following address:
[EXCHANGE AGENT]
[ADDRESS]
[ADDRESS]
The revocation must specify the account name and such other information as
the Exchange Agent may request; revocations may not be made in part. New
elections must be submitted in accordance with the election procedures
described in this proxy statement/ prospectus. If you instructed a broker to
submit an election for your shares, you must follow your broker's directions
for changing those instructions.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger, or if you need additional copies
of this proxy statement/prospectus or the enclosed proxy card, you should
contact:
UNITED NATIONAL BANCORP
1130 ROUTE 22 EAST
BRIDGEWATER, NEW JERSEY 08807-0010
(908) 429-2406
ATTENTION: SHAREHOLDER RELATIONS
OR
[EXCHANGE AGENT]
[ADDRESS]
[ADDRESS]
[TELEPHONE]
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: You can find more information about PNC and United National from various
sources described under "Where You Can Find More Information" on page 61 of
this proxy statement/prospectus.
ii
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as well as
the additional documents to which we refer you.
YOU WILL RECEIVE CASH AND/OR SHARES OF PNC COMMON STOCK IN THE MERGER DEPENDING
ON YOUR ELECTION AND ANY PRORATION (PAGES 24-25)
You will have the right to elect to receive merger consideration for each
of your shares of United National common stock in the form of cash or shares of
PNC common stock, subject to proration in circumstances described below.
THE VALUE OF THE MERGER CONSIDERATION WILL FLUCTUATE WITH THE VALUE OF PNC
COMMON STOCK AND WILL BE DETERMINED BASED ON THE FIVE-DAY AVERAGE CLOSING PRICE
OF PNC COMMON STOCK SHORTLY BEFORE THE COMPLETION OF THE MERGER. AS EXPLAINED IN
MORE DETAIL IN THIS DOCUMENT, WHETHER YOU MAKE A CASH ELECTION OR A STOCK
ELECTION, THE VALUE OF THE CONSIDERATION THAT YOU WILL RECEIVE AS OF THE
COMPLETION DATE WILL BE THE SAME BASED ON THE PNC STOCK PRICE USED TO CALCULATE
THE MERGER CONSIDERATION. You may specify different elections with respect to
different shares that you hold (if, for example, you own 100 shares, you could
make a cash election with respect to 50 shares and a stock election with respect
to the other 50 shares).
In addition, regardless of your election to receive PNC common stock or
cash in the merger, upon completion of the merger, each outstanding option to
purchase or receive United National common stock granted under a United National
stock plan will be cancelled and automatically converted into the right to
receive from PNC, subject to any required withholding taxes, cash equal to the
per share cash merger consideration less the per share exercise price for each
share of United National common stock subject to the applicable United National
stock options.
Set forth below is a table showing a hypothetical range of prices for
shares of PNC common stock and the corresponding consideration that a United
National shareholder would receive in a cash election and a stock election under
the merger consideration formula based on the number of shares of United
National common stock currently outstanding. The table does not reflect the fact
that cash will be paid instead of fractional shares.
PNC COMMON STOCK UNITED NATIONAL COMMON STOCK
---------------------------- ------------------------------------------------------------
HYPOTHETICAL FIVE-DAY CASH ELECTION EXCHANGE STOCK ELECTION EXCHANGE AMOUNT PER
AVERAGE CLOSING SALES PRICES AMOUNT PER SHARE SHARE (PNC SHARES/MARKET VALUE)
---------------------------- ---------------------- -----------------------------------
$40.00 $30.92 0.773/$30.92
$41.00 $31.27 0.763/$31.27
$42.00 $31.62 0.753/$31.62
$43.00 $31.97 0.743/$31.97
$44.00 $32.32 0.734/$32.32
$45.00 $32.66 0.726/$32.66
$46.00 $33.01 0.718/$33.01
$47.00 $33.36 0.710/$33.36
$48.00 $33.71 0.702/$33.71
$49.00 $34.06 0.695/$34.06
$50.00 $34.40 0.688/$34.40
$51.00 $34.75 0.681/$34.75
$52.00 $35.10 0.675/$35.10
$53.00 $35.45 0.669/$35.45
$54.00 $35.80 0.663/$35.80
$55.00 $36.14 0.657/$36.14
$56.00 $36.49 0.652/$36.49
$57.00 $36.84 0.646/$36.84
1
PNC COMMON STOCK UNITED NATIONAL COMMON STOCK
---------------------------- ------------------------------------------------------------
HYPOTHETICAL FIVE-DAY CASH ELECTION EXCHANGE STOCK ELECTION EXCHANGE AMOUNT PER
AVERAGE CLOSING SALES PRICES AMOUNT PER SHARE SHARE (PNC SHARES/MARKET VALUE)
---------------------------- ---------------------- -----------------------------------
$58.00 $37.19 0.641/$37.19
$59.00 $37.54 0.636/$37.54
$60.00 $37.88 0.631/$37.88
The examples above are illustrative only. The value of the merger
consideration that you actually receive will be based on the average trading
price of PNC common stock prior to completion of the merger, as described below.
If that average price is not included in the table above, including because the
price is outside the range of the amounts set forth above, we do not intend to
resolicit proxies from United National shareholders in connection with the
merger.
The merger consideration will be based on the arithmetic average of the
4:00 p.m. Eastern time closing sales prices of PNC common stock reported on the
New York Stock Exchange for the five consecutive trading days preceding, but not
including, the trading day prior to the completion date of the merger. Based on
the closing price of PNC common stock on [--], 2003, for each of your shares of
United National common stock you would receive either approximately $[--] in
cash or approximately [--] shares of PNC common stock, subject to possible
proration. However, we will compute the actual amount of cash and number of
shares of PNC common stock you will receive in the merger using the formula
contained in the merger agreement, which may be subject to further adjustment,
as described in the merger agreement:
- as a result of exercises of options to purchase United National common
stock;
- to ensure that the merger qualifies as a "reorganization" for United
States federal income tax purposes; or
- to prevent termination of the merger agreement by United National under
limited circumstances described under "The Merger
Agreement -- Termination of the Merger Agreement" on page 32.
The consideration to be paid to shareholders cannot be determined until the
close of trading on the trading day immediately prior to the completion of the
merger. We intend to announce these amounts when known. For a summary of the
formula contained in the merger agreement, see "The Merger Agreement -- Merger
Consideration" on page 22.
THE MERGER WILL BE GENERALLY TAX-FREE TO HOLDERS OF UNITED NATIONAL COMMON STOCK
WHO RECEIVE ONLY PNC COMMON STOCK AND GENERALLY TAXABLE TO HOLDERS WHO RECEIVE
CASH (PAGE 47)
Neither PNC nor United National will be required to complete the merger
unless it receives a legal opinion to the effect that the merger will qualify as
a "reorganization" for United States federal income tax purposes. Accordingly,
we expect the transaction to generally be tax-free to holders of United National
common stock for United States federal income tax purposes to the extent that
they receive shares of PNC common stock pursuant to the merger. Those holders
receiving solely cash for their United National common stock will generally
recognize gain or loss equal to the difference between the amount of cash
received and their tax basis in their shares of United National common stock.
Those holders receiving both PNC common stock and cash for their United National
common stock will generally recognize gain equal to the lesser of (1) the amount
of cash received and (2) the excess of the "amount realized" in the transaction
(i.e., the fair market value of the PNC common stock at the effective time of
the merger plus the amount of cash received) over their tax basis in their
United National common stock. In certain circumstances, such gain or, in the
case of recipients of cash only, the entire amount of cash received, could be
taxable as ordinary income rather than capital gain. For a further summary of
the United States federal income tax consequences of the merger to holders of
United National common stock, please see "The Merger -- Material Federal Income
Tax Consequences of the Merger" on page 47.
REGARDLESS OF WHETHER YOU MAKE A CASH ELECTION OR A STOCK ELECTION, YOU MAY
NEVERTHELESS RECEIVE A MIX OF CASH AND STOCK (PAGE 24)
The aggregate number of shares of PNC common stock which will be issued and
the
2
aggregate amount of cash which will be paid to United National shareholders as
consideration in the merger are fixed at 6,551,806 shares and $319,990,218,
respectively, subject to possible adjustment, as described under "The Merger
Agreement -- Merger Consideration" on page 22. AS A RESULT, IF TOO MANY
SHAREHOLDERS ELECT TO RECEIVE PNC COMMON STOCK OR CASH, SHAREHOLDERS ELECTING
THE OVER-SUBSCRIBED FORM OF CONSIDERATION WILL BE PROPORTIONATELY CUT BACK AND
WILL RECEIVE A PORTION OF THEIR CONSIDERATION IN THE OTHER FORM, DESPITE THEIR
ELECTION.
In addition, the number of shares of PNC common stock that will be issued
in the merger to United National shareholders may be increased, and the
aggregate amount of cash that will be issued to United National shareholders may
be decreased, if adjustment is necessary to ensure that the merger qualifies as
a "reorganization" for United States federal income tax purposes as described
under "The Merger Agreement -- Merger Consideration -- Adjustments to Preserve
Tax Treatment" on page 23. Such an adjustment would reduce the cash available
and increase the likelihood that cash elections would be subject to proration,
although it would have the opposite effect on stock elections.
In the event that shares of United National common stock are issued upon
the exercise of outstanding options to purchase or receive shares of United
National common stock, the aggregate number of shares of PNC common stock to be
issued as consideration in the merger will be increased, and the aggregate
amount of cash to be issued to United National shareholders decreased, as
described under "The Merger Agreement -- Merger Consideration" on page 22.
Regardless of your election to receive PNC common stock or cash in the
merger, outstanding options to purchase or receive United National common stock
will be converted only into the right to receive cash as described above.
IN ORDER TO MAKE AN ELECTION, YOU MUST PROPERLY COMPLETE AND DELIVER THE FORM OF
ELECTION THAT ACCOMPANIES THIS DOCUMENT (PAGE 25)
Together with this proxy statement/prospectus, you are receiving a form of
election with instructions for making cash and stock elections, which you must
properly complete and deliver to the exchange agent along with your stock
certificates (or a properly completed notice of guaranteed delivery). Do not
send your stock certificates or form of election with your proxy card.
Forms of election and stock certificates (or a properly completed notice of
guaranteed delivery) must be received by the exchange agent by the election
deadline, which will be 5:00 p.m., Eastern time, on [--], 2003, the day prior to
the date of the special meeting. Once you tender your stock certificates to the
exchange agent, you may not transfer your United National shares until the
merger is completed, unless you revoke your election by written notice to the
exchange agent which is received prior to the election deadline.
If you fail to submit a properly completed form of election, together with
your stock certificates (or a properly completed notice of guaranteed delivery),
prior to the election deadline, you will be deemed not to have made an election.
As a non-electing holder, you will be paid approximately equivalent value per
share to the amount paid per share to holders making elections, but you may be
paid all in cash, all in PNC common stock, or in part cash and in part PNC
common stock, depending on the remaining pool of cash and PNC common stock
available for paying merger consideration after honoring the cash elections and
stock elections that other shareholders have made.
If you own shares of United National common stock in "street name" through
a bank, broker or other financial institution and you wish to make an election,
you should seek instructions from the financial institution holding your shares
concerning how to make your election.
If the merger is not approved at the United National special shareholder
meeting, stock certificates will be returned by the exchange agent in the manner
they were delivered, either through book-entry transfer or by first class mail.
COMPLETION OF THE MERGER IS SUBJECT TO A NUMBER OF CONDITIONS (PAGE 32)
The completion of the merger depends upon satisfying a number of
conditions, including the following:
- approval of the merger and adoption of the merger agreement by United
National shareholders;
- receipt of all governmental consents and approvals required to complete
the merger
3
and, if determined by PNC, the bank combination;
- receipt of all non-governmental third party approvals required to
complete the transactions contemplated by the merger agreement; and
- absence of any legal prohibition on completion of the merger.
In addition, PNC's obligation to complete the merger is subject to, among
other things:
- the accuracy of the representations and warranties made by United
National and the performance of obligations by United National as
required under the merger agreement;
- the absence of any condition imposed by a governmental entity in
connection with any merger or bank regulatory approval that requires
United National or its subsidiaries to be operated in a manner that would
have a material adverse effect on United National or PNC; and
- the receipt of an opinion of PNC's counsel to the effect that the merger
will qualify as a "reorganization" for United States federal income tax
purposes.
In addition, United National's obligation to complete the merger is subject
to, among other things:
- the accuracy of the representations and warranties made by PNC and the
performance of obligations by PNC as required under the merger agreement;
and
- the receipt of an opinion of United National's counsel to the effect that
the merger will qualify as a "reorganization" for United States federal
income tax purposes.
TERMINATION OF THE MERGER (PAGE 32)
The merger may be terminated at any time prior to the completion of the
merger:
- by mutual written consent of PNC and United National;
- by either PNC or United National if:
- the merger is not completed by August 21, 2004 (other than because
of a breach of the merger agreement caused by the terminating
party);
- the merger is not approved by United National's shareholders;
- there exists any final nonappealable legal prohibition on completion
of the merger; or
- a required consent of a governmental entity has been denied and the
denial is final and nonappealable;
- by PNC if the United National board changes its recommendation for
the merger with PNC or if United National fails to call or convene
the special meeting of the United National shareholders;
- by PNC if United National materially breaches any of its
representations, warranties, covenants or other agreements contained
in the merger agreement;
- by United National if PNC materially breaches any of its
representations, warranties, covenants or other agreements contained
in the merger agreement; or
- by United National if (i) the total value of the transaction
declines by more than 15%, and (ii) PNC's stock price declines by
more than 15% in comparison with an index of its peer companies;
except that PNC will have 72 hours to increase the number of PNC
common shares to be received by United National shareholders such
that implied value of the merger would be equivalent to the minimum
implied value that would have had to exist for the above price-based
termination right to have not been triggered.
UNITED NATIONAL MUST PAY PNC A TERMINATION FEE UNDER LIMITED CIRCUMSTANCES (PAGE
33)
United National must pay a termination fee of $25 million to PNC if the
following events occur:
A Third Party Proposes to Acquire United National. A third party makes a
bona fide proposal to acquire United National, and the party does not withdraw
such proposal before the
4
merger agreement between PNC and United National is terminated.
The Merger Agreement between PNC and United National is Terminated. Either
PNC or United National terminates the merger agreement under any of the
following circumstances:
- The shareholders of United National vote against the merger (PNC or
United National terminates the merger agreement)
- United National's board of directors changes its recommendation that its
shareholders approve and adopt the merger agreement or fails to hold a
special meeting to vote on approving and adopting the merger agreement
(PNC terminates the merger agreement)
- United National willfully and materially breaches its representations and
obligations under the merger agreement (PNC terminates the merger
agreement)
United National Completes a New Acquisition. Within 12 months after the
date of termination of the merger agreement, United National completes an
acquisition transaction or enters into a merger agreement or other similar
document related to such acquisition transaction.
In addition to the $25 million termination fee, United National will be
obligated to reimburse PNC for out-of-pocket expenses incurred by PNC in
connection with the merger agreement and the transactions contemplated by the
merger agreement.
KEEFE, BRUYETTE & WOODS, INC. HAS DELIVERED A FAIRNESS OPINION TO UNITED
NATIONAL'S BOARD STATING THAT, AS OF AUGUST 21, 2003, THE AGGREGATE MERGER
CONSIDERATION TO BE RECEIVED BY UNITED NATIONAL SHAREHOLDERS WAS FAIR FROM A
FINANCIAL POINT OF VIEW TO UNITED NATIONAL SHAREHOLDERS (PAGES 38 THROUGH 46)
In deciding to approve the merger agreement, the United National board of
directors considered the opinion, dated August 21, 2003, of its financial
advisor, Keefe, Bruyette & Woods, Inc., that, as of that date and based upon and
subject to the factors and assumptions set forth in Keefe, Bruyette & Woods's
written opinion, the aggregate merger consideration to be received by all United
National shareholders under the merger agreement was fair from a financial point
of view to those shareholders. The written opinion of Keefe, Bruyette & Woods is
attached as Annex B to this proxy statement/prospectus. We encourage you to read
this opinion carefully and in its entirety. Under the terms of its engagement
letter with United National, Keefe, Bruyette & Woods will receive a customary
fee upon completion of the merger. In addition, United National has agreed to
reimburse Keefe, Bruyette & Woods for its reasonable out-of-pocket expenses and
indemnify Keefe, Bruyette & Woods against various liabilities.
MARKET PRICE INFORMATION (PAGE 9)
PNC common stock trades on the New York Stock Exchange under the symbol
"PNC" and United National trades on the Nasdaq National Market under the symbol
"UNBJ."
The following table presents closing sales prices for PNC and United
National common stock on the NYSE and NASDAQ, respectively, on August 20, 2003,
the last full trading day prior to our announcement of the signing of the merger
agreement, and on [--], 2003, the latest practicable date prior to printing this
proxy statement/ prospectus. The following table also presents the equivalent
pro forma prices for United National common stock on those dates, as determined
by multiplying the closing PNC sales prices on those dates by 0.698, and [--],
each representing the fraction of a share of PNC common stock that United
National shareholders electing to receive PNC common stock would receive in the
merger for each share of United National common stock, based on the closing
price of PNC common stock on August 20, 2003 and [--], 2003, respectively, and
assuming no proration or adjustment.
UNITED
PNC NATIONAL EQUIVALENT
COMMON COMMON PRICE
STOCK STOCK PER SHARE
------ -------- ----------
August 20, 2003...... $48.53 $31.05 $33.89
[--], 2003........... $ [--] $ [--] $ [--]
The market prices of PNC and United National common stock will fluctuate
prior to completion of the merger, along with the equivalent pro forma United
National price. You should obtain current stock price quotations from a
newspaper, on the Internet or by calling your broker.
5
HISTORICAL DIVIDENDS AND PNC'S POST-MERGER DIVIDEND POLICY (PAGE 9)
The dividends paid by PNC and United National in recent periods are set
forth under "Market Price and Dividend Information -- Historical Market Prices
and Dividends" on page 9. Following the consummation of the merger, the
declaration of dividends by PNC will be at the discretion of the PNC board of
directors and will be determined by the board after the consideration of various
factors, including, without limitation, the earnings and financial condition of
PNC and its subsidiaries.
THERE ARE DIFFERENCES BETWEEN THE RIGHTS OF UNITED NATIONAL SHAREHOLDERS AND PNC
SHAREHOLDERS
United National shareholders who elect to receive shares of PNC common
stock, or who receive PNC common stock as a result of proration, will become PNC
shareholders as a result of the merger and, accordingly, their rights after the
merger will be governed by PNC's amended and restated articles of incorporation,
PNC's bylaws and the laws of the Commonwealth of Pennsylvania. Please read
carefully the summary of the material differences between the rights of United
National shareholders and PNC shareholders under the heading "Comparison of
Rights of Shareholders of PNC and United National" on page 53.
INFORMATION ABOUT PNC AND UNITED NATIONAL
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
(412) 762-2000
PNC is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended, and a financial holding company under the
Gramm-Leach-Bliley Act. PNC was incorporated under Pennsylvania law in 1983 with
the consolidation of Pittsburgh National Corporation and Provident National
Corporation.
PNC is one of the largest diversified financial services organizations in
the United States, currently operating businesses engaged in regional community
banking, corporate banking, real estate finance, asset-based lending, wealth
management, asset management and global fund services. PNC provides certain
products and services nationally and others in PNC's primary geographic markets
in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. PNC also provides
certain asset management and global fund services internationally. At June 30,
2003, PNC's consolidated assets, deposits, and shareholders' equity were
approximately $67.3 billion, $46.7 billion and $6.8 billion, respectively.
United National Bancorp
1130 Route 22 East
Bridgewater, New Jersey 08807-0010
(908) 429-2200
United National Bancorp is a holding company for United Trust Bank, a
state-chartered FDIC-insured commercial bank headquartered in Bridgewater, New
Jersey, operating 52 community banking offices throughout Essex, Hunterdon,
Middlesex, Morris, Somerset, Union and Warren counties in New Jersey and Lehigh
and Northampton counties in Pennsylvania. The Bank provides retail banking,
insurance services, business banking services, commercial lending, consumer and
mortgage lending and trust and investment services. At June 30, 2003, United
National's consolidated assets, deposits, and shareholders' equity were
approximately $3.0 billion, $2.2 billion and $267 million, respectively.
UNITED NATIONAL SHAREHOLDERS DO NOT HAVE APPRAISAL RIGHTS (PAGE 46)
United National is incorporated under New Jersey law. Under New Jersey law,
the shareholders of United National do not have any right to dissent from the
merger or seek an appraisal of the value of their shares in connection with the
merger.
REASONS FOR THE MERGER (PAGES 36 THROUGH 38)
The merger offers United National shareholders both the opportunity to
realize a premium for the value of their shares, as well as the opportunity to
participate in the growth and potential of PNC through the stock component of
the merger consideration. Based on the closing price of PNC common stock on
August 20, 2003, the value of the merger consideration to be received by United
National shareholders in the merger represents a premium of approximately 9.15%
over the closing price of United National common stock on the Nasdaq National
Market on August 20, 2003, and
6
a premium of approximately 17.21% over the weighted average closing price of
United National common stock on the Nasdaq National Market for the thirty
trading days prior to the approval of the transaction by the United National
board of directors.
To review the background and reasons for the merger in greater detail, see
pages 34 through 38.
UNITED NATIONAL'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF THE MERGER (PAGE 37)
The United National board of directors has unanimously determined that the
merger is advisable and in the best interests of United National and its
shareholders. Accordingly, the United National board has approved the merger
agreement and recommends that United National shareholders vote FOR approval and
adoption of the merger agreement.
UNITED NATIONAL OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER THAT ARE
DIFFERENT FROM OR IN ADDITION TO THEIR INTERESTS AS SHAREHOLDERS (PAGES 50
THROUGH 53)
Pre-Existing SERP Agreements. United National had entered into separate
supplemental executive retirement plan ("SERP") agreements with certain of its
executives to supplement the benefit such executives can receive under United
National's 401(k) and defined benefit pension plans. The SERP agreements were
designed to provide a retirement benefit (taking into account the benefits
estimated to be provided under the tax-qualified plans) that was equal to 70% of
the executive's final salary, in the case of Messrs. Gregor and Gerleit, and 60%
of the executive's final salary, in the case of all other executives. United
National has paid to a trust for the benefit of each executive who had a SERP
agreement an amount that fully satisfies any obligation to the executives under
the SERP agreements. The amount of such payments for Messrs. Gregor, Gerleit,
Soles, Tappen and the other executive officers as a group is, respectively,
$2,050,675, $984,855, $773,709, $435,604 and $1,080,957.
Pre-Existing Employment and Change-in-Control Agreements. United National
also had pre-existing employment and change-in-control agreements with each of
Messrs. Gregor, Gerleit, Soles, Tappen and certain other executive officers,
which were superseded by new agreements. Under the old agreements, upon
consummation of the merger agreement, each executive would have been entitled to
receive a lump-sum payment equal to a multiple of his five-year average
compensation. The payments required to be made in connection with a change of
control and payments made under pre-existing SERP agreements would be considered
compensation for purposes of calculating the five-year average. In addition, the
lump-sum payments would be subject to gross-ups in the event of the imposition
of certain taxes.
Employment, Non-Compete and Retention Agreements/Employment and Retention
Agreements. At the time of execution and delivery of the merger agreement, PNC,
United National and certain United National executives entered into certain
agreements. Messrs. Gregor and Gerleit entered into Employment, Non-Compete and
Retention Agreements and Messrs. Soles, Tappen and certain other executive
officers entered into Employment and Retention Agreements, which generally
become effective only upon completion of the merger but, effective upon signing,
supersede each executive officer's existing Employment and Change-in-Control
Agreements. If the merger is not completed, these agreements will be null and
void and of no force and effect. The term of the agreements is three years from
completion of the merger in the case of Messrs. Gregor and Gerleit and one year
from completion of the merger in the case of each of the other executives.
Each of the executives who are party to the agreements has agreed not to
use or disclose any confidential information or to solicit customers and
employees.
Among other terms, described more fully at pages 51 - 52, these agreements
provide that upon completion of the merger, each of the executives is entitled
to a bonus, which represents a portion of the amount that they would have been
entitled to receive under their old agreements. The amount of such payments for
Messrs. Gregor, Gerleit, Soles, Tappen and the other executive officers as a
group is, respectively, $650,000, $450,000, $500,000, $340,000 and $1,505,000.
In addition, in consideration of their future services to PNC and United
National, on the second business day following the first anniversary of the
completion of the merger, subject to the executives' continued employment with
PNC and United National,
7
United National will pay each of the executives a stay bonus. The amount of such
stay bonus for Messrs. Gregor, Gerleit, Soles, Tappen and the other executive
officers as a group is, respectively, $985,000, $685,000, $695,000, $362,000 and
$932,450.
These agreements also provide that during the term each of the executives
will be entitled to receive an annual base salary (equal to the annual base
salary as in effect as of the date of the merger agreement, which in the case of
Mr. Gregor is $443,000 and in the case of Mr. Gerleit is $275,000) as well as
certain other employee benefits and perquisites. Messrs. Gregor and Gerleit's
agreements also provide for the payment of a discretionary annual bonus for each
year during the term, paid in a combination of cash and restricted PNC common
stock. The first year of such bonus is guaranteed. For Messrs. Gregor and
Gerleit, the minimum bonus for the year in which the merger is completed will be
equal to 40% and 25% of their respective annual base salaries.
The non-competition provisions that apply to Messrs. Gregor and Gerleit
restrict each executive's competitive activity in New Jersey, New York or
Pennsylvania (and any other geographic area where the executive conducted
significant business during his employment period). In consideration for their
agreement not to compete, each of Messrs. Gregor and Gerleit will be entitled to
receive a payment of $1,800,000 and $720,000, respectively, which will be
payable over a period of 36 months following completion of the merger.
PNC Advisory Board. PNC has agreed to establish an advisory board and,
before completion of the merger, will offer each member of the United National
board of directors an opportunity to become a member of this advisory board
effective upon completion of the merger. Membership on the advisory board will
be conditioned upon entering into a customary non-competition/non-solicitation
agreement. The PNC advisory board will be maintained for at least two years from
the completion date of the merger. Each member of the PNC advisory board will
receive an annual retainer equal to $7,500 and may receive an additional fee of
$16,000 conditioned upon achieving certain customer referral and new business
goals. PNC has agreed to allow members of the advisory board who are currently
participating in United National's director deferred compensation plans, and who
agree to specified plan amendments, to defer advisory board fees into the
existing plans and to fix in place the existing life insurance benefit
provisions of the plans.
Equity-Based Awards. Stock options representing the right to acquire
293,753 shares of United National common stock held by executive officers and
non-employee directors of United National on August 20, 2003 under the equity
plans sponsored by United National vested upon execution of the merger
agreement. The United National stock options that are outstanding as of the
completion of the merger will terminate and the holder of such option will be
provided with an amount in cash equal to the excess, if any, of the cash merger
consideration over the exercise price of the option.
Indemnification and Insurance. Pursuant to the merger agreement, and
subject to certain limitations, the surviving corporation will indemnify and
hold harmless from liability for acts or omissions occurring at or prior to the
effective time of the merger those current or former directors and officers of
United National currently entitled to indemnification from United National and
its subsidiaries as provided in the certificates of incorporation and by-laws
(or comparable organizational documents) of United National and its
subsidiaries. In addition, the surviving corporation is required to maintain
these policies or similar policies in effect for six years following completion
of the merger, subject to certain limitations described more fully at page 53.
8
MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICE DATA
The principal trading markets for PNC and United National common stock are
the New York Stock Exchange and the Nasdaq National Market, respectively.
HISTORICAL MARKET PRICES AND DIVIDENDS
The following tables set forth, for the periods indicated, the high and low
sales prices per share of PNC common stock and United National common stock on
the NYSE and Nasdaq National Market, respectively, based on published financial
sources, and cash dividends declared on PNC and United National common stock.
PNC
COMMON STOCK
CALENDAR PERIOD HIGH LOW CASH DIVIDEND
--------------- ------ ----------- -------------
(PER SHARE)
Fiscal 2001 (ended December 31, 2001)
First Quarter............................................. $75.81 $56.00 $0.48
Second Quarter............................................ $71.11 $62.40 $0.48
Third Quarter............................................. $70.39 $51.14 $0.48
Fourth Quarter............................................ $60.11 $52.30 $0.48
Fiscal 2002 (ended December 31, 2002)
First Quarter............................................. $62.80 $52.50 $0.48
Second Quarter............................................ $61.49 $49.60 $0.48
Third Quarter............................................. $52.75 $32.70 $0.48
Fourth Quarter............................................ $44.23 $36.02 $0.48
Fiscal 2003 (ending December 31, 2003)
First Quarter............................................. $45.95 $41.63 $0.48
Second Quarter............................................ $50.11 $42.06 $0.48
Third Quarter............................................. $50.17 $46.41 $0.48
Fourth Quarter (through October [--], 2003)............... $ [--] $ [--] $0.50
UNITED NATIONAL
COMMON STOCK
CASH
CALENDAR PERIOD HIGH LOW DIVIDEND(1)
--------------- ------ ----------- ---------------
(PER SHARE)
Fiscal 2001 (ended December 31, 2001)
First Quarter............................................ $20.75 $17.44 $0.20
Second Quarter........................................... $22.68 $18.75 $0.20
Third Quarter............................................ $25.50 $21.25 $0.20
Fourth Quarter........................................... $25.10 $21.00 $0.20
Fiscal 2002 (ended December 31, 2002)
First Quarter............................................ $24.08 $21.42 $0.20
Second Quarter........................................... $23.50 $20.51 $0.20
Third Quarter............................................ $23.25 $17.51 $0.20
Fourth Quarter........................................... $24.11 $19.48 $0.20
9
CASH
CALENDAR PERIOD HIGH LOW DIVIDEND(1)
--------------- ------ ----------- ---------------
(PER SHARE)
Fiscal 2003 (ending December 31, 2003)
First Quarter............................................ $24.59 $23.00 $0.20
Second Quarter........................................... $28.90 $23.50 $0.20
Third Quarter............................................ $33.95 $26.37 $0.20
Fourth Quarter (through [--], 2003)...................... $ [--] $ [--] $ [--]
---------------
(1) Prior to completion of the merger, United National is restricted by the
terms of the merger agreement from paying dividends, other than regular
quarterly cash dividends not in excess of $0.20 per share on United National
common stock and regular cash dividends on the United National REIT
preferred stock.
Post-Merger Dividend Policy. Following the merger, the declaration of
dividends will be at the discretion of the PNC board of directors and will be
determined by PNC's board of directors after consideration of various factors,
including, without limitation, the earnings and financial condition of PNC and
its subsidiaries.
10
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents at the dates and for the periods indicated (i)
historical and pro forma combined per share data for PNC Common Stock, and (ii)
historical and pro forma equivalent per share data for United National Common
Stock. The information is based upon and should be read in conjunction with the
respective historical consolidated financial statements of PNC and United
National incorporated by reference in this proxy statement/prospectus.
The PNC Common Stock pro forma combined data give effect to the merger but
do not reflect anticipated expenses and nonrecurring charges that 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.
The United National Common Stock pro forma equivalent basic earnings per
share, diluted earnings per share and book value per share amounts were computed
by multiplying the respective PNC Common Stock pro forma combined amounts by the
quotient determined by dividing the PNC common stock to be issued in the merger
by the number of United National common shares to be converted into PNC common
shares. This ratio represents the fraction of a share of PNC common stock a
United National shareholder receiving only PNC common stock would receive. The
United National Common Stock pro forma equivalent cash dividends per common
share was computed by multiplying the PNC Common Stock historical cash dividends
per common share by the quotient determined by dividing the PNC common stock to
be issued in the merger by the number of United National common shares to be
converted into PNC common shares. For purposes of these computations, the value
of the merger consideration was based on the closing price of PNC common stock
on August 20, 2003, the day before the merger agreement was executed. These
computations assume that at closing: (i) there would be 18,822,954 United
National common shares outstanding of which 9,380,930 would be converted into
PNC common shares, (ii) total cash consideration to be paid would approximate
$319.9 million, and (iii) 6,551,806 PNC common stock shares would be issued in
the merger.
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.
11
AS OF OR FOR THE AS OF OR FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002
---------------- ----------------
PNC COMMON STOCK:
Basic earnings per share from continuing operations
Historical................................................ $ 1.58 $ 4.23
Pro Forma Combined........................................ 1.59 4.20
Diluted earnings per share from continuing operations
Historical................................................ 1.57 4.20
Pro Forma Combined........................................ 1.58 4.17
Cash dividends per common share
Historical................................................ 0.96 1.92
Book value per share at period end
Historical................................................ 24.16 24.03
Pro Forma Combined........................................ 24.72 24.58
UNITED NATIONAL COMMON STOCK:
Basic earnings per share
Historical................................................ 0.80 1.25
Pro Forma Equivalent...................................... 1.11 2.93
Diluted earnings per share
Historical................................................ 0.80 1.24
Pro Forma Equivalent...................................... 1.10 2.91
Cash dividends per common share
Historical................................................ 0.40 0.80
Pro Forma Equivalent...................................... 0.67 1.34
Book value per share at period end
Historical................................................ 14.20 13.93
Pro Forma Equivalent...................................... 17.25 17.16
12
CONDENSED CONSOLIDATED FINANCIAL DATA OF PNC AND SUBSIDIARIES
The following table shows financial results of PNC as of and for the
periods indicated. PNC's consolidated annual amounts are derived from PNC's
audited consolidated financial statements, and have been prepared in conformity
with accounting principles generally accepted in the United States of America.
Amounts for the six months ended June 30, 2003 and 2002, are unaudited, but PNC
believes the six-month amounts for 2003 and 2002 reflect all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations as of or for these periods in accordance with generally
accepted accounting principles. You should not assume that the results presented
below are indicative of results for any future period.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
PNC AND SUBSIDIARIES
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
2003 2002 2002 2001(A) 2000 1999 1998
------- ------- ------- ------- ------- ------- -------
EARNINGS (IN MILLIONS)
Net interest income............... $ 1,024 $ 1,145 $ 2,197 $ 2,262 $ 2,164 $ 2,344 $ 2,488
Provision for credit losses....... 93 171 309 903 136 163 225
Non interest income............... 1,571 1,660 3,197 2,652 2,950 2,460 2,092
Non interest expense.............. 1,791 1,646 3,227 3,414 3,103 2,838 2,698
------- ------- ------- ------- ------- ------- -------
Income from continuing operations
before minority interest and
income taxes.................... 711 988 1,858 597 1,875 1,803 1,657
Minority interest in income of
consolidated entities........... 24 22 37 33 27 15 6
Income taxes...................... 241 329 621 187 634 586 571
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations...................... 446 637 1,200 377 1,214 1,202 1,080
Income (loss) from discontinued
operations, net of tax.......... -- -- (16) 5 65 62 35
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of
accounting change............... 446 637 1,184 382 1,279 1,264 1,115
Cumulative effect of accounting
change, net of tax.............. -- -- -- (5) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income........................ $ 446 $ 637 $ 1,184 $ 377 $ 1,279 $ 1,264 $ 1,115
======= ======= ======= ======= ======= ======= =======
PER COMMON SHARE DATA
Basic earnings (loss)
Continuing operations........... $ 1.58 $ 2.25 $ 4.23 $ 1.27 $ 4.12 $ 3.98 $ 3.53
Discontinued operations......... -- -- (0.05) 0.02 0.23 0.21 0.11
------- ------- ------- ------- ------- ------- -------
Before cumulative effect of
accounting change............. 1.58 2.25 4.18 1.29 4.35 4.19 3.64
Cumulative effect of accounting
change........................ -- -- -- (0.02) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 1.58 $ 2.25 $ 4.18 $ 1.27 $ 4.35 $ 4.19 $ 3.64
======= ======= ======= ======= ======= ======= =======
13
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
2003 2002 2002 2001(A) 2000 1999 1998
------- ------- ------- ------- ------- ------- -------
Diluted earnings (loss)
Continuing operations........... $ 1.57 $ 2.23 $ 4.20 $ 1.26 $ 4.09 $ 3.94 $ 3.49
Discontinued operations......... -- -- (0.05) 0.02 0.22 0.21 0.11
------- ------- ------- ------- ------- ------- -------
Before cumulative effect of
accounting change............. 1.57 2.23 4.15 1.28 4.31 4.15 3.60
Cumulative effect of accounting
change........................ -- -- -- (0.02) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 1.57 $ 2.23 $ 4.15 $ 1.26 $ 4.31 $ 4.15 $ 3.60
======= ======= ======= ======= ======= ======= =======
Book value (at period end)........ $ 24.16 $ 22.46 $ 24.03 $ 20.54 $ 21.88 $ 19.23 $ 18.86
Cash dividends declared........... $ 0.96 $ 0.96 $ 1.92 $ 1.92 $ 1.83 $ 1.68 $ 1.58
PERIOD END BALANCES (IN MILLIONS)
Total assets...................... $67,262 $66,913 $66,377 $69,638 $69,921 $69,360 $70,829
Total deposits.................... 46,694 44,427 44,982 47,304 47,664 45,802 46,150
Total borrowed funds.............. 7,903 10,480 9,116 12,090 11,718 14,229 15,939
Total shareholders' equity........ 6,774 6,390 6,859 5,823 6,656 5,946 6,043
---------------
(a) See "2001 Strategic Repositioning" in the Consolidated Balance Sheet Review
portion of the Financial Review section of PNC's 2002 Annual Report to
Shareholders, included as Exhibit 13 to PNC's Annual Report on Form 10-K for
the year ended December 31, 2002 for further information regarding items
impacting the comparability of 2001 amounts with other periods presented.
14
CONDENSED CONSOLIDATED FINANCIAL DATA OF UNITED NATIONAL AND SUBSIDIARIES
The following table shows financial results of United National as of and
for the periods indicated. United National's consolidated annual amounts are
derived from United National's audited consolidated financial statements, and
have been prepared in conformity with accounting principles generally accepted
in the United States of America. Amounts for the six months ended June 30, 2003
and 2002, are unaudited, but United National believes the six-month amounts for
2003 and 2002 reflect all normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations as of or for
these periods in accordance with generally accepted accounting principles. You
should not assume that the results presented below are indicative of results for
any future period.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
UNITED NATIONAL AND SUBSIDIARIES
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2003(A) 2002 2002(A) 2001 2000 1999 1998
-------- -------- -------- -------- -------- -------- --------
EARNINGS (IN MILLIONS)
Net interest income............ $ 48.8 $ 35.9 $ 81.0 $ 72.2 $ 69.6 $ 72.9 $ 68.4
Provision for credit losses.... 3.1 9.0 11.2 2.8 4.7 3.8 3.4
Noninterest income............. 16.1 11.7 23.0 22.7 26.6 21.1 24.2
Noninterest expense............ 42.1 31.2 68.7 57.9 57.4 73.0 61.4
-------- -------- -------- -------- -------- -------- --------
Income before income taxes..... 19.7 7.4 24.1 34.2 34.1 17.2 27.8
Income taxes................... 4.5 0.4 3.7 9.4 9.4 5.3 8.2
-------- -------- -------- -------- -------- -------- --------
Net income..................... $ 15.2 $ 7.0 $ 20.4 $ 24.8 $ 24.7 $ 11.9 $ 19.6
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA
Basic earnings
Net income..................... $ 0.80 $ 0.48 $ 1.25 $ 1.64 $ 1.60 $ 0.76 $ 1.26
======== ======== ======== ======== ======== ======== ========
Diluted earnings
Net income..................... $ 0.80 $ 0.47 $ 1.24 $ 1.62 $ 1.59 $ 0.74 $ 1.21
======== ======== ======== ======== ======== ======== ========
Book value (at period end)..... $ 14.20 $ 10.79 $ 13.93 $ 10.53 $ 9.27 $ 7.61 $ 9.97
Cash dividends declared........ $ 0.40 $ 0.40 $ 0.80 $ 0.80 $ 0.80 $ 0.77 $ 0.61
PERIOD END BALANCES (IN MILLIONS)
Total assets................... $3,031.9 $2,060.3 $2,867.7 $1,962.5 $2,112.2 $2,090.4 $1,916.8
Total deposits................. 2,211.6 1,443.2 2,153.4 1,400.7 1,527.4 1,481.2 1,403.4
Total borrowed funds........... 518.2 429.7 415.4 377.2 414.2 456.3 329.6
Total shareholders' equity..... 267.1 157.4 264.7 156.6 141.3 119.1 158.7
---------------
(a) On August 21, 2002, Vista Bancorp, Inc. was merged with and into United
National with United National being the surviving corporation in a
transaction accounted for under the purchase method of accounting. See the
United National Annual Report on Form 10-K for the year ended December 31,
2002 for further information. The comparability of information presented
above for the six months ended June 30, 2003 and the year ended December 31,
2002 with other periods presented is impacted by this transaction.
15
RISK FACTORS
In addition to the other information included in this proxy
statement/prospectus (including the matters addressed in "Special Note Regarding
Forward-Looking Statements," on page 18), you should carefully consider the
matters described below in determining whether to approve the merger agreement
and make a cash or stock election. Please also refer to the additional risk
factors identified in the periodic reports and other documents of PNC and United
National incorporated by reference into this document and listed in "Where You
Can Find More Information."
THE PRICE OF PNC COMMON STOCK MAY DECREASE BEFORE AND AFTER THE MERGER, WHICH
WOULD DECREASE THE VALUE OF THE MERGER CONSIDERATION RECEIVED BY UNITED NATIONAL
SHAREHOLDERS
On August 20, 2003, the day before the merger was announced, the closing
price of a share of PNC common stock was $48.53. On October [ -- ], 2003, the
most recent practicable date before the mailing of this document, the closing
price was $[ -- ]. The price of PNC common stock may decrease before the merger
is completed. The amount of cash or stock that a United National shareholder
will receive is based, in part, on the five-day average of PNC stock before the
merger is completed. A decrease in the stock price would result in a reduction
in the consideration to be received by a United National shareholder.
In addition, fluctuations in the price of PNC stock will occur after
completion of the merger. The trading price of PNC stock received by a United
National shareholder in connection with the merger, therefore, could be lower
than the trading price of PNC stock on August 20, October [ -- ] or the closing
date of the merger. The market value of PNC stock fluctuates based upon general
market economic conditions, PNC's business and prospects and other factors.
SHAREHOLDERS MAY RECEIVE A FORM OF CONSIDERATION DIFFERENT FROM WHAT THEY ELECT
While each United National shareholder may elect to receive all cash or all
PNC stock in the merger, the pools of cash or PNC stock available for all United
National shareholders will be fixed amounts. As a result, if either a cash or
stock election proves to be more popular among United National shareholders, and
you choose the election that is more popular, you might receive a portion of
your consideration in cash and a portion of your consideration in PNC stock.
IF YOU TENDER SHARES OF UNITED NATIONAL COMMON STOCK TO MAKE AN ELECTION, YOU
WILL NOT BE ABLE TO SELL THOSE SHARES UNTIL AFTER THE MERGER, UNLESS YOU REVOKE
YOUR ELECTION PRIOR TO THE ELECTION DEADLINE
To make a cash or stock election, you must deliver your stock certificates
(or follow the procedures for guaranteed delivery) to the exchange agent. The
deadline, for doing this is 5:00 p.m. Eastern time, on [ -- ], 2003, the day
before the special meeting of stockholders. You will not be able to sell any
shares of United National common stock that you have delivered, unless you
revoke your election before the deadline by providing written notice to the
exchange agent. If you do not revoke your election, you will not be able to
liquidate your investment in United National common stock for any reason, until
you receive cash or PNC stock in the merger. In the time between delivery of
your shares and the closing of the merger, the trading price of United National
or PNC common stock may decrease, and you might otherwise want to sell your
shares of United National to gain access to cash, make other investment
opportunities, or reduce the potential for a decrease in the value of your
investment. (See "-- The price of PNC common stock may decrease before and after
the merger" above.)
The date that you will receive your merger consideration depends on the
completion date of the merger, which is uncertain. The completion date of the
merger might be later than expected due to unforeseen events, such as delays in
obtaining regulatory approvals.
THE OPINION OBTAINED BY UNITED NATIONAL FROM ITS FINANCIAL ADVISOR WILL NOT
REFLECT CHANGES IN CIRCUMSTANCES PRIOR TO THE MERGER
Keefe, Bruyette & Woods, Inc., the financial advisor to United National,
has delivered a "fairness opinion" to the board of directors of United National.
The opinion states that as of August 21, 2003, the aggregate merger
consideration to be received by United National shareholders was fair, from a
financial
16
point of view. The opinion does not reflect changes that may occur or may have
occurred after August 20, 2003, including changes to the operations and
prospects of PNC or United National, changes in general market and economic
conditions or other factors. Any such changes, or other factors on which the
opinion is based, may alter the relative value of PNC and United National.
Because United National does not plan to ask Keefe, Bruyette & Woods to update
its opinion, the August 21 opinion may not accurately address the fairness of
the merger consideration, from a financial point of view, at the time the merger
is completed.
THE MERGER AGREEMENT LIMITS UNITED NATIONAL'S ABILITY TO PURSUE ALTERNATIVES TO
THE MERGER
The merger agreement contains terms and conditions that make it more
difficult for United National to sell its business to a party other than PNC.
These "no shop" provisions impose restrictions on United National that, subject
to certain exceptions, limit United National's ability to discuss, facilitate or
commit to competing third-party proposals to acquire all or a significant part
of United National.
In addition, the board of directors of United National has agreed that it
will not recommend a competing acquisition proposal and that it will not
withdraw or negatively modify the recommendation that United National
shareholders vote for the merger, and these agreements are subject to limited
exceptions. While the board of directors could take such actions if it
determined that the failure to do so would violate its fiduciary duties, doing
so would entitle PNC to terminate the merger agreement and to receive a
termination fee of $25 million. United National will also be required to pay the
$25 million termination fee if a competing acquisition proposal has been made
known to United National or its stockholders and the merger agreement is
subsequently terminated for a variety of reasons (including because United
National shareholders fail to approve the merger or because United National
willfully breaches the merger agreement), and United National completes, or
enters into an agreement for, an alternative acquisition transaction during the
12 months after the termination of the merger agreement.
PNC required United National to agree to these provisions as a condition to
PNC's willingness to enter into the merger agreement. However, these provisions
might discourage a third party that might have an interest in acquiring all or a
significant part of United National from considering or proposing that
acquisition even if it were prepared to pay consideration with a higher per
share market price than the current proposed merger consideration, and the
termination fee might result in a potential competing acquirer proposing to pay
a lower per share price to acquire United National than it might otherwise have
proposed to pay.
