S-4/A 1 ds4a.htm AMENDMENT NO. 1 TO FORM S-4 Amendment No. 1 to Form S-4
Table of Contents

As filed with the Securities and Exchange Commission on August 31, 2007

Registration No. 333-144686


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 


THE PNC FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

 


 

Pennsylvania   6712   25-1435979

(State or other

jurisdiction of incorporation)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

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)

 


Richard J. Johnson

Chief Financial Officer

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)

 


With copies to:

 

Thomas L. Hanley, Esq.

Pepper Hamilton LLP

600 Fourteenth Street, N.W.

Washington, D.C. 20005

(202) 220-1200

 

Daniel J. O’Donnell, Esq.

Secretary

Yardville National Bancorp

2465 Kuser Road

Hamilton, New Jersey 08690

(609) 585-5100

 

Edward D. Herlihy, Esq.

Nicholas G. Demmo, Esq.

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 


Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed document.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

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, 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.  ¨

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 dates as the Commission, acting pursuant to said Section 8(a), may determine.

 



Table of Contents

The information in this proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.

PRELIMINARY—SUBJECT TO COMPLETION—DATED AUGUST 31, 2007

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

On June 6, 2007 Yardville National Bancorp agreed to merge with The PNC Financial Services Group, Inc. We are sending you this proxy statement/prospectus to invite you to attend a special meeting of Yardville shareholders being held to vote on the merger and to ask you to vote at the special meeting in favor of the merger.

If the merger is completed, Yardville will merge with and into PNC, and you will be entitled to elect to receive your merger consideration in the form of PNC common stock, cash or a combination of both. Subject to the election and adjustment procedures described in this document, you will be entitled to receive, in exchange for each share of Yardville common stock you hold at the time of the merger, consideration, without interest, with a value equal to the sum of (i) 0.2923 multiplied by the average closing price of PNC common stock on the New York Stock Exchange during the five trading days ending the day before the completion of the merger and (ii) $14.00. We expect that the merger will generally be tax-free to you as to shares of PNC common stock you receive in the merger and generally taxable to you as to the cash you receive.

The implied value of the merger consideration will fluctuate with the market price of PNC common stock. As explained in more detail in this document, whether you make a cash election, a stock election or no election, the value of the consideration you will receive as of the completion date will be substantially the same based on the average pre-closing PNC trading price.

As an example, if the average closing price of PNC common stock on the NYSE for the five trading days ending the day before the completion of the merger is $69.61, which was the closing price of PNC common stock on the NYSE on August 30, 2007 (the most recent practicable date prior to the mailing of this proxy statement), each share of Yardville common stock would be converted into the right to receive either approximately $34.35 in cash or approximately 0.4934 shares of PNC common stock. Based on that PNC closing price, the 0.4934 shares of PNC common stock would have a market value of approximately $34.35. As an additional example, if the average closing price of PNC common stock on the NYSE for the five trading days ending the day before the completion of the merger is $73.16, which was the average closing price for PNC common stock for the five days ending on June 6, 2007, the last trading day prior to the announcement of the merger, each share of Yardville common stock would be converted into the right to receive approximately $35.38 in cash or approximately 0.4837 of a share of PNC common stock. A chart showing the cash and stock merger consideration at various hypothetical closing prices of PNC common stock is provided on page 5 of this document.


Table of Contents

The market prices of both PNC common stock and Yardville common stock will fluctuate before the merger. You should obtain current stock price quotations for PNC common stock and Yardville common stock. PNC common stock trades on the NYSE under the symbol “PNC” and Yardville common stock is quoted on The Nasdaq Global Select Market under the symbol “YANB.”