UNITED NATIONAL'S EXECUTIVE OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER
THAT ARE DIFFERENT FROM YOUR INTEREST AS A UNITED NATIONAL SHAREHOLDER
United National executive officers negotiated the merger agreement with
PNC, and the board of directors approved the agreement and is recommending that
United National shareholders vote for the agreement. In considering these facts
and the other information contained in this document, you should be aware that
United National's executive officers and directors have economic interests in
the merger in addition to the interest that they share with you as a United
National shareholder. As described in detail under the heading "Interests of
Certain Persons in the Merger," there are substantial financial interests to be
conveyed to each executive officer of United National, including Messrs. Gregor,
Gerleit, Soles and Tappen, under either the terms of existing or new employment
agreements and due to the accelerated vesting of stock options and restricted
stock rights in respect of United National common stock. In addition, each
member of the United National board of directors will have the opportunity to
become a member of a PNC advisory board, and receive certain fees based in part
upon the achievement of certain customer referral and new business goals.
17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, and the documents that are made part of
this proxy statement/prospectus by reference to other documents filed with the
SEC, may contain forward-looking statements with respect to PNC's and United
National's outlook or expectations for earnings, revenues, expenses, capital
levels, asset quality or other future financial or business performance,
strategies or expectations, or the impact of legal, regulatory or supervisory
matters on PNC's and United National's business operations or performance.
Forward-looking statements are typically identified by words or phrases such as
"believe," "feel," "expect," "anticipate," "intend," "outlook," "estimate,"
"forecast," "project," "position," "target," "assume," "achievable,"
"potential," "strategy," "goal," "objective," "plan," "aspiration," "outcome,"
"continue," "remain," "maintain," "seek," "strive," "trend," and variations of
such words and similar expressions, or future or conditional verbs such as
"will," "would," "should," "could," "might," "can," "may," or similar
expressions. PNC and United National caution that forward-looking statements are
subject to numerous assumptions, risks and uncertainties, which change over
time. Forward-looking statements speak only as of the date they are made, and
PNC and United National assume no duty and do not undertake to update
forward-looking statements. Actual results could differ materially from those
anticipated in forward-looking statements and future results could differ
materially from historical performance. The factors discussed elsewhere in this
proxy statement/prospectus, and in documents filed with the Securities and
Exchange Commission and incorporated into this proxy statement/prospectus by
reference, and the following factors, among others, could cause actual results
to differ materially from those anticipated in forward-looking statements or
from historical performance:
- Issues related to the completion of the merger of PNC and United National
and the integration of United National's business into that of PNC,
including the following:
- completion of the merger is dependent on, among other things, receipt of
shareholder and regulatory approvals, the timing of which cannot be
predicted with precision at this point and which may not be received at
all;
- the merger may be substantially more expensive to complete than
anticipated, including as a result of unexpected factors or events;
- the integration of United National's business and operations into PNC,
which will include conversion of United National's different systems and
procedures, may take longer than anticipated or be more costly than
anticipated or have unanticipated adverse results relating to United
National's or PNC's existing businesses;
- the anticipated cost savings of the acquisition may take longer to be
realized or may not be achieved in their entirety;
- the anticipated benefits to PNC are dependent in part on United
National's business performance in the future, and there can be no
assurance as to actual future results, which could be affected by
various factors, including the risks and uncertainties generally related
to PNC's and United National's performance or due to factors related to
the acquisition of United National and the process of integrating it
into PNC;
- changes in political, economic or industry conditions, the interest rate
environment or financial and capital markets, which if adverse could
result in:
- a deterioration in credit quality, increased credit losses, and
increased funding of unfunded loan commitments and letters of credit;
- an adverse effect on the allowances for credit losses and unfunded loan
commitments and letters of credit;
- a reduction in demand for credit or fee-based products and services;
18
- a reduction in net interest income, value of assets under management and
assets serviced, value of private equity investments and of other debt
and equity investments, value of loans held for sale or value of other
on-balance sheet and off-balance sheet assets; or
- changes in the availability and terms of funding necessary to meet
United National's or PNC's liquidity needs;
- the relative and absolute investment performance of assets under
management;
- the introduction, withdrawal, success and timing of business initiatives
and strategies, decisions regarding further reductions in balance sheet
leverage, the timing and pricing of any sales of loans held for sale,
and PNC's inability to realize cost savings or revenue enhancements, or
to implement integration plans relating to or resulting from mergers,
acquisitions, restructurings and divestitures, including the merger with
United National;
- customer borrowing, repayment, investment and deposit practices and
their acceptance of United National's or PNC's products and services;
- the impact of increased competition;
- how PNC chooses to redeploy available capital, including the extent and
timing of any share repurchases and acquisitions or other investments in
PNC businesses;
- the inability to manage risks inherent in PNC's and United National's
businesses;
- the unfavorable resolution of legal proceedings or government inquiries;
the impact of increased litigation risk from recent regulatory and other
governmental developments; and the impact of reputational risk created
by recent regulatory and other governmental developments on such matters
as business generation and retention, the ability to attract and retain
management, liquidity and funding;
- the denial of insurance coverage for claims made by United National or
PNC;
- an increase in the number of customer or counterparty delinquencies,
bankruptcies or defaults that could result in, among other things,
increased credit and asset quality risk, a higher provision for credit
losses and reduced profitability;
- the impact, extent and timing of technological changes, the adequacy of
intellectual property protection and costs associated with obtaining
rights in intellectual property claimed by others;
- actions of the Federal Reserve Board affecting interest rates, money
supply or otherwise reflecting changes in monetary policy;
- the impact of legislative and regulatory reforms and changes in
accounting policies and principles;
- the impact of the regulatory examination process, PNC's failure to
satisfy the requirements of written agreements with regulatory and other
governmental agencies, and regulators' future use of supervisory and
enforcement tools; and
- terrorist activities and international hostilities, which may adversely
affect the general economy, financial and capital markets, specific
industries, and United National or PNC.
Most of these factors are difficult to predict accurately and are generally
beyond the control of PNC and United National.
You should consider the areas of risk described above in connection with
any forward-looking statements that may be made by PNC or United National.
Neither PNC nor United National undertakes any obligation to update any
forward-looking statements which are only made as of the date of this document
or the documents incorporated by reference.
19
THE SHAREHOLDERS MEETING
PURPOSE, TIME AND PLACE
This proxy statement/prospectus is being furnished to you in connection
with the solicitation of proxies by the United National board of directors from
holders of United National common stock, the only class of United National
capital stock outstanding, for use at the special meeting to be held at United
National's offices located at 1130 Route 22 East, Bridgewater, New Jersey
08807-0010, on [DAY], [DATE], 2003 at 10:00 a.m., local time and at any
adjournments or postponements of the special meeting. At the special meeting,
holders of United National common stock will be asked to consider and vote upon
a proposal to approve and adopt the merger agreement, a proposal to adjourn the
special meeting, if necessary, to solicit additional proxies in favor of the
merger, and such other matters as may properly come before the special meeting.
RECORD DATE; VOTING POWER
The United National board has fixed the close of business (5:00 p.m.,
Eastern time) on [--], 2003 as the record date for determining the holders of
United National common stock entitled to notice of, and to vote at, the special
meeting. Only holders of record of United National common stock at the close of
business on the record date will be entitled to notice of, and to vote at, the
special meeting.
At the date hereof, approximately [--] shares of United National common
stock were issued and outstanding and entitled to vote at the special meeting.
Holders of record of United National common stock are entitled to one vote per
share on any matter which may properly come before the special meeting. Votes
may be cast at the special meeting in person or by proxy.
The presence at the special meeting, either in person or by proxy of the
holders of a majority of the outstanding United National common stock entitled
to vote, is necessary to constitute a quorum in order to transact business at
the special meeting. However, if a quorum is not present at the special meeting,
it is expected that the meeting will be adjourned or postponed in order to
solicit additional proxies.
United National intends to conduct the special meeting in accordance with
the rules and procedures it has used in the past with respect to shareholder
meetings. Election inspectors appointed for the meeting will tabulate the votes
cast by proxy or in person at the meeting. The election inspectors will
determine whether or not a quorum is present.
VOTES REQUIRED
Under applicable New Jersey law, a majority of the votes cast at the United
National special meeting is required to approve the merger agreement. For
purposes of determining the number of votes cast with respect to a matter, only
those votes cast "for" and "against" a proposal are counted. "Broker non-votes,"
if any are submitted by brokers or nominees in connection with the special
meeting, will not be counted as votes "for" or "against" for purposes of
determining the number of votes cast but will be treated as present for quorum
purposes. "Broker non-votes" are shares held by brokers or nominees as to which
voting instructions have not been received from the beneficial owners or the
persons entitled to vote those shares and the broker or nominee does not have
discretionary voting power under the applicable Nasdaq National Market rules.
Abstentions will be treated as shares that are present for purposes of
determining the presence of a quorum but will not be counted "for" or "against"
a proposal.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
As of the date hereof, United National's directors and executive officers
and their affiliates may be deemed to be the beneficial owners of approximately
[--] outstanding shares of United National common stock (collectively
representing approximately [--]% of the voting power of the common stock). It is
currently expected that all directors and executive officers will vote in favor
of approving the merger agreement.
20
VOTING OF PROXIES
Shares represented by properly executed proxies (through the return of the
enclosed proxy card) received in time for the special meeting will be voted at
the special meeting in the manner specified by such proxies. If your proxy is
properly executed but does not contain voting instructions, your proxy will be
voted FOR approval of the merger agreement. If other matters are properly
presented before the special meeting, the persons named in such proxy will have
authority to vote in accordance with their judgment on any other such matters.
It is not expected that any matter other than as described in this proxy
statement/prospectus will be brought before the special meeting.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed proxy card does not preclude a
shareholder from voting in person. You may revoke a proxy at any time prior to
your proxy being voted at the special meeting by:
- delivering, prior to the special meeting, to the Corporate Secretary of
United National at 1130 Route 22 East, Bridgewater, New Jersey
08807-0010, a written notice of revocation bearing a later date or time
than the proxy;
- submitting another proxy by mail that is later dated and, if applicable,
that is properly signed; or
- attending the special meeting and voting in person.
Attendance at the special meeting will not by itself constitute revocation
of a proxy. If an adjournment occurs, it will have no effect on the ability of
shareholders as of the record date to exercise their voting rights or to revoke
any previously delivered proxies. United National does not expect to adjourn the
special meeting for a period of time long enough to require the setting of a new
record date for such meeting.
ADJOURNMENTS
Although it is not expected, the special meeting may be adjourned for the
purpose of soliciting additional proxies in favor of the merger. Any adjournment
of the special meeting may be made without notice, other than by an announcement
made at the special meeting, by approval of the holders of a majority of the
shares of United National common stock present in person or represented by proxy
at the special meeting, whether or not a quorum exists. Any adjournment or
postponement of the special meeting for the purpose of soliciting additional
proxies will allow United National shareholders who have already sent in their
proxies to revoke them at any time prior to their use.
SOLICITATION OF PROXIES
United National generally will bear the cost of soliciting proxies. In
addition to solicitation by mail, the directors, officers and employees of
United National and its subsidiaries may solicit proxies from shareholders by
telephone, telegram or in person. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and United National will reimburse such company's custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection with
doing so.
In addition, United National has retained Georgeson Shareholder
Communications, Inc. to assist United National in the solicitation of proxies
from shareholders in connection with the special meeting. Georgeson Shareholder
Communications, Inc. will receive a fee which United National expects will not
exceed $12,500 as compensation for its services and reimbursement of its
out-of-pocket expenses. United National has agreed to indemnify Georgeson
Shareholder Communications, Inc. against certain liabilities arising out of or
in connection with its engagement.
UNITED NATIONAL SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
21
THE MERGER AGREEMENT
GENERAL
The PNC board of directors and the United National board of directors have
each unanimously approved and adopted the merger agreement, the merger and the
other transactions contemplated by the merger agreement. The merger agreement
contemplates the merger of United National with and into PNC Bancorp, Inc., a
wholly owned subsidiary of PNC, with PNC Bancorp, Inc. continuing as the
surviving corporation. This section of the proxy statement/prospectus describes
material provisions of the merger agreement. This description does not purport
to be complete and is qualified in its entirety by reference to the merger
agreement, a copy of which is attached as Annex A to this proxy
statement/prospectus and is incorporated into this proxy statement/prospectus by
reference. We urge you to read the merger agreement carefully and in its
entirety.
FORM OF THE MERGER
Under the terms of the merger agreement, United National will be merged
with and into PNC Bancorp, Inc., a wholly owned subsidiary of PNC, and PNC
Bancorp, Inc. will be the surviving corporation in the merger and will continue
its corporate existence under Delaware law.
TIMING OF COMPLETION OF THE MERGER
The completion of the merger will take place no later than the fifth
business day after satisfaction or waiver of the conditions to the merger set
forth in the merger agreement unless another time or date is agreed to by PNC
and United National. However, the merger agreement provides that, unless
otherwise determined by PNC and United National, the completion date of the
merger will not occur before January 2, 2004.
MERGER CONSIDERATION
As a result of the merger, United National shareholders will have the
right, with respect to each of their shares of United National common stock, to
elect to receive, subject to proration as described below, merger consideration
consisting of either cash or shares of PNC common stock. The aggregate value of
the merger consideration will fluctuate with the value of PNC common stock and
will be determined based on the average of the closing prices of PNC common
stock for the five trading days preceding but not including the trading day
prior to completion of the merger. As explained in more detail in this proxy
statement/prospectus, whether you make a cash election or a stock election, the
value of the consideration that you will receive as of the completion date will
be the same based on the PNC stock price used to calculate the merger
consideration. Any United National shareholder who does not make a valid
election in his or her form of election will receive cash, shares of PNC common
stock or a mixture of cash and shares of PNC common stock, based on what is
available after giving effect to the valid elections made by other shareholders,
as well as the proration described below. In addition, United National
shareholders may specify different elections with respect to different shares
held by them (for example, a shareholder with 100 shares could make a cash
election with respect to 50 shares and a stock election with respect to the
other 50 shares).
Cash Election. The merger agreement provides that each United National
shareholder who makes a valid cash election will have the right to receive, in
exchange for each share of United National common stock, an amount in cash equal
to the Per Share Amount. Based on the closing price of PNC common stock on [--],
2003, the Per Share Amount was approximately $[--], subject to possible
proration and adjustment. The total amount of cash that will be paid in the
merger is fixed and as a result, even if you make a cash election, you may
nevertheless receive a mix of cash and stock.
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The "PER SHARE AMOUNT" is the amount obtained by dividing the Closing
Transaction Value by the number of shares of United National common stock
outstanding immediately prior to completion of the merger.
- The "CLOSING TRANSACTION VALUE" is the dollar amount of the sum of (A)
the Aggregate Cash Amount and (B) the product of the Aggregate PNC Share
Amount and the Closing PNC Share Value.
- The "AGGREGATE CASH AMOUNT" is the amount obtained by multiplying $17.00
by the Aggregate Company Share Amount.
- The "AGGREGATE COMPANY SHARE AMOUNT" is the number of shares of United
National common stock equal to 18,822,954, increased prior to the
effective time by the number of shares of United National common stock
issued as a result of the exercise of outstanding United National stock
options granted under United National stock plans.
- The "AGGREGATE PNC SHARE AMOUNT" is the number of shares of PNC common
stock obtained by multiplying the Aggregate Company Share Amount by
$17.00 and dividing that product by $48.84.
- The "CLOSING PNC SHARE VALUE" is the arithmetic average of the 4:00 p.m.
Eastern time closing sales prices of PNC common stock reported on the
NYSE composite transaction tape for the five consecutive trading days
preceding, but not including, the trading day prior to the completion
date of the merger.
Stock Election. The merger agreement provides that each United National
shareholder who makes a valid stock election will have the right to receive, in
exchange for each share of United National common stock, a fraction of a share
of PNC common stock equal to the Exchange Ratio. The total number of shares of
PNC common stock that will be issued in the merger is fixed (subject to the
adjustments set forth above) and as a result, even if you make a stock election,
you may nevertheless receive a mix of cash and stock.
The "EXCHANGE RATIO" is defined in the merger agreement as the number of
shares of PNC stock obtained by dividing the Per Share Amount (determined as
described above) by the Closing PNC Share Value (determined as described above).
Non-Electing Shares. United National shareholders who make no election to
receive cash or PNC common stock in the merger, and United National shareholders
who do not make a valid election, will be deemed not to have made an "election."
Shareholders not making an election may be paid in cash, PNC common stock or a
mix of cash and shares of PNC common stock depending on, and after giving effect
to, the number of valid cash elections and stock elections that have been made
by other United National shareholders using the proration adjustment described
below.
Adjustments to Preserve Tax Treatment. The number of shares of PNC common
stock that may be issued in the merger to United National shareholders may be
increased, and the aggregate amount of cash that will be issued to United
National shareholders may be decreased, as described in the formula below, if
such adjustment is necessary to ensure that the merger qualifies as a
"reorganization" for United States federal income tax purposes as described
under "The Merger -- Material Federal Income Tax Consequences of the Merger" on
page 47.
The merger agreement provides that if the quotient obtained by dividing:
- the product of the "Aggregate PNC Share Amount" (as defined above) and
the arithmetic average of the high and low sales prices of PNC common
stock reported on the NYSE composite transaction tape on the date of
completion of the merger, by
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- the sum of the "Aggregate Cash Amount" (as defined above) and the product
of (1) the Aggregate PNC Share Amount and (2) the arithmetic average of
the high and low sales prices of PNC common stock reported on the date of
completion of the merger,
is less than 0.425, then for all purposes of the merger agreement the Aggregate
PNC Share Amount will be increased by the fewest number of shares of PNC common
stock required to prevent the quotient from being less than 0.425, and the
market value of any additional PNC shares will be subtracted from the Aggregate
Cash Amount.
Proration. The total number of shares of PNC common stock that will be
issued and cash that will be paid in the merger is fixed at 6,551,806 shares and
$319,990,218, respectively, subject to adjustment only:
- for increases in shares of United National common stock prior to the
effective time of the merger as a result of the exercise of outstanding
United National stock options issued under United National stock plans;
- to preserve the intended tax treatment of the merger, as described above
under "-- Adjustments to Preserve Tax Treatment"; and
- to prevent termination of the merger agreement, as described below under
"-- Termination of the Merger Agreement."
Therefore, the cash and stock elections are subject to proration to preserve
this limitation on the number of shares of PNC common stock and cash to be
issued in the merger. As a result, even if you make the cash election or stock
election, you may nevertheless receive a mix of cash and stock.
Proration if Too Much Stock is Elected. Cash may be paid to shareholders
who make stock elections if the stock election is oversubscribed. The total
number of shares of United National common stock for which valid stock elections
are made is known as the "STOCK ELECTION NUMBER." The maximum number of shares
of United National common stock that may be converted into shares of PNC common
stock in the merger is equal to the Stock Conversion Number. The "STOCK
CONVERSION NUMBER" is equal to the quotient obtained by dividing (1) the
Aggregate PNC Share Amount by (2) the Exchange Ratio.
If the Stock Election Number is greater than the Stock Conversion Number,
the stock election is oversubscribed. If the stock election is oversubscribed,
then:
- United National shareholders making a cash election or no election will
receive merger consideration consisting only of cash for each share of
United National common stock;
- United National shareholders will receive for each share of United
National common stock with respect to which they made a stock election:
- a number of shares of PNC common stock equal to the "Exchange Ratio" (as
defined above) multiplied by the fraction with (1) a numerator equal to
the Stock Conversion Number and (2) a denominator equal to Stock
Election Number; and
- an amount in cash equal to the product of the "Per Share Amount" (as
defined above) and a fraction equal to one minus the fraction with (1) a
numerator equal to the Stock Conversion Number and (2) a denominator
equal to Stock Election Number.
Proration if Too Much Cash is Elected. PNC common stock may be issued to
shareholders who make cash elections if the cash election is oversubscribed. If
the Stock Election Number is less than the Stock Conversion Number, the cash
election is oversubscribed. The amount by which the Stock Election Number is
less than the Stock Conversion Number is known as the "SHORTFALL NUMBER."
If the cash election is oversubscribed, then all United National
shareholders making a stock election will receive merger consideration
consisting only of PNC common stock for each share of United National common
stock.
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If the Shortfall Number is less than or equal to the number of shares for
which no election was made, then:
- United National shareholders making a cash election will receive merger
consideration consisting only of cash for each share of United National
common stock; and
- United National shareholders will receive for each share of United
National common stock deemed to be a non-electing share:
- a number of shares of PNC common stock equal to the Exchange Ratio
multiplied by the fraction with (1) a numerator equal to the Shortfall
Number and (2) a denominator equal to the total number of non-electing
shares; and
- an amount in cash equal to the product of the Per Share Amount (as
described above) and a fraction equal to one minus the fraction with (1)
a numerator equal to the Shortfall Number and (2) a denominator equal to
the total number of non-electing shares.
If the Shortfall Number exceeds the number of non-electing shares, then:
- United National shareholders who have not made a valid election of either
cash or stock will receive merger consideration consisting only of PNC
common stock based upon the Exchange Ratio for each share of United
National common stock; and
- United National shareholders will receive for each share of United
National common stock with respect to which they made a cash election:
- a number of shares of PNC common stock equal to the Exchange Ratio
multiplied by the fraction with (1) a numerator equal to the amount by
which the Shortfall Number exceeds the number of non-electing shares and
(2) a denominator equal to the total number of cash election shares; and
- an amount in cash equal to the product of the Per Share Amount and a
fraction equal to one minus the fraction with (1) a numerator equal to
the amount by which the Shortfall Number exceeds the number of
non-electing shares and (2) a denominator equal to the total number of
cash election shares.
Treasury Shares and Shares Held by PNC or United National or Any of Their
Subsidiaries. Any shares of United National common stock owned immediately
prior to the effective time of the merger by United National will be cancelled
and retired and will cease to exist, and no consideration will be delivered in
exchange for those shares. All shares of United National common stock owned
directly by PNC or by a subsidiary of PNC or United National will be converted
in the merger into PNC common stock.
United National Stock Options. Upon completion of the merger, all
outstanding stock options issued under a United National stock plan representing
a right to receive United National common stock, whether or not such stock
options are exercisable or vested, will be cancelled and converted into the
right to receive from PNC, subject to any required withholding taxes, cash equal
to the Per Share Amount less the per share exercise price for each share of
United National common stock subject to such United National stock options.
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES; ELECTIONS AS TO FORM OF
CONSIDERATION
The conversion of United National common stock into the right to receive
the merger consideration will occur automatically at the effective time of the
merger. As soon as reasonably practicable after the effective time of the
merger, [--], as exchange agent, will exchange certificates representing shares
of United National common stock for merger consideration to be received in the
merger pursuant to the terms of the merger agreement.
Election Form. The merger agreement provides that at the time this proxy
statement/prospectus is made available to shareholders, United National
shareholders will be provided with a form of election and
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other appropriate and customary transmittal materials. Each election form will
allow the holder to make cash or stock elections. The exchange agent will also
make available forms of election to holders of United National common stock who
request the form of election prior to the election deadline described below.
Holders of United National common stock who wish to elect the type of
merger consideration they will receive in the merger should carefully review and
follow the instructions set forth in the form of election. Shareholders who hold
their shares in "street name" should follow their broker's instructions for
making an election with respect to such shares. Shares of United National common
stock as to which the holder has not made a valid election prior to the election
deadline, which is 5:00 p.m., Eastern time, on [--], 2003, the day prior to the
date of the special meeting, will be treated as though they had not made an
election.
To make an election, a holder of United National common stock must submit a
properly completed election form, together with stock certificates, so that it
is actually received by the exchange agent at or prior to the election deadline
in accordance with the instructions on the election form.
An election form will be properly completed only if accompanied by
certificates representing all shares of United National common stock covered by
the election form (or appropriate evidence as to the loss, theft or destruction,
appropriate evidence as to the ownership of that certificate by the claimant,
and appropriate and customary indemnification, as described in the election
form). If a shareholder cannot deliver his or her stock certificates to the
exchange agent by the election deadline, a shareholder may deliver a notice of
guaranteed delivery promising to deliver his or her stock certificates, as
described in the form of election, so long as (1) the guarantee of delivery is
from a firm which is a member of the NYSE or another registered national
securities exchange or a commercial bank or trust company having an office in
the United States and (2) the actual stock certificates are in fact delivered to
the exchange agent by the time set forth in the guarantee of delivery.
Generally, an election may be revoked or changed, but only by written
notice received by the exchange agent prior to the election deadline accompanied
by a properly completed and signed form of election. If an election is revoked,
or the merger agreement is terminated, and any certificates have been
transmitted to the exchange agent, the exchange agent will promptly return those
certificates to the shareholder who submitted those certificates via first-class
mail or, in the case of shares of United National common stock tendered by
book-entry transfer into the exchange agent's account at the Depository Trust
Company, DTC, by crediting to an account maintained by such shareholder within
DTC promptly following the termination of the merger or revocation of the
election.
Shareholders will not be entitled to revoke or change their elections
following the election deadline. As a result, shareholders who have made
elections will be unable to revoke their elections or sell their shares of
United National common stock during the interval between the election deadline
and the date of completion of the merger.
Shares of United National common stock as to which the holder has not made
a valid election prior to the election deadline, including as a result of
revocation, will be deemed non-electing shares. If it is determined that any
purported cash election or stock election was not properly made, the purported
election will be deemed to be of no force or effect and the holder making the
purported election will be deemed not to have made an election for these
purposes, unless a proper election is subsequently made on a timely basis.
Letter of Transmittal. Soon after the completion of the merger, the
exchange agent will send a letter of transmittal to only those persons who were
United National shareholders at the effective time of the merger and who have
not previously submitted an election form and properly surrendered shares of
United National common stock to the exchange agent. This mailing will contain
instructions on how to surrender shares of United National common stock (if
these shares have not already been surrendered) in exchange for the merger
consideration the holder is entitled to receive under the merger agreement.
If a certificate for United National common stock has been lost, stolen or
destroyed, the exchange agent will issue the consideration properly payable
under the merger agreement upon receipt of appropriate
26
evidence as to that loss, theft or destruction, appropriate evidence as to the
ownership of that certificate by the claimant, and appropriate and customary
indemnification.
Dividends and Distributions. Until United National common stock
certificates are surrendered for exchange, any dividends or other distributions
declared after the effective time with respect to PNC common stock into which
shares of United National common stock may have been converted will accrue but
will not be paid. When duly surrendered, PNC will pay any unpaid dividends or
other distributions, without interest. After the effective time, there will be
no transfers on the stock transfer books of United National of any shares of
United National common stock. If certificates representing shares of United
National common stock are presented for transfer after the completion of the
merger, they will be cancelled and exchanged for the merger consideration into
which the shares of United National common stock represented by that certificate
have been converted.
Withholding. The Exchange Agent will be entitled to deduct and withhold
from the merger consideration payable to any United National shareholder the
amounts it is required to deduct and withhold under any federal, state, local or
foreign tax law. If the Exchange Agent withholds any amounts, these amounts will
be treated for all purposes of the merger as having been paid to the
shareholders from whom they were withheld.
FRACTIONAL SHARES
No fractional shares of PNC common stock will be issued to any United
National shareholder upon surrender of certificates previously representing
shares of United National common stock. Instead, a cash payment will be paid in
an amount equal to the product of (1) the fractional part of a share of PNC
common stock such shareholder would otherwise be entitled to receive (taking
into account all shares held by such shareholder), multiplied by (2) the
arithmetic average closing sales prices of PNC common stock reported on the NYSE
for each of the five trading days preceding, but not including, the trading day
prior to the completion date of the merger.
BOARD OF DIRECTORS AND OFFICERS FOLLOWING THE MERGER
The directors and officers of PNC will remain the directors and officers of
PNC following the merger until their successors are duly elected, appointed or
qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and the by-laws of PNC.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains certain customary mutual representations and
warranties by each of PNC and United National. Some of the most significant of
these relate to:
- organization, standing and corporate power;
- subsidiaries;
- capital structure;
- authority and noncontravention;
- documents filed by each of PNC and United National with the SEC and other
regulatory entities, the accuracy of information contained in those
documents, as well as information to be supplied for inclusion in the
proxy statement/prospectus and the registration statement, and the
absence of undisclosed liabilities of each of PNC and United National;
- absence of material changes or events with respect to each of PNC and
United National since June 30, 2003;
- employee benefits;
- tax matters;
27
- compliance with applicable laws; and
- litigation.
In addition, United National made additional representations to PNC
regarding, among other things:
- receipt of the opinion of Keefe, Bruyette & Woods stating that, as of the
date of the merger agreement, the aggregate merger consideration was fair
from a financial point of view to the shareholders of United National;
- the inapplicability of state anti-takeover laws;
- material contracts;
- intellectual property;
- real property;
- loan portfolio; and
- investment securities and commodities.
CERTAIN COVENANTS
United National. Pending completion of the merger and subject to certain
exceptions, including the reasonable consent of PNC, United National has agreed
to, and to cause its subsidiaries to:
- conduct their businesses in the ordinary course consistent with past
practice and in compliance with applicable laws;
- pay their material debts and material taxes when due; and
- use all commercially reasonable efforts consistent with the other terms
of the merger agreement to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve in all material respects their relationships with
those persons having business dealings with them.
In addition, pending completion of the merger and subject to certain
exceptions, including the reasonable consent of PNC, United National agreed, and
agreed to cause any of its subsidiaries to, refrain from taking certain other
actions, including the following:
- declaring or paying any dividends or distributions on any shares of its
stock, except for cash dividends on (1) United National's common stock at
a regular quarterly rate not to exceed $0.20 per share and (2) certain
other United National securities;
- splitting, combining or reclassifying any shares of its stock;
- purchasing, redeeming or acquiring its capital stock;
- issuing or encumbering or subjecting to any lien any shares of its
capital stock;
- amending its certificate of incorporation or by-laws;
- acquiring or agreeing to acquire certain businesses, or opening, closing,
selling or acquiring any branches;
- selling, encumbering or subjecting to any lien any material properties or
assets other than in the ordinary course of business;
- other than certain short-term borrowings, incurring indebtedness, or
making any loans, capital contributions to or investments in any person
other than its wholly owned subsidiaries;
- materially changing its accounting methods or methods of reporting income
and deductions for federal income tax purposes;
28
- materially changing investment or risk management policies;
- creating, renewing, or amending any agreement or contract or other
binding obligation of United National restricting United National from
conducting business as it is presently being conducted or restricting
United National or its subsidiaries from engaging in any type of activity
or business;
- incurring significant capital or other expenditures outside of the
ordinary course of business;
- terminating, amending, modifying or violating significant contracts or
obligations other than amendments and modifications in the ordinary
course of business;
- altering its interests in any material business entity;
- granting an increase in compensation or severance pay to, or entering
into or amending benefit or other agreements with, current or former
directors, officers or key employees of United National or its
subsidiaries, other than as disclosed by United National to PNC, or as
required by applicable law or certain arrangements in effect prior to the
time of the merger agreement;
- making or changing tax elections;
- agreeing to any material agreements or material modifications of any
existing agreements with any governmental entities;
- settling or satisfying significant claims or obligations other than in
the ordinary course of business consistent with past practice;
- broadly distributing communications of a general nature to United
National employees or customers without the approval of PNC, except for
communications that are in the ordinary course of business and do not
relate to the merger or related transactions; and
- creating or effecting changes to insurance policies material to United
National and its subsidiaries, taken as a whole.
PNC. Pending completion of the merger and subject to certain exceptions,
including the reasonable consent of United National, PNC agreed, and agreed to
cause its subsidiaries to, refrain from taking certain actions, including the
following:
- amending its articles of incorporation or by-laws if such amendment would
affect the economic benefit of the merger to United National
shareholders;
- knowingly taking any action that could reasonably be expected to
jeopardize or materially delay receipt of required governmental approval
of the merger;
- entering into any agreement directly or indirectly to acquire or purchase
all or substantially all of the assets or capital stock of another
entity, unless such transaction would not materially delay completion of,
or materially impair the prospects of completing, the merger; and
- materially and adversely changing the nature of the business conducted by
PNC and its subsidiaries, taken as a whole.
Transition. PNC and United National have agreed to use their reasonable
best efforts to facilitate the integration of United National with PNC. Both
parties have agreed to consult with each other with respect to their loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves), and with respect to the character,
amount and timing of restructuring charges to be taken by either party.
Affiliate Agreements. United National has agreed to deliver to PNC for
each of its affiliates an agreement that such person will not dispose of any
shares of PNC common stock in violation of the Securities Act.
PNC Advisory Board. PNC has agreed to establish an advisory board and,
before completion of the merger, will offer each member of the United National
board of directors an opportunity to become a
29
member of this advisory board effective upon completion of the merger. See "The
Merger -- Interests of Certain Persons in the Merger -- Advisory Board."
Membership on the advisory board will be conditioned upon entering into a
customary non-competition/non-solicitation agreement. The PNC advisory board
will be maintained for at least two years from the completion date of the
merger. Each member of the PNC advisory board will receive an annual retainer
equal to $7,500 and may receive an additional fee of $16,000 conditioned upon
achieving certain customer referral and new business goals. PNC has agreed to
allow members of the advisory board who are currently participating in United
National's director deferred compensation plans, and who agree to specified plan
amendments, to defer advisory board fees into the existing plans and to fix in
place the existing life insurance benefit provisions of the plans.
NO SOLICITATION
The merger agreement provides that neither United National nor any of its
subsidiaries, nor their respective officers, directors, agents or
representatives until the earlier of the effective time of the merger and the
termination of the merger agreement, may:
- solicit, initiate, or encourage (including by way of furnishing
information), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes a "Company
Takeover Proposal" as defined below;
- participate in any discussions or negotiations regarding any Company
Takeover Proposal;
- enter into any agreement regarding any Company Takeover Proposal; or
- make or authorize any statement, recommendation or solicitation in
support of any Company Takeover Proposal.
The merger agreement defines a "COMPANY TAKEOVER PROPOSAL" as:
- any proposal or offer from any person relating to any direct or indirect
acquisition or purchase of (1) assets of United National and its
subsidiaries that generate 20% or more of the net revenues or net income,
or that represents 20% of more of the total assets of United National and
its subsidiaries, taken as a whole, or (2) 20% or more of any class of
equity securities of United National;
- any tender offer or exchange offer that if consummated would result in
any person beneficially owning 20% or more of any class of any equity
securities of United National; or
- any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving United National
(or one or more of its subsidiaries, individually or taken together,
whose business constitutes 20% or more of the net revenues, net income or
total assets of United National and its subsidiaries, taken as a whole),
other than the transactions contemplated by the merger agreement.
Notwithstanding the above restrictions, and subject to certain conditions,
United National will be permitted to do the following in respect of a Company
Takeover Proposal:
- furnish information with respect to United National and any of its
subsidiaries to the person making a Company Takeover Proposal pursuant to
a customary confidentiality agreement;
- participate in discussions and negotiations with the person making the
proposal; and
- make a change in the recommendation of United National's board of
directors to its shareholders.
In order for United National to take the actions listed above, the
following conditions must be met:
- the special meeting of United National shareholders to consider the
merger must not have occurred;
- the United National board of directors must determine in good faith,
after consultation with outside counsel, that such action is necessary in
order to act in a manner consistent with the board's
30
fiduciary duties to United National's shareholders under applicable law
in light of a bona fide Company Takeover Proposal that has not been
withdrawn;
- the Company Takeover Proposal must not have been solicited by the board
and must not have otherwise resulted from a breach of United National's
obligations under the "no solicitation" covenant described above; and
- United National must have previously provided prior written notice to PNC
of its decision to take such action.
Except as permitted under circumstances described above, neither the board
of directors of United National nor any committee of United National's board of
directors may:
- withdraw, modify or qualify (or propose to do so), in a manner adverse to
PNC, the approval of the merger agreement, the merger or the other
transactions contemplated by the merger agreement or the United National
board's recommendation, or take any action or make any statement in
connection with the United National shareholders meeting inconsistent
with such approval or United National board recommendation; or
- approve or recommend, or propose publicly to approve or recommend, any
Company Takeover Proposal.
United National is required to promptly (and in any event within 24 hours)
advise PNC of any request for information relating to a Company Takeover
Proposal, or of any Company Takeover Proposal, the material terms and conditions
of such request or Company Takeover Proposal and the identity of the person
making such request or Company Takeover Proposal. United National is also
required to provide promptly (and in any event within 24 hours) to PNC copies of
any such written request or Company Takeover Proposal.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that the surviving corporation for a period
of six years following the merger will indemnify and hold harmless from
liability for acts or omissions occurring at or prior to the completion of the
merger those current or former directors and officers of United National
currently entitled to indemnification from United National and its subsidiaries
as provided in the certificates of incorporation and by-laws (or comparable
organizational documents) of United National and its subsidiaries, and any
indemnification agreements or arrangements of United National will survive the
merger and will continue in full force and effect in accordance with their
terms. The merger agreement also provides that for six years after the effective
time of the merger, the surviving corporation will maintain United National's
current liability insurance covering acts or omissions occurring prior to the
effective time of the merger for those persons who were covered by United
National's directors' and officers' liability insurance policy on terms and in
amounts no less favorable than those in effect on the date of the merger
agreement. The surviving corporation, however, will not be required to pay more
than 150% of the amount paid by United National in 2003 on an annualized basis
to maintain such insurance.
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CONDITIONS TO THE CONSUMMATION OF THE MERGER
The completion of the merger depends upon meeting a number of conditions,
including the following:
- approval and adoption of the merger agreement by United National
shareholders;
- receipt of all governmental consents and approvals required to complete
the merger and, if determined by PNC, the bank combination;
- making or obtaining all other notices, consents or waivers from
non-governmental third parties with respect to the transactions
contemplated by the merger agreement, except as would not reasonably be
expected to have a material adverse effect on PNC or United National;
- absence of any legal prohibition on consummation of the merger or, if
determined by PNC, the bank combination;
- the registration statement, of which this proxy statement/prospectus is a
part, having become effective under the Securities Act and no stop order
or proceedings seeking a stop order having been entered or pending by the
SEC; and
- authorization by the NYSE of the listing of shares of PNC common stock
issuable in the merger to United National shareholders on the NYSE.
In addition, PNC's obligation to complete the merger is subject to, among
other things:
- the accuracy of the representations and warranties made by United
National and the performance of obligations by United National as
required under the merger agreement;
- the absence of any condition imposed by a governmental entity in
connection with any merger or bank regulatory approval that requires
United National or its subsidiaries to be operated in a manner that would
have a material adverse effect on United National or PNC; and
- the receipt of an opinion of PNC's counsel to the effect that the merger
will qualify as a "reorganization" for United States federal income tax
purposes.
In addition, United National's obligation to complete the merger is subject
to, among other things:
- accuracy of the representations and warranties made by PNC and the
performance of obligations by PNC as required under the merger agreement;
and
- the receipt of an opinion of United National's counsel to the effect that
the merger will qualify as a "reorganization" for United States federal
income tax purposes.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the completion
of the merger:
- by mutual written consent of PNC and United National;
- by either PNC or United National if:
- the merger is not completed by August 21, 2004 (other than because of a
breach of the merger agreement caused by the terminating party);
- the merger is not approved by United National's shareholders;
- there exists any final nonappealable legal prohibition on completion of
the merger; or
- the consent of a required governmental entity has been denied and such
denial is final and nonappealable.
- by PNC if United National changes its recommendation of the merger, or
fails to call or convene the meeting of the United National shareholders;
32
- by PNC if United National breaches any of its representations,
warranties, covenants or other agreements contained in the merger
agreement if the breach would result in the failure of the closing
conditions contained in the merger agreement, unless the breach is
capable of being cured and is cured within thirty days of notice of the
breach;
- by United National if PNC breaches any of its representations,
warranties, covenants or other agreements contained in the merger
agreement if the breach would result in the failure of the closing
conditions contained in the merger agreement, unless the breach is
capable of being cured and is cured within thirty days of notice of the
breach; or
- by United National (1) if the total value of the transaction declines by
more than 15%, and (2) PNC's stock price declines by more than 15% in
comparison with an index of its peer companies, in accordance with the
formula described below.
In order for United National to terminate the merger agreement under the
immediately prior provision, both of the following must be met:
- First, the "Determination Date Value" (as described below) must be less
than the product of 0.85 and the "Initial Value" (as described below).
The "INITIAL VALUE" means $639,980,436. The "DETERMINATION DATE VALUE"
means the sum of (1) $319,990,218 and (2) the product of (A) 6,551,806
and (B) the "PNC Average Price." The "PNC AVERAGE PRICE" means the
arithmetic average of the 4:00 p.m. Eastern time closing sales prices of
PNC common stock, taking into account certain adjustment events, reported
on the NYSE composite transaction tape for the five consecutive NYSE
trading days ending at the close of trading on the fifth business day
prior to the first date on which receipt of the approval of the Federal
Reserve of the merger and, if a condition to the completion of the
merger, the approval of the bank combination, without regard to any
waiting period in respect thereof; provided, however, that if that date
would occur more than fifteen days prior to the completion date of the
merger, the Determination Date Value will be calculated as of the third
business day prior to the completion date of the merger.
- Second, the number obtained by dividing the PNC Average Price by $48.84
must be less than the number obtained by dividing the "Index Price," as
of the date the Determination Date Value is calculated, by $38.70 and
subtracting 0.15 from such number. The "INDEX PRICE" means the weighted
average of the closing prices of selected peer companies of PNC for the
five consecutive trading days ending at the close of trading on the date
at which the Determination Date Value is calculated.
However, even if both of the above conditions are met and United National
elects to exercise its termination right under the merger agreement, then during
the 72 hour period commencing with the receipt by PNC of notice of United
National's intended election to terminate the merger agreement, PNC will have
the option of increasing the Aggregate PNC Share Amount (without modifying the
Aggregate Cash Amount) by the fewest number of shares of PNC common stock such
that the economic effect, with respect to the total value of the consideration
received by United National shareholders, would be equivalent to the above
price-based termination right not having been triggered.
TERMINATION FEE
In the event a bona fide proposal is made by a third-party to acquire
United National after the date of the merger agreement and not withdrawn before
the merger agreement is terminated, and the merger agreement is terminated
- by either PNC or United National if United National shareholders vote
against the merger,
- by PNC if United National's board of directors changes its recommendation
that its shareholders approve and adopt the merger agreement or fails to
hold a special meeting to vote on approving and adopting the merger
agreement or
33
- by PNC if United National willfully and materially breaches its
representations and obligations under the merger agreement,
United National must pay to PNC a termination fee of $25 million if within
twelve months after the date of termination of the merger agreement United
National completes an acquisition transaction or enters into a merger agreement
or other similar document related to such acquisition transaction. In addition,
under these circumstances, United National will be obligated to reimburse PNC
for out-of-pocket expenses incurred by PNC in connection with the merger
agreement and the transactions contemplated by the agreement.
ADJUSTMENTS TO THE MERGER CONSIDERATION
If prior to the effective time of the merger, the outstanding shares of PNC
common stock are changed into a different number of shares by reason of any
reclassification, recapitalization or combination, stock split, reverse stock
split, stock dividend or rights issued in respect of such stock, merger or
consolidation, or any similar event occurs, the merger consideration will be
proportionately adjusted.
THE MERGER
BACKGROUND OF THE MERGER
United National's management has periodically explored and assessed, and
has discussed with the United National board of directors, strategic options for
United National, including strategies to grow United National's operations
through business and marketing initiatives and through targeted acquisitions of
other financial institutions, as well as the possibility of strategic business
combinations with larger financial institutions. In this regard, from time to
time the management and representatives of United National have communicated
informally with senior representatives of other larger financial institutions,
including PNC, with respect to their views regarding the banking industry and
their respective companies' strategic direction. None of the discussions, other
than with PNC as described below, proceeded beyond the exploratory stage and no
understanding was reached with respect to the terms of any potential
transaction.
In early June 2003, Thomas C. Gregor, chairman and chief executive officer
of United National, and Joseph C. Guyaux, president of PNC, met to discuss the
general economic and industry environment in New Jersey. During that meeting,
Mr. Guyaux noted that PNC and Mr. Gregor had communicated informally regarding
the possibility of a transaction in the past. Although those discussions had
never resulted in any negotiation of the terms of a potential transaction in
light of the then existing economic and industry environment, Mr. Guyaux
informed Mr. Gregor that PNC was interested in expanding its presence in New
Jersey, and would be interested in discussing the possibility of a transaction.
Mr. Gregor indicated that he would be willing to meet again with PNC to discuss
a potential transaction.
Later in June, members of the senior management of PNC and United National
met again. At this meeting, PNC and United National discussed the possibility of
a transaction. Among other things, the PNC and United National representatives
discussed the potential merits of a transaction, noting that both companies had
similar customer-focused cultures, and that there appeared to be opportunities
to leverage PNC's existing infrastructure in United National's operations and to
expand the product offerings available to United National's customers. The
representatives also discussed the possibility of structuring the transaction as
a part-cash/part-stock transaction, which would allow investors receiving PNC
stock in a potential transaction to participate in the future of the combined
company and, subject to due diligence and purchase price negotiations, would be
expected to enable United National stockholders to realize a premium to United
National's market price.
On July 18, 2003, PNC and United National entered into a customary
confidentiality agreement and began reciprocal due diligence investigations.
Members of PNC's transaction team conducted a due diligence review of United
National from operational, financial, accounting, tax and legal perspectives.
This review included the review of documents, interviews with United National's
senior management and tours
34
of United National facilities. Members of United National's team also conducted
a due diligence review of PNC, including interviews with members of PNC's senior
management, including the senior risk, financial and legal officers of PNC.
During July and August of 2003, PNC and United National management,
together with their respective legal and financial advisors, continued to
discuss a range of issues potentially presented by an acquisition of United
National, including the potential structure of the transaction, the form of
merger consideration, anticipated transaction costs, the required regulatory
approvals and the expected timing of the transaction. Working with their
advisors, the parties reached preliminary understandings during August with
respect to the outline of the terms of a possible transaction that, subject to
the successful completion of due diligence and the negotiation of the definitive
transaction agreement and related employment and retention agreements, they were
willing to recommend to their respective boards, including: the part-cash,
part-stock nature of the merger consideration; the total mix of the merger
consideration; and the structuring of the transaction as a "reorganization" for
purposes of Section 368 of the Internal Revenue Code. During this period legal
counsel to PNC and United National began to draft definitive documentation with
respect to the proposed transaction, and both parties worked to finalize their
respective due diligence investigations.