The special meeting of the shareholders of Yardville will be held on October 19, 2007 at 10:00 a.m., local time, at the La Villa Ristorante, 2275 Kuser Road, Hamilton Square, New Jersey 08690. Your vote is important. A majority of the votes cast at the Yardville special meeting is required to approve the merger agreement, and a majority of the outstanding Yardville common stock entitled to vote is necessary to constitute a quorum in order to transact business at the special meeting. The members of the board of directors of Yardville and certain executive officers, who in the aggregate have the power to vote approximately 12.85% of the outstanding shares of Yardville common stock, have each executed a voting agreement with PNC pursuant to which they have agreed to vote their shares of Yardville common stock in favor of the merger and against any competing business combination transaction. Regardless of whether you plan to attend the special shareholders’ meeting, please take the time to vote your shares in accordance with the instructions contained in this document. The Yardville board of directors recommends that Yardville shareholders vote ‘FOR’ approval of the merger.

This document describes the special meeting, the merger, the documents related to the merger and other related matters. Please carefully read this entire document, including “Risk Factors” beginning on page 15, for a discussion of the risks relating to the proposed merger. You also can obtain information about our companies from documents that each of us has filed with the Securities and Exchange Commission.

LOGO

Patrick M. Ryan

Chief Executive Officer

Yardville National Bancorp

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the PNC common stock to be issued under this document or determined if this document is accurate or adequate. Any representation to the contrary is a criminal offense.

The date of this document is August 31, 2007, and it is first being mailed or otherwise delivered to Yardville shareholders on or about September 5, 2007.


Table of Contents

YARDVILLE NATIONAL BANCORP

2465 Kuser Road

Hamilton, New Jersey 08690

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

Yardville National Bancorp will hold a special meeting of shareholders at the La Villa Ristorante, 2275 Kuser Road, Hamilton Square, New Jersey 08690 at 10:00 a.m. local time, on October 19, 2007 to consider and vote upon the following proposals:

 

   

to approve the Agreement and Plan of Merger, dated as of June 6, 2007, by and between Yardville National Bancorp and The PNC Financial Services Group, Inc., which provides for, among other things, the merger of Yardville National Bancorp with and into The PNC Financial Services Group, Inc.; and

 

   

to approve the adjournment of the special meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the special meeting to approve the proposal to approve the plan of merger.

The Yardville board of directors has fixed the close of business on August 24, 2007 as the record date for the special meeting. Only Yardville shareholders of record at that time are entitled to notice of, and to vote at, the special meeting, or any adjournment or postponement of the special meeting.

A majority of the votes cast at the Yardville special meeting is required to approve the merger agreement.

Regardless of whether you plan to attend the special meeting, please submit your proxy with voting instructions. Please vote as soon as possible. If you hold stock in your name as a shareholder of record, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed, stamped envelope. You may also authorize a proxy to vote your shares by either visiting the website or calling the toll-free number shown on your proxy card. If you hold your stock in “street name” through a bank or broker, please direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker. This will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any holder of Yardville common stock who is present at the special meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before its exercise at the special meeting in the manner described in the accompanying document.

The Yardville board of directors has unanimously approved the merger and the merger agreement and recommends that Yardville shareholders vote ‘FOR’ approval of the plan of merger.

BY ORDER OF THE BOARD OF DIRECTORS,

LOGO

Daniel J. O’Donnell

Secretary

August 31, 2007

YOUR VOTE IS IMPORTANT. PLEASE VOTE YOUR SHARES PROMPTLY, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD.


Table of Contents

REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and financial information about PNC and Yardville from documents that are not included in or delivered with this document. You can obtain documents incorporated by reference in this document, other than certain exhibits to those documents, by requesting them in writing or by telephone from the appropriate company at the following addresses:

 

The PNC Financial Services Group, Inc.

One PNC Plaza

249 Fifth Avenue

Pittsburgh, Pennsylvania 15222-2707

Attention: Shareholder Services

(800) 982-7652

Email: webqueries@computershare.com

 

Yardville National Bancorp

2465 Kuser Road

Hamilton, New Jersey 08690

Attention: Howard N. Hall,

Assistant Treasurer’s Office

(609) 631-6223

You will not be charged for any of these documents that you request. Yardville shareholders requesting documents should do so by October 12, 2007 in order to receive them before the special meeting.