On August 19, 2003, the United National board of directors held a special
meeting to review and discuss the proposed transaction, the proposed transaction
agreement and related employment and retention agreements and the results of the
due diligence investigation of PNC. Mr. Gregor also reviewed with the board
prior discussions regarding strategic alternatives for United National and the
course of discussions with PNC. Mr. Gregor also outlined the strategic rationale
for the proposed merger, including continued consolidation, evolving trends in
technology and increasing competition within the financial services industry, as
well as other matters discussed below under "Reasons for the Merger;
Recommendation of PNC's and United National's Board of Director -- United
National." United National management and its advisors observed that, as the
board had previously discussed in other board meetings, size and diversification
beyond the level United National believed to be reasonably achievable on an
independent basis were becoming increasingly important to continued success.
At the August 19 meeting, the United National board of directors also
reviewed with McCarter & English, LLP, special counsel to United National, the
terms of the proposed definitive transaction agreements and the legal and
fiduciary standards applicable to its decision to approve the agreements and the
transactions contemplated by the agreements. Representatives of Keefe, Bruyette
& Woods, Inc. then discussed financial information regarding PNC and the
proposed transaction. The discussions covered a range of matters, including the
structure and tax treatment of the merger, the merger consideration, business
and financial information regarding the two companies, historical stock price
performance, valuation methodologies and analyses and the other matters set
forth in "-- Opinion of United National's Financial Advisor." After this
discussion, Keefe, Bruyette & Woods indicated that it was prepared to deliver at
the next board meeting its opinion that, as of the date of the opinion, and
based on and subject to the assumptions, qualifications and limitations that
would be set forth in its opinion, the merger consideration was fair to the
holders of shares of United National common stock from a financial point of
view. After additional discussions and questions, the United National board of
directors directed United National's management to continue to work to finalize
the definitive transaction documents, and determined to reconvene following the
finalization of those materials.
On August 20, 2003, the PNC board of directors held a special meeting to
consider the proposed transaction. After consideration and review of the
financial aspects of the proposed transaction, the terms of the definitive
transaction agreement and related employment and retention agreements, the
strategic implications of the proposed merger for the relevant businesses of PNC
and related matters, the PNC board unanimously approved the merger agreement and
the transactions contemplated by the agreement. Following their respective board
meetings, PNC and United National, working with their legal advisors, finalized
the merger agreement and executive employment agreements.
On August 21, 2003, prior to the beginning of trading on the New York Stock
Exchange and the Nasdaq National Market, the United National board of directors
held another special meeting to review
35
the final terms of the proposed merger agreement. Mr. Gregor noted that the
terms of the proposed transaction, including terms related to the benefits and
employment of United National management, had not changed in any material
respect from the terms as of the August 19 board meeting, and that no new
material terms had arisen subsequent to that meeting. Keefe, Bruyette & Woods
then delivered its written opinion that, as of that date, the aggregate merger
consideration to be received by the United National stockholders under the
merger agreement was fair to United National's stockholders from a financial
point of view. The full text of the Keefe, Bruyette & Woods opinion is annexed
to this proxy statement/ prospectus as Annex B. Thereafter, the members of the
United National board, after consideration of the factors described under
"-- Reasons for the Merger; Recommendation of PNC's and United National's Board
of Directors -- United National," determined that the transactions contemplated
by the agreements were fair to, and in the best interests of, United National
and its stockholders. The United National board of directors then voted
unanimously to approve the merger agreement and related documents.
On August 21, 2003, PNC and United National executed the merger agreement
and announced the transaction by a joint press release.
REASONS FOR THE MERGER; RECOMMENDATION OF PNC'S AND UNITED NATIONAL'S BOARD OF
DIRECTORS
PNC
In connection with its approval of the United National transaction, the PNC
board of directors reviewed the terms of the proposed acquisition and definitive
agreements. The PNC board also discussed with management the fact that:
- the acquisition will expand PNC's branch banking business, particularly
in the fast-growing and affluent New Jersey market;
- the acquisition offers the potential for PNC to leverage United
National's existing business with PNC's business mix, product lines,
distribution capabilities and technology platform; and
- the merger is expected to be accretive to PNC earnings in the first year,
with an internal rate of return of approximately 15%, which exceeds its
expected rate of return on share repurchases.
The PNC board considered the possibility of revenue synergies resulting from the
proposed acquisition, although its review of the transaction did not assume any
value relating to potential revenue enhancements. The PNC board also considered
cost-saving opportunities in corporate functions, back-office consolidations and
the elimination of out-sourced operational functions, expected to be
approximately $31 million on a pre-tax basis phased in over two years. However,
the PNC board noted that there can be no assurances with respect to the amount
and timing of revenue enhancements or cost-saving opportunities, if any. The PNC
board also reviewed United National's business, operations, financial condition,
earnings and prospects, taking into account the results of management's due
diligence review of United National, and its fit with PNC's existing franchise
in New Jersey and eastern Pennsylvania.
The PNC board also considered potential risks associated with the
acquisition in connection with its deliberations of the proposed transaction,
including the challenges of integrating United National's businesses, operations
and workforce with those of PNC, the need to obtain United National stockholder
and regulatory approvals in order to complete the transaction, the risks
associated with achieving the anticipated cost savings and the need to retain
key management of United National. The foregoing discussion of the factors
considered by the PNC board is not intended to be exhaustive, but, rather,
includes all principal factors considered by the PNC board. In reaching its
decision to approve the merger agreement, the merger and the other transactions
contemplated by the merger agreement, the PNC board did not quantify or assign
any relative weights to the factors considered, and individual directors may
have given different weights to different factors. The PNC board considered all
these factors as a whole, and overall considered them to be favorable to, and to
support, its determination.
36
UNITED NATIONAL
The United National board of directors has unanimously determined that the
merger is advisable and in the best interests of United National and its
shareholders. Accordingly, the United National board has approved the merger
agreement and determined to recommend that United National's shareholders
approve and adopt the merger agreement.
In reaching its decision to approve the merger agreement and recommend the
merger to its shareholders, the United National board consulted with United
National's management, as well as its legal and financial advisors, and
considered a number of factors, including:
- the fact that, based on the closing price of PNC common stock on August
20, 2003, the value of the merger consideration to be received by United
National shareholders in the merger represented a premium of
approximately 9.15% over the closing price of United National common
stock on the Nasdaq National Market on August 20, 2003, and a premium of
approximately 17.21% over the weighted average closing price of United
National common stock on the Nasdaq National Market for the thirty
trading days prior to the approval of the transaction by the United
National board;
- the fact that the cash/stock election feature of the merger consideration
offers United National shareholders both the opportunity to participate
in the growth and opportunities of PNC through the stock component and to
realize cash for the value of their shares through the cash component,
subject in some circumstances to the proration procedures in the merger
agreement;
- its knowledge of United National's business, operations, financial
condition, earnings and prospects;
- its knowledge of PNC's business, operations, financial condition,
earnings and prospects, taking into account the results of United
National's due diligence review of PNC;
- its knowledge of the current environment in the financial services
industry, including continued consolidation, evolving trends in
technology, increasing nationwide and global competition and the
competitive effects of these factors on financial institutions such as
United National;
- the presentations by senior members of United National management
regarding the strategic advantages of combining with PNC, including,
among other things, the opportunities that the merger could present for
cost savings and the cross-selling of services by PNC and United National
to their customers;
- current financial market conditions and the historical market prices of
United National's common stock;
- the financial analyses presented by Keefe, Bruyette & Woods to the United
National board, and the opinion delivered to the United National board by
Keefe, Bruyette & Woods, annexed to this proxy statement/prospectus as
Annex B, to the effect that, as of August 21, 2003 and based upon and
subject to the considerations set forth in the opinion, the aggregate
merger consideration to be received by all of United National's
shareholders was fair from a financial point of view to United National's
shareholders;
- the structure of the merger and the financial and other terms of the
merger agreement including the fact that the merger agreement provides
for a price-based termination right;
- the likelihood that the merger would be consummated, given the regulatory
and other approvals required in connection with the merger, and the
experience, reputation and financial resources of PNC;
- the expected treatment of the merger as a "reorganization" for United
States federal income tax purposes, which would generally allow United
National shareholders to avoid recognizing gain or loss upon the
conversion of shares of United National common stock into shares of PNC
common stock;
- the risk of diverting management focus and resources from other strategic
opportunities and from operational matters while working to implement the
merger;
37
- the termination fee of up to $25 million to be paid by United National to
PNC if the merger agreement is terminated under certain circumstances,
including the risk that the termination fee might discourage third
parties from offering to acquire United National by increasing the cost
of a third party acquisition, and the financial impact on United National
if it had to pay the termination fee;
- that the value of the merger consideration is determined by an exchange
ratio, and the possibility that the market value of PNC common stock
might decrease, resulting in less aggregate value being paid to United
National shareholders;
- the fact that some of United National's directors and executive officers
have interests in the merger that are in addition to their interests as
United National shareholders (see "-- Interests of Certain Persons in the
Merger"); and
- the risk that the merger will not be completed.
The foregoing discussion of the factors considered by the United National
board is not intended to be exhaustive, but, rather, includes all material
factors considered by the United National board. In reaching its decision to
approve the merger agreement, the merger and the other transactions contemplated
by the merger agreement, the United National board did not quantify or assign
any relative weights to the factors considered, and individual directors may
have given different weights to different factors. The United National board
considered all these factors as a whole, and overall considered them to be
favorable to, and to support, its determination.
OPINION OF UNITED NATIONAL'S FINANCIAL ADVISOR
United National engaged Keefe, Bruyette & Woods to render financial
advisory and investment banking services. Keefe, Bruyette & Woods agreed to
assist United National in analyzing, structuring, negotiating and effecting the
merger of United National with and into a wholly owned subsidiary of PNC. United
National selected Keefe, Bruyette & Woods because Keefe, Bruyette & Woods is a
nationally recognized investment-banking firm with substantial experience in
transactions similar to the merger and is familiar with United National and its
business. As part of its investment banking business, Keefe, Bruyette & Woods is
continually engaged in the valuation of financial businesses and their
securities in connection with mergers and acquisitions.
As part of its engagement, representatives of Keefe, Bruyette & Woods
attended the meeting of the United National board held on August 21, 2003, at
which the United National board evaluated the proposed merger with PNC. At this
meeting, Keefe, Bruyette & Woods reviewed the financial aspects of the proposed
merger and rendered a verbal opinion, subsequently confirmed in writing, that,
as of such date, the consideration to be received by United National
shareholders in the merger was fair to those shareholders from a financial point
of view. The United National board approved the merger agreement at this
meeting. The full text of Keefe, Bruyette & Woods's written opinion is annexed
as Annex B to this proxy statement/prospectus and is incorporated herein by
reference. United National's shareholders are urged to read the opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered, and qualifications and limitations on the review undertaken by
Keefe, Bruyette & Woods. The description of the opinion set forth below is
qualified in its entirety by reference to the full text of such opinion.
KEEFE, BRUYETTE & WOODS'S OPINION SPEAKS ONLY AS OF THE DATE OF THE
OPINION. THE OPINION IS DIRECTED TO THE UNITED NATIONAL BOARD AND ADDRESSES ONLY
THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE MERGER CONSIDERATION TO THE
UNITED NATIONAL SHAREHOLDERS. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS
DECISION TO PROCEED WITH THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY UNITED NATIONAL SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
UNITED NATIONAL SPECIAL MEETING ON THE MERGER OR ANY RELATED MATTER.
38
In rendering its opinion, Keefe, Bruyette & Woods:
- reviewed, among other things,
- the merger agreement,
- Annual Reports to shareholders and Annual Reports on Form 10-K of PNC,
- Quarterly Reports on Form 10-Q of PNC,
- Annual Reports to shareholders and Annual Reports on Form 10-K of United
National, and
- Quarterly Reports on Form 10-Q of United National;
- held discussions with members of senior management of PNC and United
National regarding
- past and current business operations,
- regulatory relationships,
- financial condition and
- future prospects of the respective companies;
- reviewed the market prices, valuation multiples, publicly reported
financial condition and results of operations for PNC and United National
and compared them with those of certain publicly traded companies that
Keefe, Bruyette & Woods deemed to be relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Keefe, Bruyette & Woods deemed
to be relevant; and
- performed other studies and analyses that it considered appropriate.
In conducting its review and arriving at its opinion, Keefe, Bruyette &
Woods relied upon and assumed the accuracy and completeness of all of the
financial and other information provided to or otherwise made available to
Keefe, Bruyette & Woods or that was discussed with, or reviewed by, Keefe,
Bruyette & Woods, or that was publicly available. Keefe, Bruyette & Woods did
not attempt or assume any responsibility to verify such information
independently. Keefe, Bruyette & Woods relied upon the management of PNC and
United National as to the reasonableness and achievability of the financial and
operating forecasts and projections (as well as on the assumptions and bases of
such forecasts and projections) provided to Keefe, Bruyette & Woods. Keefe,
Bruyette & Woods assumed, without independent verification, that the aggregate
allowances for loan and lease losses for PNC and United National are adequate to
cover those losses. Keefe, Bruyette & Woods did not make or obtain any
evaluations or appraisals of any assets or liabilities of PNC or United
National, or examine or review any individual credit files.
The projections furnished to Keefe, Bruyette & Woods and used by it in
certain of its analyses were prepared by PNC's and United National's senior
management teams. PNC and United National do not publicly disclose internal
management projections of the type provided to Keefe, Bruyette & Woods in
connection with its review of the merger. As a result, such projections were not
prepared with a view towards public disclosure. The projections were based on
numerous variables and assumptions, which are inherently uncertain, including
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in the projections.
For purposes of rendering its opinion, Keefe, Bruyette & Woods assumed that, in
all respects material to its analyses:
- the merger will be completed substantially in accordance with the terms
set forth in the merger agreement;
- the representations and warranties of each party in the merger agreement
and in all related documents and instruments referred to in the merger
agreement are true and correct;
39
- each party to the merger agreement and all related documents will perform
all of the covenants and agreements required to be performed by such
party under such documents;
- all conditions to the completion of the merger will be satisfied without
any waivers; and
- in the course of obtaining the necessary regulatory, contractual, or
other consents or approvals for the merger, no restrictions, including
any divestiture requirements, termination or other payments or amendments
or modifications, will be imposed that will have a material adverse
effect on the future results of operations or financial condition of the
combined entity or the contemplated benefits of the merger, including the
cost savings and related expenses expected to result from the merger.
Keefe, Bruyette & Woods further assumed that the merger will be accounted
for as a purchase under accounting principles generally accepted in the United
States, and that the conversion of United National common stock into PNC common
stock will be tax-free for PNC and United National. Keefe, Bruyette & Woods's
opinion is not an expression of an opinion as to the prices at which shares of
United National common stock or shares of PNC common stock will trade following
the announcement of the merger or the value of the shares of common stock of the
combined company when issued pursuant to the merger, or the prices at which the
shares of common stock of the combined company will trade following the
completion of the merger. In performing its analyses, Keefe, Bruyette & Woods
made numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters, which are
beyond the control of Keefe, Bruyette & Woods, PNC and United National. Any
estimates contained in the analyses performed by Keefe, Bruyette & Woods are not
necessarily indicative of values or future results, which may be significantly
more or less favorable than suggested by these analyses. Additionally, estimates
of the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which such businesses or securities might actually be
sold. Accordingly, these analyses and estimates are inherently subject to
substantial uncertainty. In addition, the Keefe, Bruyette & Woods opinion was
among several factors taken into consideration by the United National board in
making its determination to approve the merger agreement and the merger.
Consequently, the analyses described below should not be viewed as determinative
of the decision of the United National board with respect to the fairness of the
merger consideration.
The following is a summary of the material analyses presented by Keefe,
Bruyette & Woods to the United National board in connection with the delivery of
its fairness opinion on August 21, 2003. The summary is not a complete
description of the analyses underlying the Keefe, Bruyette & Woods opinion or
the presentation made by Keefe, Bruyette & Woods to the United National board,
but summarizes the analyses performed and presented in connection with such
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 analysis and the application of those methods to the particular
circumstances. Therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Keefe,
Bruyette & Woods did not attribute any particular weight to any analysis or
factor that it considered, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Keefe, Bruyette & Woods
did not address whether any individual analysis did or did not support the
overall fairness conclusion. The financial analyses summarized below include
information presented in tabular format. Accordingly, Keefe, Bruyette & Woods
believes that its analyses and the summary of its analyses must be considered as
a whole and that selecting portions of its analyses and factors or focusing on
the information presented below in tabular format, without considering all
analyses and factors or the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses,
could create a misleading or incomplete view of the process underlying its
analyses and opinion. The tables alone do not constitute a complete description
of the financial analyses.
Summary of Proposal. United National shareholders will receive
approximately $320 million in cash and 6.6 million shares of PNC common stock,
subject to proportionate increase in the event that any stock options of United
National are exercised subsequent to August 21, 2003, and prior to the effective
time of
40
the merger. Based upon PNC's closing share price on August 12, 2003 of $48.84
and 18,811,333 United National common shares outstanding as of June 30, 2003 and
768,558 options outstanding as of December 31, 2002, Keefe, Bruyette & Woods
calculated a $34.00 price per United National share.
Selected Peer Group Analysis. Keefe, Bruyette & Woods compared the
financial performance and market performance of PNC to those of a group of
comparable super regional bank holding companies and, similarly, United National
to those of a group of comparable mid-Atlantic bank holding companies with
assets between $1.0 billion and $10.0 billion.
Companies included in PNC's peer group were:
- Bank of America Corporation
- Wells Fargo & Company
- Wachovia Corporation
- Bank One Corporation
- Washington Mutual, Inc.
- FleetBoston Financial Corporation
- U.S. Bancorp
- SunTrust Banks, Inc.
- National City Corporation
- KeyCorp
- Fifth Third Bancorp
- BB&T Corporation
- Comerica Incorporated
- AmSouth Bancorporation
- Zions Bancorporation
Companies included in United National's peer group were:
- Valley National Bancorp
- Wilmington Trust Corporation
- Fulton Financial Corporation
- Hudson United Bancorp
- Riggs National Corporation
- Susquehanna Bancshares, Inc.
- Provident Bankshares Corporation
- First Commonwealth Financial Corporation
- Trust Company of New Jersey (The)
- NBT Bancorp, Inc.
- National Penn Bancshares, Inc.
- Community Bank System, Inc.
- S&T Bancorp, Inc.
41
- U.S.B. Holding Co., Inc.
- Harleysville National Corporation
- Sandy Spring Bancorp, Inc.
- Yardville National Bancorp
- Sun Bancorp, Inc.
- Sterling Financial Corporation
- Financial Institutions, Inc.
- BSB Bancorp, Inc.
- Community Banks, Inc.
- Tompkins Trustco, Inc.
- Sterling Bancorp
- State Bancorp, Inc.
- Suffolk Bancorp
- Lakeland Bancorp, Incorporated
- Arrow Financial Corporation
- Interchange Financial Services Corp.
- Royal Bancshares of Pennsylvania, Inc.
- Omega Financial Corporation
- PennRock Financial Services Corp.
- Patriot Bank Corp.
To perform this analysis, Keefe, Bruyette & Woods used the financial
information as of and for the quarter ended June 30, 2003. Market price
information was as of August 20, 2003, and 2003 and 2004 earnings estimates were
taken from a nationally recognized earnings estimate consolidator for comparable
companies, management estimates for United National, or, if not available, a
Keefe, Bruyette & Woods Corporate Finance Department estimate.
Keefe, Bruyette & Woods's analysis showed the following concerning PNC's
and United National's financial performance:
PNC
PEER UNITED NATIONAL
GROUP PEER GROUP
PNC MEDIAN UNITED NATIONAL MEDIAN
----- ------ --------------- ---------------
Core Return on Average Assets............ 1.50% 1.31% 0.98% 1.28%
Core Return on Average Equity............ 14.47% 15.78% 10.97% 13.69%
Net Interest Margin...................... 3.93% 3.81% 3.92% 3.97%
Fee Income/Revenue....................... 59.0% 40.5% 19.8% 23.8%
Efficiency Ratio......................... 65.0% 56.2% 56.7% 57.6%
42
Keefe, Bruyette & Woods's analysis showed the following concerning PNC's
and United National's financial condition:
PNC
PEER UNITED NATIONAL
GROUP PEER GROUP
PNC MEDIAN UNITED NATIONAL MEDIAN
----- ------ --------------- ---------------
Equity/Assets............................ 10.07% 8.66% 8.81% 8.00%
Tangible Equity/Assets................... 6.35% 6.54% 5.81% 6.81%
Loans/Deposits........................... 74.0% 93.3% 86.0% 81.2%
Securities/Tangible Assets............... 23.8% 20.1% 27.6% 32.8%
Loan Loss Reserves/Loans................. 1.95% 1.66% 1.16% 1.34%
NPA/Loans + OREO......................... 1.17% 1.09% 0.74% 0.66%
Net Charge Offs Avg. Loans............... 0.72% 0.81% 0.22% 0.20%
Keefe, Bruyette & Woods's analysis showed the following concerning PNC's
and United National's market performance:
PNC
PEER UNITED NATIONAL
GROUP PEER GROUP
PNC MEDIAN UNITED NATIONAL MEDIAN
---- ------ --------------- --------------------
One Year Price Change................. 8.7% 2.8% 42.3% 14.0%
Market/Book Value(x).................. 2.01x 2.08x 2.19x 2.11x
Market/Tangible Book Value(x)......... 3.32x 2.62x 3.43x 2.51x
Price/2003 GAAP EPS(x)................ 12.9x 12.9x 18.1x 15.6x
Price/2004 GAAP EPS(x)................ 11.6x 11.9x 16.2x 14.0x
Dividend Yield........................ 4.0% 3.6% 2.6% 2.7%
2003 Dividend Payout.................. 50.9% 43.3% 46.5% 42.0%
Financial Impact Analysis. Keefe, Bruyette & Woods performed pro forma
merger analyses that combined the projected income statements of PNC and United
National. Assumptions regarding the accounting treatment, acquisition
adjustments and cost savings were used to calculate the financial impact that
the merger would have on certain projected financial results of PNC. The
analysis assumed the 2004 First Call consensus earnings per share estimate of
$4.18 and 10% growth thereafter for PNC. For United National, the analysis
assumed 2004 management's internal estimated earnings per share of $1.92 and 10%
growth thereafter. This analysis indicated that the merger is expected to be
accretive to PNC's estimated earnings per share in 2004, and accretive to cash
earnings per share in 2004. Cash earnings were estimated by adding the
anticipated core deposit intangible amortization expense to earnings calculated
in accordance with generally accepted accounting principles. This analysis was
based on certain assumptions provided by PNC with regard to cost savings, merger
related charges and the amortization of intangibles. For all of the above
analyses, the actual results achieved by PNC following the merger will vary from
the projected results, and the variations may be material.
Comparable Transaction Analysis. Keefe, Bruyette & Woods reviewed certain
financial data related to comparably sized acquisitions of bank holding
companies announced after January 1, 2001, with aggregate transaction values
between $150 million and $1 billion. The transactions included in the group were
(survivor/acquired entity):
- Citizens Financial Group, Inc./Community Bancorp, Inc.
- Wells Fargo & Company/Pacific Northwest Bancorp
- Cathay Bancorp, Inc./GBC Bancorp
- Mercantile Bankshares Corp./F&M Bancorp
43
- F.N.B. Corporation/Charter Banking Corp.
- Chittenden Corporation/Granite State Bankshares, Inc.
- Royal Bank of Canada/Admiralty Bancorp, Inc.
- UCBH Holdings, Inc./Bank of Canton of California
- Rabobank Group/VIB Corp.
- Fifth Third Bancorp/Franklin Financial Corporation
- Umpqua Holdings Corp./Centennial Bancorp
- Marshall & Illsley Corporation/Mississippi Valley Bancshares, Inc.
- Sky Financial Group Inc./Three Rivers Bancorp, Inc.
- Banknorth Group, Inc./Bancorp Connecticut, Inc.
- Marshall & Illsley Corporation/Richfield State Agency, Inc.
- United National Bancorp/Vista Bancorp, Inc.
- BB&T Corporation/AREA Bancshares Corporation
- BB&T Corporation/Mid-America Bancorp
- Associated Banc-Corp/Signal Financial Corp.
- Sovereign Bancorp, Inc./Main Street Bancorp, Inc.
- Greater Bay Bancorp/SJNB Financial Corp.
- F.N.B. Corporation/Promistar Financial Corporation
- Marshall & Illsley Corporation/National City Bancorporation
- Bank of Montreal/First National Bancorp, Inc.
- North Fork Bancorporation, Inc./Commercial Bank of New York
- BB&T Corporation/Virginia Capital Bancshares
Transaction multiples for the merger were derived from the $34.00 (based on
PNC's closing share price on August 12, 2003) per share price for United
National. Keefe, Bruyette & Woods also relied upon 2003 United National earnings
per share estimates provided by United National management. Keefe, Bruyette &
Woods compared these results with announced multiples and, for transactions with
stock components, multiples adjusted to reflect changes in individual buyer
stock prices from announcement to August 20, 2003. The results of the analysis
are set forth in the following table.
ANNOUNCED ADJUSTED
COMPARABLE COMPARABLE
PNC/UNITED TRANSACTIONS TRANSACTIONS
NATIONAL MEDIAN MEDIAN
--------------- ------------ ------------
Price/Last Twelve Months EPS(x)................ 23.0x 19.1x 21.1x
Price/2003 Estimated EPS(x).................... 19.8x 16.8x 18.7x
Price/Book Value (6/30/03)..................... 239% 222% 260%
Price/Tangible Book Value (6/30/03)............ 375% 251% 279%
Core Deposit Premium........................... 23.6% 19.6% 21.8%
One Day Market Premium......................... 9.5% 24.3% 26.8%
No company or transaction used as a comparison in the above analysis is
identical to United National, PNC or the merger. Accordingly, an analysis of
these results is not mathematical. Rather, it
44
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the various companies surveyed.
Discounted Cash Flow Analysis. Keefe, Bruyette & Woods estimated the
present value of United National's common stock based on a continued
independence scenario by adding (i) the present value of the estimated future
dividend stream that United National could generate over the period beginning
January 2003 and ending in December 2007, and (ii) the present value of the
terminal value of United National common stock. The earnings assumptions that
formed the basis of the analysis were based on Keefe, Bruyette & Woods's
estimated earnings per share for 2003 and 2004 under a Normal Growth Scenario
and a High Performance Scenario. The Normal Growth Scenario assumed an earnings
growth rate of 10% for 2005 to 2007. For a projected dividend stream, Keefe,
Bruyette & Woods assumed dividend growth between $0.04 and $0.06 per share per
year. A sensitivity table was presented with a range of terminal multiples of 16
times to 18 times (based on a 12.0% discount rate) and a range of earnings
growth rates from 8.0% to 12.0%. This resulted in a range of values from $25.15
to $30.75. An additional sensitivity table based on this scenario was presented
with a range of discount rates from 10.0% to 14.0% (based on a 17 times terminal
multiple), and a range of earnings growth rates from 8.0% to 12.0%. This
resulted in a range of values from $24.39 to $31.84 per share. The High
Performance Scenario assumed earnings growth rates of 18.2% to 19.9% for 2005 to
2007. For a projected dividend stream, Keefe, Bruyette & Woods assumed dividend
growth between $0.04 and $0.06 per share per year. A sensitivity table was
presented with a range of terminal multiples of 16 times to 18 times (based on a
12.0% discount rate) and a range of earnings growth rates from 16.0% to 20.0%.
This resulted in a range of values from $30.40 to $37.08 per share. An
additional sensitivity table based on this scenario was presented with a range
of discount rates from 10.0% to 14.0% (based on a 17 times terminal multiple)
and a range of earnings growth rates from 16.0% to 20.0%. This resulted in a
range of values from $29.50 to $38.39 per share.
Keefe, Bruyette & Woods stated that the discounted cash flow present value
analysis is a widely used valuation methodology but noted that it relies on
numerous assumptions, including asset and earnings growth rates, terminal values
and discount rates. The analysis did not purport to be indicative of the actual
values or expected values of United National common stock.
Other Analyses. Keefe, Bruyette & Woods compared the financial and market
performance of PNC and United National to a variety of relevant industry peer
groups and indices. Keefe, Bruyette & Woods reviewed earnings estimates, balance
sheet composition, historical stock performance and other financial data for PNC
and United National.
The United National board retained Keefe, Bruyette & Woods as an
independent contractor to act as financial adviser to United National regarding
the merger. As part of its investment banking business, Keefe, Bruyette & Woods
is continually engaged in the valuation of banking businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. As specialists in the securities of banking companies, Keefe,
Bruyette & Woods has experience in, and knowledge of, the valuation of banking
enterprises. In the ordinary course of its business as a broker-dealer, Keefe,
Bruyette & Woods may, from time to time, purchase securities from, and sell
securities to, PNC and United National. As a market maker in securities Keefe,
Bruyette & Woods may from time to time have a long or short position in, and buy
or sell, debt or equity securities of PNC and United National for Keefe,
Bruyette & Woods's own account and for the accounts of its customers.
United National and Keefe, Bruyette & Woods have entered into an agreement
relating to the services to be provided by Keefe, Bruyette & Woods in connection
with the merger. United National agreed to pay Keefe, Bruyette & Woods a cash
fee equal to 0.85% of the aggregate market value of the consideration paid for
United National, 20% of which was paid upon the execution of the merger
agreement, 20% of which is to be paid upon the mailing of this proxy statement
and 60% of which is to be paid upon closing. Pursuant to the Keefe, Bruyette &
Woods engagement agreement, United National also agreed to reimburse Keefe,
Bruyette & Woods for reasonable out-of-pocket expenses
45
and disbursements incurred in connection with its retention and to indemnify
Keefe, Bruyette & Woods and certain related parties against certain liabilities,
including liabilities under the federal securities laws.
PUBLIC TRADING MARKETS
PNC common stock is currently included for quotation on the New York Stock
Exchange under the symbol "PNC." United National common stock is currently
included for quotation on the Nasdaq National Market under the symbol "UNBJ."
Upon completion of the merger, United National common stock will be delisted
from the Nasdaq National Market and deregistered under the Securities Exchange
Act of 1934, as amended. The newly issued PNC common stock issuable pursuant to
the merger agreement will be included for quotation on the New York Stock
Exchange.
The shares of PNC common stock to be issued in connection in the merger
will be freely transferable under the Securities Act, except for shares issued
to any shareholder who may be deemed to be an affiliate of United National, as
discussed in "The Merger -- Restrictions on Resales by Affiliates" on page 53.
As reported on the New York Stock Exchange, the closing sale price per
share of PNC common stock on August 20, 2003 was $48.53. The closing sale price
per share of United National common stock on August 20, 2003 was $31.05, as
reported on the Nasdaq National Market. Based on these closing sale prices per
share, the implied per share value of United National common stock was $33.89 as
of that date. The closing sale price per share of PNC common stock on the New
York Stock Exchange on [--], 2003, the last practicable trading day before the
date of this document, was $[--]. The closing sale price per share of United
National common stock on the Nasdaq National Market on [--], the last
practicable trading day before the date of this document, was $[--]. The implied
per share value of United National common stock was $[--] as of that date.
Because the stock price of both companies will fluctuate, you should obtain
current quotations of these prices.
PNC may from time to time repurchase shares of PNC common stock and
purchase shares of United National common stock and United National may from
time to time repurchase shares of United National common stock and purchase
shares of PNC common stock. During the course of the solicitation being made by
this proxy statement/prospectus, PNC or United National may be bidding for and
purchasing shares of United National common stock.
PNC DIVIDENDS
On October 2, 2003, the board of directors of PNC approved a quarterly cash
dividend of $0.50 per share, an increase of $0.02 from the prior quarterly
dividend of $0.48 per share. During the first half of 2003, United National paid
cash dividends totaling $0.40 per share, and PNC paid cash dividends totaling
$0.96 per share.
PNC shareholders will be entitled to receive dividends when and if declared
by the PNC board of directors out of funds legally available for dividends. The
PNC board of directors will periodically consider the payment of dividends,
taking into account PNC's financial condition and level of net income, PNC's
future prospects, economic conditions, industry practices and other factors,
including applicable banking laws and regulations. Prior to completion of the
merger, United National is restricted by the terms of the merger agreement from
paying dividends, other than regular quarterly cash dividends not in excess of
$0.20 per share on United National common stock and regular cash dividends on
the United National REIT preferred stock.
ABSENCE OF APPRAISAL RIGHTS
Appraisal rights are statutory rights that enable shareholders who object
to extraordinary transactions, such as mergers, to demand that the corporation
pay the value for their shares as determined by a court in a judicial proceeding
instead of receiving the consideration offered to stockholders in connection
with the extraordinary transaction. Appraisal rights are not available in all
circumstances, and exceptions to such
46
rights are set forth in the laws of New Jersey, which is the state of
incorporation of United National. These exceptions are applicable with respect
to the rights of United National shareholders in the merger.
United National shareholders are not entitled to appraisal rights under New
Jersey law in connection with the merger because the shares of United National
common stock are designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion addresses the material United States federal
income tax consequences of the merger to holders of United National common
stock. The discussion is based on the Internal Revenue Code, Treasury
regulations, administrative rulings and judicial decisions, all as currently in
effect and all of which are subject to change (possibly with retroactive effect)
and to differing interpretations. This discussion applies only to United
National shareholders that hold their United National common stock as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code, each of
which we refer to in this document as a "HOLDER." Further, this discussion does
not address all aspects of United States federal taxation that may be relevant
to a particular shareholder in light of its personal circumstances or to
shareholders subject to special treatment under the United States federal income
tax laws, including:
- banks or trusts,
- tax-exempt organizations,
- insurance companies,
- dealers in securities or foreign currency,
- traders in securities who elect to apply a mark-to-market method of
accounting,
- pass-through entities and investors in such entities,
- foreign persons,
- shareholders who received their United National common stock through the
exercise of employee stock options, through a tax-qualified retirement
plan or otherwise as compensation, and
- shareholders who hold United National common stock as part of a hedge,
straddle, constructive sale, conversion transaction or other integrated
investment.
In addition, the discussion does not address any alternative minimum tax or
any state, local or foreign tax consequences of the merger.
EACH HOLDER OF UNITED NATIONAL COMMON STOCK SHOULD CONSULT ITS TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER.
The completion of the merger is conditioned upon the delivery by each of
Wachtell, Lipton, Rosen & Katz, counsel to PNC, and McCarter & English, LLP,
counsel to United National, of its opinion to the effect that, on the basis of
the facts, assumptions, and representations set forth in such opinion and
certificates to be obtained from officers of PNC, PNC Bancorp, Inc. and United
National, the merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code. Neither of these opinions are
binding on the Internal Revenue Service or the courts, and neither United
National nor PNC intends to request a ruling from the Internal Revenue Service
regarding the United States federal income tax consequences of the merger.
Consequently, no assurance can be given that the Internal Revenue Service will
not assert, or that a court would not sustain, a position contrary to any of
those set forth below. In addition, if any of the representations or assumptions
upon which such opinions are based are inconsistent with the actual facts, the
United States federal income tax consequences of the merger could be adversely
affected. The remainder of this discussion assumes that the merger will qualify
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code.
47
The United States federal income tax consequences of the merger to a holder
generally will depend on whether the holder exchanges its United National common
stock for cash, PNC common stock or a combination of cash and PNC common stock.
Exchange Solely for Cash. In general, if, pursuant to the merger, a holder
exchanges all of the shares of United National common stock actually owned by it
solely for cash, that holder will recognize gain or loss equal to the difference
between the amount of cash received and its adjusted tax basis in the shares of
United National common stock surrendered, which gain or loss generally will be
long-term capital gain or loss if the holder's holding period with respect to
the United National common stock surrendered is more than one year at the
effective time of the merger. If, however, the holder constructively owns shares
of United National common stock that are exchanged for shares of PNC common
stock in the merger or owns shares of PNC common stock actually or
constructively after the merger, the consequences to that holder may be similar
to the consequences described below under the heading "Exchange for PNC Common
Stock and Cash," except that the amount of consideration, if any, deemed to be a
dividend may not be limited to the amount of that holder's gain.
Exchange Solely for PNC Common Stock. If, pursuant to the merger, a holder
exchanges all of the shares of United National common stock actually owned by it
solely for shares of PNC common stock, that holder will not recognize any gain
or loss except in respect of cash received instead of a fractional share of PNC
common stock (as discussed below). The aggregate adjusted tax basis of the
shares of PNC common stock received in the merger (including fractional shares
deemed received and redeemed as described below) will be equal to the aggregate
adjusted tax basis of the shares of United National common stock surrendered for
the PNC common stock, and the holding period of the PNC common stock (including
fractional shares deemed received and redeemed as described below) will include
the period during which the shares of United National common stock were held.
Exchange for PNC Common Stock and Cash. If, pursuant to the merger, a
holder exchanges all of the shares of United National common stock actually
owned by it for a combination of PNC common stock and cash, the holder will
generally recognize gain (but not loss) in an amount equal to the lesser of (1)
the amount of gain realized (i.e., the excess of the sum of the amount of cash
and the fair market value of the PNC common stock received pursuant to the
merger over that holder's adjusted tax basis in its shares of United National
common stock surrendered) and (2) the amount of cash received pursuant to the
merger. For this purpose, gain or loss must be calculated separately for each
identifiable block of shares surrendered in the exchange, and a loss realized on
one block of shares may not be used to offset a gain realized on another block
of shares. Holders should consult their tax advisors regarding the manner in
which cash and PNC common stock should be allocated among different blocks of
United National common stock. Any recognized gain will generally be long-term
capital gain if the holder's holding period with respect to the United National
common stock surrendered is more than one year at the effective time of the
merger. If, however, the cash received has the effect of the distribution of a
dividend, the gain will be treated as a dividend to the extent of the holder's
ratable share of accumulated earnings and profits as calculated for United
States federal income tax purposes. See "-- Possible Treatment of Cash as a
Dividend" below.
The aggregate tax basis of PNC common stock received (including fractional
shares deemed received and redeemed as described below) by a holder that
exchanges its shares of United National common stock for a combination of PNC
common stock and cash pursuant to the merger will be equal to the aggregate
adjusted tax basis of the shares of United National common stock surrendered for
PNC common stock and cash, reduced by the amount of cash received by the holder
pursuant to the merger (excluding any cash received instead of a fractional
share of PNC common stock) and increased by the amount of gain (including any
portion of the gain that is treated as a dividend as described below but
excluding any gain or loss resulting from the deemed receipt and redemption of
fractional shares described below), if any, recognized by the holder on the
exchange. The holding period of the PNC common stock (including fractional
shares deemed received and redeemed as described below) will include the holding
period of the shares of United National common stock surrendered.
48
Possible Treatment of Cash as a Dividend. In general, the determination of
whether the gain recognized in the exchange will be treated as capital gain or
has the effect of a distribution of a dividend depends upon whether and to what
extent the exchange reduces the holder's deemed percentage stock ownership of
PNC. For purposes of this determination, the holder is treated as if it first
exchanged all of its shares of United National common stock solely for PNC
common stock and then PNC immediately redeemed, which we refer to in this
document as the "DEEMED REDEMPTION," a portion of the PNC common stock in
exchange for the cash the holder actually received. The gain recognized in the
deemed redemption will be treated as capital gain if the deemed redemption is
(1) "substantially disproportionate" with respect to the holder or (2) "not
essentially equivalent to a dividend."
The deemed redemption will generally be "substantially disproportionate"
with respect to a holder if the percentage described in (2) below is less than
80% of the percentage described in (1) below. Whether the deemed redemption is
"not essentially equivalent to a dividend" with respect to a holder will depend
upon the holder's particular circumstances. At a minimum, however, in order for
the deemed redemption to be "not essentially equivalent to a dividend," the
deemed redemption must result in a "meaningful reduction" in the holder's deemed
percentage stock ownership of PNC. In general, that determination requires a
comparison of (1) the percentage of the outstanding stock of PNC that the holder
is deemed actually and constructively to have owned immediately before the
deemed redemption and (2) the percentage of the outstanding stock of PNC that is
actually and constructively owned by the holder immediately after the deemed
redemption. In applying the above tests, a holder may, under the constructive
ownership rules, be deemed to own stock that is owned by other persons or stock
underlying a holder's option to purchase such stock in addition to the stock
actually owned by the holder.
The Internal Revenue Service has ruled that a shareholder in a publicly
held corporation whose relative stock interest is minimal (e.g., less than 1%)
and who exercises no control with respect to corporate affairs is generally
considered to have a "meaningful reduction" if that shareholder has a relatively
minor (e.g., approximately 3%) reduction in its percentage stock ownership under
the above analysis; accordingly, the gain recognized in the exchange by such a
shareholder would be treated as capital gain.
These rules are complex and dependent upon the specific factual
circumstances particular to each holder. Consequently, each holder that may be
subject to these rules should consult its tax advisor as to the application of
these rules to the particular facts relevant to such holder.
Cash Received Instead of a Fractional Share. A holder who receives cash
instead of a fractional share of PNC common stock will generally be treated as
having received such fractional share and then as having received such cash in
redemption of the fractional share. Gain or loss generally will be recognized
based on the difference between the amount of cash received instead of the
fractional share and the portion of the holder's aggregate adjusted tax basis of
the shares of United National common stock exchanged in the merger which is
allocable to the fractional share. Such gain or loss generally will be long-term
capital gain or loss if the holding period for such shares of United National
common stock is more than one year at the effective time of the merger.
Reporting Requirements. A holder of United National common stock receiving
PNC common stock as a result of the merger may be required to retain records
related to such holder's United National common stock and file with its United
States federal income tax return a statement setting forth facts relating to the
merger.
ACCOUNTING TREATMENT
PNC intends to treat the merger as a purchase by PNC under accounting
principles generally accepted in the United States. Under the purchase method of
accounting, the tangible and identifiable intangible assets and liabilities of
United National will be recorded, as of completion of the merger, at their
respective fair values. The excess of the purchase price over the net assets
acquired will be recorded as goodwill. Goodwill resulting from the merger will
not be amortized, but will be reviewed for impairment
49
at least annually. Core deposit and other intangibles with finite useful lives
recorded in connection with the merger will be amortized.
Financial statements and reported results of operations of PNC issued after
completion of the merger will not be restated retroactively to reflect the
historical financial position or results of operations of United National.
REGULATORY APPROVALS
Under the merger agreement, PNC and United National have agreed to use
their reasonable best efforts to obtain all necessary actions or nonactions,
waivers, consents and approvals from any governmental authority necessary to
consummate and make effective the merger, the bank combination and other
transactions contemplated by the merger agreement. The required regulatory
approvals include approvals of various federal and state agencies as described
below.
Federal Banking Approvals. The merger is subject to the prior approval of
the Federal Reserve Board, which we refer to in this document as the "FEDERAL
RESERVE," under the Bank Holding Company Act of 1956, as amended, and related
Federal regulations. In addition, the bank combination is subject to the prior
approval of the Comptroller of the Currency, which we refer to in this document
as the "OCC."
The merger and the combination of UnitedTrust Bank and PNC Bank, National
Association, if approved by Federal Reserve and the OCC, respectively, may not
be consummated before thirty (30) calendar days after such approval or, if there
has not been any adverse comment from the Department of Justice of the United
States relating to competitive factors, such shorter period of time as may be
prescribed by the regulators, but in no event less than fifteen (15) calendar
days after the date of approval.
State Regulatory Approvals. Completion of the merger and the bank
combination will also require the prior approval of the New Jersey Department of
Banking and Insurance under the New Jersey Banking Act of 1948.
While PNC and United National believe that they will receive the requisite
regulatory approvals for the merger and the bank combination, there can be no
assurance regarding the timing of the approvals or the ability of the companies
to obtain the approvals on satisfactory terms or the absence of litigation
challenging such approvals or otherwise. There can likewise be no assurance that
any state attorney general or other domestic regulatory authority will not
attempt to challenge the merger or the bank combination, or, if such a challenge
is made, as to the result thereof. The merger is conditioned upon the receipt of
all consents, approvals and actions of governmental authorities and the filing
of all other notices with such authorities in respect of the merger and, if
determined by PNC, the bank combination required to complete the merger and, if
determined by PNC, the bank combination. In addition, the merger is conditioned
upon the absence of any condition or requirement having been imposed by a
governmental entity in connection with any required approval of the merger and,
if determined by PNC, the bank combination that requires United National or its
subsidiaries to be operated in a manner that would have a material adverse
effect on United National or PNC. See "The Merger Agreement -- Conditions to the
Consummation of the Merger" on page 32. PNC has filed all applicable
applications for approval of the merger and the bank combination with the
Federal Reserve, OCC and the New Jersey Department of Banking and Insurance.
PNC is not aware of any regulatory approvals that would be required for
consummation of the transactions contemplated by the merger agreement other than
as described above. Should any other approvals be required, it is presently
contemplated that such approvals would be sought. There can be no assurance that
any other approvals, if required, will be obtained.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The executive officers and directors of United National may have interests
in the merger that are in addition to their interests as shareholders of United
National. The United National board considered these interests, among other
matters, in approving the merger. Except as described below, the execution of
the
50
merger agreement constituted a change of control for purposes of each of the
plans and agreements described below.
Pre-Existing SERP Agreements. United National had entered into separate
supplemental executive retirement plan ("SERP") agreements with certain of its
executives to supplement the benefit such executives could receive under United
National's 401(k) and defined benefit pension plans. The SERP agreements were
designed to provide a retirement benefit (taking into account the benefits
estimated to be provided under the tax-qualified plans) that was equal to 70% of
the executive's final salary, in the case of Messrs. Gregor and Gerleit, and 60%
of the executive's final salary, in the case of all other executives. If an
executive's employment was involuntarily terminated for any reason (other than
for cause, death or disability) or voluntarily terminated in connection with a
change in control, the executive would be entitled to have an amount deposited
in a trust for that executive's benefit. The amount would be equal to: (1) the
full contribution required to be made for the plan year in which the termination
occurs; (2) the present value of all remaining contributions to the fund; and
(3) a tax gross-up amount, such that the executive would be provided with
after-tax benefits, beginning at his benefit age, in an amount equal to the
benefit that would have been payable to the executive if no trust had been
implemented. United National has paid to a trust for the benefit of each
executive who had a SERP agreement, and who is party to the new agreements
described below, an amount that fully satisfies any obligations to the
executives under the SERP agreements. The amount of such payments for Messrs.
Gregor, Gerleit, Soles, Tappen and the other executive officers as a group is,
respectively, $2,050,675, $984,855, $773,709, $435,604 and $1,080,957.
Pre-Existing Employment and Change-in-Control Agreements. United National
had pre-existing employment and change of control agreements with each of
Messrs. Gregor, Gerleit, Soles, Tappen and certain other executive officers,
which were superseded by new agreements, as described below. Under the old
agreements, upon consummation of a merger agreement, each executive would have
been entitled to receive a lump sum cash payment equal to a multiple of his
average W-2 compensation over the five-year period (or such fewer years as the
executive was employed by United National). The payments required to be made
under the pre-existing SERP agreements and the payments required to be made in
connection with a change of control are included in the average W-2 compensation
for purposes of calculating the lump-sum cash payment. For Messrs. Gregor and
Gerleit, the multiple would have been 2.99 and, in the case of all other
executives, the multiple would have been two. The amount of such payments
(excluding the amounts to be paid under the SERP agreements discussed above) for
Messrs. Gregor, Gerleit, Soles, Tappen and certain other executive officers as a
group would have been, respectively, $2,993,550, $1,609,584, $1,067,130,
$614,668 and $2,155,880. In addition, if any payments and distributions to an
executive would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, then United National would have paid to the executive a
gross-up payment such that, after taking into account all taxes payable on such
gross-up payment, the executive would have retained an amount of the gross-up
payment equal to the excise tax imposed on the total payments and distributions.
Employment, Non-Compete and Retention Agreements/Employment and Retention
Agreements. At the time of execution and delivery of the merger agreement, PNC,
United National and certain United National executives entered into certain
agreements. Messrs. Gregor and Gerleit entered into Employment, Non-Compete and
Retention Agreements and Messrs. Soles, Tappen and certain other executive
officers entered into Employment and Retention Agreements, which generally
become effective only upon completion of the merger but, effective upon signing,
supersede each executive officer's existing Employment and Change-in-Control
Agreements. If the merger is not completed, these agreements will be null and
void and of no force and effect. The term of the agreements is three years from
completion of the merger in the case of Messrs. Gregor and Gerleit and one year
from completion of the merger in the case of each of the other executives.
During the term, Mr. Gregor's agreement provides that he will serve as
Regional President with duties commensurate with such position and the other
executives' agreements generally provide that they will serve and perform
services as requested by PNC to assist in the orderly consolidation of PNC's and
United National's businesses. Pursuant to the agreements, the executives agreed
that, except for options
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that would expire between signing of the agreements and completion of the
merger, they would not exercise any of their options prior to that time. Each of
these provisions is effective as of signing the agreements.
Upon completion of the merger, each of the executives is entitled to a
signing bonus, which represents a portion of the amount that they would have
been entitled to receive under their old agreements. The amount of such payments
for Messrs. Gregor, Gerleit, Soles, Tappen and the other executive officers as a
group is, respectively, $650,000, $450,000, $500,000, $340,000, and $1,505,000.
In addition, in consideration of their future services to PNC and United
National, on the second business day following the first anniversary of the
completion of the merger, subject to the executives' continued employment with
PNC and United National, United National will pay each of the executives a stay
bonus. The amount of such stay bonus for Messrs. Gregor, Gerleit, Soles, Tappen
and the other executive officers as a group is, respectively, $985,000,
$685,000, $695,000, $362,000 and 932,450.
The agreements also provide that during the term each of the executives
will be entitled to receive an annual base salary (equal to the annual base
salary as in effect as of the date of the merger agreement, which in the case of
Mr. Gregor is $443,000 and in the case of Mr. Gerleit is $275,000) as well as
certain other employee benefits and perquisites. Messrs. Gregor and Gerleit's
agreements also provide for the payment of a discretionary annual bonus for each
year during the term, paid in a combination of cash and restricted PNC common
stock. The first year of such bonus is guaranteed. For Messrs. Gregor and
Gerleit, the minimum bonus for the year in which the merger is completed will be
equal to 40% and 25% of their respective annual base salaries.
If an executive's employment is terminated during the term by PNC without
cause or the executive resigns during the term because of a material breach by
PNC of the new agreement, the executive will generally be entitled to receive
any unpaid portion of his annual base salary for the remainder of the term, any
unpaid stay bonus and, in the case of Mr. Gregor and Gerleit only, any unpaid
guaranteed first-year bonus amount. In addition, any restricted PNC common stock
will vest and Mr. Gregor and Mr. Gerleit will continue to receive medical
benefits, use of a company-provided automobile and payment of country club dues
for the remainder of the term of the agreement.
If any payments or benefits provided under the agreements become subject to
the excise tax under Section 4999 of the Internal Revenue Code, each executive
will be entitled to an additional amount such that he will be placed in the same
after-tax position as if no excise tax had been imposed on such payments.
Each of the executives has agreed not to use or disclose confidential
information or to solicit United National's or PNC's employees and clients
during the term and for a period of three years following the executive's
termination of employment, in the case of Messrs. Gregor and Gerleit, and during
the term and for a period of one year following the executive's termination of
employment, in the case of all other executives who are party to the agreements.
In addition, Messrs. Gregor and Gerleit have agreed not to compete with United
National or PNC during the term and for a period of three years following
termination of their employment. The non-competition provisions that apply to
Messrs. Gregor and Gerleit restrict such executive's competitive activity in New
Jersey, New York or Pennsylvania (and any other geographic area where the
executive conducted significant business during his employment period). In
consideration for their agreement not to compete, each of Messrs. Gregor and
Gerleit will be entitled to receive a payment of $1,800,000 and $720,000,
respectively, which will be payable over a period of 36 months following
completion of the merger.
PNC Advisory Board. PNC has agreed to establish an advisory board and,
before completion of the merger, will offer each member of the United National
board of directors an opportunity to become a member of this advisory board
effective upon completion of the merger. Membership on the advisory board will
be conditioned upon entering into a customary non-competition/non-solicitation
agreement. The PNC advisory board will be maintained for at least two years from
the completion date of the merger. Each member of the PNC advisory board will
receive an annual retainer equal to $7,500 and may receive an additional fee of
$16,000 conditioned upon achieving certain customer referral and new business
goals.
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PNC has agreed to allow members of the advisory board who are currently
participating in United National's director deferred compensation plans, and who
agree to specified plan amendments, to defer advisory board fees into the
existing plans and to fix in place the existing life insurance benefit
provisions of the plans.
Equity-Based Awards. Stock options representing the right to acquire
293,753 shares of United National common stock held by executive officers and
non-employee directors of United National on August 20, 2003 under the equity
plans sponsored by United National vested upon execution of the merger
agreement. The United National stock options that are outstanding as of the
completion of the merger will terminate and the holder of such option will be
provided with an amount in cash equal to the excess, if any, of the cash merger
consideration over the exercise price of the option.
Indemnification and Insurance. Pursuant to the merger agreement, the
surviving corporation will indemnify and hold harmless from liability for acts
or omissions occurring at or prior to the effective time of the merger those
current or former directors and officers of United National currently entitled
to indemnification from United National and its subsidiaries as provided in the
certificates of incorporation and by-laws (or comparable organizational
documents) of United National and its subsidiaries, and any indemnification
agreements or arrangements of United National will survive the merger and will
continue in full force and effect in accordance with their terms. The merger
agreement also provides that for six years after the effective time of the
merger, the surviving corporation will maintain United National's current
liability insurance covering acts or omissions occurring prior to the effective
time of the merger for those persons who were covered by United National's
directors' and officers' liability insurance policy on terms and in amounts no
less favorable than those in effect on the date of the merger agreement. The
surviving corporation, however, will not be required to pay more than 150% of
the amount paid by United National in 2003 on an annualized basis to maintain
such insurance.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of PNC common stock to be issued to United National shareholders
in the merger have been registered under the Securities Act. These shares may be
traded freely and without restriction by those shareholders not deemed to be
"affiliates" of United National as that term is defined under the Securities
Act. An affiliate of a corporation, as defined by the rules promulgated under
the Securities Act, is a person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
that corporation. Any subsequent transfer by an affiliate of United National
must be one permitted by the resale provisions of Rule 145 promulgated under the
Securities Act or as otherwise permitted under the Securities Act. These
restrictions are expected to apply to the directors and certain executive
officers of United National (as well as to certain other related individuals or
entities).
COMPARISON OF RIGHTS OF SHAREHOLDERS OF PNC AND UNITED NATIONAL
PNC is a Pennsylvania corporation subject to the provisions of the
Pennsylvania Business Corporation Law, which we refer to in this document as the
"PBCL." United National is a New Jersey corporation governed by the New Jersey
Business Corporation Act, which we refer to in this document as the "NJBCA."
Upon consummation of the merger, shareholders of United National, whose rights
are governed by United National's certificate of incorporation, which we
sometimes refer to in this document as its "CHARTER," and by-laws and by the
NJBCA, will become shareholders of PNC, and their rights will be governed by
PNC's amended and restated articles of incorporation, which we sometimes refer
to in this document as its "CHARTER," and by-laws and by the PBCL.
The following is a summary of the material differences between the rights
of shareholders of PNC and United National. 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 of incorporation and by-laws of United
National, and the amended and restated articles of incorporation and by-laws of
PNC, respectively. In addition, the identification of some of the differences in
the rights of these shareholders as material is not intended to indicate that
other differences that are equally important do not exist. We urge you to read
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carefully the relevant provisions of Pennsylvania and New Jersey law, as well as
the certificate of incorporation and by-laws of United National, and the amended
and restated articles of incorporation and by-laws of PNC. Copies of these
charter and by-law documents are incorporated by reference into this document
and will be sent to you upon request. See "Where You Can Find More Information"
on page 61.
AUTHORIZED CAPITAL
United National. The authorized capital stock of United National consists
of:
- 25,000,000 shares of common stock, par value $1.25 per share, of which
there were 18,822,954 issued and outstanding and 2,180,223 were held in
treasury, as of August 20, 2003; and
- 1,000,000 shares of preferred stock, without par value, of which there
were none issued and outstanding and none were held in treasury, as of
August 20, 2003.
PNC. The authorized capital stock of PNC consists of:
- 800,000,000 shares of common stock, par value $5.00 per share, of which
there were 279,738,578 issued and outstanding and 73,084,189 were held in
treasury, as of August 20, 2003; and
- 20,000,000 shares of preferred stock, par value $1.00 per share, of which
there were 446,953 issued and outstanding in four series and none were
held in treasury, as of August 20, 2003.
- 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 "Where You Can
Find More Information." The PNC board may establish and designate
additional series of PNC preferred stock and fix and determine the terms
thereof by resolution.
VOTING RIGHTS
United National. At any meetings of shareholders, holders of United common
stock are entitled to one vote per share. Except as indicated below, actions and
authorizations to be taken or given by shareholders generally require the
approval of a majority of the votes cast by holders of United common stock at a
meeting at which a quorum is present. Under New Jersey corporate law,
shareholders of a New Jersey corporation do not have cumulative voting rights in
the election of directors unless the certificate of incorporation so provides.
United National's charter does not provide for cumulative voting. United
National's charter does not provide for United National shareholders to have
preemptive rights with respect to issuances of stock by the corporation.
PNC. Each holder of common stock of the corporation has the right to one
vote for each share for each share of common stock standing in his name on the
books of the corporation. No holder of any class of capital stock is permitted
to cumulate his or her vote for the election of directors. PNC's charter
provides that no holder of the corporation's capital stock will have any
preemptive rights with respect to issuances of stock by the corporation.
BOARD OF DIRECTORS
United National. The board of directors of United National has 15
directors. The by-laws of United National provides that the number of directors
will be not less than five nor more than 25. The NJBCA permits classification of
the board of directors if the charter so provides. United National's charter
provides for three classes of directors. If the number of directors are changed,
the change will be apportioned as equally as possible among all three classes.
In no case will a decrease in the number of directors shorten the term of any
incumbent director. The number of directors will be fixed by a two-thirds vote
of the board. The number of directors may not be increased by more than two from
the number determined by the board in connection with the last annual election
of directors. Directors may act by written consent in lieu of a meeting.
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No person who is age 72 or older will be nominated for election as a
director. No person is eligible for election or reelection as a director if they
have violated certain applicable laws. A director's failure to attend at least
75% of all meetings combined of the board of United National and any affiliate
or subsidiary will constitute cause for removal from the United National board
upon the vote by a majority of all the remaining directors. Any such vacancy
will be filled by a vote of the majority of the remaining directors. Under the
NJBCA, directors may only be removed by shareholders for cause or without cause
by the affirmative vote of the majority of voting shareholders. The directors
remaining in office, acting by at least a two-thirds affirmative vote, may fill
any vacancies or newly created directorships in the board.
PNC. The board of directors of PNC has 16 directors. Although Pennsylvania
law permits a corporation to adopt a classified board, PNC has not done so. The
by-laws of PNC provides that the number of directors will be not less than five
nor more than 36. Vacancies in the board, including vacancies resulting from an
increase in the number of directors, may be filled by a majority of the
remaining directors though less than a quorum. Directors may act by written
consent in lieu of a meeting.
The PBCL provides that any director, or all of them, may be removed by a
vote of shareholders entitled to elect directors. Shareholder removal of
directors is restricted if the board of directors is classified, if shareholders
vote cumulatively when electing directors, or if the by-laws 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 has failed to accept the office, or
upon any other proper cause that the by-laws may specify. A 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. PNC's by-laws provide that following their election by shareholders,
directors will hold office until the next succeeding annual meeting and until
their successors will have been elected and qualified.
SHAREHOLDER ACTION
United National. Special meetings of the shareholders may be called, at
any time, by the chairman of the board, president or the majority of the board.
At all shareholder meetings, shareholders owning a majority of the outstanding
shares of capital stock entitled to vote at such meeting will constitute a
quorum, but less than a quorum will have the power to recess the meeting. The
NJBCA provides that a special meeting of shareholders may be called by the
president or the board, or by such other officers, directors or shareholders as
may be provided for in the by-laws. In addition, upon the application of the
holder or holders of not less than 10% of all the shares entitled to vote at a
meeting, the New Jersey Superior Court, in an action in which the court may
proceed in a summary manner, for good cause shown, may order a special meeting
of the shareholders to be called and held at such time and place, upon such
notice and for the transaction of such business as may be designated in such
order.
Except as otherwise provided by the charter (United National's charter is
silent on this issue) New Jersey corporate law permits any action required or
permitted to be taken at any meeting of a corporation's shareholders, other than
the annual election of directors, to 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 of shareholders at
which all shareholders entitled to vote were present and voting. The annual
election of directors, if not conducted at a shareholders' meeting, may only be
effected by unanimous written consent. Under applicable New Jersey law, a
shareholder vote on a plan of merger or consolidation may be effected only:
- at a shareholders' meeting;
- by unanimous written consent of all shareholders entitled to vote on the
issue with advance notice to any other shareholders; or
55
- by written consent of shareholders who would have been entitled to cast
the minimum number of votes necessary to authorize such action at a
meeting, together with advance notice to all other shareholders.
PNC. A nomination for the election of a director or a proposal for action
at an annual meeting may be made by a shareholder only if written notice of such
nomination or proposal has been received by the Secretary of PNC not later than
90 days prior to such annual meeting (unless another date is specified in the
proxy materials distributed to shareholders), or, if the annual meeting is to be
held on a date other than the fourth Tuesday in April, the close of business on
the tenth day following the first public disclosure of the date of such meeting.
Any such nomination for the election of a director or a proposal for action at
an annual meeting will conform to the requirements set out in PNC's by-laws that
are applicable to such nominations or proposals.
Special meetings of the shareholders may be called, at any time, only by
the board of directors, the chairman of the board, the president or a vice
chairman of the board. While the PBCL provides generally that in addition to the
foregoing persons, a group of shareholders entitled to cast at least 20% of the
votes that all shareholders are entitled to cast at the particular meeting may
call a special meeting, this provision does not apply to, among others,
corporations, such as PNC, that are registered under the Exchange Act. Since PNC
is registered under the Exchange Act, shareholders of PNC are not entitled to
call a special meeting. Only business brought before the meeting (i) pursuant to
PNC's notice of such meeting, (ii) by the presiding officer or (iii) at the
direction of a majority of the board, may be conducted at such special meeting
of shareholders.
Under the PBCL, 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 for such purpose. The presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes which all shareholders will be
entitled to cast on the particular matter will constitute a quorum for the
purpose of considering such matter.
COMMITTEES OF THE BOARD OF DIRECTORS
United National. The by-laws of United National designate the following
standing committees, in addition to such other committees as the board may deem
advisable:
- an audit committee;
- a by-laws committee;
- a committee on directors nominations;
- a committee on director-officer compensation;
- a committee for the administration of the equity plans;
- an executive committee; and
- a strategic planning committee.
PNC. The by-laws of PNC designate the following standing committees, in
addition to such other committees as the board may deem advisable:
- an executive committee;
- an audit committee;
- a nominating and governance committee;
- a personnel and compensation committee;
- a credit committee; and
- a finance committee.
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OFFICERS
United National. The by-laws of United National provide that the
corporation's officers may include a president, one or more executive vice
presidents, senior vice presidents, vice presidents, and assistant vice
presidents, a secretary, a treasurer, and such additional officers, including a
chairman, as the board may from time to time deem advisable. The chairman will
serve as the chief executive officer of the corporation. Officers will hold
their office until their respective successors are elected and qualify, or until
their death, resignation, retirement or removal. Any officer may be removed or
suspended, with or without cause, by the chief executive officer, or in the case
of the chief executive officer, by the affirmative vote of a majority of the
board.
PNC. The by-laws of PNC designate the following officers of the
corporation: a chairman of the board, a president, one or more vice chairmen,
one or more vice presidents of whom one or more may be designated senior
executive vice president, executive vice president or senior vice president, a
corporate secretary, a treasurer, a controller, a general auditor, and such
other officers as the chairman, the president, or the vice chairman may from
time to time designate. The board will designate from among the chairman, the
president and the vice chairman, one of them to be the chief executive officer.
All officers having the rank of senior vice president or higher will be elected
by the board and serve at the board's pleasure.
APPROVAL OF CERTAIN TRANSACTIONS
United National. United National's charter contains a "minimum price"
provision. No "transaction" (which includes a merger, consolidation, liquidation
or the like) between United National and an "interested person" (defined in the
charter to include persons who, together with their affiliates, own 3% or more
of the voting power of United National's capital stock) is valid or can be
consummated unless:
- the proposed transaction is first approved by a majority of
"disinterested directors" (defined in the charter as directors (other
than the interested person) who became directors prior to the time the
interested person became an interested person, or who were subsequently
nominated for director by a majority of other disinterested directors);
- the proposed transaction is first approved by the affirmative vote of
two-thirds of the votes cast by "disinterested shareholders" (defined in
the charter as shareholders entitled to vote on the transaction, other
than an interested person); or
- the disinterested shareholders are offered consideration in an amount
equal to or in excess of an amount determined in accordance with a
formula contained in the charter.
Under New Jersey corporate law, unless a greater vote is specified in the
certificate of incorporation, the affirmative vote of a majority of the votes
cast by shareholders entitled to vote on the matter is required to approve:
- any amendment to a New Jersey corporation's certificate of incorporation;
- the voluntary dissolution of the corporation;
- the sale or other disposition of all or substantially all of a
corporation's assets otherwise than in the ordinary course of business;
or
- the merger or consolidation of the corporation with another corporation.
Other than as described above, United National's charter does not contain
provisions specifying a greater vote in such circumstances.
The New Jersey Shareholders Protection Act limits certain transactions
involving an "interested shareholder" and a "resident domestic corporation." An
"interested shareholder" is one that is directly or indirectly a beneficial
owner of 10% or more of the voting power of the outstanding voting stock of a
resident domestic corporation. The New Jersey Shareholders Protection Act
prohibits certain business
57
combinations between an interested shareholder and a resident domestic
corporation for a period of five years after the date the interested shareholder
acquired its stock, unless the business combination was approved by the resident
domestic corporation's board of directors prior to the interested shareholder's
stock acquisition date. After the five-year period expires, the prohibition on
certain business combinations continues unless (1) the combination is approved
by the affirmative vote of two-thirds of the voting stock not beneficially owned
by the interested shareholder, (2) the combination is approved by the board
prior to the interested shareholder's stock acquisition date or (3) certain fair
price provisions are satisfied. The New Jersey Shareholders Protection Act
applies to United National.
New Jersey corporate law provides that in determining whether a proposal or
offer to acquire a corporation is in the best interest of the corporation, the
board may, in addition to considering the effects of any action on shareholders,
consider any of the following:
- the effects of the proposed action on the corporation's employees,
suppliers, creditors and customers;
- the effects on the community in which the corporation operates; and
- the long-term as well as short-term interests of the corporation and its
shareholders, including the possibility that those interests may be
served best by the continued independence of the corporation.
The statute further provides that if, based on those factors, the board
determines that any such offer is not in the best interest of the corporation,
it may reject the offer. These provisions may make it more difficult for a
shareholder to challenge the United National board's rejection of, or may
facilitate the board's rejection of, an offer to acquire the corporation.
In addition to and aside from shareholder voting rights provided for under
New Jersey law, Nasdaq rules governing corporations whose shares are listed on
the Nasdaq, require shareholder approval before the issuance of securities in
connection with the acquisition of the stock or assets of another company if the
securities issued will have voting power equal to 20% or more of the voting
power outstanding before the issuance or will be convertible into common stock
equal to 20% or more of the common stock outstanding before the issuance.
PNC. Under the PBCL, a plan of merger or consolidation, a plan of share
exchange or a plan of transfer of all or substantially all of the assets of a
corporation may be adopted if, among other conditions, it receives the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon. No shareholder vote is required for a merger where the articles of
incorporation of the surviving corporation are identical to those of the
corporation being merged, or for a merger of an 80%-owned subsidiary into the
parent. In certain circumstances, shareholders may be entitled to dissent from
such transactions and obtain fair value in cash for their shares. See "-- Rights
of Dissenting Shareholders." In addition to and aside from shareholder voting
rights provided by Pennsylvania law, NYSE rules governing corporations whose
stock is listed on the NYSE, such as PNC, require a shareholder vote on a merger
if stock being issued in connection therewith possesses voting power equal to at
least 20% of the voting power of the common stock outstanding immediately before
the merger.
Pennsylvania corporate law permits the board in determining the best
interests of the corporation to consider:
- the interests of the corporation's shareholders, employees, customers,
creditors, suppliers and communities in which it is located;
- the long-term and short-term interests of the corporation, including the
possibility that these interests may be best served by its continued
independence;
- the resources, intent and conduct (past, present and potential) of any
person seeking to acquire control; and
- all other pertinent factors.
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These provisions may make it more difficult for a shareholder to challenge
the PNC board's rejection of, or may facilitate the board's rejection of, an
offer to acquire the corporation.
In its by-laws, PNC has expressly opted out of the protection of Subchapter
G of Chapter 25 of the PBCL, which would otherwise enable existing shareholders
of PNC in certain circumstances to block the voting rights of an acquiring
person who makes or proposes to make a control-share acquisition. PNC has also
opted out of the protection of Subchapter H of Chapter 25 of the PBCL, which
would otherwise enable PNC to recover certain payments made to shareholders who
have evidenced an intent to acquire control of PNC. However, PNC remains subject
to certain other provisions of Pennsylvania law that may have the effect of
discouraging a takeover of PNC. First, persons who, through a "control
transaction," acquire the right to cast at least 20% of the votes required for
an election of directors, become subject to the obligation to pay objecting
shareholders fair value for their shares. Second, business combinations with a
20%-plus shareholder are subject to heightened voting and approval requirements.
None of these Pennsylvania laws applies to the merger.
RIGHTS OF DISSENTING SHAREHOLDERS
United National. Shareholders of a New Jersey corporation who dissent from
a merger, consolidation, sale of all or substantially all of the corporation's
assets or certain other corporate transactions are generally entitled to
appraisal rights. No statutory right of appraisal exists, however, when the
stock of the New Jersey corporation: (1) is listed on a national securities
exchange; (2) is held of record by not less than 1,000 holders; or (3) is
exchanged for consideration to be received pursuant to the merger, consolidation
or sale consisting of cash or securities or other obligations which, after the
transaction, will be listed on a national securities exchange or held of record
by not less than 1,000 holders. Since the PNC common stock that will be received
by United National shareholders in the merger is listed on the NYSE, United
National shareholders have no dissenters' rights in this merger.
PNC. Under the PBCL, certain corporate actions trigger a shareholder's
right to dissent from that action and obtain payment of the fair value of his
shares. However, no dissenters' rights are available for shareholders of a
corporation (i) listed on a national securities exchange, or (ii) the shares of
which are held of record by more than 2,000 shareholders, except in very limited
circumstances. In addition, the PBCL provides for certain quasi-appraisal
rights, under particular circumstances, upon specified acquisitions of 20% or
more of a corporation's voting power. Because PNC common stock is listed on the
NYSE and PNC has more than 2,000 shareholders, dissenters' rights that would
otherwise be provided under Pennsylvania law are generally not available to
holders of PNC common stock.
AMENDMENT OF GOVERNING DOCUMENTS
United National. The "minimum price" provisions in United National's
charter can be amended only with the consent of two-thirds of the votes cast by
shareholders entitled to vote thereon, subject to certain limitations specified
in the charter. At any time when any shares of Series A Junior Participating
Preferred Stock are outstanding, the charter will not be amended in any manner
that would materially alter or change the powers, preferences or special rights
of the Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of a majority or more of
the outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
The by-laws of United National may be amended by an affirmative vote of at
least two-thirds of the board at any regular or special meeting of the board.
By-laws adopted or amended by the board are subject to repeal or alteration by
shareholders. Under New Jersey corporate law, the board of directors of a New
Jersey corporation has the power to adopt, amend, or repeal the corporation's
by-laws, unless such powers are reserved in the certificate of incorporation to
the shareholders. United National's charter presently does not reserve such
powers to its shareholders.
PNC. Under the PBCL, an amendment to PNC's charter can be proposed by
adoption of a resolution by the PNC board. While the PBCL provides generally
that an amendment to a corporation's articles of incorporation can be proposed
also by a petition of shareholders entitled to cast at least 10% of
59
the votes that all shareholders are entitled to cast thereon, Pennsylvania law
eliminates that right in the case of a corporation, such as PNC, that is
registered under the Exchange Act. An amendment 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 PBCL that do not
require shareholder approval. Amendments affecting the relative rights and
preferences of shares are subject to special restrictions. Amendments of PNC's
charter that materially affect the rights of the holders of shares of Series G
Preferred Stock, which would be issued under certain circumstances pursuant to
the shareholders rights plan discussed below, require the consent of two-thirds
of such holders, voting together as a single class.
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. However, PNC's charter
provides that the authority to make, amend and repeal by-laws, while vested in
the PNC board, is subject to the power of the shareholders to change such
action. Moreover, the PNC board may not adopt or change a by-law on certain
subjects committed expressly to the shareholders by Section 1504(b) of the PBCL.
CHARITABLE CONTRIBUTIONS
United National. United National's by-laws have no provisions with respect
to charitable contributions.
PNC. The by-laws of PNC expressly permit it to authorize charitable
contributions that the board of directors deems conducive to the public welfare.
SHAREHOLDERS RIGHTS PLAN
United National. United National has adopted a shareholders rights plan
that would likely have the effect of making it prohibitively expensive for any
person or group of persons to acquire beneficial ownership of more than 12% of
United National's outstanding common stock without the approval of its board of
directors.
PNC. PNC has adopted a shareholders rights plan that would likely have the
effect of making it prohibitively expensive for any person or group of persons
to acquire beneficial ownership of more than 10% of PNC's outstanding common
stock without the approval of its board of directors.
EXPERTS
The consolidated financial statements of United National as of December 31,
2002 and 2001, and for each of the years in the three-year period ended December
31, 2002 have been incorporated by reference herein in reliance upon the report
of KPMG LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing.
The audit report covering United National's December 31, 2002 consolidated
financial statements refers to a change in accounting for stock-based
compensation.
The consolidated financial statements of PNC as of December 31, 2002, and
for the one year period ended December 31, 2002, incorporated into this proxy
statement/prospectus by reference from PNC's Annual Report on Form 10-K for the
year ended December 31, 2002 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to the change
in the method of accounting for goodwill and other intangible assets), which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of PNC as of December 31, 2001, and
for the years in the two-year period ended December 31, 2001, appearing in PNC's
Annual Report on Form 10-K for the year
60
ended December 31, 2002, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and are
incorporated by reference in this proxy statement/prospectus. Such consolidated
financial statements are incorporated by reference in this proxy
statement/prospectus in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the PNC common stock
to be issued pursuant to the merger will be passed upon for PNC by Thomas R.
Moore, Senior Counsel and Corporate Secretary to PNC. As of [--], 2003, Mr.
Moore owned [--] shares of PNC common stock and held options to acquire an
additional [--] shares of PNC common stock. Certain legal matters with respect
to the federal income tax consequences of the merger will be passed upon for PNC
by Wachtell, Lipton, Rosen & Katz, PNC's outside legal counsel. Certain legal
matters with respect to the federal income tax consequences of the merger will
be passed upon for United National by McCarter & English, LLP, United National's
outside legal counsel.
SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS
United National does not currently expect to hold a 2004 annual meeting of
shareholders because United National will not be a separate public company if
the merger has been completed by that time. If the merger is not consummated and
such a meeting is held, shareholders may propose matters to be presented at the
2004 annual meeting of shareholders and may also nominate persons to be
directors.
New Jersey corporate law requires that the notice of a shareholder's
meeting (for either an annual or special meeting) specify the purpose or
purposes of the meeting. Accordingly, notices for our annual meetings specify
that election of directors is one purpose of the meeting. However, shareholder
proposals (as opposed to shareholder nominations for directors) must be
specifically referred to in United National's notice of shareholders' meeting
for such proposal to be validly considered at an annual meeting of United
National.
Any shareholder proposal intended for inclusion in the proxy materials for
the 2004 annual meeting of shareholders must be received by United National,
addressed to the Corporate Secretary of United National at 1130 Route 22 East,
Bridgewater, New Jersey 08807-0010. Although United National does not currently
expect to hold an annual meeting in 2004, the current deadline in case such a
meeting is held is Monday, December 22, 2003, subject to change as noted below.
Shareholders proposals received after December 22, 2003 shall be considered
untimely.
If United National does hold an annual meeting in 2004, it is expected that
it will be held, as is customary, on the third Tuesday of April, which is April
20, 2004. If United National changes its 2004 annual meeting date to a date more
than 30 days from the anniversary date of the 2003 annual meeting, then the
deadline referred to in the preceding paragraph will be changed to a reasonable
time before United National begins to print and mail its proxy materials. If
United National changes the date of the 2004 annual meeting in a manner which
alters the deadline, United National will so state under Item 5 of the first
Quarterly Report on Form 10-Q it files with the SEC after the date change or
will notify shareholders by other reasonable means.
WHERE YOU CAN FIND MORE INFORMATION
PNC and United National file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. PNC and United National public filings are also
available to the public from commercial document
61
retrieval services and at the Internet World Wide Web site maintained by the SEC
at "http://www.sec.gov."
PNC has filed a registration statement on Form S-4 to register with the SEC
the shares of PNC common stock to be issued to United National shareholders in
the merger. This proxy statement/ prospectus is a part of that registration
statement and constitutes a prospectus of PNC and a proxy statement of United
National for the United National special meeting.
As allowed by SEC rules, this proxy statement/prospectus does not contain
all the information that shareholders can find in the registration statement or
the exhibits to the registration statement.
The SEC allows PNC and United National to "incorporate by reference"
information into this proxy statement/prospectus, which means that the companies
can disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
deemed to be part of this proxy statement/prospectus, except for any information
superseded by information contained directly in the proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that PNC and United National have previously filed with the SEC.
These documents contain important information about the companies.
UNITED NATIONAL SEC FILINGS (FILE NO. 000-16931) PERIOD
------------------------------------------------ ------
Annual Report on Form 10-K.................... For the year ended December 31, 2002, Form
10-K/A filed April 28, 2003.
Quarterly Reports on Form 10-Q................ Three and six months ended, respectively,
March 31, 2003 and June 30, 2003.
Current Reports on Form 8-K................... Filed April 21, 2003, May 30, 2003, June 18,
2003, September 4, 2003 (other than
information furnished under Regulation FD),
September 18, 2003 and October 2, 2003.
PNC SEC FILINGS (FILE NO. 1-9718) PERIOD
--------------------------------- ------
Annual Report on Form 10-K................... For the year ended December 31, 2002, Form
10-K/A filed May 15, 2003.
Quarterly Reports on Form 10-Q............... Three and six months ended, respectively,
March 31, 2003 and June 30, 2003.
Current Reports on Form 8-K.................. Filed June 2, 2003, September 2, 2003,
September 15, 2003, September 29, 2003 and
October 1, 2003.
PNC and United National incorporate by reference additional documents that
either company may file with the SEC between the date of this proxy
statement/prospectus and the date of the special meeting. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
United National has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to United National, and
PNC has supplied all such information relating to PNC.
You may obtain any of the documents incorporated by reference through
United National or PNC, as the case may be, or the SEC or the SEC's Internet
World Wide Web site, as described above. Documents incorporated by reference are
available from the companies without charge, excluding all exhibits unless
specifically incorporated by reference as an exhibit to this proxy
statement/prospectus. Shareholders of United National or PNC may obtain
documents incorporated by reference in this proxy state-
62
ment/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:
UNITED NATIONAL BANCORP THE PNC FINANCIAL SERVICES GROUP, INC.
1130 Route 22 East One PNC Plaza
Bridgewater, New Jersey 08807-0010 249 Fifth Avenue
Attention: Shareholder Relations Pittsburgh, Pennsylvania 15222-2707
(908) 429-2406 Attention: Shareholder Services
(800) 982-7652
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM EITHER COMPANY, PLEASE DO SO BY
[--], 2003 TO RECEIVE THEM BEFORE THE UNITED NATIONAL SPECIAL MEETING OF
SHAREHOLDERS. IF YOU REQUEST ANY INCORPORATED DOCUMENTS FROM US, WE WILL MAIL
THEM TO YOU PROMPTLY BY FIRST-CLASS MAIL, OR SIMILAR MEANS.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote your shares at the United
National special meeting. PNC and United National have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated [--], 2003.
You should not assume that the information contained in the proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this proxy statement/prospectus to United National's
shareholders nor the issuance of PNC's securities in the merger will create any
implication to the contrary.
63
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE PNC FINANCIAL SERVICES GROUP, INC.,
PNC BANCORP INC.
AND
UNITED NATIONAL BANCORP
DATED AS OF
AUGUST 21, 2003
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER...................................................... A-1
SECTION 1.1 The Merger.................................................. A-1
SECTION 1.2 Closing..................................................... A-1
SECTION 1.3 Effective Time.............................................. A-2
SECTION 1.4 Effects of the Merger....................................... A-2
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation................................................. A-2
SECTION 1.6 Directors and Officers...................................... A-2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.................................... A-2
SECTION 2.1 Effect on Capital Stock..................................... A-2
SECTION 2.2 Proration................................................... A-4
SECTION 2.3 Company Stock Options....................................... A-5
SECTION 2.4 Election and Exchange Procedures............................ A-6
SECTION 2.5 Certain Adjustments......................................... A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES................................ A-9
SECTION 3.1 Representations and Warranties of the Company............... A-9
SECTION 3.2 Representations and Warranties of Parent.................... A-29
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS...................... A-36
SECTION 4.1 Conduct of Business by the Company.......................... A-36
SECTION 4.2 Advice of Changes........................................... A-39
SECTION 4.3 No Solicitation by the Company.............................. A-40
SECTION 4.4 Transition.................................................. A-41
SECTION 4.5 No Fundamental Changes in the Conduct of Business by
Parent...................................................... A-41
ARTICLE V ADDITIONAL AGREEMENTS........................................... A-42
SECTION 5.1 Preparation of the Form S-4, Proxy Statement; Shareholders
Meeting..................................................... A-42
SECTION 5.2 Access to Information; Confidentiality...................... A-43
SECTION 5.3 Reasonable Best Efforts..................................... A-44
SECTION 5.4 Rule 16b-3 Actions.......................................... A-44
SECTION 5.5 Indemnification, Exculpation and Insurance.................. A-45
SECTION 5.6 Fees and Expenses........................................... A-45
SECTION 5.7 Public Announcements........................................ A-45
SECTION 5.8 Affiliates.................................................. A-46
SECTION 5.9 Stock Exchange Listing...................................... A-46
SECTION 5.10 Shareholder Litigation...................................... A-46
SECTION 5.11 Standstill Agreements; Confidentiality Agreements........... A-46
SECTION 5.12 Employee Benefits........................................... A-46
SECTION 5.13 Tax Matters................................................. A-48
SECTION 5.14 Advisory Board of Parent.................................... A-48
A-i
PAGE
----
ARTICLE VI CONDITIONS PRECEDENT........................................... A-49
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-49
SECTION 6.2 Conditions to Obligations of Parent......................... A-49
SECTION 6.3 Conditions to Obligations of the Company.................... A-50
SECTION 6.4 Frustration of Closing Conditions........................... A-50
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................. A-51
SECTION 7.1 Termination................................................. A-51
SECTION 7.2 Effect of Termination....................................... A-52
SECTION 7.3 Amendment................................................... A-53
SECTION 7.4 Extension; Waiver........................................... A-53
ARTICLE VIII GENERAL PROVISIONS........................................... A-53
SECTION 8.1 Nonsurvival of Representations and Warranties............... A-53
SECTION 8.2 Notices..................................................... A-53
SECTION 8.3 Definitions................................................. A-54
SECTION 8.4 Interpretation.............................................. A-56
SECTION 8.5 Counterparts................................................ A-56
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries.............. A-56
SECTION 8.7 Governing Law............................................... A-56
SECTION 8.8 Assignment.................................................. A-56
SECTION 8.9 Consent to Jurisdiction..................................... A-56
SECTION 8.10 Headings.................................................... A-57
SECTION 8.11 Severability................................................ A-57
SECTION 8.12 Enforcement................................................. A-57
A-ii
INDEX OF DEFINED TERMS
TERM PAGE
---- ------------
Affiliate................................................... A-54
Aggregate Cash Amount....................................... A-3
Aggregate Company Share Amount.............................. A-3
Aggregate Parent Share Amount............................... A-3
Agreement................................................... A-1
Bank........................................................ A-10
Bank Combination............................................ A-44
BHCAct...................................................... A-13
Cash Consideration.......................................... A-2
Cash Election............................................... A-2
Cash Election Shares........................................ A-2
Certificate of Merger....................................... A-2
Change in the Company Recommendation........................ A-40
Closing..................................................... A-1
Closing Date................................................ A-54
Closing Parent Share Value.................................. A-3, 54
Closing Transaction Value................................... A-4
Code........................................................ A-1
Company..................................................... A-1
Company Acquisition Agreement............................... A-52
Company Common Stock........................................ A-1
Company DCP................................................. A-47
Company Disclosure Schedule................................. A-9
Company ERISA Affiliate..................................... A-21
Company Filed SEC Documents................................. A-15
Company Material Contracts.................................. A-14
Company Permit Liens........................................ A-10
Company Plans............................................... A-21
Company Preferred Stock..................................... A-10
Company Recommendation...................................... A-43
Company Regulatory Agreement................................ A-16
Company REIT................................................ A-20
Company Rights Agreement.................................... A-1
Company SEC Documents....................................... A-13
Company Series A Preferred Stock............................ A-10
Company Shareholder Approval................................ A-26
Company Shareholders Meeting................................ A-6
Company Stock Certificates.................................. A-6
Company Stock Options....................................... A-11
Company Stock Plans......................................... A-11
Company Takeover Proposal................................... A-40
Company Title IV Plans...................................... A-21
Continuing Employees........................................ A-46
A-iii
TERM PAGE
---- ------------
Conversion Date............................................. A-47
Credit Facilities........................................... A-37
Derivative Transactions..................................... A-27
Determination Date.......................................... A-54
Determination Date Value.................................... A-54
DGCL........................................................ A-1
Disclosing Party............................................ A-43
Effective Time.............................................. A-2
Election.................................................... A-6
Election Deadline........................................... A-6
Employee.................................................... A-14
Environmental Claims........................................ A-24
ERISA....................................................... A-21
Excess Option Shares........................................ A-3
Exchange Act................................................ A-11
Exchange Agent.............................................. A-6
Exchange Agent Agreement.................................... A-6
Exchange Fund............................................... A-7
Exchange Ratio.............................................. A-4
Exchangeable Shares......................................... A-4
Executive Officers.......................................... A-55
Federal Reserve............................................. A-13
Final Parent Share Value.................................... A-4
Finance Laws................................................ A-17
Form of Election............................................ A-6
Form S-4.................................................... A-12
GAAP........................................................ A-13
Governmental Entity......................................... A-12
Holder...................................................... A-6
Indebtedness................................................ A-15
Indemnified Parties......................................... A-45
Index Price................................................. A-55
Index Ratio................................................. A-52
Initial Value............................................... A-53
Instruments of Indebtedness................................. A-14
Intellectual Property....................................... A-24
IRS......................................................... A-19
Key Employee................................................ A-15
knowledge................................................... A-55
Leased Properties........................................... A-28
Leases...................................................... A-28
Letter of Transmittal....................................... A-9
Liens....................................................... A-10
Loans....................................................... A-27
A-iv
TERM PAGE
---- ------------
Major Company Shareholder................................... A-11
Material Adverse Change or Material Adverse Effect.......... A-55
Merger...................................................... A-1
Merger Agreement............................................ A-1
Merger Consideration........................................ A-4
Merger Sub.................................................. A-1
New Jersey Banking Department............................... A-13
NJBCA....................................................... A-1
Non-Election Shares......................................... A-3
NYSE........................................................ A-4
OCC......................................................... A-13
Other Company Documents..................................... A-17
Other Parent Documents...................................... A-35
Owned Properties............................................ A-28
Parent...................................................... A-1
Parent Adjustment Event..................................... A-9
Parent Advisory Board....................................... A-48
Parent Authorized Preferred Stock........................... A-30
Parent Average Price........................................ A-55
Parent Common Stock......................................... A-3
Parent Convertible Securities............................... A-31
Parent DCP.................................................. A-47
Parent Disclosure Schedule.................................. A-29
Parent ERISA Affiliate...................................... A-34
Parent Permits.............................................. A-34
Parent Plans................................................ A-33
Parent Ratio................................................ A-52
Parent Regulatory Agreement................................. A-35
Parent Rights Agreement..................................... A-3
Parent SEC Documents........................................ A-31
Parent Series A Preferred Stock............................. A-30
Parent Series B Preferred Stock............................. A-30
Parent Series C Preferred Stock............................. A-30
Parent Series D Preferred Stock............................. A-30
Parent Series E Preferred Stock............................. A-30
Parent Series F Preferred Stock............................. A-30
Parent Series G Preferred Stock............................. A-30
Parent Stock Certificate.................................... A-8
Parent Stock Options........................................ A-31
Parent Stock Plans.......................................... A-31
Parent Title IV Plans....................................... A-33
PBGC........................................................ A-22
Peer Equivalent Value....................................... A-55
Per Share Amount............................................ A-4
A-v
TERM PAGE
---- ------------
Permits..................................................... A-16
Person...................................................... A-55
Policies, Practices and Procedures.......................... A-27
Pre-Termination Takeover Proposal Event..................... A-52
Proxy Statement............................................. A-12
Receiving Party............................................. A-43
REIT Preferred Stock........................................ A-10
Representatives............................................. A-43
Requisite Regulatory Approvals.............................. A-49
Restraints.................................................. A-49
SEC......................................................... A-54
SERP........................................................ A-48
Securities Act.............................................. A-13
Share Adjustment Amount..................................... A-4
Shortfall Number............................................ A-5
Software.................................................... A-24
Stock Consideration......................................... A-3
Stock Conversion Number..................................... A-4
Stock Election.............................................. A-3
Stock Election Number....................................... A-5
Stock Election Shares....................................... A-3
Subsidiary.................................................. A-55
Surviving Corporation....................................... A-1
Tax, Taxes.................................................. A-20
Tax Return.................................................. A-20
Third Party Leases.......................................... A-29
United States............................................... A-10
Unlawful Gains.............................................. A-18
Wachtell, Lipton............................................ A-1
A-vi
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of August 21,
2003, by and among The PNC Financial Services Group, Inc., a Pennsylvania
corporation ("PARENT"), United National Bancorp, a New Jersey corporation (the
"COMPANY"), and PNC Bancorp Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("MERGER SUB").
WITNESSETH:
WHEREAS, each of Parent, Merger Sub and the Company desires to enter into a
transaction whereby the Company will merge with and into Merger Sub (the
"MERGER"), with Merger Sub being the surviving corporation, upon the terms and
subject to the conditions set forth in this Agreement, whereby each issued and
outstanding share of common stock, par value $1.25 per share ("COMPANY COMMON
STOCK"), of the Company together with the rights attached thereto issued
pursuant to that certain Shareholder Rights Plan, dated November 1, 2001, as
amended, supplemented, restated or replaced from time to time, among the Company
and Registrar and Transfer Company, as Rights Agent (the "COMPANY RIGHTS
AGREEMENT"), will be converted into the right to receive the Merger
Consideration (as defined in Section 2.1(d));
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have each approved this Agreement and the Merger (as defined below) in
accordance with the provisions of the Business Corporation Law of the
Commonwealth of Pennsylvania, the Delaware General Corporation Law (the "DGCL")
and the New Jersey Business Corporation Act (the "NJBCA"), as applicable, and
determined that the Merger is advisable, and Parent has adopted this Agreement
and the Merger as the parent and sole shareholder of Merger Sub;
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Parent and the Company are entering into Employment, Non-Compete and Retention
Agreements with Thomas C. Gregor, Warren R. Gerleit, Alfred J. Soles, Richard G.
Tappen, Raymond C. Kenwell, John J. Cannon, Joanne F. Herb, Richard Minette and
A. Richard Abrahamian; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "CODE"), and that
this Agreement be, and is hereby, adopted as a plan of reorganization for
purposes of Sections 354 and 361 of the Code.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the NJBCA and the DGCL, the
Company shall be merged with and into Merger Sub at the Effective Time.
Following the Effective Time, Merger Sub shall be the surviving corporation (the
"SURVIVING CORPORATION"), and shall remain a wholly owned subsidiary of Parent
and shall succeed to and assume all of the rights and obligations of the Company
in accordance with Section 10-6 of the NJBCA.
SECTION 1.2 Closing. Subject to the satisfaction or waiver of all of the
conditions to closing contained in Article VI hereof, the closing of the Merger
(the "CLOSING") will take place at 4:00 p.m. on a date to be specified by the
parties (the "CLOSING DATE"), which shall be no later than the fifth business
day after satisfaction or waiver of the conditions set forth in Article VI
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions), unless
another time or date is agreed to by the parties hereto; provided, however, that
unless otherwise determined by Parent and the Company, the Closing Date shall
not occur prior to January 2, 2004. The Closing will be held at the offices of
Wachtell, Lipton, Rosen & Katz ("WACHTELL, LIPTON"),
A-1
51 West 52nd Street, New York, New York 10019 or at such other location as is
agreed to by the parties hereto.