See “Where You Can Find More Information” on page 83.


Table of Contents

TABLE OF CONTENTS

 

    Page

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

  1

SUMMARY

  4

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PNC

  11

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF YARDVILLE

  12

COMPARATIVE PER SHARE DATA

  13

RISK FACTORS

  15

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

  18

THE YARDVILLE SPECIAL MEETING

  19

Matters to Be Considered

  19

Proxies

  19

Solicitation of Proxies

  20

Record Date

  20

Voting Rights and Vote Required

  20

Recommendation of the Yardville Board of Directors

  21

Attending the Meeting

  21

THE MERGER

  22

Background of the Merger

  22

Yardville’s Reasons for the Merger; Recommendation of the Yardville Board of Directors

  24

Opinions of Yardville’s Financial Advisors

  26

Board of Directors and Management of PNC Following Completion of the Merger

  44

Public Trading Markets

  44

Yardville Shareholders Do Not Have Dissenters’ Appraisal Rights in the Merger

  45

Regulatory Approvals Required for the Merger

  45

Yardville’s Directors and Officers Have Financial Interests in the Merger

  46

THE MERGER AGREEMENT

  50

Terms of the Merger

  50

Closing and Effective Time of the Merger

  50

Consideration To Be Received in the Merger

  50

Treatment of Yardville Stock Options

  55

Conversion of Shares; Exchange of Certificates; Elections as to Form of Consideration

  55

Representations and Warranties

  57

Covenants and Agreements

  59

Bank Merger

  60

Reasonable Best Efforts of Yardville to Obtain the Required Shareholder Vote

  60

Agreement Not to Solicit Other Offers

  60

Expenses and Fees

  62

Employee Matters

  62

Indemnification and Insurance

  63

Conditions to Complete the Merger

  63

Termination of the Merger Agreement

  64

Termination Fee

  64

Amendment, Waiver and Extension of the Merger Agreement

  65

Resales of PNC Stock by Affiliates

  65

ACCOUNTING TREATMENT

  66

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

  67

Tax Consequences of the Merger Generally

  67

Tax Basis and Holding Period

  69

Cash Instead of a Fractional Share

  69

Information Reporting and Backup Withholding

  69

 

i


Table of Contents
    Page

Reporting Requirements

    70

INFORMATION ABOUT THE COMPANIES

    71

The PNC Financial Services Group, Inc.

    71

Yardville National Bancorp

    71

COMPARISON OF SHAREHOLDERS’ RIGHTS

    72

AUTHORIZED CAPITAL STOCK

    72

VOTING RIGHTS IN AN EXTRAORDINARY TRANSACTION

    72

AMENDMENT TO THE ARTICLES OF INCORPORATION

    73

AMENDMENT TO THE BYLAWS

    73

APPRAISAL RIGHTS

    73

SPECIAL MEETINGS OF SHAREHOLDERS

    74

SHAREHOLDER PROPOSALS AND NOMINATIONS

    74

BOARD OF DIRECTORS

    74

Number of Directors

    74

Classification

    75

Removal

    75

Vacancies

    75

Special Meetings of the Board

    75

Director Liability and Indemnification

    76

SHAREHOLDER RIGHTS PLAN

    77

STATE ANTI-TAKEOVER STATUTES

    77

Business Combinations

    77

DUTIES OF DIRECTORS

    79

COMPARATIVE MARKET PRICES AND DIVIDENDS

    80

LEGAL MATTERS

    80

EXPERTS

    81

OTHER MATTERS

    81

YARDVILLE 2007 ANNUAL MEETING SHAREHOLDER PROPOSALS

    81

COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

    82

WHERE YOU CAN FIND MORE INFORMATION

    83

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

  II-1

SIGNATURES

  II-4

EXHIBIT INDEX

 

AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 6, 2007, BY AND BETWEEN THE PNC FINANCIAL SERVICES GROUP, INC. AND YARDVILLE NATIONAL BANCORP

  ANNEX A

OPINION OF HOVDE FINANCIAL, INC., DATED JUNE 6, 2007

  ANNEX B

OPINION OF BOENNING & SCATTERGOOD, INC., DATED JUNE 6, 2007

  ANNEX C

 

ii


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

The questions and answers below highlight only selected procedural information from this document. They do not contain all of the information that may be important to you. You should read carefully the entire document and the additional documents incorporated by reference into this document to fully understand the voting procedures for the special meeting.

 

Q: What is the proposed transaction for which I am being asked to vote?

 

A: You are being asked to approve the Agreement and Plan of Merger, dated as of June 6, 2007, by and between Yardville National Bancorp and The PNC Financial Services Group, Inc., which provides for, among other things, the merger of Yardville National Bancorp with and into The PNC Financial Services Group, Inc.

 

Q: What do I need to do now?

 

A: With respect to the meeting – after you have carefully read this document and have decided how you wish to vote your shares, please vote your shares promptly. If you hold stock in your name as a shareholder of record, you must complete, sign, date and mail your proxy card in the enclosed postage paid return envelope as soon as possible. You may also authorize a proxy to vote your shares by telephone or through the Internet as instructed on the proxy card. If you hold your stock in “street name” through a bank or broker, you must direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker. Submitting your proxy card, authorizing a proxy by telephone or through the Internet, or directing your bank or broker to vote your shares will ensure that your shares are represented and voted at the special meeting.

With respect to the merger – you should complete and return the election form, together with your stock certificates, to Computershare, 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: When must I elect the type of merger consideration that I prefer to receive?

 

A: If you wish to elect the type of merger consideration you receive in the merger, you should carefully review and follow the instructions set forth in the form of election , which is being separately mailed to Yardville shareholders following the mailing of this document. You will need to sign, date and complete the election form and transmittal materials and return them to the exchange agent, Computershare, at the address given in the materials, together with the certificates representing shares of Yardville common stock, prior to the election deadline. The election deadline will be October 18, 2007 or such other date as the parties agree. If you do not submit a properly completed and signed form of election to the exchange agent by the election deadline, you will have no control over the type of merger consideration you may receive, and consequently, may receive only cash, only PNC common stock or a combination of cash and PNC common stock in the merger. If you hold shares in “street name,” you will have to follow your broker’s instructions to make an election.

 

Q: If I am a Yardville shareholder, should I send in my Yardville stock certificates with my proxy card?

 

A: No. Please DO NOT send your Yardville stock certificates with your proxy card. You should carefully review and follow the instructions set forth in the form of election, which is being mailed to Yardville shareholders separately following the mailing of this document, regarding the surrender of your share certificates. You should then, prior to the election deadline, send your Yardville common stock certificates to the exchange agent, together with your completed, signed form of election.

 

1


Table of Contents
Q: Why is my vote important?

 

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 Yardville 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. The Yardville board of directors recommends that you vote “FOR” approval of the plan of merger. The members of the board of directors of Yardville and certain executive officers, who in the aggregate have the power to vote approximately 12.85% of the outstanding shares of Yardville common stock, have each executed a voting agreement with PNC pursuant to which they have agreed to vote their shares of Yardville common stock in favor of the merger and against any competing business combination transaction.

 

Q: If my shares of common stock are held in street name by my broker, will my broker automatically vote my shares for me?

 

A: No. Your broker cannot vote your shares without instructions from you. You should instruct your broker as to how to vote your shares, following the directions your broker provides to you. Please check the voting form used by your broker.

 

Q: What if I fail to instruct my broker?

 

A: If you do not provide your broker with instructions, your broker generally will not be permitted to vote your shares on the merger proposal (a so-called “broker non-vote”). Because only those votes cast “for” and “against” the merger proposal are counted, a failure to provide your broker instructions will have no effect on the vote to approve the merger proposal. For purposes of determining the number of votes cast with respect to the merger proposal, only those votes cast “for” or “against” the 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.