SECTION 1.3 Effective Time. Subject to the provisions of this Agreement,
at the Closing, the parties shall cause the Merger to be consummated by filing a
certificate of merger in accordance with the NJBCA and the DGCL (the
"CERTIFICATE OF MERGER") and shall make all other filings or recordings required
under the DGCL and the NJBCA to effectuate the Merger. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of New Jersey and the Secretary of State of the
State of Delaware, or at such subsequent date or time as Parent and the Company
shall agree and specify in the Certificate of Merger (the time the Merger
becomes effective being hereinafter referred to as the "EFFECTIVE TIME").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 10-6 of the NJBCA.
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation. The certificate of incorporation and the by-laws of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the certificate of
incorporation and the by-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.6 Directors and Officers. The directors of Merger Sub shall,
from and after the Effective Time, become the directors of the Surviving
Corporation until their successors shall have been duly elected, appointed or
qualified or until their earlier death, resignation or removal in accordance
with the certificate of incorporation and the by-laws of the Surviving
Corporation. The officers of Merger Sub shall, from and after the Effective
Time, become the officers of the Surviving Corporation until their successors
shall have been duly elected, appointed or qualified or until their earlier
death, resignation or removal in accordance with the certificate of
incorporation and the by-laws of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of
common stock, without par value, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and
represent the right to receive one fully paid and nonassessable share of
common stock, without par value, of the Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of Company Common
Stock that is owned by the Company shall automatically be cancelled and
retired and shall cease to exist, and no consideration shall be delivered
in exchange therefor.
(c) Conversion of Company Common Stock. Subject to the provisions of
this Article II, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares cancelled and
retired pursuant to Section 2.1(b) hereof) shall be converted, at the
election of the holder thereof, in accordance with the procedures set forth
in Section 2.4 below and subject to Sections 2.2 and 2.5, into the right to
receive the following, without interest:
(i) for each share of Company Common Stock with respect to which an
election to receive cash has been effectively made and not revoked or
lost, pursuant to Section 2.4 (a "CASH ELECTION"), the right to receive
in cash from Parent an amount equal to the Per Share Amount (as defined
in Section 2.1(d)) (the "CASH CONSIDERATION") (collectively, "CASH
ELECTION SHARES");
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(ii) for each share of Company Common Stock with respect to which
an election to receive common stock, par value $5.00 per share, of
Parent (together with the rights attached thereto issued pursuant to
that certain Rights Agreement, dated May 15, 2000, as amended, as it may
be further amended, supplemented, restated or replaced from time to time
(the "PARENT RIGHTS AGREEMENT"), between Parent and Computershare
Investor Services, LLC, as Rights Agent ("PARENT COMMON STOCK"), has
been effectively made and not revoked or lost, pursuant to Section 2.4
(a "STOCK ELECTION"), the right to receive from Parent the fraction of a
share of Parent Common Stock as is equal to the Exchange Ratio (as
defined in Section 2.1(d)) (the "STOCK CONSIDERATION") (collectively,
the "STOCK ELECTION SHARES"); and
(iii) for each share of Company Common Stock other than shares as
to which a Cash Election or a Stock Election has been effectively made
and not revoked or lost, pursuant to Section 2.4 (collectively,
"NON-ELECTION SHARES"), the right to receive from Parent such Stock
Consideration and/or Cash Consideration as is determined in accordance
with Section 2.2(b).
Each share of Company Common Stock owned by Parent or a Subsidiary (as
defined in Section 8.3) of Parent or of the Company shall be converted pursuant
to the Merger as provided in Section 2.1(c) and Section 2.2. Notwithstanding
Section 2.1(c) and Section 2.2, each share of Company Common Stock owned by
Parent or a Subsidiary of Parent or the Company shall be converted into Parent
Common Stock (as defined below).
(d) Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "AGGREGATE CASH AMOUNT" means, subject to Section 2.1(e), 50%
of the product of (x) the Aggregate Company Share Amount (as defined in
this Section 2.1(d)) less the number of shares of Company Common Stock
cancelled pursuant to Section 2.1(b) hereof (but excluding from such
reduction the 2,180,223 treasury shares as of August 20, 2003) and (y)
$34.00; provided, however, that if, at the Effective Time, the aggregate
number of shares of Company Common Stock issuable upon exercise of then
outstanding Company Stock Options (as defined under Section 3.1(c))
exceeds the difference between (A) 774,015 less (B) the aggregate number
of shares of Company Common Stock issued upon exercise of Company Stock
Options after August 20, 2003 and prior to the Effective Time (such
excess being referred to herein as the "EXCESS OPTION SHARES"), then the
"AGGREGATE CASH AMOUNT" shall be reduced by the product of (A) the
Excess Option Shares and (B) an amount equal to the excess of $34.00
over the weighted average exercise price of the Excess Stock Options at
the Effective Time.
(ii) "AGGREGATE COMPANY SHARE AMOUNT" shall equal 18,822,954 shares
of Company Common Stock; provided, however, that the Aggregate Company
Share Amount shall be increased by virtue of the issuance of any shares
of Company Common Stock upon the exercise from and after August 20, 2003
and prior to the Effective Time of Company Stock Options outstanding on
August 20, 2003.
(iii) "AGGREGATE PARENT SHARE AMOUNT" shall, subject to Section
2.1(e) and Section 7.1(f), be equal to 6,551,806 shares of Parent Common
Stock; provided, however, that the "Aggregate Parent Share Amount" shall
be increased by virtue of the issuance of any shares of Company Common
Stock upon the exercise from and after August 20, 2003 and prior to the
Effective Time of Company Stock Options outstanding on August 20, 2003
and shall be decreased in the event any shares of Company Common Stock
are cancelled pursuant to Section 2.1(b) hereof, other than the
2,180,223 treasury shares as of August 20, 2003, in each case on a basis
of 0.348 additional shares of Parent Common Stock for each share of
Company Common Stock so issued or cancelled.
(iv) "CLOSING PARENT SHARE VALUE" means the arithmetic average of
the 4:00 p.m. Eastern Time closing sales prices of Parent Common Stock
reported on the New York Stock Exchange
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(the "NYSE") Composite Tape for the five consecutive trading days
immediately preceding but not including the trading day prior to the
Closing Date.
(v) "CLOSING TRANSACTION VALUE" means the sum of (A) the Aggregate
Cash Amount and (B) the product obtained by multiplying the Aggregate
Parent Share Amount by the Closing Parent Share Value.
(vi) "EXCHANGE RATIO" means that fraction of a share of Parent
Common Stock as shall be obtained by dividing the Per Share Amount by
the Closing Parent Share Value.
(vii) "EXCHANGEABLE SHARES" means the aggregate number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time, rounded to the nearest one-thousandth of a share.
(viii) "PER SHARE AMOUNT" means the amount obtained by dividing the
Closing Transaction Value by the number of Exchangeable Shares.
The Cash Consideration and Stock Consideration are sometimes referred to
herein collectively as the "MERGER CONSIDERATION."
(e) Adjustments to Preserve Tax Treatment.
(i) In the event that the quotient obtained by dividing (x) the
product of (i) the Aggregate Parent Share Amount and (ii) the Final
Parent Share Value by (y) the sum of the Aggregate Cash Amount and the
product of (i) the Aggregate Parent Share Amount and (ii) the Final
Parent Share Value is less than 0.425, the Aggregate Parent Share Amount
shall be increased by the Share Adjustment Amount (as defined in this
Section 2.1(e)) and the Aggregate Cash Amount shall be decreased by the
product of (x) the Final Parent Share Value and (y) the Share Adjustment
Amount, where the "SHARE ADJUSTMENT AMOUNT" shall be equal to the
quotient obtained by dividing (x) the difference obtained by subtracting
(i) the product of (a) 0.425 and (b) the sum of the Aggregate Cash
Amount and the product of (1) the Aggregate Parent Share Amount and (2)
the Final Parent Share Value from (ii) the product of (a) the Aggregate
Parent Share Amount and (b) the Final Parent Share Value by (y) the
Final Parent Share Value.
(ii) In the event that the Aggregate Parent Share Amount and the
Aggregate Cash Amount are adjusted as provided for in this Section
2.1(e), all references in this Agreement to the "Aggregate Parent Share
Amount" and the "Aggregate Cash Amount" shall refer to the Aggregate
Parent Share Amount and the Aggregate Cash Amount as adjusted in this
Section 2.1(e).
(iii) For purposes of this Agreement, "FINAL PARENT SHARE VALUE"
means the arithmetic average of the high and low sales prices of Parent
Common Stock reported on the NYSE Composite Transaction Tape on the date
of the Effective Time.
SECTION 2.2 Proration.
(a) Notwithstanding any other provision contained in this Agreement, the
total number of shares of Company Common Stock to be converted into Stock
Consideration pursuant to Section 2.1(c) (the "STOCK CONVERSION NUMBER") shall
be equal to the quotient obtained by dividing (x) the Aggregate Parent Share
Amount by (y) the Exchange Ratio. All of the other shares of Company Common
Stock shall be converted into Cash Consideration (in each case, excluding shares
of Company Common Stock to be cancelled as provided in Section 2.1(b)).
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(b) Within five business days after the Effective Time (as defined in
Section 1.3), Parent shall cause the Exchange Agent (as defined in Section 2.4)
to effect the allocation among holders of Company Common Stock of rights to
receive the Cash Consideration and the Stock Consideration as follows:
(i) If the aggregate number of shares of Company Common Stock with
respect to which Stock Elections shall have been made (the "STOCK ELECTION
NUMBER") exceeds the Stock Conversion Number, then all Cash Election Shares
and all Non-Election Shares of each holder thereof shall be converted into
the right to receive the Cash Consideration, and Stock Election Shares of
each holder thereof will be converted into the right to receive the Stock
Consideration in respect of that number of Stock Election Shares equal to
the product obtained by multiplying (x) the number of Stock Election Shares
held by such holder by (y) a fraction, the numerator of which is the Stock
Conversion Number and the denominator of which is the Stock Election
Number, with the remaining number of such holder's Stock Election Shares
being converted into the right to receive the Cash Consideration; and
(ii) If the Stock Election Number is less than the Stock Conversion
Number (the amount by which the Stock Conversion Number exceeds the Stock
Election Number being referred to herein as the "SHORTFALL NUMBER"), then
all Stock Election Shares shall be converted into the right to receive the
Stock Consideration and the Non-Election Shares and Cash Election Shares
shall be treated in the following manner:
(A) If the Shortfall Number is less than or equal to the number of
Non-Election Shares, then all Cash Election Shares shall be converted
into the right to receive the Cash Consideration and the Non-Election
Shares of each holder thereof shall convert into the right to receive
the Stock Consideration in respect of that number of Non-Election Shares
equal to the product obtained by multiplying (x) the number of
Non-Election Shares held by such holder by (y) a fraction, the numerator
of which is the Shortfall Number and the denominator of which is the
total number of Non-Election Shares, with the remaining number of such
holder's Non-Election Shares being converted into the right to receive
the Cash Consideration; or
(B) If the Shortfall Number exceeds the number of Non-Election
Shares, then all Non-Election Shares shall be converted into the right
to receive the Stock Consideration and Cash Election Shares of each
holder thereof shall convert into the right to receive the Stock
Consideration in respect of that number of Cash Election Shares equal to
the product obtained by multiplying (x) the number of Cash Election
Shares held by such holder by (y) a fraction, the numerator of which is
the amount by which (1) the Shortfall Number exceeds (2) the total
number of Non-Election Shares and the denominator of which is the total
number of Cash Election Shares, with the remaining number of such
holder's Cash Election Shares being converted into the right to receive
the Cash Consideration.
SECTION 2.3 Company Stock Options. As of the Effective Time, each Company
Stock Option representing a right to receive Company Common Stock upon exercise
of such Company Stock Option outstanding at the Effective Time, whether or not
exercisable or vested, shall be cancelled and converted into the right to
receive from Parent, subject to required withholding taxes, if any, cash in an
amount equal to the excess, if any, of (x) the Cash Consideration over (y) the
per share exercise price of such Company Stock Option for each share of Company
Common Stock subject to such Company Stock Option. The Board of Directors of the
Company has taken action pursuant to Article XII of the Company's 2001
Non-Employee Director Long Term Equity Plan, Article XIII of the Company's 2001
Officer Long Term Equity Plan, Article I of the Company's Long Term Stock Based
Incentive Plan, and Article VIII of the Company's 1995 Stock Option Plan for
Non-Employee Directors to provide for the termination of such plans as of the
Effective Time and the payments contemplated by the preceding sentence of this
Section 2.3.
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SECTION 2.4 Election and Exchange Procedures. Each holder of record of
shares of Company Common Stock ("HOLDER") shall have the right, subject to the
limitations set forth in this Article II, to submit an election in accordance
with the following procedures:
(a) Each Holder may specify in a request made in accordance with the
provisions of this Section 2.4 (herein called an "ELECTION") (x) the number
of shares of Company Common Stock owned by such Holder with respect to
which such Holder desires to make a Stock Election and (y) the number of
shares of Company Common Stock owned by such Holder with respect to which
such Holder desires to make a Cash Election.
(b) Parent shall prepare a form reasonably acceptable to the Company
(the "FORM OF ELECTION") which shall be mailed to the Company's
shareholders entitled to vote at the meeting of the shareholders of the
Company at which the shareholders of the Company consider and vote on this
Agreement (the "COMPANY SHAREHOLDERS MEETING") so as to permit the
Company's shareholders to exercise their right to make an Election prior to
the Election Deadline.
(c) Parent shall make the Form of Election initially available at the
time that the Proxy Statement (as defined herein) is made available to the
shareholders of the Company, to such shareholders, and shall use all
reasonable efforts to make available as promptly as possible a Form of
Election to any shareholder of the Company who requests such Form of
Election following the initial mailing of the Forms of Election and prior
to the Election Deadline. In no event shall the Form of Election be made
available less than twenty (20) days prior to the Election Deadline.
(d) Any Election shall have been made properly only if the Person (as
defined under Section 8.3) authorized to receive Elections and to act as
exchange agent under this Agreement, which Person shall be designated by
Parent and reasonably acceptable to the Company (the "EXCHANGE AGENT"),
pursuant to an agreement (the "EXCHANGE AGENT AGREEMENT") entered into
prior to Closing and reasonably acceptable to the Company, shall have
received, by 5:00 p.m. local time in the city in which the principal office
of such Exchange Agent is located, on the date of the Election Deadline, a
Form of Election properly completed and signed and accompanied by
certificates of the shares of Company Common Stock (the "COMPANY STOCK
CERTIFICATES") to which such Form of Election relates or by an appropriate
customary guarantee of delivery of such certificates, as set forth in such
Form of Election, from a member of any registered national securities
exchange or a commercial bank or trust company in the United States;
provided, that such certificates are in fact delivered to the Exchange
Agent by the time required in such guarantee of delivery. Failure to
deliver shares of Company Common Stock covered by such a guarantee of
delivery within the time set forth on such guarantee shall be deemed to
invalidate any otherwise properly made Election, unless otherwise
determined by Parent, in its sole discretion. As used herein, "ELECTION
DEADLINE" means 5:00 p.m. on the date that is the day prior to the date of
the Company Shareholder Meeting. The Company and Parent shall cooperate to
issue a press release reasonably satisfactory to each of them announcing
the date of the Election Deadline not more than fifteen (15) business days
before, and at least five (5) business days prior to, the Election
Deadline.
(e) Any Company shareholder may, at any time prior to the Election
Deadline, change or revoke his or her Election by written notice received
by the Exchange Agent prior to the Election Deadline accompanied by a
properly completed and signed, revised Form of Election. Subject to the
terms of the Exchange Agent Agreement, if Parent shall determine in its
reasonable discretion that any Election is not properly made with respect
to any shares of Company Common Stock, such Election shall be deemed to be
not in effect, and the shares of Company Common Stock covered by such
Election shall, for purposes hereof, be deemed to be Non-Election Shares,
unless a proper Election is thereafter timely made.
(f) Any Company shareholder may, at any time prior to the Election
Deadline, revoke his or her Election by written notice received by the
Exchange Agent prior to the Election Deadline or by withdrawal prior to the
Election Deadline of his or her Company Stock Certificate, or of the
guarantee of delivery of such certificates, previously deposited with the
Exchange Agent. All Elections
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shall be revoked automatically if the Exchange Agent is notified in writing
by Parent or the Company that this Agreement has been terminated in
accordance with Article VII.
(g) If any portion of the Merger Consideration is to be paid to a
Person other than the Person in whose name a Company Stock Certificate so
surrendered is registered, it shall be a condition to such payment that
such Company Stock Certificate shall be properly endorsed or otherwise be
in proper form for transfer and the Person requesting such payment shall
pay to the Exchange Agent any transfer or other similar Taxes (as defined
in Section 3.1(j)(xx)) required as a result of such payment to a Person
other than the registered holder of such Company Stock Certificate, or
establish to the reasonable satisfaction of the Exchange Agent that such
Tax has been paid or is not payable. The Exchange Agent (or, subsequent to
the first anniversary of the Effective Time, Parent) shall be entitled to
deduct and withhold from the Merger Consideration (including cash in lieu
of fractional shares of Parent Common Stock) otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as the
Exchange Agent or Parent, as the case may be, is required to deduct and
withhold under the Code, or any provision of state, local or foreign Tax
law, with respect to the making of such payment. To the extent the amounts
are so withheld by the Exchange Agent or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of shares of Company Common Stock in respect
of whom such deduction and withholding was made by the Exchange Agent or
Parent, as the case may be.
(h) After the Effective Time there shall be no further registration or
transfers of shares of Company Common Stock. If after the Effective Time,
Company Stock Certificates are presented to the Surviving Corporation, they
shall be cancelled and exchanged for the Merger Consideration in accordance
with the procedures set forth in this Article II.
(i) At any time following the first anniversary of the Effective Time,
Parent shall be entitled to require the Exchange Agent to deliver to it any
remaining portion of the Merger Consideration not distributed to Holders of
shares of Company Common Stock that was deposited with the Exchange Agent
at the Effective Time (the "EXCHANGE FUND") (including any interest
received with respect thereto and other income resulting from investments
by the Exchange Agent, as directed by Parent), and Holders shall be
entitled to look only to the Parent (subject to abandoned property, escheat
or other similar laws) with respect to the Merger Consideration, any cash
in lieu of fractional shares of Parent Common Stock and any dividends or
other distributions with respect to Parent Common Stock payable upon due
surrender of their Company Stock Certificates, without any interest
thereon. Notwithstanding the foregoing, neither the Parent nor the Exchange
Agent shall be liable to any Holder of a Company Stock Certificate for
Merger Consideration (or dividends or distributions with respect thereto)
or cash from the Exchange Fund in each case delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(j) In the event any Company Stock Certificates shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Company Stock Certificate(s) to be lost, stolen or
destroyed and, if required by Parent or the Exchange Agent, the posting by
such Person of a bond in such sum as Parent may reasonably direct as
indemnity against any claim that may be made against it or the Surviving
Corporation with respect to such Company Stock Certificate(s), the Exchange
Agent will issue the Merger Consideration deliverable in respect of the
shares of Company Common Stock represented by such lost, stolen or
destroyed Company Stock Certificates.
(k) No dividends or other distributions with respect to Parent Common
Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
subsection (l) below, and all such dividends, other distributions and cash
in lieu of fractional shares of Parent Common Stock shall be paid by Parent
to the Exchange Agent and shall be included in the Exchange Fund, in each
case until
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the surrender of such Company Stock Certificate in accordance with
subsection (l) below. Subject to the effect of applicable abandoned
property, escheat or similar laws, following surrender of any such Company
Stock Certificate there shall be paid to the Holder of a certificate for
Parent Common Stock (a "PARENT STOCK CERTIFICATE") representing whole
shares of Parent Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Parent Common Stock and the
amount of any cash payable in lieu of a fractional share of Parent Common
Stock to which such Holder is entitled pursuant to subsection (l), and (ii)
at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of Parent Common Stock. Parent shall make
available to the Exchange Agent cash for these purposes, if necessary.
(l) No Parent Stock Certificates representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
Company Stock Certificates; no dividend or distribution by Parent shall
relate to such fractional share interests; and such fractional share
interests will not entitle the owner thereof to vote or to any rights as a
shareholder of Parent. In lieu of any such fractional shares, each Holder
of a Company Stock Certificate who would otherwise have been entitled to
receive a fractional share interest in exchange for such Company Stock
Certificate shall receive from the Exchange Agent an amount in cash equal
to the product obtained by multiplying (A) the fractional share interest to
which such Holder (after taking into account all shares of Company Common
Stock held by such holder at the Effective Time) would otherwise be
entitled by (B) the Closing Parent Share Value. Notwithstanding any other
provision contained in this Agreement, funds utilized to acquire fractional
shares as aforesaid shall be furnished by Parent on a timely basis and
shall in no event be derived from or diminish the Cash Consideration
available for distribution as part of the Merger Consideration.
(m) Subject to the terms of the Exchange Agent Agreement, Parent, in
the exercise of its reasonable discretion, shall have the right to make all
determinations, not inconsistent with the terms of this Agreement,
governing (A) the validity of the Forms of Election and compliance by any
Company Shareholder with the Election procedures set forth herein, (B) the
manner and extent to which Elections are to be taken into account in making
the determinations prescribed by Section 2.4, (C) the issuance and delivery
of Parent Stock Certificates into which shares of Company Common Stock are
converted in the Merger and (D) the method of payment of cash for shares of
Company Common Stock converted into the right to receive the Cash
Consideration and cash in lieu of fractional shares of Parent Common Stock
where the holder of the applicable Company Stock Certificate has no right
to receive whole shares of Parent Common Stock.
(n) As soon as reasonably practicable following the Effective Time
(and in any event within five business days following the Closing), Parent
will deposit with the Exchange Agent (i) certificates representing the
number of shares of Parent Common Stock sufficient to deliver in a timely
manner, and the Parent shall instruct the Exchange Agent to timely deliver,
the aggregate Stock Consideration, and (ii) immediately available funds
equal to the aggregate Cash Consideration and Parent shall instruct the
Exchange Agent to timely pay the Cash Consideration, and cash in lieu of
fractional shares of Parent Common Stock where the holder of the applicable
Company Stock Certificate has no right to receive whole shares of Parent
Common Stock.
(o) As soon as reasonably practicable, but no later than seven
business days after the Effective Time, the Exchange Agent shall mail to
each holder of record of a Company Stock Certificate(s) which immediately
prior to the Effective Time represented outstanding shares of Company
Common Stock whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 2.1 and any cash in lieu of
fractional shares of Parent Common Stock to be issued or paid in
consideration therefor who did not complete an Election Form, (i) a letter
of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Company Stock Certificate(s) shall pass, only
upon delivery of the Company Stock Certificate(s) (or affidavits of loss in
lieu of
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such certificates) (the "LETTER OF TRANSMITTAL") to the Exchange Agent and
shall be substantially in such form and have such other provisions as shall
be prescribed by the Exchange Agent Agreement and (ii) instructions for use
in surrendering the Company Stock Certificate(s) in exchange for the Merger
Consideration and any cash in lieu of fractional shares of Parent Common
Stock to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.4(k) and any dividends or
distributions to which such holder is entitled pursuant to Section 2.4(j).
(p) Upon surrender to the Exchange Agent of its Company Stock
Certificate or Company Stock Certificates, accompanied by a properly
completed Form of Election or a properly completed Letter of Transmittal a
Holder of Company Common Stock will be entitled to receive promptly after
the Effective Time the Merger Consideration (elected or deemed elected by
it, subject to Sections 2.1 and 2.2) in respect of the shares of Company
Common Stock represented by its Company Stock Certificate. Until so
surrendered, each such Company Stock Certificate shall represent after the
Effective Time, for all purposes, only the right to receive the Merger
Consideration and any cash in lieu of fractional shares of Parent Common
Stock to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.4(k) and any dividends or
distributions to which such holder is entitled pursuant to Section 2.3(l).
SECTION 2.5 Certain Adjustments. If after the date hereof and on or prior
to the Effective Time the outstanding shares of Parent Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization or combination, stock split, reverse stock split, stock
dividend or rights issued in respect of such stock, or any similar event shall
occur (any such action, a "PARENT ADJUSTMENT EVENT"), the Exchange Ratio shall
be proportionately adjusted so that each Holder of Company Common Stock shall
receive at the Effective Time, in exchange for his Stock Election Shares and, if
applicable, his Cash Election Shares and Non-Election Shares which have been
converted into the right to receive the Stock Consideration pursuant to Section
2.2(b), such number of shares of Parent Common Stock as such Holder would be
entitled to receive if the Effective Time had occurred immediately prior to the
consummation of such Parent Adjustment Event. In addition, if Parent enters into
an agreement pursuant to which shares of Parent Common Stock would be converted,
prior to the Effective Time, into shares or other securities or obligations of
another corporation, proper provision shall be made in such agreement so that
each holder of Company Common Stock shall be entitled to receive, in exchange
for his Stock Election shares and, if applicable, his Cash Election Shares and
Non-Election Shares which have been converted into the right to receive the
Stock Consideration pursuant to Section 2.2(b), such number of shares or other
securities or amount of obligations of such other corporation as such holder of
Company Common Stock would have been entitled to receive if the Effective Time
had occurred immediately prior to the consummation of such conversion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. Except as set
forth on the Disclosure Schedule delivered by the Company to Parent prior to the
execution of this Agreement (the "COMPANY DISCLOSURE SCHEDULE") and making
reference to the particular subsection of this Agreement to which exception is
being taken, the Company represents and warrants to Parent as follows:
(a) Organization, Standing and Corporate Power.
(i) Each of the Company and its Subsidiaries is a corporation or
other legal entity duly organized, validly existing and in good standing
(with respect to jurisdictions which recognize such concept) under the
laws of the jurisdiction in which it is organized and has the requisite
corporate or other power, as the case may be, and authority to carry on
its business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for
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those jurisdictions where the failure to be so qualified, or licensed or
to be in good standing would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on the
Company.
(ii) The Company has delivered or made available to Parent prior to
the execution of this Agreement complete and correct copies of the
certificate of incorporation and by-laws or other organizational
documents, as amended to date, of the Company and its Subsidiaries.
(iii) Except as set forth in Section 3.1(a) of the Company
Disclosure Schedule, the minute books of the Company and its
Subsidiaries, in all material respects, contain accurate records of all
meetings and accurately reflect all other material actions taken by the
shareholders of the Company and its Subsidiaries, the boards of
directors of the Company and its Subsidiaries and all standing
committees of the boards of directors of the Company and its
Subsidiaries.
(b) Subsidiaries. Section 3.1(b) of the Company Disclosure Schedule
lists all the Subsidiaries of the Company, whether consolidated or
unconsolidated. The issued and outstanding securities of UnitedTrust Bank
(the "BANK") consists solely of 4,651,193 issued and outstanding shares of
common stock, par value $2.50 per share. Except for the securities of the
Bank identified above, the issued and outstanding securities of the
Subsidiaries of the Company consist of such securities as are set forth in
Section 3.1(b) of the Company Disclosure Schedule. Except as set forth in
Section 3.1(b) of the Company Disclosure Schedule, all outstanding shares
of capital stock of, or other equity interests in, each such Subsidiary:
(i) have been validly issued and are fully paid and nonassessable; (ii) are
owned directly or indirectly by the Company (other than the preferred stock
of the Company REIT (as defined in Section 3.1(j)(xviii)) (the "REIT
PREFERRED STOCK"), which is owned by the Persons and in the amounts set
forth in Section 3.1(b) of the Company Disclosure Schedule), free and clear
of all pledges, claims, liens, charges, encumbrances and security interests
of any kind or nature whatsoever (collectively, "LIENS"), other than
Company Permitted Liens (as defined in this Section 3.1(b)); and (iii)
other than Company Permitted Liens, are free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other ownership interests) that would prevent the
operation by the Surviving Corporation of such Subsidiary's business as
currently conducted. Neither the Company nor any of its Subsidiaries
conducts any operations outside of the United States (as defined in this
Section 3.1(b)) nor conducts any operations that are subject to any
regulatory oversight by Governmental Entities (as defined below in Section
3.1(d)) outside of the United States. Other than the Subsidiaries of the
Company, the Company does not own or control, directly or indirectly, a 5%
or greater equity interest in any corporation, company, association,
partnership, joint venture or other entity. For purpose of this Section
3.1(b) (except as indicated) and elsewhere through this Agreement: (i)
"COMPANY PERMITTED LIENS" shall mean (A) Liens described in Section 3.1(b)
of the Company Disclosure Schedule; (B) restrictions on transferability
pursuant to federal and state securities laws; (C) Liens for Taxes not yet
due or delinquent or being contested in good faith and for which reserves
appropriate in all material respects have been established in accordance
with GAAP (as defined in Section 3.1(e)(ii)); (D) only in the case of Owned
Properties or real property subject to a Lease, Liens consisting of zoning
or planning restrictions, easements, permits, or any other restrictions or
limitations on the use of real property or irregularities in title thereto
which do not materially detract from the value of, or affect the current
use of, such property; and (E) other than for purposes of Section 3.1(b),
mechanics, workers', landlord's, materialmen's and other like Liens arising
in the ordinary course of business consistent with past practice and with
respect to non-material obligations which are not due or which are being
contested in good faith; and (ii) "UNITED STATES" shall mean the United
States of America, its territories and possessions, any state of the United
States and the District of Columbia.
(c) Capital Structure. The authorized capital stock of the Company
consists of 25,000,000 shares of Company Common Stock and 1,000,000 shares
of preferred stock, par value $1.25 per share, of the Company ("COMPANY
PREFERRED STOCK"), of which 162,000 shares have been designated as Series A
Junior Participating Preferred Stock ("COMPANY SERIES A PREFERRED STOCK").
As of
A-10
August 20, 2003: (i) 18,822,954 shares of Company Common Stock were issued
and outstanding, of which 3,500 shares are restricted shares of Company
Common Stock issued pursuant to the Company Stock Plans (as defined in this
Section 3.1(c)); (ii) 2,180,223 shares of Company Common Stock were held by
the Company in its treasury and no shares of Company Common Stock were held
by Subsidiaries of the Company; (iii) no shares of Company Preferred Stock
were issued and outstanding; (iv) no shares of Company Preferred Stock were
held by the Company in its treasury or were held by any Subsidiary of the
Company; (v) 1,526,190 shares of Company Common Stock were reserved for
issuance pursuant to all plans, agreements or arrangements providing for
equity-based compensation to any director, Employee (as defined in Section
3.1(f)), consultant or independent contractor of the Company or any of its
Subsidiaries (collectively, the "COMPANY STOCK PLANS"), of which 774,015
shares are subject to outstanding Company Stock Options (as defined in this
Section 3.1(c)); and (vi) 162,000 shares of Company Series A Preferred
Stock were reserved for issuance pursuant to the Company Rights Agreement.
All outstanding shares of capital stock of the Company are, and all shares
thereof which may be issued prior to the Closing will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. The Company has delivered to Parent a true and complete
list, as of the close of business on August 20, 2003, of all outstanding
stock options to purchase or receive Company Common Stock and all other
rights to purchase or receive Company Common Stock granted under the
Company Stock Plans (collectively, the "COMPANY STOCK OPTIONS"), the number
of shares subject to each such Company Stock Option, the grant dates, the
vesting schedule and the exercise prices of each such Company Stock Option
and the names of the holders thereof. The Company has not awarded or
authorized the award of any Company Stock Options since August 20, 2003.
Except as set forth in this Section 3.1(c) and except for changes since
August 20, 2003 resulting from (i) the issuance of shares of Company Common
Stock pursuant to and in accordance with Company Stock Options outstanding
prior August 20, 2003 or (ii) as expressly contemplated hereby, (x) there
are not issued, reserved for issuance or outstanding (A) any shares of
capital stock or voting securities or other ownership interests of the
Company, (B) any securities of the Company or any Subsidiary of the Company
convertible into or exchangeable or exercisable for shares of capital stock
or voting securities or other ownership interests of the Company, or (C)
any warrants, calls, options or other rights to acquire from the Company or
any Subsidiary of the Company, or any obligation of the Company or any of
its Subsidiaries to issue, any capital stock, voting securities or other
ownership interests in, or securities convertible into or exchangeable or
exercisable for, capital stock or voting securities or other ownership
interests of the Company, and (y) there are no outstanding obligations of
the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any such securities or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities, other than pursuant to any
"cashless exercise" provision of any Company Stock Options. Except as set
forth in Section 3.1(c) of the Company Disclosure Schedule, there are no
outstanding (A) securities of the Company or any of its Subsidiaries
convertible into or exchangeable or exercisable for shares of capital stock
or voting securities or other ownership interests in any Subsidiary of the
Company, (B) warrants, calls, options or other rights to acquire from the
Company or any of its Subsidiaries, or any obligation of the Company or any
of its Subsidiaries to issue, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable
or exercisable for, any capital stock, voting securities or other ownership
interests in, any Subsidiary of the Company or (C) obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any such outstanding securities of Subsidiaries of the Company or
to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. Neither the Company nor any of its Subsidiaries is a party
and, to the knowledge of the Company, no other Person having beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT")) of 5% or more of the outstanding
Company Common Stock (a "MAJOR COMPANY SHAREHOLDER") is a party to any
agreement restricting the transfer of, relating to the voting of, requiring
registration of, or granting any preemptive or antidilutive rights with
respect to any of the securities of the Company or any of its Subsidiaries.
There are no voting trusts or other agreements or understandings to which
the Company or any of its Subsidiaries is a party or, to the knowledge of
the Company, any Major Company
A-11
Shareholder is a party with respect to the voting of the capital stock of
the Company or any of the Subsidiaries.
(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement and, subject, in
the case of the Merger, to the Company Shareholder Approval (as defined in
Section 3.1(r)) to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the consummation
by the Company of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject, in the case of the Merger, to the Company Shareholder Approval.
This Agreement has been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger
Sub, constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that
(i) such enforceability may be subject to applicable bankruptcy, insolvency
or other similar laws now or hereafter in effect affecting creditors'
rights generally and (ii) the availability of the remedy of specific
performance or injunction or other forms of equitable relief may be subject
to equitable defenses and would be subject to the discretion of the court
before which any proceeding therefor may be brought. Except as set forth in
Section 3.1(d) of the Company Disclosure Schedule, the execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby (including the Bank Combination (as
defined in Section 5.3)) and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation, forfeiture
or termination of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of forfeiture, termination,
cancellation or acceleration (with or without notice or lapse of time, or
both) of any obligation or loss of a benefit or, in the case of clause
(iii) below, any obligation or loss of a benefit, or payment of any
termination or similar fee, under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any of its
Subsidiaries under, (i) the certificate of incorporation or by-laws of the
Company, (ii) the certificate of incorporation or by-laws or the comparable
organizational documents of any of its Subsidiaries, (iii) any loan or
credit agreement, note, bond, mortgage, indenture, lease, vendor agreement,
software agreement or other agreement, instrument, Intellectual Property
(as defined in Section 3.1(n)) right, permit, concession, franchise,
license or similar authorization applicable to the Company or any of its
Subsidiaries or their respective properties or assets that is material to
the operations of the Company and its Subsidiaries, taken as a whole, or
(iv) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or their respective properties or assets, other than, in the
case of clause (ii), (iii) or (iv) only, any such conflicts, violations,
defaults, rights, losses or Liens that would not, individually or in the
aggregate (x) reasonably be expected to result in a Material Adverse Effect
on the Company or (y) reasonably be expected to materially impair or
materially delay the ability of the Company to perform its obligations
under this Agreement. Except as set forth in Section 3.1(d) of the Company
Disclosure Schedule, no consent, approval, order or authorization of,
action by or in respect of, or registration, declaration or filing with,
any (i) Federal, state, local, municipal or foreign government, (ii)
governmental, quasi-governmental authority (including any governmental
agency, commission, branch, department or official, and any court or other
tribunal) or body exercising, or entitled to exercise, any
governmentally-derived administrative, executive, judicial, legislative,
police, regulatory or taxing authority, or (iii) any self-regulatory
organization, administrative or regulatory agency, commission or authority
(each, a "GOVERNMENTAL ENTITY") is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except for (1) the filings
with the SEC of (A) a proxy statement relating to the Company Shareholders
Meeting (such proxy statement, as amended or supplemented from time to
time, the "PROXY STATEMENT"), and the clearance thereof by the SEC, and a
registration statement on Form S-4 to be prepared and filed in connection
with the issuance of Parent Common Stock in the Merger (the "FORM S-4"),
and the declaration of effectiveness thereof by the SEC, and (B) such
reports under the Exchange Act as may be required in connection with this
Agreement and the
A-12
transactions contemplated by this Agreement; (2) the filing of the
Certificate of Merger with the Secretary of State of the State of New
Jersey and the Secretary of State of the State of Delaware and such filings
with Governmental Entities to satisfy the applicable requirements of the
laws of states in which the Company and its Subsidiaries are qualified or
licensed to do business or state securities or "blue sky" laws; (3) the
approval of the Board of Governors of the Federal Reserve System (the
"FEDERAL RESERVE") under the Bank Holding Company Act of 1956, as amended
(the "BHC ACT"); (4) the approval of the New Jersey Department of Banking
and Insurance (the "NEW JERSEY BANKING DEPARTMENT"); (5) the approval of
the Office of the Comptroller of the Currency (the "OCC"); and (6) filings
required as a result of the particular status of Parent or Merger Sub. No
shareholder of the Company will have any appraisal or dissenters' or
similar rights in connection with the Merger.
(e) Company Documents; Undisclosed Liabilities.
(i) The Company has filed (A) all required reports with the SEC and
(B) all required schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with
the SEC (together with the reports referred to in clause (A), the
"COMPANY SEC DOCUMENTS"), except in the case of (A) as would not
reasonably be expected to result in a Material Adverse Effect on the
Company. As of their respective filing dates, (i) except as set forth in
Section 3.1(e) of the Company Disclosure Schedule, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or the
Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Company SEC Documents, and
(ii) no Company SEC Document, as of its date, except as amended or
supplemented by a subsequent Company Filed SEC Document (as defined in
Section 3.1(g)), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and no Company
SEC Document filed subsequent to the date hereof will contain as of its
date, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. No subsidiary of the Company is required
to file reports or other materials with the SEC other than reports of
the Bank filed on Form 13F.
(ii) The financial statements of the Company and its consolidated
Subsidiaries included in Company SEC Documents (including the related
notes) complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally
accepted accounting principles in the United States ("GAAP") (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject in the case of unaudited statements, to normal year-end audit
adjustments and to other adjustments described in the notes to such
unaudited statements).
(iii) Except (A) as reflected in the Company's unaudited balance
sheet as of June 30, 2003 or liabilities described in any notes thereto
(or liabilities for which neither accrual nor footnote disclosure is
required pursuant to GAAP) or (B) for liabilities incurred in the
ordinary course of business since June 30, 2003 consistent with past
practice or in connection with this Agreement or the transactions
contemplated hereby, the Company and its Subsidiaries, taken as a whole,
do not have any material liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise.
A-13
(iv) The Company's and its Subsidiaries' books and records fairly
reflect in all material respects the transactions to which each of the
Company and its Subsidiaries are a party or by which its or its
Subsidiaries properties or assets are subject or bound. Such books and
records have been properly kept and maintained and are in compliance
with all applicable legal and accounting requirements.
(f) Certain Contracts. Except as set forth in the exhibit index for
the Company's Annual Report on Form 10-K for the year ended December 31,
2002 or as permitted pursuant to Section 4.1 or as set forth on Section
3.1(f) of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries is a party to or bound by (i) any agreement relating to
the incurring of Indebtedness (as defined in this Section 3.1(f)) by the
Company or any of its Subsidiaries in an amount in excess in the aggregate
of $1,000,000, including any such agreement which contains provisions that
restrict, or may restrict, the conduct of business of the issuer thereof as
currently conducted (collectively, "INSTRUMENTS OF INDEBTEDNESS"), (ii) any
"material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC), (iii) any non-competition or exclusive dealing
agreement, or any other agreement or obligation which purports to limit or
restrict in any respect (A) the ability of the Company or its businesses to
solicit customers or (B) the manner in which, or the localities in which,
all or any portion of the business of the Company and its Subsidiaries or,
following consummation of the transactions contemplated by this Agreement,
Parent and its Subsidiaries, is or would be conducted, (iv) any agreement
providing for the indemnification by the Company or a Subsidiary of the
Company of any Person other than customary agreements with directors or
officers of the Company or its Subsidiaries or with vendors providing goods
or services to the Company or its Subsidiaries where the potential
indemnity obligations thereunder are not reasonably expected to be material
to the Company and its Subsidiaries, taken as a whole, (v) any joint
venture or partnership agreement material to the Company and its
Subsidiaries taken as a whole, (vi) any agreement that grants any right of
first refusal or right of first offer or similar right or that limits or
purports to limit the ability of the Company or any of its Subsidiaries to
own, operate, sell, transfer, pledge or otherwise dispose of any assets or
business, (vii) any contract or agreement providing for any payments that
are conditioned, in whole or in part, on a change of control of the Company
or any of its Subsidiaries, (viii) any collective bargaining agreement,
(ix) any employment agreement (other than agreements terminable by the
Company or any Subsidiary of the Company on not more than 30 days' notice
without penalty and which will not in any respect be affected by a change
of control of the Company), with, or any agreement or arrangement that
contains any severance pay or post-employment liabilities or obligations
(other than as required by law) to, any current or former employee of the
Company or its Subsidiaries (any such Person, hereinafter, an "EMPLOYEE")
who is a Key Employee (as defined under Section 3.1(g)), (x) any agreement
regarding any agent bank or other similar relationships with respect to
lines of business, (xi) any agreement that contains a "most favored nation"
clause or other term providing preferential pricing or treatment to a third
party, (xii) any agreement material to the Company and its Subsidiaries,
taken as a whole, pertaining to the use of or granting any right to use or
practice any rights under any Intellectual Property, whether the Company is
the licensee or licensor thereunder, (xiii) any agreements pursuant to
which the Company or any of its Subsidiaries leases any real property,
(xiv) any contract or agreement material to the Company and its
Subsidiaries, taken as a whole, providing for the outsourcing or provision
of servicing of customers, technology or product offerings of the Company
or its Subsidiaries, and (xv) any contract or other agreement not made in
the ordinary course of business which (A) is material to the Company and
its Subsidiaries taken as a whole or (B) which would reasonably be expected
to materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement (the agreements, contracts and
obligations of the type described in clauses (i) through (xv) being
referred to herein as "COMPANY MATERIAL CONTRACTS"). Each Company Material
Contract is valid and binding on the Company (or, to the extent a
Subsidiary of the Company is a party, such Subsidiary) and, to the
knowledge of the Company, any other party thereto and is in full force and
effect. Neither the Company nor any of its Subsidiaries is in breach or
default under any Company Material Contract except where any such
A-14
breach or default would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect on the Company. Neither
the Company nor any Subsidiary of the Company knows of, or has received
notice of, any violation or default under (nor, to the knowledge of the
Company, does there exist any condition which with the passage of time or
the giving of notice or both would result in such a violation or default
under) any Company Material Contract by any other party thereto except
where any such violation or default would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect on
the Company. Prior to the date hereof, the Company has made available to
Parent true and complete copies of all Company Material Contracts. There
are no provisions in any Instrument of Indebtedness that provide any
restrictions on the repayment of the outstanding Indebtedness thereunder,
or that require that any financial payment (other than payment of
outstanding principal and accrued interest) be made in the event of the
repayment of the outstanding Indebtedness thereunder prior to expiration.
For purposes of this Section 3.1(f) and elsewhere through this Agreement,
"INDEBTEDNESS" of a Person shall mean (i) all obligations of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes and similar instruments, (iii) all leases of such Person
capitalized in accordance with GAAP, and (iv) all obligations of such
Person under sale-and-lease back transactions, agreements to repurchase
securities sold and other similar financing transactions.
(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, and except as set forth in Section 3.1(g) of the Company Disclosure
Schedule, or as disclosed in the Company SEC Documents filed and publicly
available prior to the date hereof (as amended to the date hereof, "COMPANY
FILED SEC DOCUMENTS"), since June 30, 2003, the Company and its
Subsidiaries have conducted their respective businesses, in all respects
material to the Company and its Subsidiaries, taken as a whole, only in the
ordinary course and there has not been:
(i) any Material Adverse Change in the Company, including, but not
limited to, any Material Adverse Change arising from or relating to
fraudulent or unauthorized activity,
(ii) any issuance of Company Stock Options or restricted shares of
Company Common Stock to any Employee receiving aggregate compensation in
excess of $100,000 on an annual basis (a "KEY EMPLOYEE") or member of
the board of directors of the Company or any of its Subsidiaries (in any
event identifying in Section 3.1(g)(ii) of the Company Disclosure
Schedule the issue date, exercise price and vesting schedule, as
applicable, for issuances thereto since June 30, 2003),
(iii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to
any of the Company's capital stock, other than regular quarterly cash
dividends not in excess of $0.20 per share on the Company Common Stock
and regular cash dividends on the REIT Preferred Stock and the other
capital stock of the Company REIT in the amounts and at the times set
forth in Section 3.1(g)(iii) of the Company Disclosure Schedule,
(iv) any split, combination or reclassification of any of the
Company's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of the Company's capital stock, except for
issuances of Company Common Stock pursuant to the Company Stock Plans or
upon the exercise of Company Stock Options awarded prior to the date
hereof in accordance with their present terms,
(v) (A) any granting by the Company or any of its Subsidiaries to
any current or former director, or any Executive Officer (as defined in
Section 8.3) or Key Employee, of any increase in compensation, bonus or
other benefits, except for (x) increases to Employees who are not
current or former directors, Executive Officers or Key Employees that
were made in the ordinary course of business, (y) as required from time
to time by governmental legislation affecting wages and (z) as required
by the terms of plans or arrangements existing prior to such date and
described in Section 3.1(k) of the Company Disclosure Schedule, (B) any
granting by the
A-15
Company or any of its Subsidiaries to any such current or former
director, or any Executive Officer or Key Employee, of any increase in
severance or termination pay, or (C) any entry by the Company or any of
its Subsidiaries into, or any amendment of, any employment, deferred
compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, or any Executive
Officer or Key Employee, except as required from time to time by
applicable governmental legislation,
(vi) other than as described in the Company's Filed SEC Documents,
any change in any material respect in accounting methods, principles or
practices by the Company affecting its assets, liabilities or business,
including any reserving, renewal or residual method, or estimate of
practice or policy, other than changes after the date hereof to the
extent required by a change in GAAP or regulatory accounting principles,
(vii) any Tax election or change in or revocation of any Tax
election, amendment to any Tax Return (as defined in Section 3.1(j)),
closing agreement with respect to Taxes, or settlement or compromise of
any income Tax liability by the Company or its Subsidiaries,
(viii) any material change in investment policies, or
(ix) any agreement or commitment (contingent or otherwise) to do
any of the foregoing.
(h) Licenses; Compliance with Applicable Laws
(i) Section 3.1(h) of the Company Disclosure Schedule sets forth a
true and complete listing of all states in which the Company and its
Subsidiaries are licensed to conduct business. The Company, its
Subsidiaries and Employees hold all permits, licenses, variances,
authorizations, exemptions, orders, registrations and approvals of all
Governmental Entities (the "PERMITS") material to the Company and its
Subsidiaries, taken as a whole, which are required for the operation of
the respective businesses of the Company and its Subsidiaries as
presently conducted. Each of the Company and its Subsidiaries is, and
for the last five years has been, in compliance in all respects with the
terms of such Permits and all such Permits are in full force and effect
and no suspension modification or revocation of any of them is pending
or, to the knowledge of the Company, threatened nor, to the knowledge of
the Company, do grounds exist for any such action, except where
non-compliance or such suspension modification or revocation would not
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on the Company.
(ii) Except as set forth in the Company SEC Documents filed and
publicly available prior to the date hereof, and except where failure to
comply would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on the Company, each of
the Company and its Subsidiaries is, and for the last five years has
been, in compliance with all applicable statutes, laws, regulations,
ordinances, Permits, rules, judgments, orders, decrees or arbitration
awards of any Governmental Entity applicable to the Company or its
Subsidiaries.
(iii) Neither the Company nor any of its Subsidiaries is subject to
any outstanding order, injunction or decree or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any
supervisory letter from or has adopted any resolutions at the request
of, any Governmental Entity that restricts in any respect the conduct of
its business or that in any respect relates to its capital adequacy, its
policies, its management or its business (each, a "COMPANY REGULATORY
AGREEMENT"), nor has the Company or any of its Subsidiaries or
Affiliates (as defined in Section 8.3(a)) (A) to the Company's
knowledge, been advised since January 1, 2000 by any Governmental Entity
that it is considering issuing or requesting any such Company Regulatory
Agreement or (B) have knowledge of any pending or threatened regulatory
investigation. Neither the Company nor any of its Subsidiaries is in
breach or default under any Company Regulatory Agreement in any material
respect. Prior to the date hereof, the Company has made available to
Parent true and complete copies of all
A-16
Company Regulatory Agreements that currently have, or may in the future
reasonably be expected to have, a material impact on the conduct of the
business and operations of the Company and its Subsidiaries, taken as a
whole.
(iv) Except for filings with the SEC, which are the subject of
Section 3.1(e), the Company and each of its Subsidiaries have timely
filed all regulatory reports, schedules, forms, registrations and other
documents, together with any amendments required to be made with respect
thereto, that they were required to file with any Governmental Entity
(the "OTHER COMPANY DOCUMENTS"), and have timely paid all fees and
assessments due and payable in connection therewith, except where the
failure to make such payments and filings would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect on the Company. There is no unresolved violation or exception by
any of such Governmental Entities with respect to any report or
statement relating to any examinations of the Company or any of its
Subsidiaries. The Company has delivered or made available to Parent a
true and complete copy of each Other Company Document material to the
Company and its Subsidiaries, taken as a whole, as requested by Parent.
(v) Neither the Company nor any of its Subsidiaries has been the
subject of any disciplinary proceedings or orders of any Governmental
Entity arising under applicable laws or regulations which would be
required to be disclosed in any Other Company Document except as
disclosed therein, and no such disciplinary proceeding or order is
pending, nor to the knowledge of the Company threatened. None of the
current directors, Executive Officers or Employees of the Company or its
Subsidiaries has been the subject of any disciplinary proceedings or
orders of any Governmental Entity arising under applicable laws or
regulations which would be required to be disclosed in any Other Company
Document except as disclosed therein, and no such disciplinary
proceeding or order is pending, nor to the knowledge of the Company
threatened, except where non-disclosure, or such preceding or order,
would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on the Company.
(vi) Neither the Company or any of its Affiliates, nor, to the
knowledge of the Company, any "affiliated person" (as defined in the
Investment Company Act) of the Company or any of its Affiliates, is
ineligible pursuant to Section 9(a) or 9(b) of the Investment Company
Act of 1940 to act as, or subject to any disqualification which would
form a reasonable basis for any denial, suspension or revocation of the
registration of or licenses or for any limitation on the activities of
the Company or any of its Affiliates as, an investment advisor (or in
any other capacity contemplated by said Act) to a registered investment
company and so acts. Neither the Company or any of its Affiliates, nor
to the knowledge of the Company, any "associated person of a broker or
dealer" (as defined in the Exchange Act) of the Company or any of its
Affiliates, is ineligible pursuant to Section 15(b) of the Exchange Act
to act as a broker-dealer or as an associated person to a registered
broker-dealer or is subject to a "statutory disqualification" as defined
in Section 3(a)(39) of the Exchange Act or otherwise ineligible to serve
as a broker-dealer or as an associated person to a registered
broker-dealer and so acts.
(vii) The Bank is "well-capitalized" (as that term is defined at 12
C.F.R. 225.2(r)(2)(i)) and "well managed" (as that term is defined at 12
C.F.R. 225.81(c)), and its examination rating under the Community
Reinvestment Act of 1977 is "satisfactory".
(viii) The business and operations of the Company and of each of
the Company's Subsidiaries through which the Company conducts its
finance activities have been conducted in compliance with all applicable
statutes and regulations regulating the business of consumer lending,
including state usury laws, the Truth in Lending Act, the Real Estate
Settlement Procedures Act, the Consumer Credit Protection Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act, the Homeowners
Ownership and Equity Protection Act, the Fair Debt Collections Act and
other Federal, state, local and foreign laws regulating lending
("FINANCE LAWS"), and have complied with all applicable collection
practices in seeking payment under any
A-17
loan or credit extension of such Subsidiaries, except where
non-compliance would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect on the Company. In
addition, there is no pending or, to the knowledge of the Company,
threatened charge by any Governmental Entity that the Company or any of
its Subsidiaries has violated, nor any pending or, to the knowledge of
the Company, threatened investigation by any Governmental Entity with
respect to possible violations of, any applicable Finance Laws.
(ix) Neither the Company nor any of its Subsidiaries, nor to the
knowledge of the Company any other Person acting on behalf of the
Company or any of its Subsidiaries that qualifies as a "financial
institution" under the U.S. Anti-Money Laundering laws has knowingly
acted, by itself or in conjunction with another, in any act in
connection with the concealment of any currency, securities, other
proprietary interest that is the result of a felony as defined in the
U.S. Anti-Money Laundering laws ("UNLAWFUL GAINS"), nor knowingly
accepted, transported, stored, dealt in or brokered any sale, purchase
or any transaction of other nature for Unlawful Gains, except insofar as
would not individually or in the aggregate reasonably be expected to
result in a Material Adverse Effect on the Company. The Company and each
of its Subsidiaries that qualifies as a "financial institution" under
the U.S. Anti-Money Laundering laws has, during the past three years,
implemented such anti-money laundry mechanisms and kept and filed all
material reports and other necessary material documents as required by,
and otherwise complied with, the U.S. Anti-Money Laundering laws and the
rules and regulations issued thereunder, except insofar as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on the Company.
(i) Litigation. Except as set forth in Section 3.1(i) of the Company
Disclosure Schedule, which contains a true and current summary description
of any pending and, to the Company's knowledge, threatened litigation,
action, suit, proceeding, investigation or arbitration material to the
Company and its Subsidiaries, taken as a whole, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or
other remedies requested as of the date hereof, no action, demand, charge,
requirement or investigation by any Governmental Entity and no litigation,
action, suit, proceeding, investigation or arbitration by any Person or
Governmental Entity that is material to the Company and its Subsidiaries,
taken as a whole, in each case with respect to the Company or any of its
Subsidiaries or any of their respective properties or Permits, is pending
or, to the knowledge of the Company, threatened.
(j) Taxes. For purposes of this Section 3.1(j) any reference to the
Company or the Company's Subsidiaries shall be deemed to include a
reference to the Company's predecessors or the Company's Subsidiaries'
predecessors, respectively, except where inconsistent with the language of
this Section 3.1(j).
(i) Each of the Company and each of its Subsidiaries has (A) timely
filed (or there have been timely filed on its behalf) with the
appropriate Governmental Entities all Tax Returns material to the
Company and its Subsidiaries, taken as a whole, required to be filed by
it (giving effect to all extensions) and such Tax Returns are true,
correct and complete in all material respects; (B) timely paid in full
(or there has been timely paid in full on its behalf) all Taxes material
to the Company and its Subsidiaries, taken as a whole, and (C) made
adequate provision in all material respects (or adequate provision in
all material respects has been made on its behalf) for all accrued Taxes
not yet due. The accruals and reserves for Taxes reflected in the
Company's audited consolidated balance sheet as of December 31, 2002
(and the notes thereto) and the most recent quarterly financial
statements (and the notes thereto) are adequate in all material respects
to cover all Taxes accrued or accruable through the date thereof.
(ii) There are no material Liens for Taxes upon any property or
assets of the Company or any Subsidiary of the Company, except for
Company Permitted Liens for Taxes not yet due.
(iii) Each of the Company and its Subsidiaries has complied in all
material respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes and has,
A-18
within the time and in the manner prescribed by law, withheld and paid
over to the proper Governmental Entities all amounts required to be so
withheld and paid over under applicable laws.
(iv) Except as set forth in Section 3.1(j)(iv) of the Company
Disclosure Schedule, no Federal, state, local or foreign audits or other
administrative proceedings or court proceedings material to the Company
and its Subsidiaries, taken as a whole, are presently pending with
regard to any Taxes or Tax Returns of the Company or any of its
Subsidiaries, and neither the Company nor any Subsidiary of the Company
has received a written notice of any pending or proposed claims, audits
or proceedings with respect to Taxes that are material to the Company.
(v) Neither the Company nor any of its Subsidiaries has granted in
writing any power of attorney which is currently in force with respect
to any Taxes or Tax Returns.
(vi) Other than in the ordinary course of business, neither the
Company nor any of its Subsidiaries has requested an extension of time
within which to file any Tax Return which has not since been filed and
no currently effective waivers, extensions, or comparable consents
regarding the application of the statute of limitations with respect to
Taxes or Tax Returns has been given by or on behalf of the Company or
any of its Subsidiaries.
(vii) Neither the Company nor any of its Subsidiaries is a party to
any agreement providing for the allocation, sharing or indemnification
of Taxes (other than such an agreement exclusively between or among the
Company and any of its Subsidiaries).
(viii) None of the Federal income Tax Returns of the Company or any
of its Subsidiaries has been examined by the Internal Revenue Service
(the "IRS"), and there are no pending disputes with the IRS regarding
the Federal income Tax Returns of the Company or any of its
Subsidiaries.
(ix) Neither the Company nor any of its Subsidiaries has been
included in any "consolidated," "unitary" or "combined" Tax Return
(other than Tax Returns which include only the Company and any of its
Subsidiaries) provided for under the laws of the United States, any
foreign jurisdiction or any state or locality.
(x) No election under Section 341(f) of the Code has been made by
the Company or any of its Subsidiaries.
(xi) Neither the Company nor any of its Subsidiaries has
constituted either a "distributing corporation" or a "controlled
corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in
a distribution of stock to which Section 355 of the Code (or so much of
Section 356 of the Code as relates to Section 355 of the Code) applies
and which occurred within five years of the date of this Agreement.
(xii) Neither the Company nor any of its Subsidiaries have agreed,
or is required, to make any adjustment under Section 481 of the Code
affecting any taxable year.
(xiii) There have not been, within two years of the date of this
Agreement, any (i) redemptions by the Company or any of its
Subsidiaries, (ii) transfers or dispositions of property by the Company
or any of its Subsidiaries for which the Company or its Subsidiary did
not receive adequate consideration, or (iii) distributions to the
holders of Company Common Stock with respect to their stock other than
distributions of cash in the ordinary course of business.
(xiv) No claim material to the Company and its Subsidiaries, taken
as a whole, has been made by any Governmental Entities in a jurisdiction
where the Company or any of its Subsidiaries does not file Tax Returns
that any such entity is, or may be, subject to taxation by that
jurisdiction.
A-19
(xv) Each of the Company and each of its Subsidiaries has made
available to Parent correct and complete copies of (i) all Tax Returns
filed within the past three years material to the Company and its
Subsidiaries, taken as a whole, (ii) all audit reports, letter rulings,
technical advice memoranda and similar documents issued by a
Governmental Entity within the past three years relating to the Federal,
state, local or foreign Taxes due from or with respect to the Company or
any of its Subsidiaries, and (iii) any closing letters or agreements
entered into by the Company or any of its Subsidiaries with any
Governmental Entities within the past three years with respect to Taxes.
(xvi) Neither the Company nor any of its Affiliates or Subsidiaries
has taken or agreed to take any action, has failed to take any action or
knows of any fact, agreement, plan or other circumstance that could
reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(xvii) Neither the Company nor any of its Subsidiaries has received
any notice of deficiency or assessment from any Governmental Entity for
any amount of Tax that has not been fully settled or satisfied, and to
the knowledge of the Company and its Subsidiaries no such deficiency or
assessment is proposed.
(xviii) Neither the Company nor any of its Subsidiaries has been a
party to a "listed transaction" within the meaning of Treasury
Regulations Section 1.6011-4(b)(2).
(xix) Bridgewater Mortgage Company, Inc. (the "COMPANY REIT") (A)
was formed in March, 1997, (B) has been at all times since the date of
its formation a "real estate investment trust" as defined in Section
856(a) of the Code, (C) has met at all times since the date of its
formation the requirements of Section 857(a) of the Code, (D) has not
relied at any time since the date of its formation on Section 856(c)(6)
of the Code, (E) has not had at any time since the date of its formation
any "net income derived from prohibited transactions" within the meaning
of Section 857(b)(6) of the Code and (F) has not issued any stock or
securities as part of a multiple party financing transaction described
in IRS Notice 97-21, 1997-11 I.R.B. 2, or Treasury Regulations Section
1.7701(l)-3.
(xx) For purposes of this Agreement (A) "TAX" or "TAXES" shall mean
(x) any and all taxes, customs, duties, tariffs, imposts, charges,
deficiencies, assessments, levies or other like governmental charges,
including income, gross receipts, excise, real or personal property, ad
valorem, value added, estimated, alternative minimum, stamp, sales,
withholding, social security, occupation, use, service, service use,
license, net worth, payroll, franchise, transfer and recording taxes and
charges, imposed by the IRS or any other taxing authority (whether
domestic or foreign including any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a
United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall
include any interest, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such amounts,
(y) any liability for the payment of any amounts described in (x) as a
result of being a member of an affiliated, consolidated, combined,
unitary, or similar group or as a result of transferor or successor
liability, and (z) any liability for the payment of any amounts as a
result of being a party to any tax sharing agreement or as a result of
any obligation to indemnify any other Person with respect to the payment
of any amounts of the type described in (x) or (y), and (B) "TAX RETURN"
shall mean any report, return, document, declaration, election or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including
information returns and any documents with respect to or accompanying
payments of estimated Taxes or requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
A-20
(k) Employee Benefit Plans.
(i) Section 3.1(k) of the Company Disclosure Schedule contains a
true and complete list of each (A) deferred compensation and each bonus
or other incentive compensation, stock purchase, stock option and other
equity compensation plan, program, agreement or arrangement (other than
any individual employment agreements with Employees who are not
directors or former directors of the Company or any of its Subsidiaries,
Executive Officers or Key Employees, and which are terminable without
penalty and do not provide for any payments in the event of a change of
control); (B) each severance or termination pay, medical, surgical,
hospitalization, life insurance and other "welfare" plan, fund or
program (within the meaning of Section 3(l) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")); (C) each profit-
sharing, stock bonus or other "pension" plan, fund or program (within
the meaning of Section 3(2) of ERISA); (D) each employment, termination
or severance agreement or arrangement with any director or former
director of the Company or any of its Subsidiaries, any Executive
Officer or Key Employee and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the
Company or any of its Subsidiaries, or to which the Company or any of
its Subsidiaries is party, whether written or oral, for the benefit of
any Employee or any director or former director of the Company or any of
its Subsidiaries (the "COMPANY PLANS"). Section 3.1(k)(i) of the Company
Disclosure Schedule identifies each of the Company Plans or plans
sponsored, maintained or contributed to by any trade or business,
whether or not incorporated, that together with the Company is a "single
employer" within the meaning of Section 4001(b) of ERISA (a "COMPANY
ERISA AFFILIATE") that is subject to section 302 or Title IV of ERISA or
section 412 of the Code (the "COMPANY TITLE IV PLANS"). Neither the
Company nor any Subsidiary of the Company has any commitment or formal
plan, whether legally binding or not, to create any additional employee
benefit plan or modify or change any existing Company Plan other than as
may be required by the terms of such Company Plan or applicable law.
(ii) With respect to each Company Plan, the Company has heretofore
delivered or made available to Parent true and complete copies of each
of the following documents:
(A) a copy of the Company Plan and any amendments thereto (or if
the Plan is not a written Company Plan, a description thereof);
(B) a copy of the most recent annual report and actuarial
report, if required under ERISA, and the most recent report prepared
with respect thereto in accordance with Statement of Financial
Accounting Standards No. 87;
(C) a copy of the most recent Summary Plan Description, if
required under ERISA with respect thereto;
(D) if the Company Plan is funded through a trust or any third
party funding vehicle, a copy of the trust or other funding agreement
and the latest financial statements thereof; and
(E) the most recent determination letter received from the
Internal Revenue Service with respect to each Company Plan intended
to qualify under Section 401 of the Code.
(iii) All contributions required to have been made with respect to
any Company Plan have been paid when due, except where the failure to
make such contributions would not reasonably be expected to result in a
Material Adverse Effect on the Company. There has been no amendment to,
written interpretation of or announcement (whether or not written) by
the Company or any Affiliate or the Company or any Subsidiary of the
Company relating to, or change in the Company Plan provisions relating
to employee participation or coverage under, any Company Plan that would
increase in any material respect the expense of maintaining such
A-21
Company Plan above the level or expense incurred in respect thereof for
the most recent fiscal year ended prior to the date hereof.
(iv) Neither the Company nor any Company ERISA Affiliate
contributes to, or is obligated to contribute to, a "multiemployer
pension plan," as defined in Section 3(37) of ERISA nor has the Company
or any Company ERISA Affiliate, during the five year period prior to the
date hereof been obligated, to contribute to such plan for which the
Company or any of its Subsidiaries could reasonably be expected to have
any liability material to the Company and its Subsidiaries, taken as a
whole.
(v) Neither the Company nor any Subsidiary of the Company, any
Company Plan, any trust created thereunder, nor, to the knowledge of the
Company, any trustee or administrator thereof has engaged in a
transaction in connection with which the Company or any Subsidiary of
the Company, any Company Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any Company Plan or any
such trust could be subject to any civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975
or 4976 of the Code, except where such penalty or tax would not
reasonably be expected to have a Material Adverse Effect on the Company.
(vi) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law in all material
respects, including but not limited to ERISA and the Code.
(vii) The IRS has issued a favorable determination letter with
respect to each Company Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code that has not been revoked, and, to
the knowledge of the Company no circumstances exist that could adversely
affect the qualified status of any such plan and the exemption under
Section 501(a) of the Code of the trust maintained thereunder. Each
Company Plan intended to satisfy the requirements of Section 501(c)(9)
of the Code has satisfied such requirements in all material respects.
(viii) With respect to any Company Title IV Plan, to which the
Company or any Company ERISA Affiliate made, or was required to make,
contributions on behalf of any Employee or any director or former
director during the five (5)-year period ending on the last day of the
most recent plan year ended prior to the Closing Date, (a) no liability
under Title IV or Section 302 of ERISA has been incurred by the Company
or any ERISA Affiliate that has not been satisfied in full, and (b) to
the knowledge of the Company, no condition exists that presents a
material risk to the Company and its Subsidiaries, taken as a whole, or
any Company ERISA Affiliate of incurring any such liability, other than
liability for premiums due the Pension Benefit Guaranty Corporation
("PBGC") (which premiums have been paid when due).
(ix) Except as set forth on Schedule 3.1(k)(ix) of the Company
Disclosure Schedule, the PBGC has not, to the knowledge of the Company,
instituted proceedings to terminate any Company Title IV Plan and, to
the knowledge of the Company, no condition exists that presents a
material risk that such proceedings will be instituted. Except as set
forth on Schedule 3.1(k)(ix) of the Company Disclosure Schedule, with
respect to each Company Title IV Plan, the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such
plan's actuary with respect to such plan did not exceed, as of its
latest valuation date, the then current value of the assets of such plan
allocable to such accrued benefits. No Company Title IV Plan or any
trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, as of the last day of the most recently
ended fiscal year.
(x) No Company Plan provides medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for Employees for
periods extending beyond their retirement or other termination of
service, other than (i) coverage mandated by applicable law, (ii) death
benefits
A-22
under any "pension plan," (iii) benefits the full cost of which is borne
by the Employee (or his beneficiary) or (iv) Company Plans that can be
amended or terminated by the Company without consent.
(xi) The Company is not aware of any basis upon which amounts
payable under the Company Plans will fail to be deductible for Federal
income tax purposes by virtue of Section 162(m) of the Code.
(xii) Except as set forth on Schedule 3.1(k)(xii) of the Company
Disclosure Schedule, the consummation of the transactions contemplated
by this Agreement will not, either alone or in combination with another
event, (i) entitle any Key Employee or officer of the Company to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
Key Employee or officer.
(xiii) There are no pending or, to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Company Plan by
any Employee or beneficiary covered under any such Company Plan, or
otherwise involving any such Company Plan (other than routine claims for
benefits), except for claims which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect
on the Company.
(xiv) The Company has provided true and correct copies of (a) all
investment policies utilized in connection with any of the Company
Plans, if in writing, and (b) all fiduciary committee minutes relating
to any of the Company Plans, if any.
(xv) Except as set forth on Section 3.1(k)(xv) of the Company
Disclosure Schedule, no Person will be entitled to a "gross up" or other
similar payment in respect of excise taxes under Section 4999 of the
Code with respect to the transactions contemplated by this Agreement.
(xvi) To the extent that the Company or any of its Subsidiaries is
deemed to be a fiduciary with respect to any Plan that is subject to
ERISA, the Company or such Subsidiary (1) during the past five years has
complied in all material respects with the requirements of ERISA and the
Code in the performance of its duties and responsibilities with respect
to such employee benefit plan and (2) has not knowingly caused any of
the trusts for which it serves as an investment manager, as defined in
Section 3(38) of ERISA, to enter into any transaction that would
constitute a "prohibited transaction" under Section 406 of ERISA or
Section 4975 of the Code, with respect to any such trusts, except for
transactions that are the subject of a statutory or administrative
exemption.
(l) Labor Matters. There are no labor or collective bargaining
agreements to which the Company or any Subsidiary of the Company is a
party. There is no union organizing effort pending or, the Company's
knowledge, threatened against the Company or any Subsidiary of the Company.
There is no labor strike, labor dispute (other than routine employee
grievances that are not related to union Employees), work slowdown,
stoppage or lockout pending or, to the Company's knowledge, threatened
against the Company or any Subsidiary of the Company. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge
of the Company, threatened against the Company or any Subsidiary of the
Company (other than routine employee grievances) which would, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect on the Company. The Company and its Subsidiaries are in compliance
with all applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and are not, to the
knowledge of the Company, engaged in any unfair labor practice, except
insofar as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on the Company.
(m) Environmental Liability. There are no pending or threatened
legal, administrative, arbitral or other proceedings, claims, actions,
causes of action, notices, private environmental investigations or
remediation activities or governmental investigations of any nature
(including claims of alleging
A-23
potential liability for investigating costs, cleanup costs, governmental
response costs, natural resources damage, property damages, personal
injuries or penalties) by any Person (collectively, "ENVIRONMENTAL
CLAIMS"), or any conditions or circumstances that could form the basis of
any Environmental Claim, in each case seeking to impose on the Company or
any of its Subsidiaries, or that reasonably would be expected to result in
the imposition on the Company or any of its Subsidiaries of, any liability
or obligation that would reasonably be expect to result in a Material
Adverse Effect on the Company arising under applicable common law standards
relating to pollution or protection of the environment, human health or
safety, or under any local, state or Federal environmental statute,
regulation, ordinance, decree, judgment or order relating to pollution or
protection of the environment, human health or safety including the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended.
(n) Intellectual Property.
(i) Section 3.1(n)(i) of the Company Disclosure Schedule sets
forth, for the Intellectual Property (as defined below) owned by the
Company or any of its Subsidiaries, a complete and accurate list of all
U.S. and foreign (A) patents and patent applications, (B) trademark or
service mark registrations and applications, (C) copyright registrations
and applications, and (D) Internet domain names, material to the Company
and its Subsidiaries, taken as a whole. The Company or one of its
Subsidiaries owns or has the valid right to use all such patents and
patent applications, trademarks, service marks, trademark or service
mark registrations and applications, trade names, logos, designs,
Internet domain names, slogans and general intangibles of like nature,
together with all goodwill related to the foregoing, copyrights,
copyright registrations, renewals and applications, Software (as defined
in this Section 3.1(n)), hardware, technology, trade secrets and other
confidential information, know-how, proprietary processes, formulae,
algorithms, models and methodologies, licenses, agreements and other
proprietary rights material to the Company and its Subsidiaries, taken
as a whole (collectively, the "INTELLECTUAL PROPERTY"), used in the
business of the Company as it currently is conducted. "SOFTWARE" means
any and all (A) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in
source code or object code, (B) databases and compilations, including
any and all data and collections of data, whether machine readable or
otherwise, (C) descriptions, flow-charts and other work product used to
design, plan, organize and develop any of the foregoing, (D) the
technology supporting and content contained on any owned or operated
Internet site(s), and (E) all documentation, including user manuals and
training materials, relating to any of the foregoing.
(ii) All of the Intellectual Property owned by the Company or one
of its Subsidiaries and material to the Company and its Subsidiaries,
taken as a whole, is free and clear of all Liens other than Company
Permitted Liens. The Company or one of its Subsidiaries is listed in the
records of the appropriate United States, state or foreign agency as,
the sole owner of record for each application and registration listed in
Section 3.1(n)(i) of the Company Disclosure Schedule.
(iii) All of the registrations listed in Section 3.1(n)(i) of the
Company Disclosure Schedule and material to the Company and its
Subsidiaries, taken as a whole, are valid, subsisting, enforceable, in
full force and effect, and have not been cancelled, expired, abandoned
or otherwise terminated and all renewal fees in respect thereof have
been duly paid, except insofar as non-payment would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect on the Company. There is no pending or, to the Company's
knowledge, threatened opposition, interference or cancellation
proceeding before any court or registration authority in any
jurisdiction against the registrations and applications listed in
Section 3.1(n)(i) of the Company Disclosure Schedule or, to the
Company's knowledge, against any other Intellectual Property used by the
Company or its Subsidiaries, other than any such proceeding which would
not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect on the Company.
A-24
(iv) To the Company's knowledge, the conduct of the Company's and
its Subsidiaries' business as currently conducted or planned by the
Company to be conducted does not, in any respect, infringe upon (either
directly or indirectly such as through contributory infringement or
inducement to infringe), dilute, misappropriate or otherwise violate any
Intellectual Property owned or controlled by any third party, except
insofar as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on the Company, and
neither the Company nor its Subsidiaries have received written notice
alleging such infringement, dilution, misappropriation or violation.
(v) To the Company's knowledge, no third party is misappropriating,
infringing, diluting, or violating any Intellectual Property material to
the Company and its Subsidiaries, taken as a whole, owned by or licensed
to or by the Company or its Subsidiaries and no such claims have been
made against a third party by the Company or its Subsidiaries.
(vi) Each item of Software material to the Company and its
Subsidiaries, taken as a whole, which is used by the Company or its
Subsidiaries in connection with the operation of their businesses as
currently conducted, is either (A) owned by the Company or its
Subsidiaries, (B) currently in the public domain or otherwise available
to the Company without the need of a license, lease or consent of any
third party, or (C) used under rights granted to the Company or its
Subsidiaries pursuant to a written agreement, license or lease from a
third party.
(vii) Except in the ordinary course of business, neither the
Company nor its Subsidiaries have agreed to indemnify any Person for or
against any infringement, misappropriation or other conflict with
respect to any Intellectual Property, which agreements would,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on the Company.
(o) Insurance Matters. Except as set forth in Section 3.1(o) of the
Company Disclosure Schedule, the Company and its Subsidiaries have all
primary, excess and umbrella policies of general liability, fire, workers'
compensation, products liability, completed operations, employers,
liability, health, bonds, earthquake and other forms of insurance providing
insurance coverage that is customary in amount and scope for other
companies in the industry in which they operate. Each of such policies and
other forms of insurance is in full force and effect on the date hereof and
shall (or comparable replacements or substitutions therefor) be kept in
full force and effect by the Company through the Effective Time. All such
policies, considered collectively with other such policies providing the
same type of coverage, are sufficient for compliance with all requirements
of law and of all requirements under contracts or leases to which the
Company is a party, except where non-compliance would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect on the Company. All premiums currently payable or previously due and
payable with respect to all periods up to and including the Effective Time
have been paid to the extent such premiums are due and payable on or prior
to the date hereof and, with respect to premiums not due or payable at or
prior to the date hereof, subject to Section 4.1 of this Agreement, all
premiums due and payable prior to the Effective Time, will have been paid
prior to the Effective Time and no notice of cancellation or termination
has been received with respect to any such policy material to the Company
and its Subsidiaries, taken as a whole.
(p) Information Supplied. None of the information supplied or to be
supplied by the Company in writing specifically for inclusion or
incorporation by reference in (i) the Form S-4, or the prospectus therein,
will, at the time the Form S-4 and any post-effective amendment or
supplement thereto, becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Proxy Statement will, at the date it is first
mailed to the Company's shareholders or at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, except that no representation or
warranty is made by the Company with respect to
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statements made or incorporated by reference therein based on information
supplied by Parent specifically for inclusion or incorporation by reference
in the Proxy Statement. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules
and regulations thereunder.
(q) Transactions with Affiliates. Except as set forth in Section
3.1(q) of the Company Disclosure Schedule there are no outstanding amounts
payable to or receivable from, or advances by the Company or any of its
Subsidiaries to, and neither the Company nor any of its Subsidiaries is
otherwise a creditor or debtor to, any Major Company Shareholder, or
director or Executive Officer of the Company, other than as part of the
normal and customary terms of such Persons' respective employment or
service as a director with the Company or any of its Subsidiaries. Except
as set forth in Section 3.1(q) or Section 3.1(k) of the Company Disclosure
Schedule neither the Company nor any Subsidiary of the Company is a party
to any transaction or agreement with any Major Company Shareholder, or any
director or Executive Officer of the Company, other than the terms of such
Person's respective employment or service as a director with the Company or
any of its Subsidiaries.
(r) Voting Requirements. The affirmative vote at the Company
Shareholders Meeting (the "COMPANY SHAREHOLDER APPROVAL") of a majority of
the outstanding shares of Company Common Stock voting at the Company
Shareholders Meeting to approve and adopt this Agreement is the only vote
of the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions
contemplated hereby, including the Merger.
(s) Opinions of Financial Advisor. The Company has received the
opinion of Keefe, Bruyette & Woods, Inc., dated the date hereof, to the
effect that, as of such date, the Merger Consideration is fair from a
financial point of view to the shareholders of the Company.
(t) Brokers. Except for Keefe, Bruyette & Woods, Inc., whose fees in
connection with the transactions contemplated hereby shall not exceed the
amount set forth on Section 3.1(t) of the Company Disclosure Schedule, no
broker, investment banker, financial advisor or other Person is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
Company has delivered to Parent complete and correct copies of such
arrangements set forth on Section 3.1(t) of the Company Disclosure
Schedule.
(u) Takeover Laws. The approval of this Agreement and the Merger by
the Board of Directors of the Company constitutes approval of this
Agreement and the Merger and the transactions contemplated hereby for
purposes of Chapter 10A of the NJBCA and Section 2 of Article 5 of the
Company's Certificate of Incorporation. No "moratorium", "control share",
"fair price" or other antitakeover laws and regulations of any state are
applicable to the Merger or other transactions contemplated by this
Agreement. None of the execution and delivery of this Agreement, the
approval of this Agreement and the Merger by the Board of Directors of the
Company, the Company Shareholder Approval or the consummation of the
transactions contemplated hereby, including the Merger, will result in the
ability of any Person to exercise any rights under the Company Rights
Agreement or enable or require such rights to separate from the shares of
Company Common Stock to which they are attached or to be triggered or
become exercisable or unredeemable. No "Triggering Event" or "Stock
Acquisition Date" (as such terms are defined in the Company Rights
Agreement) has occurred or will occur as a result of any of the approvals
or actions referenced in the preceding sentence.
(v) Derivative Transactions.
(i) Except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on the
Company, all Derivative Transactions (as defined in this Section 3.1(v))
entered into by the Company or any of its Subsidiaries were entered into
in accordance with applicable rules, regulations and policies of any
regulatory authority, and in accordance with the investment, securities,
commodities, risk management and other policies,
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practices and procedures employed by the Company and its Subsidiaries,
and were entered into with counter parties believed at the time to be
financially responsible and able to understand (either alone or in
consultation with their advisers) and to bear the risks of such
Derivative Transactions; and the Company and each of its Subsidiaries
have duly performed in all material respects all of their obligations
under the Derivative Transactions to the extent that such obligations to
perform have accrued, and, to the Company's knowledge, there are no
material breaches, violations or defaults or allegations or assertions
of such by any party thereunder.
(ii) For purposes of this Section 3.1(v), "DERIVATIVE TRANSACTIONS"
means any swap transaction, option, warrant, forward purchase or sale
transaction, futures transaction, cap transaction, floor transaction or
collar transaction relating to one or more currencies, commodities,
bonds, equity securities, loans, interest rates, credit-related events
or conditions or any indexes, or any other similar transaction or
combination of any of these transactions, including collateralized
mortgage obligations or other similar instruments or any debt or equity
instruments evidencing or embedding any such types of transactions, and
any related credit support, collateral or other similar arrangements
related to such transactions.
(w) Investment Securities and Commodities.
(i) Except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on the
Company, each of the Company and its Subsidiaries has good title to all
securities and commodities owned by it (except those sold under
repurchase agreements or held in any fiduciary or agency capacity), free
and clear of any Lien, except for Company Permitted Liens and except to
the extent such securities or commodities are pledged in the ordinary
course of business to secure obligations of the Company or its
Subsidiaries. Such securities and commodities are valued on the books of
the Company in accordance with GAAP in all material respects.
(ii) The Company and its Subsidiaries and their respective
businesses employ investment, securities, commodities, risk management
and other policies, practices and procedures (the "POLICIES, PRACTICES
AND PROCEDURES") which the Company believes are prudent and reasonable
in the context of such businesses. Prior to the date hereof, the Company
has made available to Parent in writing the material Policies, Practices
and Procedures.
(x) Loan Portfolio; Servicing.
(i) Section 3.1(x)(i) of the Company Disclosure Schedule sets forth
(A) the aggregate outstanding principal amount, as of the date hereof,
of all written or oral loan agreements, notes or borrowing arrangements
(including leases, credit enhancements, commitments, guarantees and
interest-bearing assets), taken as a whole, payable to the Company or
its Subsidiaries (collectively, "LOANS"), other than "non-accrual"
Loans, and (B) the aggregate outstanding principal amount, as of July
31, 2003, of all "non-accrual" Loans, taken as a whole. Section
3.1(x)(ii) of the Company Disclosure Schedule sets forth (A) a summary
of each outstanding Loan and asset classified as "Other Real Estate
Owned," that were designated by the Company as "Special Mention",
"Substandard", "Doubtful", "Loss", or words of similar import as of July
31, 2003, by category of Loan (e.g., commercial, consumer, etc.),
together with the aggregate principal amount of such Loans by category
and (B) each asset of the Company that, as of July 31, 2003, is
classified as "Other Real Estate Owned" and the book value thereof.
(ii) Each Loan (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 creditors' rights and to general equity principles. All
Loans originated by the Company or its Subsidiaries, and all such Loans
purchased by the Company or its Subsidiaries,
A-27
were made or purchased in accordance with customary lending and leasing
standards of the Company or its Subsidiaries, as applicable. Except as
set forth in Section 3.1(x) of the Company Disclosure Schedule, all such
Loans (and any related guarantees) and payments due thereunder are, and
on the Closing Date will be, free and clear of any Lien, other than
Company Permitted Liens, and the Company or its Subsidiaries has
complied, and on the Closing Date will have complied, with all laws and
regulations relating to such Loans except where non-compliance would
not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect on the Company.
(iii) The Company has not sold any Loans or any participations in
any Loans except for such sales as were made without recourse to the
Company (with respect to the repayment thereof, servicing thereof or
otherwise) and where the Company has no continuing obligation or right
with respect to the servicing of any such Loans, and no claims, actions
or demands have been brought by any third party in connection with any
such sales except for claims, actions and demands which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on the Company.
(iv) Except as set forth in Section 3.1(x)(iv) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries
services any loan agreements, notes or borrowing arrangements (including
leases, credit enhancements, commitments, guarantees and interest-
bearing assets) on behalf of any third party.
(y) Real Property.
(i) Each of the Company and its Subsidiaries has good title free
and clear of all Liens to all real property owned by such entities (the
"OWNED PROPERTIES"), except for Company Permitted Liens.
(ii) A true and complete copy of each agreement pursuant to which
the Company or any of its Subsidiaries leases any real property (such
agreements, together with any amendments, modifications and other
supplements thereto, collectively, the "LEASES") has heretofore been
made available to Parent, except as set forth in Section 3.1(y) of the
Company Disclosure Schedule. Each Lease is valid, binding and
enforceable against the Company or its applicable Subsidiary in
accordance with its terms and is in full force and effect, except that
(x) such enforceability may be subject to applicable bankruptcy,
insolvency or other similar laws now or hereafter in effect affecting
creditors' rights generally and (y) the availability of the remedy of
specific performance or injunction or other forms of equitable relief
may be subject to equitable defenses and would be subject to the
discretion of the court before which any proceeding therefor may be
brought. There are no defaults by the Company or any of its
Subsidiaries, as applicable, under any of the Leases which, in the
aggregate, would result in the termination of such Leases and a Material
Adverse Effect on the Company. The consummation of the transactions
contemplated by this Agreement will not cause defaults under the Leases,
except for any such default which would not individually or in the
aggregate, have a Material Adverse Effect on the Company.
(iii) The Owned Properties and the properties (the "LEASED
PROPERTIES") leased pursuant to the Leases constitute all of the real
estate on which the Company and its Subsidiaries maintain their
facilities or conduct their business as of the date of this Agreement,
except for locations the loss of which would not constitute a Material
Adverse Effect on the Company. The Owned Properties and the Leased
Properties are in compliance with all laws, except where non-compliance
would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on the Company. Neither any
agreement relating to the Owned Properties nor any of the Leases
requires consent of any third party for the consummation of the
transactions contemplated hereby except for such consents which will be
obtained prior to Closing.
A-28
(iv) A true and complete copy of each agreement pursuant to which
the Company or any of its Subsidiaries leases real property to a third
party (such agreements, together with any amendments, modifications and
other supplements thereto, collectively, the "THIRD PARTY LEASES") has
heretofore been made available to Parent. Each Third Party Lease is
valid, binding and enforceable in accordance with its terms and is in
full force and effect, except that (x) such enforceability may be
subject to applicable bankruptcy, insolvency or other similar laws now
or hereafter in effect affecting creditors' rights generally and (y) the
availability of the remedy of specific performance or injunction or
other forms of equitable relief may be subject to equitable defenses and
would be subject to the discretion of the court before which any
proceeding therefor may be brought. There are no existing defaults by
the tenant under any Third Party Lease which, in the aggregate, would
result in the termination of such Third Party Leases except for any such
default which would not reasonably be expected to result in a Material
Adverse Effect on the Company. The consummation of the transactions
contemplated by this Agreement will not cause defaults under the Third
Party Leases, except for any such default which would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
(z) Administration of Accounts. The Company and each of its
Subsidiaries 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, reasonably be expected to result in a Material Adverse
Effect on the Company. Neither the Company nor any of its Subsidiaries, nor
any of their directors, officers, agents or employees, 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 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, reasonably be
expected to result in a Material Adverse Effect on the Company.
(aa) Internal Controls. None of the Company or its Subsidiaries'
records, systems, controls, data or information are recorded, stored,
maintained, operated or otherwise wholly or partly dependent on or held by
any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto
and therefrom) are not under the exclusive ownership and direct control of
it or its Subsidiaries or accountants except as would not, individually or
in the aggregate, reasonably be expected to result in a materially adverse
effect on the system of internal accounting controls described in the next
sentence. The Company and its Subsidiaries have devised and maintain a
system of internal accounting controls sufficient to provide reasonable
assurances regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance
with GAAP.
SECTION 3.2 Representations and Warranties of Parent. Except as set forth
on the Disclosure Schedule delivered by Parent to the Company prior to the
execution of this Agreement (the "PARENT DISCLOSURE SCHEDULE") and making
reference to the particular subsection of this Agreement to which exception is
being taken, Parent represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power.
(i) Each of Parent and its Subsidiaries (including, without
limitation, Merger Sub is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business
as now being conducted except, as to Subsidiaries, for those
jurisdictions where the failure to be duly organized, validly existing
and in good standing would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on Parent.
Each of Parent and its Subsidiaries is duly qualified or licensed to do
business and is in
A-29
good standing in each jurisdiction in which the nature of its business
or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to be in good
standing would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on Parent.
(ii) The Parent has delivered or made available to the Company
prior to the execution of this Agreement complete and correct copies of
the articles of incorporation and by-laws, as amended to the date hereof
of Parent.
(b) Subsidiaries. Exhibit 21 of Parent's most recent Annual Report on
Form 10-K included in the Parent Filed SEC Documents (as defined in Section
3.2(g)) lists all the Subsidiaries of the Parent, whether consolidated or
unconsolidated, required to be listed therein in accordance with Item 601
of Regulation S-K promulgated by the SEC. Except as set forth in said
Exhibit or Section 3.2(b) of the Parent Disclosure Schedule, all
outstanding shares of capital stock of, or other equity interests in, each
such Subsidiary: (i) have been validly issued and are fully paid and
nonassessable; (ii) are owned directly or indirectly by Parent, free and
clear of all Liens other than (A) Liens described in Section 3.2(b) of the
Parent Disclosure Schedule; (B) restrictions on transferability pursuant to
federal and state securities laws; and (C) Liens for Taxes not yet due or
delinquent or being contested in good faith and for which reserves
appropriate in all material respects have been established in accordance
with GAAP; and (iii) are free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests) that would prevent the operation by the
Surviving Corporation of such Subsidiary's business as currently conducted.
(c) Capital Structure. The authorized capital stock of Parent
consists of 800,000,000 shares of Parent Common Stock and 20,000,000 shares
of preferred stock, par value $1.00 per share, of Parent ("PARENT
AUTHORIZED PREFERRED STOCK"), of which, as of August 20, 2003, 98,583
shares have been designated as $1.80 Cumulative Convertible Preferred
Stock -- Series A ("PARENT SERIES A PREFERRED STOCK"), and 38,542 shares
have been designated as $1.80 Cumulative Convertible Preferred Stock --
Series B ("PARENT SERIES B PREFERRED STOCK"), 1,433,935 shares have been
designated as $1.60 Cumulative Convertible Preferred Stock-Series C
("PARENT SERIES C PREFERRED STOCK"), 1,766,140 shares have been designated
as $1.80 Cumulative Convertible Preferred Stock-Series D ("PARENT SERIES D
PREFERRED STOCK"), 338,100 shares have been designated as $2.60 Cumulative
Nonvoting Preferred Stock, Series E ("PARENT SERIES E PREFERRED STOCK"),
6,000 shares have been designated as Fixed/Adjustable Rate Noncumulative
Preferred Stock, Series F ("PARENT SERIES F PREFERRED STOCK"), and 450,000
shares have been designated as Series G Junior Participating Preferred
Share Purchase Rights ("PARENT SERIES G PREFERRED STOCK"). As of August 20,
2003: (i) 279,738,578 shares of Parent Common Stock were issued and
outstanding, 73,084,189 shares of Parent Common Stock were held by Parent
in its treasury; (ii) 9,093 shares of Parent Series A Preferred Stock were
issued and outstanding, no shares of Parent Series A Preferred Stock were
held by Parent in its treasury; (iii) 2,356 shares of Parent Series B
Preferred Stock were issued and outstanding, no shares of Parent Series B
Preferred Stock were held by Parent in its treasury; (iv) 179,641 shares of
Parent Series C Preferred Stock were issued and outstanding, no shares of
Parent Series C Preferred Stock were held by Parent in its treasury; (v)
255,863 shares of Parent Series D Preferred Stock were issued and
outstanding, no shares of Parent Series D Preferred Stock were held by
Parent in its treasury; (vi) no shares of Parent Series E Preferred Stock
were issued and outstanding, no shares of Parent Series E Preferred Stock
were held by Parent in its treasury; (vii) no shares of Parent Series F
Preferred Stock were issued and outstanding, no shares of Parent Series F
Preferred Stock were held by Parent in its treasury; (viii) no shares of
Parent Series G Preferred Stock were issued and outstanding, no shares of
Parent Series G Preferred Stock were held by Parent in its treasury; (ix)
25,320,603 shares of Parent Common Stock were reserved for issuance (as of
July 31, 2003) pursuant to the stock-based plans identified in Section
3.2(c) of the Parent Disclosure Schedule and all other plans, agreements or
arrangements providing for equity-based compensation to any director,
employee, consultant or
A-30
independent contractor of Parent or any of its Subsidiaries (such plans,
collectively, the "PARENT STOCK PLANS"), of which 18,825,298 shares are
subject to outstanding employee stock options or other rights to purchase
or receive Parent Common Stock (as of July 31, 2003) granted under the
Parent Stock Plans (collectively, "PARENT STOCK OPTIONS"); (x) no shares of
Parent Common Stock are reserved for issuance pursuant to securities
convertible into or exchangeable for shares of Parent Common Stock ("PARENT
CONVERTIBLE SECURITIES"); (xi) 450,000 shares of Parent Series G Preferred
Stock were reserved for issuance pursuant to the Parent Rights Agreement;
and (xi) other than as set forth above, no other shares of Parent
Authorized Preferred Stock have been designated. All outstanding shares of
capital stock of Parent are, and all shares thereof which may be issued
prior to the Closing, and all shares thereof which may be issued pursuant
to this Agreement will be, when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. Except
as set forth in this Section 3.2(b) and except for changes since July 31,
2003 resulting from the issuance of shares of Parent Common Stock pursuant
to the Parent Stock Plans, Parent Employee Stock Options or Parent
Convertible Securities and other rights referred to in this Section 3.2(b),
as of the date hereof, (x) there are not issued, reserved for issuance or
outstanding (A) any shares of capital stock or other voting securities of
other ownership interests of Parent, (B) any securities of Parent or any
Subsidiary of Parent convertible into or exchangeable or exercisable for
shares of capital stock or voting securities of other ownership interests
of Parent, (C) any warrants, calls, options or other rights to acquire from
Parent or any Subsidiary of Parent, and any obligation of Parent or any
Subsidiary of Parent to issue, any capital stock, voting securities or
other ownership interests or securities convertible into or exchangeable or
exercisable for capital stock or voting securities of other ownership
interests of Parent, and (y) there are no outstanding obligations of Parent
or any Subsidiary of Parent to repurchase, redeem or otherwise acquire any
such securities or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. As of the date hereof, there are no
outstanding (A) securities of Parent or any of its Subsidiaries convertible
into or exchangeable or exercisable for shares of capital stock or voting
securities or other ownership interests in any Subsidiary of Parent, (B)
warrants, calls, options or other rights to acquire from Parent or any
Subsidiary of Parent, or any obligation of Parent or any Subsidiary of
Parent to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable or
exercisable for any capital stock, voting securities or other ownership
interests in, any Subsidiary of Parent or (C) obligations of Parent or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any such
outstanding securities of Subsidiaries of Parent or to issue, deliver or
sell, or cause to be issued, delivered or sold, any such securities.