 

Q: Can I attend the special meeting and vote my shares in person?

 

A: Yes. All shareholders, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the special meeting. Holders of record of Yardville common stock can vote in person at the special meeting. If you are not a shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the special meeting. If you plan to attend the special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership and you must bring a form of personal photo identification with you in order to be admitted. We reserve the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification.

 

Q: Can I change my vote?

 

A:

Yes. You may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, or by submitting another proxy via the Internet or by telephone, (2) delivering a written revocation letter to the Secretary of Yardville, or (3) attending the special meeting in person, notifying the Secretary and voting by ballot at the special meeting. The Yardville Secretary’s mailing address is 2465 Kuser Road, Hamilton, New Jersey 08690.

Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy, but the mere presence (without notifying the Secretary of Yardville) of a shareholder at the special meeting will not constitute revocation of a previously given proxy.

 

2


Table of Contents
Q: When do you expect to complete the merger?

 

A: We expect to complete the merger in the fourth quarter of 2007. However, we cannot assure you when or if the merger will occur. Among other things, we cannot complete the merger until we obtain the approval of Yardville shareholders at the special meeting.

 

Q: Whom should I call with questions about the shareholders meeting or the merger?

 

A: Yardville shareholders should call Georgeson Inc., Yardville’s proxy solicitor, at 1-800-509-1393 with any questions about the merger and related transactions.

 

3


Table of Contents

SUMMARY

This summary highlights information contained elsewhere in this document and may not contain all of the information that is important to you. We urge you to carefully read the entire document and the other documents to which we refer in order to fully understand the merger and the related transactions. See “Where You Can Find More Information” on page 83. Each item in this summary refers to the page of this document on which that subject is discussed in more detail.

THE MERGER (page 22)

The terms and conditions of the merger are contained in the merger agreement, which is attached as Annex A to this document. Please carefully read the merger agreement as it is the legal document that governs the merger.

Yardville Will Merge into PNC

We are proposing the merger of Yardville with and into PNC. As a result, PNC will continue as the surviving company.

Yardville Shareholders Will Receive Cash and/or Shares of PNC Common Stock in the Merger depending on their Election and any Proration (page 50)

You will have the right to elect to receive merger consideration, without interest, for each of your shares of Yardville common stock in the form of cash or shares of PNC common stock, subject to proration in the circumstances described below. In the event of proration, you may receive a portion of the merger consideration in a form other than that which you elected.

The implied value of the merger consideration will fluctuate with the market price of PNC common stock and will be determined based on the average closing price of PNC common stock on the NYSE for the five trading days ending the day 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 you receive as of the date of completion of the merger will be substantially the same based on the average PNC closing price used to calculate the merger consideration. Record holders may specify different elections with respect to different shares that you hold (if, for example, you own 100 shares of Yardville common stock, you could make a cash election with respect to 50 shares and a stock election with respect to the other 50 shares).

As an example, based on the average of the closing prices of PNC common stock on the NYSE for the five trading days ending on August 30, 2007, for each share of Yardville common stock held, you would receive either approximately $34.63 in cash or 0.4907 of a share of PNC common stock, subject to possible proration. We will compute the actual amount of cash and number of shares of PNC common stock that each Yardville shareholder will receive in the merger using the formula contained in the merger agreement. For a summary of the formula contained in the merger agreement, see “The Merger Agreement — Consideration To Be Received in the Merger” beginning on page 50.

Set forth below is a table showing the consideration that you would receive in a cash election, on the one hand, or in a stock election, on the other hand, under the merger consideration formula if the actual average of the closing prices of PNC common stock on the NYSE for the five trading days ending the day before the completion of the merger were equal to the hypothetical range contained in the table. The table does not reflect the fact that cash will be paid instead of fractional shares. As described below, regardless of whether you make a cash election or a stock election, you may nevertheless receive a mix of cash and stock.