(d) Authority; Noncontravention. Each of Parent and Merger Sub has
all requisite corporate power and authority to enter into this Agreement,
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate and shareholder action
on the part of Parent and Merger Sub, respectively. This Agreement has been
duly executed and delivered by each of Parent and Merger Sub, and, assuming
the due authorization, execution and delivery by the Company, constitutes
the legal, valid and binding obligations of Parent and Merger Sub,
respectively, enforceable against Parent and Merger Sub, respectively, in
accordance with their terms except that (i) such enforceability may be
subject to applicable bankruptcy, insolvency or other similar laws now or
hereafter in effect affecting creditors' rights generally and (ii) the
availability of the remedy of specific performance or injunction or other
forms of equitable relief may be subject to equitable defenses and would be
subject to the discretion of the courts for which any proceeding therefor
may be brought. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby and compliance
with the provisions of this Agreement will not, conflict with, or result in
any violation, forfeiture or termination of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
forfeiture, termination, cancellation or acceleration (with or without
notice or lapse of time or both) of any obligation or loss of a benefit, or
payment of any termination or similar fee, under, or result in the creation
of any Lien upon any of the
A-31
properties or assets of Parent or any of its Subsidiaries under, (i) the
certificate of incorporation or by-laws of Parent, (ii) the certificate of
incorporation or by-laws or the comparable organizational documents of any
of its Subsidiaries (including, without limitation, Merger Sub), (iii) any
loan or credit agreement, note, bond, mortgage, indenture, lease, software
agreement or other agreement, instrument, Intellectual Property, right,
permit, concession, franchise, license or similar authorization applicable
to Parent or any of its Subsidiaries or their respective properties or
assets or (iv) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any of
its Subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii), (iii) and (iv), any such conflicts, violations,
defaults, rights, losses or Liens that individually or in the aggregate
would not (x) reasonably be expected to result in a Material Adverse Effect
on Parent or (y) reasonably be expected to materially impair or materially
delay the ability of Parent or Merger Sub to perform its obligations under
this Agreement. No consent, approval, order or authorization of, action by,
or in respect of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or any of its
Subsidiaries in connection with the execution and delivery of this
Agreement by Parent and Merger Sub or the consummation by Parent and Merger
Sub of the transactions contemplated by this Agreement, except for (1) the
filings with the SEC of (A) the Proxy Statement, and the clearance thereof
by the SEC, and the Form S-4, and the declaration of effectiveness thereof,
by the SEC, and (B) such reports under the Exchange Act as may be required
in connection with this Agreement and the transactions contemplated by this
Agreement; (2) the filing of the Certificate of Merger with the Secretary
of State of the State of New Jersey and the Secretary of Stat e of the
State of Delaware and such filings with Governmental Entities to satisfy
the applicable requirements of the laws of states in which the Company and
its Subsidiaries are qualified or licensed to do business or state
securities or "blue sky" laws; (3) the approval of the Federal Reserve
under the BHC Act; (4) the approval of the New Jersey Banking Department;
(5) the approval of the OCC; (6) such filings with and approvals of the
NYSE to permit the shares of Parent Common Stock to be issued in the Merger
and under the Company Stock Plan to be listed on the NYSE; and (7) filings
required as a result of the particular status of the Company or its
Subsidiaries.
(e) Parent Documents.
(i) Parent and each of its Subsidiaries subject to reporting under
Section 13 or Section 15(d) of the Exchange Act have (A) filed all
required reports with the SEC and (B) all required schedules, forms,
statements and other documents (including exhibits and all other
information incorporated therein) with the SEC (together with the
reports referred to in clause (A), the "PARENT SEC DOCUMENTS"), except
in the case of (A) as would not reasonably be expected to have a
Material Adverse Effect on Parent. As of their respective filing dates,
(i) the Parent SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Parent SEC Documents, and (ii) none of the Parent SEC
Documents as of its date, except as amended or supplemented by a
subsequent Parent Filed SEC Document, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
and no Parent SEC Document filed subsequent to the date hereof will
contain as of its date, any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(ii) The financial statements of Parent and its consolidated
Subsidiaries included in the Parent SEC Documents (including the related
notes) complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in
the case of unaudited statements, as permitted by Form 10-Q
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of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in
all material respects the consolidated financial position of Parent and
its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to other adjustments described in the
notes to such unaudited statements).
(iii) Except (A) as reflected in Parent's unaudited balance sheet
as of June 30, 2003 or liabilities described in any notes thereto (or
liabilities for which neither accrual nor footnote disclosure is
required pursuant to GAAP) or (B) for liabilities incurred in the
ordinary course of business since June 30, 2003 consistent with past
practice or in connection with this Agreement or the transactions
contemplated hereby, Parent and its Subsidiaries, taken as a whole, do
not have any material liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise.
(f) Information Supplied. None of the information supplied or to be
supplied by Parent specifically for inclusion or incorporation by reference
in (i) the Form S-4, or the prospectus therein, will, at the time the Form
S-4, and any post-effective amendment thereto, becomes effective under the
Securities Act and through the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Proxy Statement will, at the date it is first mailed to the Company's
shareholders or at the time of the Company Shareholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation or warranty is made by Parent
with respect to statements made or incorporated by reference therein based
on information supplied by the Company specifically for inclusion or
incorporation by reference in the Form S-4 or the prospectus therein. The
Form S-4, and the prospectus therein. will comply as to form in all
material respects with the requirements of the Securities Act and the rules
and regulations thereunder.
(g) Brokers. No broker, investment broker, financial advisor or other
Person is entitled to a broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Parent,
except a fee to be paid to Citigroup Global Markets, Inc. as financial
advisor to Parent.
(h) Tax Matters. Neither Parent nor any of its Affiliates or
Subsidiaries has taken or agreed to take any action, has failed to take any
action or knows of any fact, agreement, plan or other circumstance that
could reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(i) Employee Benefit Plans
(i) For purposes of this Section 3.2(i), "PARENT PLANS" shall mean
its deferred compensation and each bonus or other incentive
compensation, stock purchase, stock option and other equity compensation
plan or program, or arrangement; each severance or termination pay,
medical, surgical, hospitalization, life insurance and other "welfare"
plan, fund or program (within the meaning of Section 3(l) of ERISA; each
profit-sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of Section 3(2) of ERISA); each employment,
termination or severance agreement or arrangement with any director or
former director of the Parent or any of its Subsidiaries or any
executive officer thereof and each other employee benefit plan, fund or
program, or arrangement applicable to identified groups of employees, in
each case that is sponsored, maintained or contributed to or required to
be contributed to by Parent or any of its Subsidiaries, or to or which
Parent or any of its Subsidiaries is a party, whether written or oral,
for the benefit of any current or former employee or director of Parent
or any of its Subsidiaries; each Parent Plan that is subject to Section
302 or Title IV of ERISA or Section 412 of the Code, being the "PARENT
TITLE IV PLANS".
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(ii) All contributions required to have been made with respect to
any Parent Plan have been paid when due, except insofar as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on the Parent.
(iii) Each Parent Plan has been operated and administered in
accordance with its terms and applicable law, including but not limited
to ERISA and the Code, except insofar as the failure to do so would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on Parent.
(iv) The IRS has issued a favorable determination letter with
respect to each Parent Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code that has not been revoked, and, to
the knowledge of Parent no circumstances exist that could adversely
affect the qualified status of any such plan and the exemption under
Section 501(a) of the Code of the trust maintained thereunder. Each
Parent Plan intended to satisfy the requirements of Section 501(c)(9) of
the Code has satisfied such requirements in all material respects.
(v) With respect to any Parent Title IV Plan to which Parent or any
trade or business, whether or not incorporated, that together with
Parent is a "single employer" within the meaning of Section 4001(b) of
ERISA (a "PARENT ERISA AFFILIATE") made, or was required to make,
contributions on behalf of any current or former employee or director
during the five (5)-year period ending on the last day of the most
recent plan year ended prior to the Closing Date, (a) no liability under
Title IV or Section 302 of ERISA has been incurred by Parent or any
Parent ERISA Affiliate that has not been satisfied in full, except where
failure to satisfy such liability would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect
on Parent, and (b) to the knowledge of Parent, no condition exists that
presents a risk to Parent or any Parent ERISA Affiliate of incurring any
such liability, other than liability for premiums due the PBGC) (which
premiums have been paid when due), except insofar as would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent.
(vi) The PBGC has not, to the knowledge of Parent, instituted
proceedings to terminate any Parent Title IV Plan and, to the knowledge
of Parent, no condition exists that presents a material risk that such
proceedings will be instituted, except insofar as would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent. No Parent Title IV Plan or any trust
established thereunder has incurred any "accumulated funding deficiency"
(as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recently ended
fiscal year, except insofar as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.
(vii) There are no pending or, to the knowledge of Parent,
threatened or anticipated claims by or on behalf of any Parent Plan by
any employee or beneficiary covered under any such parent Plan, or
otherwise involving any such Parent Plan (other than routine claims for
benefits), except for claims which, individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse Effect
on Parent.
(j) Compliance with Laws.
(i) Parent, its Subsidiaries and employees hold all permits,
licenses, variances, authorizations, exemptions, orders, registrations
and approvals of all Governmental Entities ("PARENT PERMITS") material
to Parent and its Subsidiaries, taken as a whole, which are required for
the operation of the respective businesses of Parent and its
Subsidiaries as presently conducted, except insofar as would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent. Each of Parent and its Subsidiaries
is, and for the last five years has been, in compliance with the terms
of such Parent Permits and all such Parent Permits are in full force and
effect and no suspension, modification or revocation of any of them is
pending or, to the knowledge of Parent, threatened nor, to the knowledge
of Parent, do grounds
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exist for any such action, except where non-compliance or such
suspension, modification or revocation would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect
on Parent.
(ii) Except as set forth in the Parent SEC Documents filed and
publicly available prior to the date hereof, and except where failure to
comply would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on Parent, each of
Parent and its Subsidiaries is, and for the last five years has been, in
compliance with all applicable statutes, laws, regulations, ordinances,
permits, rules, judgments, orders, decrees or arbitration awards of any
Governmental Entity applicable to Parent or its Subsidiaries.
(iii) Neither Parent nor any of its Subsidiaries is subject to any
outstanding order, injunction or decree or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or, is
subject to any order or directive by, or is a recipient of any
supervisory letter from or has adopted any resolutions at the request of
any Governmental Entity that restricts in any respect the conduct of its
business or, that in any manner currently relates to its capital
adequacy, its policies, its management or its business (each, a "PARENT
REGULATORY AGREEMENT"), nor has Parent or any of its Subsidiaries or
Affiliates (A) to its knowledge, been advised since January 1, 2001 by
any Governmental Entity that it is considering issuing or requesting any
Parent Regulatory Agreement or (B) have knowledge of any pending or
threatened regulatory investigation. Neither Parent nor any of its
Subsidiaries is in breach or default under any Parent Regulatory
Agreement in any material respect. Prior to the date hereof, Parent has
made available to the Company true and complete copies of all Parent
Regulatory Agreements that currently have, or may in the future
reasonably be expected to have, a material impact on the conduct of the
business and operations of Parent and its Subsidiaries, taken as a
whole.
(iv) Except for filings with the SEC, which are the subject of
Section 3.2(e), Parent and each of its Subsidiaries have timely filed
all regulatory reports, schedules, forms, registrations and other
documents, together with any amendments required to be made with respect
thereto, that they were required to file with any Governmental Entity
(the "OTHER PARENT DOCUMENTS"), except where the failure to make such
filings would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on Parent. There is no
unresolved violation or exception by any of such Governmental Entities
with respect to any report or statement relating to any examinations of
Parent or any of its Subsidiaries which would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect
on Parent.
(v) Parent's bank Subsidiaries are "well-capitalized" (as that term
is defined at 12 C.F.R. 225.2(r)(2)(i)) and "well managed" (as that term
is defined at 12 C.F.R. 225.81(c)), and their examination rating under
the Community Reinvestment Act of 1977 is "satisfactory".
(vi) The business and operations of Parent and of each of Parent's
Subsidiaries through which Parent conducts its finance activities have
been conducted in compliance with all applicable Finance Laws and have
complied with all applicable collection practices in seeking payment
under any loan or credit extension of such Subsidiaries, except where
non-compliance would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect on Parent. In
addition, there is no pending or, to the knowledge of Parent, threatened
charge by any Governmental Entity that Parent or any of its Subsidiaries
has violated, nor any pending or, to the knowledge of Parent, threatened
investigation by any Governmental Entity with respect to possible
violations of, any applicable Finance Laws, except where such violation
would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on Parent.
(vii) Neither Parent nor any of its Subsidiaries, nor to the
knowledge of Parent any other Person acting on behalf of Parent or any
of its Subsidiaries that qualifies as a "financial
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institution" under the U.S. Anti-Money Laundering laws has knowingly
acted, by itself or in conjunction with another, in any act in
connection with the concealment of any Unlawful Gains, nor knowingly
accepted, transported, stored, dealt in or brokered any sale, purchase
or any transaction of other nature for Unlawful Gains except insofar as
would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on Parent. Parent and each of its
Subsidiaries that qualifies as a "financial institution" under the U.S.
Anti-Money Laundering laws has, during the past three years, implemented
such anti-money laundry mechanisms and kept and filed all material
reports and other necessary material documents as required by, and
otherwise complied with, the U.S. Anti-Money Laundering laws and the
rules and regulations issued thereunder, except insofar as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on Parent.
(k) Litigation. Except as set forth in Section 3.2(k) of the Parent
Disclosure Schedule, no action, demand, charge, requirement or
investigation by any Governmental Entity and no litigation, action, suit,
proceeding, investigation or arbitration by any Person or Governmental
Entity, in each case with respect to Parent or any of its Subsidiaries or
any of their respective properties or Permits, is pending or, to the
knowledge of Parent, threatened, except insofar as would not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect on Parent.
(l) Absence of Certain Changes. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, and
except as disclosed in the Parent SEC Documents filed and publicly
available prior to the date hereof, since June 30, 2003, (A) there has not
been any Material Adverse Change in Parent or (B) there are not, to
Parent's knowledge, any facts, circumstances or events that make it
reasonably likely that Parent will not be able to fulfill its obligations
under this Agreement in all material respects.
(m) Internal Controls. None of Parent or its Subsidiaries' records,
systems, controls, data or information are recorded, stored, maintained,
operated or otherwise wholly or partly dependent on or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of it
or its Subsidiaries or accountants except as would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect on the system of internal accounting controls described in the next
sentence. Parent and its Subsidiaries have devised and maintain a system of
internal accounting controls sufficient to provide reasonable assurances
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business by the Company. Except (i) as set forth
in Section 4.1 of the Company Disclosure Schedule, (ii) as otherwise expressly
contemplated by this Agreement, (iii) as consented to by Parent in writing
(which consent shall not be unreasonably withheld or delayed), or (iv) as
required by applicable law or regulation, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course consistent with past practice and in compliance in all material
respects with all applicable laws and regulations, pay their respective debts
and Taxes when due, pay or perform their other respective obligations when due,
and, use all commercially reasonable efforts consistent with the other terms of
this Agreement to preserve intact their current business organizations, use all
commercially reasonable efforts consistent with the other terms of this
Agreement to keep available the services of their current officers and employees
and preserve their relationships with those Persons having business dealings
with them, all with the goal of preserving unimpaired in all material respects
their goodwill and ongoing businesses at the Effective Time. Without limiting
the generality of the foregoing, senior officers of Parent and the Company
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shall meet on a reasonably regular basis to review the financial and operational
affairs of the Company and its Subsidiaries, in accordance with applicable law,
and the Company shall give due consideration to Parent's input on such matters,
consistent with Section 4.4 hereof, with the understanding that, notwithstanding
any other provision contained in this Agreement, Parent shall in no event be
permitted to exercise control of the Company prior to the Effective Time. Except
as (i) expressly contemplated by this Agreement, (ii) as disclosed in Section
4.1 of the Company Disclosure Schedule, (iii) as consented to by Parent in
writing or (iv) required by applicable law or regulation, after the date hereof
the Company shall not, and shall not permit any of its Subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned Subsidiary of the Company to its parent, (x) declare, set
aside or pay any dividends on, make any other distributions in respect of,
or enter into any agreement with respect to the voting of, any of its
capital stock (except for regular quarterly cash dividends not to exceed
$0.20 per share on the Company Common Stock and regular cash dividends on
the REIT Preferred Stock of the Company REIT in the amounts and at the
times set forth in Section 3.1(g)(iii) of the Company Disclosure Schedule
and otherwise in accordance with the terms thereof, (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of, or in substitution for,
shares of its capital stock, except upon the exercise of Company Stock
Options that are outstanding as of the date hereof in accordance with their
present terms, or (z) purchase, redeem or otherwise acquire any shares of
capital stock or other securities of the Company or any of its
Subsidiaries, or any rights, warrants or options to acquire any such shares
or other securities (other than the issuance of Company Common Stock upon
the exercise of Company Stock Options that are outstanding as of the date
hereof in accordance with their present terms);
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien (other than Company Permitted Liens) any shares of its capital
stock, any other voting securities, including any restricted shares of
Company Common Stock, or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities, including any Company Stock Options (other than the
issuance of Company Common Stock upon the exercise of Company Stock Options
that are outstanding as of the date hereof in accordance with their present
terms);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) (A) acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or any equity securities of, or by any other
manner, any business or any Person, or otherwise acquire or agree to
acquire any assets except in the ordinary course of business or (B) open,
close, sell or acquire any branches;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien (other than Company Permitted Liens), or otherwise dispose of any
of its properties or assets other than securitizations and other
transactions in the ordinary course of business and consistent with past
practices or create any security interest in such assets or properties
(other than Company Permitted Liens);
(vi) except for borrowings having a maturity of not more than 30 days
under existing credit facilities (or renewals, extensions or replacements
therefor that do not provide for any termination fees or penalties,
prohibit pre-payments or require any pre-payment penalties, or contain any
like provisions limiting or otherwise affecting the ability of the Company
or its applicable Subsidiaries or successors from terminating or pre-paying
such facilities, or contain financial terms less advantageous than existing
credit facilities, such existing credit facilities, and as they may be so
renewed, extended or replaced, "CREDIT FACILITIES") that are incurred in
the ordinary course of business consistent with past practice and with
respect to which the Company consults with Parent on a basis not less
frequently than bi-weekly, or for borrowings under Credit Facilities or
other lines of credit or refinancing of indebtedness outstanding on the
date hereof not to exceed $5,000,000, and except for the incurring of
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deposit liabilities in the ordinary course of business, incur any
Indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible for the obligations
of any Person (other than the Company or any wholly owned Subsidiary
thereof), or, other than in the ordinary course of business, make any
loans, advances or capital contributions to, or investments in, any Person
other than its wholly owned Subsidiaries and as a result of ordinary
advances and reimbursements to employees and endorsements of banking
instruments;
(vii) change in any material respect its accounting methods (or
underlying assumptions), principles or practices affecting its assets,
liabilities or business, including any reserving, renewal or residual
method, practice or policy, in each case, in effect on the date hereof,
except as required by changes in GAAP or regulatory accounting principles,
or change any of its methods of reporting income and deductions for Federal
income tax purposes from those employed in the preparation of the Federal
income tax returns of the Company for the taxable year ending December 31,
2002, except as required by changes in law or regulation;
(viii) change in any material respects its investment or risk
management or other similar policies of the Company or any of its
Subsidiaries;
(ix) make, change or revoke any Tax election, file any amended Tax
Return, enter into any closing agreement, settle or compromise any
liability with respect to Taxes, agree to any adjustment of any Tax
attribute, file any claim for a refund of Taxes, or consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment;
(x) create, renew or amend, or take any other action that may result
in the creation, renewal, or amendment, of any agreement or contract or
other binding obligation of the Company or its Subsidiaries containing (A)
any restriction on the ability of the Company and its Subsidiaries, taken
as a whole, to conduct its business as it is presently being conducted or
(B) any restriction on the Company or its Subsidiaries engaging in any type
or activity or business;
(xi) (A) except as set forth in Section 4.1(xi) of the Company
Disclosure Schedule, incur any capital expenditures in excess of $10,000
individually or $50,000 in the aggregate, (B) enter into any agreement
obligating the Company to spend more than $10,000 individually or $50,000
in the aggregate, or (C) enter into any agreement, contract, lease or other
arrangement of the type described in Section 3.1(f) or Section 3.1(y) of
this Agreement except for any such agreements, contracts, leases or other
arrangements (w) of the type described in Section 3.1(f)(i) to the extent
not prohibited under Section 4.1(vi) and to the extent not pursuant to any
agreement containing provisions that restrict, or may restrict, the conduct
of the business of the issuer thereof as currently conducted in a manner
more adverse to the Company than the current Credit Facilities, (x) of the
type described in Section 3.1(f)(ii) to the extent not prohibited by
Section 4.1(xi)(A) or (B), (y) of the type described in Section 3.1(f)(xii)
or (xiv) and that is terminable on not less than 30 days notice without
penalty, but only following prior consultation with Parent, or (z) of the
type described in Section 3.1(f)(xiii) to the extent required by the
expiration of the term of an existing lease unless reasonably objected to
by Parent;
(xii) terminate, amend or otherwise modify, except in the ordinary
course of business, or knowingly violate the terms of, any of the Company
Material Contracts, any of the leases for the Leased Properties or the
Third Party Leases or any other binding obligations material to the Company
and its Subsidiaries, taken as a whole, and except for terminations,
amendments or other modifications that would not result in the incurrence
of additional costs or expenses, or in the loss of revenue, in excess of
$50,000 on an annual basis in the aggregate, and are not made with respect
to any of the Company Material Contracts described in Section 3.1(f)(iii),
(vi), (vii), (ix), (x), (xi) or (xv) (B);
(xiii) except as required by agreements or instruments in effect on
the date hereof, alter in any material respect, or enter into any
commitment to alter in any material respect, any interest material to the
Company and its Subsidiaries, taken as a whole, in any corporation,
association, joint venture,
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partnership or business entity in which the Company directly or indirectly
holds any equity or ownership interest on the date hereof (other than any
interest arising from any foreclosure, settlement in lieu of foreclosure or
troubled loan or debt restructuring in the ordinary course of business
consistent with past practice);
(xiv) Except for payments described in Section 4.1 of the Company
Disclosure Schedule (A) grant to any current or former director, Executive
Officer or Key Employee of the Company or its Subsidiaries any increase in
compensation, bonus or other benefits, except for salary, wage, bonus or
benefit increases (x) as required from time to time by governmental
legislation affecting wages, and (y) as required by the terms existing
prior to the date hereof of plans or arrangements described in Section
3.1(k) the Company Disclosure Schedule, (B) grant to any such current or
former director, or Executive Officer or Key Employee, any increase in
severance or termination pay, (C) enter into, or amend, or take any action
to clarify any provision of, any Plan or any employment, deferred
compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, or Executive Officer or
Key Employee, except as required by applicable law, (D) modify any Company
Stock Option or (E) without first consulting with Parent, make any
discretionary contributions to any pension plan;
(xv) except pursuant to agreements or arrangements in effect on the
date hereof and disclosed in writing and provided or made available to
Parent and except for compensation for service as an officer, employee or
director consistent with past practice, pay, loan or advance any amount to,
or sell, transfer or lease any properties or assets (real, personal or
mixed, tangible or intangible) to, or enter into any agreement or
arrangement with, any of its officers or directors or any affiliate or the
immediate family members or associates of any of its officers or directors
other than compensation in the ordinary course of business consistent with
past practice;
(xvi) agree or consent to any material agreement or material
modifications of existing agreements with any Governmental Entity in
respect of the operations of its business, except (i) as required by law or
(ii) to effect the consummation of the transactions contemplated hereby;
(xvii) pay, discharge, settle or compromise any claim, action,
litigation, arbitration or proceeding, other than any such payment,
discharge, settlement or compromise in the ordinary course of business
consistent with past practice that involves solely money damages in an
amount not in excess of $50,000 individually or $100,000 in the aggregate,
and that does not create precedent for other pending or potential claims,
actions, litigation, arbitration or proceedings;
(xviii) issue any broadly distributed communication of a general
nature to Employees (including general communications relating to benefits
and compensation) or customers without the prior approval of Parent (which
will not be unreasonably delayed or withheld), except for communications in
the ordinary course of business that do not relate to the Merger or other
transactions contemplated hereby;
(xix) create, renew, amend or permit to expire, lapse or terminate or
knowingly take any action reasonably likely to result in the creation,
renewal, amendment, expiration, lapse or termination of any insurance
policies referred to in Section 3.1(o) material to the Company and its
Subsidiaries, taken as a whole, except that the Company shall be permitted
to take any such action without Parent's consent in the event that Parent
shall fail to reasonably consent to such action; or
(xx) knowingly take any action or knowingly fail to take any action
which would result in any of the conditions of Article VI not being
satisfied; or
(xxi) authorize, or commit or agree to take, any of the foregoing
actions.
SECTION 4.2 Advice of Changes. Except to the extent prohibited by
applicable law or regulation, the Company, Parent and Merger Sub shall promptly
advise the other party orally and in writing to the extent it has knowledge of
(i) any representation or warranty made by it contained in this Agreement that
is qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or
A-39
warranty that is not so qualified becoming untrue or inaccurate in any material
respect, (ii) the failure by it to comply in any material respect with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement and (iii) any change or
event having, or which, insofar as can reasonably be foreseen, could have a
Material Adverse Effect on such party or on the truth of their respective
representations and warranties or the ability of the conditions set forth in
Article VI to be satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
(or remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement; provided further that a failure to comply with
this Section 4.2 shall not constitute a failure to be satisfied of any condition
set forth in Article VI unless the underlying untruth, inaccuracy, failure to
comply or satisfy, or change or event would independently result in a failure to
be satisfied of a condition set forth in Article VI.
SECTION 4.3 No Solicitation by the Company. (a) Except as otherwise
provided in this Section 4.3, until the earlier of the Effective Time and the
date of termination of this Agreement, neither the Company, nor any of its
Subsidiaries or any of the officers, directors, agents, or representatives of it
or its Subsidiaries (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) shall (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal which
constitutes a Company Takeover Proposal (as defined in this Section 4.3), (ii)
participate in any discussions or negotiations regarding any Company Takeover
Proposal, (iii) enter into any agreement regarding any Company Takeover Proposal
or (iv) make or authorize any statement, recommendation or solicitation in
support of any Company Takeover Proposal. If and only to the extent that (i) the
Company Shareholders Meeting shall not have occurred, (ii) the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareholders under applicable law in light of
a bona fide Company Takeover Proposal that has not been withdrawn, (iii) such
Company Takeover Proposal was not solicited by it and did not otherwise result
from a breach of this Section 4.3(a), and (iv) the Company provides prior
written notice to Parent of its decision to take such action, the Company shall
be permitted to (A) furnish information with respect to the Company and any of
its Subsidiaries to such Person pursuant to a customary confidentiality
agreement, (B) participate in discussions and negotiations with such Person and
(C) effect a Change in the Company Recommendation (as defined below).
For purposes of this Agreement, "COMPANY TAKEOVER PROPOSAL" means any
proposal or offer from any Person (other than from Parent and its Affiliates)
relating to (A) any direct or indirect acquisition or purchase of (x) assets of
the Company and its Subsidiaries that generate 20% or more of the net revenues
or net income, or that represent 20% or more of the total assets, of the Company
and its Subsidiaries, taken as a whole, or (y) 20% or more of any class of
equity securities of the Company, (B) any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 20% or more of any
class of any equity securities of the Company, or (C) any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company (or any one or more Subsidiaries of the
Company, individually or taken together, whose business constitutes 20% or more
of the net revenues, net income or total assets of the Company and its
Subsidiaries, taken as a whole), other than the transactions contemplated by
this Agreement.
(b) Except as expressly permitted by this Section 4.3 or Section 5.1(d),
neither the Board of Directors of the Company nor any committee thereof shall
(i) withdraw, modify or qualify, or propose publicly to withdraw, modify or
qualify, in a manner adverse to Parent, the approval of the Agreement, the
Merger or the Company Recommendation (as defined in Section 5.1(d)) or take any
action or make any statement in connection with the Company Shareholders Meeting
inconsistent with such approval or Company Recommendation (collectively, a
"CHANGE IN THE COMPANY RECOMMENDATION"), or (ii) approve or recommend, or
propose publicly to approve or recommend, any Company Takeover Proposal. For
purposes of this Agreement, a Change in the Company Recommendation shall include
any approval or recommendation (or public proposal to approve or recommend), by
the Company Board of a Company
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Takeover Proposal, or any failure by the Company Board to recommend against a
Company Takeover Proposal.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.3, the Company shall promptly (and in any event
within 24 hours) advise Parent orally and in writing of any request for
information relating to a Company Takeover Proposal, or of any Company Takeover
Proposal, the material terms and conditions of such request or Company Takeover
Proposal and the identity of the person making such request or Company Takeover
Proposal, and shall promptly (and in any event within 24 hours) provide a copy
of any written request or Company Takeover Proposal to Parent. The Company will
keep Parent promptly informed of the status and details (including amendments or
proposed amendments) of any such request or Company Takeover Proposal.
(d) Nothing contained in this Section 4.3 shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure if, in
the good faith judgment of the Board of Directors of the Company, after
consultation with outside counsel, failure so to disclose would violate its
obligations under applicable law; provided, however, any such disclosure
relating to a Company Takeover Proposal shall be deemed to be a Change in the
Company Recommendation unless the Board of Directors of the Company reaffirms
the Company Recommendation in such disclosure.
SECTION 4.4 Transition.
(a) Commencing following the date hereof, Parent and the Company shall, and
shall cause their respective Subsidiaries to, use their reasonable best efforts
to facilitate the integration of the Company and its Subsidiaries, including the
Bank, with the businesses of Parent and its Subsidiaries to be effective as of
the Closing Date or such later date as may be determined by Parent. Without
limiting the generality of the foregoing, from the date hereof through the
Closing Date and consistent with the performance of their day-to-day operations
and the continuous operation of the Company and its Subsidiaries in the ordinary
course of business, the Company shall cause the employees and officers of the
Company and its Subsidiaries, including the Bank, to use their reasonable best
efforts to provide support, including support from its outside contractors, and
to assist Parent in performing all tasks, including equipment installation,
reasonably required to result in a successful integration at the Closing or such
later date as may be determined by Parent.
(b) Parent and the Company agree to consult with respect to their loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) and the Company shall make such
modifications or changes to its policies and practices, if any, and at such date
prior to the Effective Time, as Parent shall reasonably request. Parent and the
Company shall also consult with respect to the character, amount and timing of
restructuring charges to be taken by each of them in connection with the
transactions contemplated hereby, and shall take such charges as Parent shall
reasonably request. No party's representations, warranties and covenants
contained in this Agreement shall be deemed to be untrue or breached in any
respect for any purpose as a consequence of any modifications or changes to such
policies and practices which may be undertaken on account of this Section
4.4(b).
SECTION 4.5 No Fundamental Changes in the Conduct of Business by
Parent. Except (i) as set forth in Section 4.5 of the Parent Disclosure
Schedule, (ii) as otherwise expressly contemplated by this Agreement, (iii) as
consented to by the Company in writing (which consent shall not be unreasonably
withheld or delayed) or required by applicable law or regulation, during the
period from the date of this Agreement to the Effective Time, Parent shall not,
and shall not permit any of it Subsidiaries to:
(i) except as contemplated hereby, amend its certificate of
incorporation or by-laws in any manner that would adversely affect the
economic benefits of the Merger to the holders of Company Common Stock;
provided that the authorization or issuance of preferred stock in a manner
that would not require Parent shareholder approval shall not be deemed to
violate this clause (i);
(ii) knowingly take any action or knowingly fail to take any action
which would result in any of the conditions of Article VI not being
satisfied;
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(iii) knowingly take any action that could reasonably be expected to
jeopardize or materially delay the receipt of any Requisite Regulatory
Approval (as defined under Section 6.1(b);
(iv) enter into any agreement directly or indirectly to acquire or
purchase all or substantially all of the capital stock or assets of any
other Person or business (whether by merger, consolidation, tender offer,
exchange offer or otherwise) unless such transaction would not materially
delay completion of, or materially impair the prospects of completing, the
Merger pursuant to this Agreement;
(v) materially and adversely change the nature of the business
conducted by the Parent and its Subsidiaries, taken as a whole;
(vi) knowingly take or cause to be taken any action which,
individually or in the aggregate, would reasonably be expected to prevent
the Merger from qualifying as a reorganization under Section 368(a) of the
Code; or
(vii) authorize, or commit or agree to take, any of the foregoing
actions or any other action that would be reasonably likely to prevent
Parent from performing or would be reasonably likely to cause Parent not to
perform its covenants hereunder in all material respects.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4, Proxy Statement; Shareholders
Meeting.
(a) As promptly as practicable following the date of this Agreement, Parent
and the Company shall prepare, and Parent shall file with the SEC, the Form S-4,
in which the Proxy Statement will be included as a prospectus. Each of Parent
and the Company shall use all reasonable efforts to have the Form S-4 declared
effective under the Securities Act, and for the Proxy Statement to be cleared
under the Exchange Act, as promptly as practicable after such filing. Without
limiting any other provision hereinabove contained, the Form S-4 and the Proxy
Statement will contain, without limitation, such information and disclosure
reasonably requested by either Parent or the Company so that (i) the Form S-4
conforms in both form and substance to the requirements of the Securities act,
and (ii) the Proxy Statement conforms in both form and substance to the
requirements of the Exchange Act. The Company shall use reasonable best efforts
to cause the Proxy Statement to be mailed to holders of Company Common Stock as
promptly as practicable after the Form S-4 is declared effective.
(b) If at any time prior to the Effective Time there shall occur (i) any
event with respect to the Company or any of its Subsidiaries, or with respect to
other information supplied by Company for inclusion in the Form S-4 or the Proxy
Statement or (ii) any event with respect to Parent, or with respect to
information supplied by Parent for inclusion in the Form S-4 or the Proxy
Statement, in either case, which event is required to be described in an
amendment of, or a supplement, to the Form S-4 or the Proxy Statement, such
event shall be so described, and such amendment or supplement shall be promptly
filed with the SEC and, as required by law, disseminated to the shareholders of
Company.
(c) Each of the Company and Parent shall promptly notify the other of the
receipt of any comments from the SEC or its staff or any other appropriate
government official and of any requests by the SEC or its staff or any other
appropriate government official for amendments or supplements to any of the
filings with the SEC in connection with the Merger and other transactions
contemplated hereby or for additional information and shall supply the other
with copies of all correspondence between the Company or any of its
representatives, or Parent or any of its representatives, as the case may be, on
the one hand, and the SEC or its staff or any other appropriate government
official, on the other hand, with respect thereto. The Company and Parent shall
use their respective reasonable best efforts to respond to any comments of the
SEC with respect to the Form S-4 and the Proxy Statement as promptly as
practicable. The Company and Parent shall cooperate with each other and provide
to each other all information necessary in order to
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prepare the Form S-4 and the Proxy Statement, and shall provide promptly to the
other party any information such party may obtain that could necessitate
amending any such document.
(d) The Company shall, as promptly as practicable after the Form S-4 is
declared effective under the Securities Act, duly call, give notice of, convene
and hold the Company Shareholders Meeting in accordance with the NJBCA for the
purpose of obtaining the Company Shareholder Approval and subject to Section
4.3, the Board of Directors of the Company shall recommend to the Company's
shareholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby (the "COMPANY RECOMMENDATION"); provided,
however, that the Company's Board of Directors shall not be required to make
such Company Recommendation to the extent that it is permitted to effect a
Change in the Company Recommendation pursuant to Section 4.3. Without limiting
the generality of the foregoing, the Company agrees that its obligations
pursuant to the first sentence of this Section 5.1(d) shall not be affected by
the commencement, public proposal, public disclosure or communication to the
Company of any Company Takeover Proposal. Notwithstanding any Change in the
Company Recommendation, unless otherwise directed in writing by Parent, this
Agreement and the Merger shall be submitted to the shareholders of the Company
at the Company Shareholders Meeting for the purpose of approving the Agreement
and the Merger and nothing contained herein shall be deemed to relieve the
Company of such obligation, provided, however, that if the Board of Directors of
the Company shall have effected a Change in the Company Recommendation in
accordance with this Agreement, then in submitting this Agreement to the
Company's shareholders, the Board of Directors of the Company may submit this
Agreement to the Company's shareholders without recommendation (although the
resolutions adopting this Agreement and the Plan of Merger as of the date hereof
may not be rescinded or amended), in which event the Board of Directors of the
Company may communicate the basis for its lack of a recommendation to the
Company's shareholders in the Proxy Statement or an appropriate amendment or
supplement thereto to the extent required by law.
(e) The Company shall coordinate and cooperate with Parent with respect to
the timing of the Company Shareholders Meeting.
SECTION 5.2 Access to Information; Confidentiality.
(a) Subject to applicable law, each party shall, and shall cause its
Subsidiaries to, afford each other party and to the officers, employees,
accountants, counsel, financial advisors and other representatives of each other
party, reasonable access during normal business hours during the period prior to
the Effective Time to all its respective properties, books, contracts,
commitments, personnel and records and, during such period, each party shall,
and shall cause each of its Subsidiaries to, furnish promptly to each other
party all other information concerning its business, properties and personnel as
such other party may reasonably request. In addition, the Company shall, and
shall cause each of its Subsidiaries to, furnish promptly to Parent (a) a copy
of each material report, schedule, registration statement and other document
filed by it with any Governmental Entity and (b) the internal or external
reports prepared by it and/or its Subsidiaries in the ordinary course that are
reasonably required by Parent promptly after such reports are made available to
the Company's personnel. No review pursuant to this Section 5.2 shall affect any
representation or warranty given by any party.
(b) Each party will keep, and will cause its Subsidiaries, Affiliates,
directors, officers, employees, agents and advisors (collectively, such party's
"REPRESENTATIVES") to keep, all information and documents obtained from the
other party or its Representatives pursuant to Section 5.2(a) or during the
investigations leading up to the execution of this Agreement confidential unless
such information (i) was already in the possession of the party receiving the
information (the "RECEIVING PARTY"), provided that such information is not known
by the Receiving Party to be subject to another confidentiality agreement with,
or other direct or indirect obligation of secrecy to, the party disclosing the
information or documents (the "DISCLOSING PARTY"), (ii) becomes generally
available to the public other than as a result of a disclosure by the Receiving
Party or its Representatives or (iii) becomes available to the Receiving Party
from a source other than the Disclosing Party or its Representatives, provided
that such source is not known by the Receiving Party to be bound by a
confidentiality agreement with, or other direct or indirect obligation
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of secrecy to, the Disclosing Party. In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall otherwise
fail to be consummated, each party shall promptly cause all copies of documents
or extracts thereof containing information and data as to another party hereto
to be returned to the Disclosing Party which furnished the same or, with respect
to information contained in analyses, compilations, studies or other documents
or records prepared by the Receiving Party, destroyed (such destruction to be
confirmed in writing if requested by the Disclosing Party). In the event that
the Receiving Party or any of its Representatives become legally compelled to
disclose any such information or documents, the Receiving Party agrees to
provide, if practicable, the Disclosing Party with reasonable advance notice
under the circumstances prior to any such disclosure to enable the Disclosing
Party to seek a protective order or other appropriate remedy. In addition, each
party may, at any time, with notice (in advance, if practicable) to the other
party, make disclosures of such information and documents as may be required or
requested by such party's applicable regulatory authorities. This Agreement
shall not be construed to limit in any way either party's ability to consult any
tax advisor regarding the tax treatment or tax structure of the Merger or the
Bank Combination. These provisions are meant to be interpreted so as to prevent
the Merger or the Bank Combination from being treated as offered under
"conditions of confidentiality" within the meaning of the Code and the Treasury
Regulations thereunder.
SECTION 5.3 Reasonable Best Efforts. (a) Subject to the terms and
conditions set forth in this Agreement, each of the parties hereto shall use its
reasonable best efforts (subject to, and in accordance with, applicable law) to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement, including (i) obtaining all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) obtaining all necessary consents,
approvals or waivers from third parties, (iii) defending any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated by this
Agreement, (iv) publicly supporting this Agreement and the Merger and (iv)
executing and delivering any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
(b) In connection with and without limiting the foregoing, the Company and
Parent shall (i) use their reasonable best efforts to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
this Agreement or the Merger or any of the other transactions contemplated
hereby, and (ii) if any state takeover statute or similar statute or regulation
becomes applicable to this Agreement or the Merger or any other transaction
contemplated hereby, take all action necessary to ensure that the Merger and the
other transactions contemplated by this Agreement may be consummated as promptly
as practicable on the terms contemplated hereby and otherwise to minimize the
effect of such statute or regulation on the Merger and the other transactions
contemplated hereby.
(c) In connection with and without limiting the foregoing, the Company
shall use its reasonable best efforts to assist Parent's reasonable efforts to
effect, subsequent to the Effective Time, the combination (the "BANK
COMBINATION") of the Bank with Parent Bank, National Association, or another
banking subsidiary of Parent, including causing such banks to enter into a
merger agreement, obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities (including the OCC Approval)
and making all necessary registrations and filings and taking all steps as may
be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity (including the OCC Approval), with such
Bank Combination to be effective immediately following the Effective Time or at
such later time as Parent may determine.
SECTION 5.4 Rule 16b-3 Actions. Prior to the Effective Time, the Company
shall take all such steps as may be required to cause any dispositions of
Company Common Stock or acquisitions of Parent Common Stock (including
derivative securities with respect to Company Common Stock or Parent Common
Stock) resulting from the transactions contemplated by Article I and II of this
Agreement by
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each individual who is subject to the reporting requirements of Section 16(a) of
the Exchange Act with respect to the Company or by each individual, if any, who
will be so subject, immediately following the Effective Time, with respect to
Parent, to be exempt under Rule 16b-3 promulgated under the Exchange Act, such
steps to be taken in accordance with the No-Action Letter dated January 12,
1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP, in each
case to the extent permitted by applicable law and judicial interpretations
thereof.
SECTION 5.5 Indemnification, Exculpation and Insurance. (a) All rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the current or former
directors or officers of the Company and its Subsidiaries as provided in their
respective certificates of incorporation or by-laws (or comparable
organizational documents) and any existing indemnification agreements or
arrangements of the Company and its Subsidiaries shall survive the Merger and
shall continue in full force and effect in accordance with their terms, and
shall not be amended, repealed or otherwise modified for a period of six years
after the Effective Time in any manner that would adversely affect the rights
thereunder of such individuals for acts or omissions occurring at or prior to
the Effective Time.
(b) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including any such claim, action suit, proceeding or investigation in which any
individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer of
the Company or any of its Subsidiaries (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 the Company or any of its Subsidiaries or their
respective predecessors or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto.
(c) For six years after the Effective Time, the Surviving Corporation shall
maintain in effect the Company's current directors' and officers' liability
insurance covering acts or omissions occurring prior to the Effective Time with
respect to those Persons who are currently covered by the Company's directors'
and officers' liability insurance policy on terms with respect to such coverage
and amount no less favorable to the Company's directors and officers currently
covered by such insurance than those of such policy in effect on the date
hereof; provided, that the Surviving Corporation may substitute therefor
policies of Parent or its Subsidiaries (including self insurance) containing
terms with respect to coverage and amount no less favorable to such directors or
officers; provided, further, that in no event shall the Surviving Corporation be
required to pay aggregate premiums for insurance under this Section 5.5(c) in
excess of 150% of the aggregate premiums paid by the Company in 2003 on an
annualized basis for such purpose and, if the annual premiums of such insurance
coverage exceed such amount, the Surviving Corporation shall be obligated to use
its reasonable best efforts obtain a policy with the greatest coverage available
for a cost not exceeding such amount.
(d) The provisions of this Section 5.5 shall survive the Effective Time and
are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and other Person named herein and his or her heirs and
representatives.
SECTION 5.6 Fees and Expenses. Except as otherwise provided in Section
7.2, all fees and expenses incurred in connection with the Merger, this
Agreement, and the transactions contemplated by this Agreement shall be paid by
the party incurring such fees or expenses, whether or not the Merger is
consummated.
SECTION 5.7 Public Announcements. Parent and the Company will consult
with each other before issuing, and provide each other the opportunity to
review, comment upon and concur with and use reasonable efforts to agree on, any
press release or other public statements and any broadly distributed internal
communications with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such
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consultation, except as either party may in good faith determine is required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange and except for any discussions
with rating agencies. The parties agree that the initial press release to be
issued with respect to the transactions contemplated by this Agreement shall be
in the form heretofore agreed to by the parties.
SECTION 5.8 Affiliates. Concurrently with the execution of this
Agreement, the Company shall deliver to Parent a written agreement substantially
in the form attached as Exhibit A hereto of all of the Persons who are
"affiliates" of the Company for purposes of Rule 145 under the Securities Act;
all of such affiliates, who are affiliates as of the date of this Agreement, are
identified in Section 5.8 of the Company Disclosure Schedule. Section 5.8 of the
Company Disclosure Schedule shall be updated by the Company as necessary to
reflect changes from the date hereof and the Company shall use reasonable best
efforts to cause each Person added to such schedule after the date hereof to
deliver a similar agreement.