 

 

4


Table of Contents

PNC Common Stock

     

Yardville Common Stock

Hypothetical Five-Day
Average Closing Prices

 

Cash Election:

Cash Consideration

Per Share

  OR  

Stock Election: Stock Consideration per share

       

Shares of PNC

Common Stock

 

Market

Value (*)

$64.00

  $32.71     0.5110   $32.70

$65.00

  $33.00     0.5077   $33.00

$66.00

  $33.29     0.5044   $33.29

$67.00

  $33.58     0.5013   $33.59

$68.00

  $33.88     0.4982   $33.88

$69.00

  $34.17     0.4952   $34.17

$70.00

  $34.46     0.4923   $34.46

$71.00

  $34.75     0.4895   $34.75

$72.00

  $35.05     0.4868   $35.05

$73.00

  $35.34     0.4841   $35.34

$74.00

  $35.63     0.4815   $35.63

$75.00

  $35.92     0.4790   $35.93

$76.00

  $36.22     0.4765   $36.21

$77.00

  $36.51     0.4741   $36.51

$78.00

  $36.80     0.4718   $36.80

$79.00

  $37.09     0.4695   $37.09

$80.00

  $37.38     0.4673   $37.38

$81.00

  $37.68     0.4651   $37.67

$82.00

  $37.97     0.4630   $37.97

$83.00

  $38.26     0.4610   $38.26

$84.00

  $38.55     0.4590   $38.56

* Market value based on hypothetical five-day average closing price on the NYSE of PNC common stock. Any difference in the cash consideration per share and the market value is due to rounding.

The examples above are illustrative only. The value of the merger consideration that you actually receive will be based on the actual average closing price of PNC common stock on the NYSE for the five trading days ending the day before the completion of the merger, as described below. The actual average closing price may be outside the range of the amounts set forth above, and as a result, the actual value of the merger consideration per share of PNC common stock may not be shown in the above table.

Regardless of Whether You Make a Cash Election or a Stock Election, You May Nevertheless Receive a Mix of Cash and Stock (page 52)

The aggregate number of shares of PNC common stock that will be issued in the merger is approximately 3,356,441 million, based on the number of shares of Yardville common stock outstanding on August 24, 2007, and the aggregate amount of cash that will be paid in the merger is fixed at $156.46 million. As a result, if more Yardville shareholders make valid elections to receive either PNC common stock or cash than is available as merger consideration under the merger agreement, those Yardville shareholders electing the over-subscribed form of consideration will have the over-subscribed consideration proportionately reduced and substituted with consideration in the other form, despite their election.

If shares of Yardville common stock are issued upon the exercise of outstanding Yardville stock options or warrants or as otherwise permitted by the merger agreement, the aggregate number of shares of PNC common stock to be issued as consideration in the merger will be increased accordingly. The aggregate amount of cash consideration payable as merger consideration will always remain fixed at $156.46 million.

 

 

5


Table of Contents

What Holders of Yardville Stock Options Will Receive (page 55)

When we complete the merger, each outstanding option to purchase shares of Yardville common stock, whether vested or not, will be cancelled in exchange for the right to receive a lump sum cash payment equal to the product of (i) the number of shares of Yardville common stock subject to the outstanding portion of the option and (ii) the excess, if any, of the per share cash merger consideration over the exercise price per share of the option. The lump sum cash payment will be subject to applicable tax withholding.

In Order To Make a Valid Election, You Must Properly Complete and Deliver the Form of Election (page 55)

If you wish to elect the type of merger consideration you prefer to receive in the merger, you should carefully review and follow the instructions set forth in the form of election, which is being mailed to Yardville shareholders separately following the mailing of this document. You will need to sign, date and complete the election form and transmittal materials and return them to the exchange agent at the address given in the materials, together with the certificates representing shares of Yardville common stock (or a properly completed notice of guaranteed delivery) prior to the election deadline. The form of election also includes delivery instructions for shares held in book-entry form. You should NOT send your stock certificates with your proxy card.