SECTION 5.9 Stock Exchange Listing. Parent shall use best efforts to
cause the Parent Common Stock issuable (i) under Article II or (ii) upon
exercise of the Company Stock Options assumed pursuant to Section 2.3 to be
approved for issuance on the NYSE, in each case subject to official notice of
issuance, as promptly as practicable after the date hereof, and in any event on
or prior to the Closing Date.
SECTION 5.10 Shareholder Litigation. Each of the Company and Parent shall
give the other the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company or Parent, as applicable, and its
directors relating to the transactions contemplated by this Agreement.
SECTION 5.11 Standstill Agreements; Confidentiality Agreements. During
the period from the date of this Agreement through the Effective Time, the
Company shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its respective
Subsidiaries is a party and which relates to the confidentiality or information
regarding the Company or its Subsidiaries or which relate to securities of the
Company, other than client and customer agreements entered into by the Company
or its Subsidiaries in the ordinary course of business. During such period, the
Company shall use reasonably best efforts to enforce, to the fullest extent
permitted under applicable law, the provisions of any such agreement, including
by using reasonable best efforts to obtain injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions thereof
in any court having jurisdiction.
SECTION 5.12 Employee Benefits. (a) The Surviving Corporation and its
Subsidiaries and/or Parent shall employ as of the Closing Date those Employees
who are employed by the Company and its Subsidiaries as of the Effective Time
(the "CONTINUING EMPLOYEES"), at wage or salary levels, as applicable, at least
equal to the wage or salary levels of such Employees as of the date of this
Agreement provided that no Continuing Employee shall be, or have the authority
of, an officer of such Person unless elected or appointed as such by such
Person.
(b) Following the Effective Time, the Continuing Employees will participate
in Parent's Displaced Employee Assistance Plan on the terms and subject to the
conditions of such Plan as in effect from time to time except that (i)
Continuing Employees will receive service credit in connection with such plan as
provided in Section 5.12(c) and (ii) until the first anniversary of the Closing
Date, the amounts payable to Continuing Employees entitled to benefits
thereunder shall be based on the schedule included as Section 5.12(b) of the
Company Disclosure Schedule; provided that the foregoing shall not apply to any
Continuing Employee who as of the Effective Time is covered by a specific
employment agreement that is binding upon Parent or the Surviving Corporation.
The Company shall terminate all severance plans, policies and agreements, other
than those agreements with persons having individual agreements set forth in
Section 3.1(k) of the Company Disclosure Schedule, effective as of the close of
business on the day prior to the Closing Date.
(c) Parent shall, or shall cause the Surviving Corporation and its
Subsidiaries to, give Continuing Employees full credit for purposes of
eligibility, vesting and benefit accruals under any employee benefit plans,
programs, or arrangements maintained by Parent, the Surviving Corporation or any
Subsidiary of
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Parent or the Surviving Corporation (other than any defined benefit pension plan
(except to the extent expressly described in Section 5.12(g)), retiree medical
plan or retiree life insurance plan) for such Continuing Employees' service with
the Company or any Subsidiary of the Company (or any predecessor entity) to the
same extent recognized by the Company and its Subsidiaries, except as may result
in duplication of benefits.
(d) Parent shall, or shall cause the Surviving Corporation and its
Subsidiaries to, waive all limitations as to preexisting conditions, exclusions
and waiting periods with respect to participation and coverage requirements
applicable to the Continuing Employees under any welfare plan that such
employees may be eligible to participate in after the Effective Time, other than
limitations or waiting periods that are already in effect with respect to such
employees and that have not been satisfied as of the Effective Time under any
welfare plan maintained for the Continuing Employees immediately prior to the
Effective Time, and provide credit under any such welfare plan for any
co-payments, deductibles and out-of-pocket expenditures for the remainder of the
coverage period during which any transfer of coverage occurs. Furthermore, if
Parent or Surviving Corporation terminates any Company Plan that is a group
health plan, it shall permit Continuing Employees who actively participate in
group health plan to participate immediately in a comparable group health plan
with no gap in coverage, and if Parent or Surviving Corporation terminates any
Company Plan that is a group health plan providing benefits to existing retirees
of the Company and its Subsidiaries, it shall permit such persons to participate
in Parent's retiree medical benefit plans having comparable benefits with no gap
in coverage.
(e) Parent shall provide, or shall cause to be provided, to the Continuing
Employees compensation and employee benefit plans, programs and arrangements
that are, in the aggregate, comparable to those plans, programs and arrangements
in which they currently participate until such time as Parent transfers and
converts (the "CONVERSION DATE") such Continuing Employees to the compensation
and employee benefit plans, programs and arrangements maintained by Parent or
its applicable Subsidiary. If Parent or Surviving Corporation terminates any
Company Plans, it shall permit Continuing Employees to participate in any then
existing comparable Parent Plans as promptly as practicable, to the extent
Continuing Employees meet the eligibility requirements (taking credited service
levels as provided in Section 5.12(c) into consideration). From and after the
Conversion Date, Parent shall provide, or shall cause to be provided, to the
Continuing Employees compensation and employee benefit plans, programs and
arrangements that are no less favorable than those generally provided to
similarly situated employees of Parent or its applicable Subsidiary.
(f) The Company shall cooperate with Parent in preparing for the transfer
and conversion of compensation and employee benefit plans, programs and
arrangements, for Employees from those of the Company to those of Parent or its
appropriate Subsidiary. Such cooperation shall include, to the extent requested
by Parent, (i) distribution to Employees of new employee orientation materials
of Parent and ensuring participation by Employees in Parent's orientation
meetings, which may be held on the premises of the Company or its Subsidiaries,
(ii) making best efforts to merge the Raritan Savings Bank 401(k) Savings Plan
in RSI Retirement Trust and the Vista Bancorp, Inc. Employee Retirement Savings
Plan with and into the UnitedTrust Bank Profit Sharing and 401(k) Plan prior to
the Closing Date, (iii) preparing for the merger of the Company's merged 401(k)
plan with the PNC Incentive Savings Plan, (iv) taking such actions as may be
necessary or desirable to cause, as of the Effective Date, all accrued vested
balances of Elective Contribution Accounts (as defined in the Company's
Executive Deferred Compensation Plan and Executive Deferred Bonus Plans, as
amended, (collectively, the "COMPANY DCP"), to be transferred from the Company
DCP to the Parent's Deferred Compensation Plan (the "PARENT DCP"), with such
funds so transferred, and any future income deferrals that may be made after the
Effective Date, to be governed from and after the Effective Date by the terms
and conditions of the Parent DCP, and to terminate all other rights under the
Company DCP as of the Effective Time, and (v) making best efforts to ensure that
Continuing Employees will be in compliance with the applicable employee policies
and programs of Parent.
(g) If Parent or Surviving Corporation freezes or terminates the Company
defined benefit pension plan and/or the Vista defined benefit pension plan, it
shall permit all Continuing Employees who
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participate in such plan to participate in Parent's cash balance defined benefit
pension plan as soon as practicable and the terms for their participation in
such plan shall be no less favorable than the terms of participation for
similarly situated employees of the Parent or its Subsidiaries, and such
Continuing Employees shall receive credit for all their years of service with
the Company or any Subsidiary of the Company (or any predecessor entity) solely
for purposes of eligibility and vesting under such plan but not for benefit
accrual; provided, however, that for purposes of calculating any future annual
earnings credits under the terms of Parent's cash balance defined benefit
pension plan, Continuing Employees' prior service with the Company or any
Subsidiary of the Company shall be taken into account.
(h) If Parent or Surviving Corporation freezes or terminates the Bank's
Profit Sharing and 401(k) Plan (or the Raritan Savings Bank 401(k) Savings Plan
or the Vista Bancorp, Inc. Employee Retirement Savings Plan), or merges such
plan into the Parent Incentive Savings Plan, it shall permit all Continuing
Employees who participate in such plan to participate as soon as practicable in
the Parent Incentive Savings Plan, and the terms for their participation in such
plan shall be no less favorable than the terms of participation for similarly
situated employees of the Parent or its Subsidiaries.
(i) All supplemental retirement income agreements and similar plans,
policies, programs or agreements of the Company and its Subsidiaries, as amended
or supplemented (each, a "SERP"), shall be fully funded by the Company in
accordance with their terms, and, as of the Effective Time, none of the Company,
Parent, the Surviving Corporation or any of their Affiliates will thereafter
have any further obligations whatsoever in connection with any such SERP.
(j) Parent or the Surviving Corporation shall maintain the Company's
Director Deferred Compensation Plan of United National Bancorp, dated October 1,
1997, as amended through the date hereof, and the Bank's Director Deferred
Compensation Plan of UnitedTrust Bank, dated October 1, 1997, as amended through
the date hereof, and the Restated Director Deferred Compensation Plan for the
Raritan Savings Bank, dated June 1, 1997, as amended through the date hereof, in
each case in accordance with the terms thereof.
(k) Except as otherwise provided in Article V of this Agreement, Parent and
Surviving Corporation shall honor all obligations under the employment and
change-in-control agreements set forth in Company Disclosure Schedule 5.12(k)
and shall make the lump-sum payments also set forth in Company Disclosure
Schedule 5.12(k) in each case, except to the extent superseded by agreements
entered into in connection with entering into this Agreement.
SECTION 5.13 Tax Matters. Parent and the Company shall use reasonable
best efforts to cause the Merger to qualify as a reorganization within the
meaning of Section 368(a) of the Code and to obtain the Tax opinions described
in Sections 6.2(d) and 6.3(c) hereof. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Treas. Reg. Sec. 1.368-2(g).
Officers of Parent, Merger Sub and the Company shall execute and deliver to
McCarter & English, LLP, counsel to the Company, and Wachtell, Lipton, counsel
to Parent, certificates containing appropriate representations at such time or
times as may be reasonably requested by such law firms, including the effective
date of the Form S-4 and the Closing Date, in connection with their respective
deliveries of opinions, pursuant to Sections 6.2(d) and 6.3(c) hereof, with
respect to the Tax treatment of the Merger.
SECTION 5.14 Advisory Board of Parent. Parent shall establish an advisory
board (the "PARENT ADVISORY BOARD") and, prior to the Closing Date, shall offer
to each of the members of the Board of Directors of the Company as of the
Closing Date an opportunity to become a member of the Parent Advisory Board,
subject to entering into an agreement of the type set forth in Section 5.14 of
the Parent Disclosure Schedule, with service on the Parent Advisory Board to
commence immediately following the Closing Date. The Parent Advisory Board shall
be maintained for a period ending no sooner than two years following the Closing
Date. Each Parent Advisory Board member shall receive annual compensation for
his or her service on the Parent Advisory Board calculated in accordance with
the Advisory Board Charter previously provided to the Company.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver by each of Parent and the Company on or prior to
the Closing Date of the following conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have
been obtained.
(b) Governmental and Regulatory Approvals. Other than the filing
provided for under Section 1.3, all consents, approvals and actions of,
filings with and notices to any Governmental Entity required by the
Company, Parent or any of their Subsidiaries under applicable law or
regulation to consummate the Merger and the other transactions contemplated
hereby (including, if so determined by Parent in its sole discretion, the
Bank Combination), shall have been obtained or made, including approval of
the Federal Reserve, the New Jersey Banking Department and, if applicable,
the OCC (all such approvals and the expiration of all such waiting periods,
the "REQUISITE REGULATORY APPROVALS").
(c) Other Third Party Approvals. All other notices, consents or
waivers from third parties (other than Governmental Employees) with respect
to the transactions contemplated by this Agreement shall have been made or
obtained except as would not reasonably be expected to have a Material
Adverse Effect on Parent or the Company
(d) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule or regulation, entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"RESTRAINTS") shall be in effect preventing the consummation of the Merger
or, if so determined by Parent in its sole discretion, the Bank
Combination; provided, however, that each of the parties shall have used
its reasonable best efforts to prevent the entry of any such Restraints and
to appeal as promptly as possible any such Restraints that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the
Securities Act and no stop order or proceedings seeking a stop order shall
have been entered or be pending by the SEC.
(f) Stock Exchange Listing. The shares of Parent Common Stock
issuable to the Company's shareholders as contemplated by Article II shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
SECTION 6.2 Conditions to Obligations of Parent. The obligation of Parent
to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth herein shall be true and correct at and
as of the date hereof and at and as of the Closing Date, as if made at and
as of such time (except to the extent expressly made as of an earlier date,
in which case as of such date), provided that no representation or warranty
of the Company shall be deemed untrue or incorrect for purposes hereunder
as a consequence of the existence of any fact, event or circumstance
inconsistent with such representation or warranty, unless such fact, event
or circumstance, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or warranty of
the Company, has had or would reasonably be expected to result in a
Material Adverse Effect on the Company, disregarding for these purposes (x)
any qualification or exception for, or reference to, materiality in any
such representation or warranty and (y) any use of the terms "material,"
"materially," "in all material respects," "Material Adverse Change,"
"Material Adverse Effect" or similar terms or phrases in any such
representation or warranty; and Parent shall have received a certificate,
dated the Closing Date, signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company, to such
effect.
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(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it at or prior to the Closing Date under this Agreement; and Parent
shall have received a certificate, dated the Closing Date, signed on behalf
of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company, to such effect.
(c) Regulatory Condition. No condition or requirement has been
imposed by one or more Governmental Entities in connection with any
required approval by them of the Merger or, if so determined by Parent in
its sole discretion, the Bank Combination that requires the Company or its
Subsidiaries to be operated in a manner that, in the good faith belief of
the Board of Directors of Parent, would have a Material Adverse Effect on
the Company or Parent.
(d) Tax Opinion. Parent shall have received the opinion of Wachtell,
Lipton, in form and substance reasonably satisfactory to Parent, dated the
Closing Date, rendered on the basis of facts, representations and
assumptions set forth in such opinion and certificates obtained from
officers of Parent, Merger Sub and the Company, all of which are consistent
with the state of facts existing as of the Effective Time, to the effect
that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code. In rendering the tax opinion described in this
Section 6.2(d), Wachtell, Lipton may require and rely upon representations
contained in certificates of officers of Parent, Merger Sub and the
Company.
SECTION 6.3 Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent set forth herein shall be true and correct at and as
of the date hereof and at and as of the Closing Date, as if made at and as
of such time (except to the extent expressly made as of an earlier date, in
which case as of such date), provided that no representation or warranty of
Parent shall be deemed untrue or incorrect for purposes hereunder as a
consequence of the existence of any fact, event or circumstance
inconsistent with such representation or warranty, unless such fact, event
or circumstance, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or warranty of
Parent, has had or would result in a Material Adverse Effect on Parent,
disregarding for these purposes (x) any qualification or exception for, or
reference to, materiality in any such representation or warranty and (y)
any use of the terms "material," "materially," "in all material respects,"
"Material Adverse Change," "Material Adverse Effect" or similar terms or
phrases in any such representation or warranty; and the Company shall have
received a certificate, dated the Closing Date, signed on behalf of Parent
by the Chief Executive Officer and the Chief Financial Officer of Parent,
to such effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it at
or prior to the Closing Date under this Agreement; and the Company shall
have received a certificate, dated the Closing Date, signed on behalf of
Parent by the Chief Executive Officer and the Chief Financial Officer of
Parent, to such effect.
(c) Tax Opinion. The Company shall have received the opinion of
McCarter & English, LLP, in form and substance reasonably satisfactory to
the Company, dated the Closing Date, rendered on the basis of facts,
representations and assumptions set forth in such opinion and the
certificates obtained from officers of Parent, Merger Sub and the Company,
all of which are consistent with the state of facts existing as of the
Effective Time, to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code. In
rendering the tax opinion described in this Section 6.2(d), McCarter &
English, LLP may require and rely upon representations contained in
certificates of officers of Parent, Merger Sub and the Company.
SECTION 6.4 Frustration of Closing Conditions. Neither Parent nor the
Company may rely on the failure of any condition set forth in Section 6.1, 6.2
or 6.3, as the case may be, to be satisfied if such
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failure was caused by such party's failure to use reasonable best efforts to
consummate the Merger and the other transactions contemplated by this Agreement,
as required by and subject to Section 5.3.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, and whether before or after the Company Shareholder
Approval (the party desiring to terminate this Agreement pursuant to clause (b),
(c), (d), (e) or (f) below shall give written notice of such termination to the
other party in accordance with Section 8.2, specifying the provision hereof
pursuant to which such termination is effected):
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated by the date that
is twelve months following the date hereof, provided, however, that the
right to terminate this Agreement pursuant to this Section 7.1(b) shall
not be available to any party whose failure to perform any of its
obligations under this Agreement results in the failure of the Merger to
be consummated by such time;
(ii) if the Company Shareholder Approval shall not have been
obtained at the Company Shareholders Meeting duly convened therefor or
at any adjournment or postponement thereof;
(iii) if any Restraint having any of the effects set forth in
Section 6.1(d) shall be in effect and shall have become final and
nonappealable; provided, that the party seeking to terminate this
Agreement pursuant to this Section 7.1(b)(iii) shall have used
reasonable best efforts to prevent the entry of and to remove such
Restraint; or
(iv) if any Governmental Entity that must grant a Requisite
Regulatory Approval has denied the applicable Requisite Regulatory
Approval and such denial has become final and nonappealable;
(c) by Parent, if (i) the Company shall have failed to make the
Company Recommendation in the Proxy Statement, (ii) the Company shall have
effected a Change in the Company Recommendation or (iii) the Company shall
have breached its obligations under this Agreement by reason of a failure
to call or convene the Company Shareholders Meeting in accordance with
Section 5.1(d);
(d) by Parent, if the Company shall have breached any of its
representations, warranties, covenants or other agreements contained in
this Agreement, which breach (i) would give rise to the failure of a
condition set forth in Section 6.2(a) or (b), and (ii) is incapable of
being cured by the Company or is not cured within 30 days of written notice
thereof; or
(e) by the Company, if Parent shall have breached any of its
representations, warranties, covenants or other agreements contained in
this Agreement, which breach (A) would give rise to the failure of a
condition set forth in Section 6.3(a) or (b), and (B) is incapable of being
cured by Parent or is not cured within 30 days of written notice thereof.
(f) By the Company, if (either before or after the approval of this
Agreement by the shareholders of the Company) its Board of Directors so
determines at any time during the three business day period commencing with
(and including) the Determination Date (as defined in Section 8.3), if both
of the following conditions are satisfied:
(x) the Determination Date Value (as defined in Section 8.3) is
less than the product of 0.85 and the Initial Value (as defined in
Section 8.3); and
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(y) (i) the number obtained by dividing the Parent Average Price
(as defined in Section 8.3) by $48.84 (such number, the "PARENT RATIO")
shall be less than (ii) the number obtained by dividing the Index Price
(as defined in Section 8.3) as of the Determination Date by $38.70 and
subtracting 0.15 from such number (such number less 0.15, the "INDEX
RATIO").
Notwithstanding the foregoing, if the Company elects to exercise its
termination right pursuant to this Section 7.1(f), then during the seventy-two
hour period commencing with the receipt by Parent of the notice required
pursuant to the last paragraph of this Section 7.1, Parent shall have the option
of adjusting the consideration to be paid to the Company shareholders under
Section 2.1 by increasing the Aggregate Parent Share Amount by that number of
shares of Parent Common Stock equal to the lesser of (i) the quotient obtained
by dividing (x) (A) the product of 0.85 and the Initial Value less (B) the
Determination Date Value by (y) the Parent Average Price and (ii) the quotient
obtained by dividing (x) the Peer Equivalent Value (as defined in Section 8.3)
less the Determination Date Value by (y) the Parent Average Price, in each case,
rounded up to the nearest whole share.
If Parent makes an election contemplated by the preceding sentence within
such seventy-two hour period, it shall give prompt written notice to the Company
of such election and the revised Aggregate Parent Share Amount, whereupon no
termination shall have occurred pursuant to this Section 7.1(f) and this
Agreement shall remain in effect in accordance with its terms (except as
Aggregate Parent Share Amount shall have been so modified), and any references
in this Agreement to Aggregate Parent Share Amount shall thereafter be deemed to
refer to the Aggregate Parent Share Amount as adjusted pursuant to this Section
7.1(f) (together with any additional adjustments pursuant to Section 2.1(e)).
SECTION 7.2 Effect of Termination.
(a) In the event of termination of this Agreement by either the Company or
Parent as provided in Section 7.1, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of Parent or
the Company, other than that the provisions of Section 5.2 (other than the first
sentence thereof), Section 5.6, this Section 7.2 and Article VIII shall survive
such termination, provided, however, that nothing herein shall relieve any party
from any liability for any willful breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
(b) (i) In the event that (A) a Company Pre-Termination Takeover Proposal
Event (as defined below) shall occur after the date of this Agreement and
thereafter this Agreement is terminated by either Parent or the Company pursuant
to Section 7.1(b)(ii), by Parent pursuant to Section 7.1(c) or by Parent
pursuant to Section 7.1(d) as a result of a willful breach by the Company and
(B) prior to the date that is twelve (12) months after the date of such
termination the Company consummates a Company Takeover Proposal or enters into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement (each, a "COMPANY ACQUISITION AGREEMENT") related to any
Company Takeover Proposal, then the Company shall (1) on the date such Company
Takeover Proposal is consummated or such Company Acquisition Agreement is
entered into, pay Parent a fee equal to $25 million by wire transfer of same day
funds, and (2) within two business days following a written request by Parent,
reimburse Parent for all out-of-pocket expenses incurred by Parent in connection
with this Agreement and the transactions contemplated hereby (including all
costs (excluding the fees and disbursements of counsel and accountants) incurred
in connection with the preparation (including copying and printing) of the Form
S-4 and the Proxy Statement and applications to Governmental Entities for the
approval of the Merger and the Bank Combination and all listing, filing or
registration fees, including fees paid for filing the Form S-4 and the Proxy
Statement with the SEC and fees paid for filings with Governmental Entities), by
wire transfer of same day funds.
(ii) For purposes of this Section 7.2(b), a "PRE-TERMINATION TAKEOVER
PROPOSAL EVENT" shall be deemed to occur if, prior to the event giving rise to
the right to terminate this Agreement, a bona fide Company Takeover Proposal
shall have been made known to the Company or any of its Subsidiaries or has been
made directly to its shareholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make a Company Takeover
Proposal, and such Company Takeover Proposal or public announcement shall not
have been irrevocably withdrawn not less than five
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business days prior to the Company Shareholders Meeting. The Company
acknowledges that the agreements contained in this Section 7.2(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement;
accordingly, if the Company fails promptly to pay the amount due pursuant to
this Section 7.2(b), and, in order to obtain such payment, Parent commences a
suit which results in a judgment against the Company for the fee set forth in
this Section 7.2(b), the Company shall pay to Parent its costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on the amount of the fee at the rate on six-month U.S. Treasury
obligations plus 300 basis points in effect on the date such payment was
required to be made.
SECTION 7.3 Amendment. This Agreement may be amended by the parties at
any time before or after the Company Shareholder Approval; provided, however,
that after such approval, there shall not be made any amendment that by law
requires further approval by the shareholders of the Company without the further
approval of such shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.3, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, and shall expire at
the Effective Time and be of no further effect thereafter. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Merger Sub, to
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mergers & Acquisitions Department
Telecopy No.: (412) 762-6238
and
Attention: General Counsel
Telecopy: (412) 705-2679
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with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 403-2000
Attention: Edward D. Herlihy, Esq.
if to the Company, to
United National Bancorp
1130 Route 22 East
Bridgewater, New Jersey 08807
Telecopy No.: (908) 429-0357
Attention: Thomas C. Gregor
with a copy to:
McCarter & English, LLP
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Telecopy No.: (973) 624-7070
Attention: Todd M. Poland, Esq.
SECTION 8.3 Definitions. For purposes of this Agreement:
(a) an "AFFILIATE" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control " means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise; provided, that (x) any investment account advised or managed by
such Person or one of its Subsidiaries or Affiliates on behalf of third
parties, or (y) any partnership, limited liability company, or other
similar investment vehicle or entity engaged in the business of making
investments of which such Person acts as the general partner, managing
member, manager, investment advisor, principal underwriter or the
equivalent shall not be deemed an Affiliate of such Person.
(b) "CLOSING PARENT SHARE VALUE" shall have the meaning set forth in
Section 2.1(d)(iv) hereof; provided, however, if necessary to comply with
any requirements of the Securities and Exchange Commission (the "SEC"), the
term Closing Parent Share Value shall be deemed to mean the date which is
the closest in time but prior to the Closing Date which complies with such
rules and regulations.
(c) "DETERMINATION DATE" means the fifth business day prior to the
first date on which receipt of the approval of the Federal reserve of the
Merger and, if a condition to Closing, the approval of the Bank
Combination, without regard to any waiting period in respect thereof;
provided, however, that if the Determination Date would occur more than
fifteen days prior to the Closing Date, the Determination Date shall mean
the third business day prior to the Closing Date. For the avoidance of
doubt, there shall be only one Determination Date.
(d) "DETERMINATION DATE VALUE" means the "Closing Transaction Value"
determined in accordance with Section 2.1, but (i) without regard to any
adjustments under Section 2.1(e), (ii) calculating such Value using a
deemed Closing Parent Share Value equal to the Parent Average Price, and
(iii) calculating such Value using deemed share numbers of 18,822,954
shares of Company Common Stock and 6,551,806 shares of Parent Common Stock.
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(e) "EXECUTIVE OFFICERS" shall mean those Persons identified in
Section 8.3(d) of the Company Disclosure Schedule.
(f) "INDEX PRICE" means the weighted average (weighted in accordance
with the factors listed on Exhibit B hereto) of the closing prices of the
companies listed on such Exhibit B, calculated in accordance with such
Exhibit B, for the five consecutive trading days ending at the close of
trading on the Determination Date.
(g) "INITIAL VALUE" shall mean $639,980,436.
(h) "KNOWLEDGE" means, (i) with respect to the Company, the knowledge
of the individuals listed on Section 8.3(f) of the Company Disclosure
Schedule and (ii) with respect to Parent, the knowledge of Parent's
executive officers.
(i) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when
used in connection with the Company or Parent, any change, effect, event,
occurrence or state of facts that is, or would reasonably be expected to
be, materially adverse to the business, financial condition or results of
operations of such party and its consolidated subsidiaries taken as a
whole, other than (i) any change, effect, event or occurrence relating to
the United States economy or financial or securities markets in general,
(ii) any change, effect, event or occurrence relating to the financial
services industry to the extent not affecting such Person to a materially
greater extent than it affects other Persons in industries in which such
Person competes, (iii) any change, effect, event or occurrence relating to
the announcement hereof, (iv) any change in banking, savings association
and similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities and (v) any
change in GAAP or regulatory accounting requirements applicable to banks,
savings associations or their holding companies generally.
(j) "PARENT AVERAGE PRICE" means the arithmetic average of the 4:00
p.m. Eastern Time closing sales prices of Parent Common Stock reported on
the NYSE Composite Transaction Tape for the five consecutive NYSE trading
days ending at the close of trading on the Determination Date, taking into
account any Parent Adjustment Event.
(k) "PEER EQUIVALENT VALUE" means the "Closing Transaction Value"
determined in accordance with Section 2.1, but (i) without regard to any
adjustments under Section 2.1(e), (ii) calculating such Value using a
deemed Closing Parent Share Value equal to (x) the Parent Average Price
multiplied by (y) the quotient obtained by dividing (A) the Index Ratio by
(B) the Parent Ratio, rounded to the nearest one-ten-thousandth, and (iii)
calculating such Value using deemed share numbers of 18,822,954 shares of
Company Common Stock and 6,551,806 shares of Parent Common Stock.
(l) "PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(m) a "SUBSIDIARY" of any Person means another Person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first Person; provided, however, that (i) any
investment account advised or managed by such Person or one of its
subsidiaries or Affiliates on behalf of third parties, and (ii) any
partnership, limited liability company, or other similar investment vehicle
or entity engaged in the business of making investments of which such
Person acts as the general partner, managing member, manager, investment
advisor, principal underwriter or the equivalent, shall not be deemed a
subsidiary of such Person; provided further that, in the case of Parent,
"Subsidiary" shall not include any Subsidiary (other than Merger Sub) that
would not constitute a "significant subsidiary" within the meaning of Rule
1-02 of Regulation S-X promulgated pursuant to the Securities Act.
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SECTION 8.4 Interpretation. Any reference herein to any requirement of
performance by Merger Sub shall be deemed to include the undertaking of Parent
to cause such performance. When a reference is made in this Agreement to an
Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means, in the case of any agreement or instrument, such agreement or
instrument as from time to time amended, modified or supplemented, including by
waiver or consent and, in the case of statutes, such statutes as in effect on
the date of this Agreement. References to a person are also to its permitted
successors and assigns. The parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any Federal, state, local or
foreign statute or law shall be deemed to also refer to any amendments thereto
and all rules and regulations promulgated thereunder, unless the context
requires otherwise.
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties. A facsimile copy of a signature
page shall be deemed to be an original signature page.
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement, and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement (including the Confidentiality Agreement dated
as of July 18, 2003 between Parent and the Company) and (b) except for the
provisions of Section 5.5, which shall inure to the benefit of and be
enforceable by the Persons referred to therein, is not intended to confer upon
any Person other than the parties any rights or remedies.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania,
regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties, provided, however, that Parent may
assign Merger Sub's rights and obligations, in whole or in part, under this
Agreement to Parent or any other, wholly-owned, direct subsidiary of Parent. Any
assignment in violation of the preceding sentence shall be void. Subject to the
preceding two sentences, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 8.9 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the non-exclusive personal jurisdiction of any
Federal court located in the Commonwealth of Pennsylvania or any court of the
Commonwealth of Pennsylvania in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, and (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court.
A-56
SECTION 8.10 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 8.12 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.
A-57
IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
THE PNC FINANCIAL SERVICES GROUP, INC.
By /s/ JAMES E. ROHR
------------------------------------
Name: James E. Rohr
Title: Chairman and Chief
Executive Officer
PNC BANCORP INC.
By /s/ JAMES E. ROHR
------------------------------------
Name: James E. Rohr
Title: President
UNITED NATIONAL BANCORP
By /s/ THOMAS C. GREGOR
------------------------------------
Name: Thomas C. Gregor
Title: Chairman of the Board,
Chief
Executive Officer and
President
A-58
EXHIBIT A
FORM OF AFFILIATE LETTER
, 2003
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: General Counsel
Ladies and Gentlemen:
I have been advised that I may be deemed to be an "affiliate" of United
National Bancorp, a New Jersey corporation (the "Company"), as that term is
defined in Rule 145 promulgated by the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act"). I
understand that pursuant to the terms of the Agreement and Plan of Merger dated
as of August 20, 2003 (the "Merger Agreement"), by and among The PNC Financial
Services Group, Inc., a Pennsylvania corporation ("Parent"), PNC Bancorp Inc., a
Delaware corporation and a subsidiary of Parent ("Merger Sub") and the Company,
the Company plans to merge with and into Merger Sub (the "Merger") with Merger
Sub being the surviving corporation. Capitalized terms used herein but not
otherwise defined shall have the meanings given to such terms in the Merger
Agreement.
I further understand that, as a result of the Merger, in exchange for
shares of common stock, par value $1.25 per share, of the Company ("Company
Common Stock") I may receive common stock, par value $5.00 per share, of Parent
("Parent Common Stock").
I have read this letter and discussed the requirements hereof to the extent
I felt necessary with my counsel or counsel for the Company.
I represent, warrant and covenant with and to Parent that in the event I
receive any Parent Common Stock as a result of the Merger:
1. I shall not make any sale, transfer, or other disposition of such
Parent Common Stock unless (i) such sale, transfer or other disposition has
been registered under the Securities Act, (ii) such sale, transfer or other
disposition is made in conformity with the provisions of Rule 145 under the
Securities Act (as such rule may be amended from time to time), (iii) in
the opinion of counsel in form and substance reasonably satisfactory to
Parent, or under a "no-action" letter or interpretive letter from the staff
of the SEC, such sale, transfer or other disposition will not violate or is
otherwise exempt from registration under the Securities Act, or (iii) I
have the right to have the legend set forth in Sections 3 and 4 below
removed pursuant to Section 4 below.
2. I understand that Parent is under no obligation to register the
sale, transfer or other disposition of Parent Common Stock by me or on my
behalf under the Securities Act or, other than as set forth below, to take
any other action necessary in order to make compliance with an exemption
from such registration available.
3. I understand that stop transfer instructions will be given to
Parent's transfer agent with respect to the Parent Common Stock issued to
me as a result of the Merger and that there will be placed on the
certificates, if any, for such shares, or any substitutions therefor, a
legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies. The shares represented by this certificate may be
transferred only in accordance with the terms of a letter agreement
between the registered holder hereof and The PNC Financial Services
Group, Inc., a copy of which agreement is on file at the principal
offices of PNC"
4. I understand that, unless the transfer by me of the Parent Common
Stock issued to me as a result of the Merger has been registered under the
Securities Act or such transfer is made in conformity with the provisions
of Rule 145(d) under the Securities Act, Parent reserves the right, in its
sole discretion, to place the following legend on the certificates, if any,
issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 under the
Securities Act of 1933 applies. The shares may not be sold,
transferred or otherwise disposed of except pursuant to an effective
registration statement under, or in accordance with an exemption from
the registration requirements of, the Securities Act of 1933."
It is understood and agreed that the legends set forth in paragraphs (3)
and (4) above shall be removed by delivery of substitute certificates without
such legend and/or any stop transfer instructions will be lifted (A) if one year
(or such other period as may be required by Rule 145(d)(2) or any successor
thereto) shall have elapsed from the date I acquired the Parent Common Stock
received in the Merger and the provisions of Rule 145(d)(2) (or any successor
thereto) are then available to me, (B) if two years (or such other period as may
be required by Rule 145(d)(3) or any successor thereto) shall have elapsed from
the date I acquired the Parent Common Stock received in the Merger and the
provisions of Rule 145(d)(3) (or any successor thereto) are then available to me
or (C) if I shall have delivered to Parent (i) a copy of a "no-action" letter or
interpretative letter from the staff of the SEC, or an opinion of counsel in
form and substance reasonably satisfactory to Parent, to the effect that such
legend is not required for purposes of the Securities Act or (ii) a written
statement from me representing that the Parent Common Stock represented by such
certificates are being or have been sold in conformity with the provisions of
Rule 145(d) or pursuant to an effective registration statement under the
Securities Act.
Execution of this letter should not be considered an admission on my part
of "affiliate" status as described in the first paragraph of this letter
agreement, or as a waiver of any rights I may have to object to any claim that I
am such an affiliate on or after the date of this letter.
Very truly yours,
By:
------------------------------------
Name:
Accepted this day of
, 2003.
The PNC Financial Services Group, Inc.
By:
--------------------------------------------------------
Name:
Title:
A-2
EXHIBIT B
INITIAL SHARE PRICE:
08/12/03
--------------------------
SHARES SHARE CLOSING WTD BY
TICKER COMPANY OUTSTANDING WEIGHTING PRICE SHARES OUT
------ ------------------------------------ -------------- ------------ ---------- -------------
(DOLLARS IN AND SHARES IN MILLIONS EXCEPT PER SHARE DATA)
USB U.S. Bancorp........................ 1,926.4 0.22 $24.25 $ 5.25
WFC Wells Fargo & Co. .................. 1,679.5 0.19 50.36 9.51
WB Wachovia Corp. ..................... 1,332.2 0.15 43.72 6.55
NCC National City Corp. ................ 614.2 0.07 32.55 2.25
FITB Fifth Third Bancorp................. 569.8 0.06 54.39 3.48
BBT BB&T Corp. ......................... 548.0 0.06 35.50 2.19
KEY KeyCorp............................. 420.8 0.05 27.10 1.28
ASO AmSouth Bancorp. ................... 350.7 0.04 21.40 0.84
SOTR SouthTrust Corp. ................... 337.5 0.04 28.87 1.10
STI SunTrust Banks, Inc. ............... 281.5 0.03 60.04 1.90
MI Marshall & Ilsley Corp. ............ 227.3 0.03 30.89 0.79
RF Regions Financial Corp. ............ 222.7 0.03 35.60 0.89
CMA Comerica Inc. ...................... 175.3 0.02 47.19 0.93
MTB M&T Bank Corp. ..................... 119.6 0.01 86.62 1.16
ZION Zions Bancorp. ..................... 89.7 0.01 56.99 0.57
------- ---- ------ ------
WEIGHTED INDEX SHARE PRICE $38.70
In the event that any of the bank holding companies listed above (1) ceases to
be publicly traded or (2) announces after August 12, 2003 and prior to the
Determination Date, a proposal for such company to be acquired or for such
company to acquire another company or companies in transactions with a value
exceeding 25% of the acquiror's market capitalization as of August 12, 2003,
such company will be removed from this Exhibit B, and the weights (which have
been determined based on the number of outstanding shares of common stock)
redistributed proportionately for purposes of determining the Index Price. If
any company belonging to this group or Parent declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange of
shares or similar transaction between the August 12, 2003 and the Determination
Date, the prices for the common stock of such company or Parent shall be
appropriately adjusted for the purposes of this Exhibit B.
ANNEX B
August 21, 2003
The Board of Directors
United National Bancorp
1130 Route 22 East
Bridgewater, NJ 08807
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the stockholders of United National Bancorp
("United National") of the merger consideration in the proposed merger (the
"Merger") with and into PNC Financial Services Group, Inc. ("PNC"), pursuant to
the Agreement and Plan of Merger, dated as of August 21, 2003, between United
National and PNC (the "Agreement"). Pursuant to the terms of the Agreement, each
outstanding share of United National common stock, par value $1.25 per share, of
United National (the "United National Common Shares") will be entitled to elect
to receive merger consideration in the form of PNC common stock, par value $5.00
per share (the "PNC Common Shares"), cash, or a combination of PNC Common Shares
and cash as more fully described in the Agreement. The total amount of
consideration payable in the merger is fixed as $319,990,218 cash and 6,551,806
PNC Common Shares. The amount of cash or Common Shares to be received pursuant
to the election of stockholders of United National is also subject to adjustment
to the extent that aggregate elections of cash or Common Shares exceed either of
these amounts.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business,
is continually engaged in the valuation of bank and bank holding company
securities in connection with acquisitions, negotiated underwritings,
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. As specialists in the securities of
banking companies, we have experience in, and knowledge of, the valuation of the
banking enterprises. In the ordinary course of our business as a broker-dealer,
we may, from time to time purchase securities from, and sell securities to,
United National and PNC, and as a market maker in securities, we may from time
to time have a long or short position in, and buy or sell, debt or equity
securities of United National and PNC for our own account and for the accounts
of our customers. To the extent we have any such position as of the date of this
opinion it has been disclosed to you. We have acted exclusively for the Board of
Directors of United National in rendering this fairness opinion and will receive
a fee from United National for our services.
In connection with this opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of United National
and PNC and the Merger, including among other things, the following: (i) the
Agreement; (ii) the Annual Reports to Stockholders and Annual Reports on Form
10-K for the three years ended December 31, 2002, of United National and PNC;
(iii) certain interim reports to stockholders and Quarterly Reports on Form 10-Q
of United National and PNC and certain other communications from United National
and PNC to its respective stockholders; and (iv) other financial information
concerning the businesses and operations of United National and PNC furnished to
us by United National and PNC for purposes of our analysis. We have also held
discussions with senior management of United National and PNC regarding the past
and current business operations, regulatory relations, financial condition and
future prospects of their respective companies and such other matters as we have
deemed relevant to our inquiry. In addition, we have compared certain financial
and stock market information for United National and PNC with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the banking industry and performed such other studies and analyses as we
considered appropriate.
In conducting our review and arriving at our opinion, we have relied upon
the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any responsibility
for independently verifying the accuracy or completeness of any such
information. We have relied upon the management of United National and PNC as to
the reasonableness and achievability of the financial and operating forecasts
and projections (and the assumptions and bases therefor) provided to us, and we
have assumed that such forecasts and projections reflect the best currently
available estimates and judgments of such managements and that such forecasts
and projections will be realized in the amounts and in the time periods
currently estimated by such managements. We are not experts in the independent
verification of the adequacy of allowances for loan and lease losses and we have
assumed, with your consent, that the aggregate allowances for loan and lease
losses for United National and PNC are adequate to cover such losses. In
rendering our opinion, we have not made or obtained any evaluations or
appraisals of the property of United National or PNC, nor have we examined any
individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical and current financial position and results of operations of
United National and PNC; (ii) the assets and liabilities of United National and
PNC; and (iii) the nature and terms of certain other merger transactions
involving banks and bank holding companies. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and knowledge of the banking industry generally. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the merger consideration in the Merger is fair, from a financial
point of view, to holders of United National Common Shares.
Very truly yours,
/s/ KEEFE, BRUYETTE & WOODS, INC.
KEEFE, BRUYETTE & WOODS, INC.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Sections 1741-1743 of the Pennsylvania Business Corporation Law
(the "PBCL"), PNC has the power to indemnify its directors and officers against
liabilities they may incur in such capacities provided certain standards are
met, including good faith and the belief that the particular action is in, or
not opposed to, the best interests of the corporation and, with respect to a
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In general, this power to indemnify does not exist in the case of
actions against a director or officer by or in the right of the corporation if
the person entitled to indemnification will have been adjudged to be liable to
the corporation unless and to the extent that the person is adjudged to be
fairly and reasonably entitled to indemnity. A corporation is required to
indemnify directors and officers against expenses they may incur in defending
actions against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions.
Section 1746 of the PBCL provides that the foregoing provisions shall not
be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under, among other things, any by-law provision,
provided that no indemnification may be made in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness.
PNC's by-laws provide for the mandatory indemnification of directors and
officers in accordance with and to the full extent permitted by the laws of the
Commonwealth of Pennsylvania as in effect at the time of such indemnification.
PNC's by-laws also eliminate, to the maximum extent permitted by the laws of the
Commonwealth of Pennsylvania, the personal liability of directors for monetary
damages for any action taken, or any failure to take any action as a director,
except in any case such elimination is not permitted by law. PNC has purchased
directors' and officers' liability insurance covering certain liabilities that
may be incurred by our directors and officers in connection with the performance
of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See Exhibit Index.
(b) Financial Statement Schedules. Not applicable.
(c) Reports, Opinions or Appraisals. Opinion of Keefe, Bruyette & Woods,
Inc. (included as Annex B to this proxy statement/prospectus which is a part of
this registration statement).
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes as follows: prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-1
(3) The undersigned registrant hereby undertakes that every prospectus: (i)
that is filed pursuant to paragraph (2) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the proxy
statement/prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, The PNC
Financial Services Group, Inc. has duly caused this registration statement or
amendment thereto to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania, on October
8, 2003.
THE PNC FINANCIAL SERVICES GROUP, INC.
By: /s/ JAMES E. ROHR
------------------------------------
Name: James E. Rohr
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints James E. Rohr and William S.
Demchak, and each and either of them, such individual's true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign this registration statement and any and all amendments
thereto, and to file the same with the Securities and Exchange Commission, with
all exhibits thereto and other documents in connection therewith, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or any substitute therefor, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed below by the
following persons in the capacities indicated on October 8, 2003.
SIGNATURES TITLE
---------- -----
/s/ JAMES E. ROHR Chairman, Chief Executive Officer (Principal
-------------------------------------- Executive Officer) and Director
James E. Rohr
/s/ WILLIAM S. DEMCHAK Vice Chairman and Chief Financial Officer
-------------------------------------- (Principal Financial Officer)
William S. Demchak
/s/ SAMUEL R. PATTERSON Controller (Principal Accounting Officer)
--------------------------------------
Samuel R. Patterson
/s/ PAUL W. CHELLGREN Director
--------------------------------------
Paul W. Chellgren
/s/ ROBERT N. CLAY Director
--------------------------------------
Robert N. Clay
/s/ J. GARY COOPER Director
--------------------------------------
J. Gary Cooper
II-3
SIGNATURES TITLE
---------- -----
/s/ GEORGE A. DAVIDSON, JR. Director
--------------------------------------
George A. Davidson, Jr.
/s/ RICHARD B. KELSON Director
--------------------------------------
Richard B. Kelson
/s/ BRUCE C. LINDSAY Director
--------------------------------------
Bruce C. Lindsay
/s/ ANTHONY A. MASSARO Director
--------------------------------------
Anthony A. Massaro
/s/ THOMAS H. O'BRIEN Director
--------------------------------------
Thomas H. O'Brien
/s/ JANE G. PEPPER Director
--------------------------------------
Jane G. Pepper
/s/ LORENE K. STEFFES Director
--------------------------------------
Lorene K. Steffes
/s/ DENNIS F. STRIGL Director
--------------------------------------
Dennis F. Strigl
/s/ STEPHEN G. THIEKE Director
--------------------------------------
Stephen G. Thieke
/s/ THOMAS J. USHER Director
--------------------------------------
Thomas J. Usher
/s/ MILTON A. WASHINGTON Director
--------------------------------------
Milton A. Washington
/s/ HELGE H. WEHMEIER Director
--------------------------------------
Helge H. Wehmeier
II-4
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
5.1 Form of Opinion of Thomas R. Moore, Esq. as to the legality
of the shares of PNC Common Stock to be issued in the merger
(to be filed by amendment)
8.1 Form of Opinion of Wachtell, Lipton, Rosen & Katz as to
certain tax matters (to be filed by amendment)
8.2 Form of Opinion of McCarter & English, LLP as to certain tax
matters (to be filed by amendment)
23.1 Consent of Deloitte & Touche LLP (filed herewith)
23.2 Consent of Ernst & Young LLP (filed herewith)
23.3 Consent of KPMG LLP (filed herewith)
23.4 Consent of Thomas R. Moore, Esq. (to be included in Exhibit
5.1)
23.5 Consent of Wachtell, Lipton, Rosen & Katz (to be included in
Exhibit 8.1)
23.6 Consent of McCarter & English, LLP (to be included in
Exhibit 8.2)
23.7 Consent of Keefe, Bruyette & Woods, Inc. (to be filed by
amendment)
24.1 Powers of Attorney (included on the signature page hereto)
99.1 Agreement and Plan of Merger, dated as of August 21, 2003,
by and among The PNC Financial Services Group, Inc., PNC
Bancorp, Inc., a wholly owned subsidiary of The PNC
Financial Services Group, Inc., and United National Bancorp
(attached as Annex A to the proxy statement/prospectus)
99.2 Form of Proxy Card of United National Bancorp Common Stock
(filed herewith)
99.3 Form of Election and instructions for completing Form of
Election (filed herewith)
99.4 Form of Notice of Guaranteed Delivery (filed herewith)
99.5 Instructions for completing Substitute Form W-9 (filed
herewith)