The election deadline will be October 18, 2007 or such other date as the parties agree. If you do not submit a properly completed and signed form of election to the exchange agent by the election deadline, you will have no control over the type of merger consideration you may receive, and, consequently, may receive only cash, only PNC common stock or a combination of cash and PNC common stock in the merger. If you hold shares in “street name,” you will have to follow your broker’s instructions to make an election.

Once you have tendered your Yardville stock certificates to the exchange agent, you may not transfer your shares of Yardville common stock represented by those stock certificates until the merger is completed, unless you revoke your election by written notice to the exchange agent that is received prior to the election deadline. If the merger is not completed and the merger agreement is terminated, stock certificates will be returned by the exchange agent.

If you are a registered Yardville shareholder and fail to submit a properly completed form of election, together with your Yardville 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 merger consideration in an amount per share that is equivalent in value 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, and without regard to your preference.

The Merger Has Been Structured to Be Tax-Free to Yardville Shareholders to the Extent They Receive PNC Common Stock (page 67)

The exchange by U.S. holders of Yardville common stock for PNC common stock has been structured to be generally tax free for U.S. federal income tax purposes, except that:

 

   

U.S. holders of Yardville common stock that receive both cash and PNC common stock generally will recognize gain, but not loss, to the extent of the cash received;

 

   

U.S. holders of Yardville common stock that receive only cash generally will recognize gain or loss; and

 

   

U.S. holders of Yardville common stock generally will recognize gain or loss with respect to cash received instead of fractional shares of PNC common stock that such holders would otherwise be entitled to receive.

 

 

6


Table of Contents

For further information, please refer to “Material United States Federal Income Tax Consequences of the Merger.”

The United States federal income tax consequences described above may not apply to all holders of Yardville common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.

Comparative Market Prices and Share Information (pages 13 and 80)

PNC common stock is quoted on the NYSE under the symbol “PNC.” Yardville common stock is quoted on The Nasdaq Global Select Market under the symbol “YANB.” The following table shows the closing sale prices of PNC common stock and Yardville common stock as reported on the NYSE and Nasdaq on June 6, 2007, the last trading day before we announced the merger, and on August 30, 2007, the last practicable trading day prior to mailing this document. The table also presents the equivalent value of the merger consideration per share of Yardville common stock on June 6, 2007 and August 30, 2007, calculated by multiplying the closing price of PNC common stock on those dates by 0.4872 and 0.4934, respectively, each representing the fraction of a share of PNC common stock that Yardville shareholders electing to receive PNC common stock would receive in the merger for each share of Yardville common stock, assuming that the average of the closing prices of PNC common stock on the NYSE for the five trading days ending the day before the completion of the merger was the closing price of PNC common stock on June 6, 2007 and August 30, 2007, respectively, and assuming no proration.

 

     PNC
Common
Stock
    Yardville
Common
Stock
    Equivalent
per Share
Value
 

At June 6, 2007

   $ 71.84     $ 35.77     $ 35.00  

At August 30, 2007

   $ 69.61     $ 33.74     $ 34.35  

The market price of PNC common stock and Yardville common stock will fluctuate prior to the merger. You should obtain current stock price quotations for the shares.

Hovde Financial, Inc. and Boenning & Scattergood, Inc. Have Each Provided an Opinion to the Yardville Board of Directors Regarding the Merger Consideration (page 26)

Yardville’s financial advisors, Hovde Financial Inc. and Boenning & Scattergood, Inc., have each conducted financial analyses and delivered an opinion to Yardville’s board of directors that, as of the date of the merger agreement, the consideration to be received by Yardville shareholders was fair from a financial point of view to Yardville shareholders.

The Yardville Board of Directors Recommends that Yardville Shareholders Vote “FOR” Approval of the Plan of Merger (page 26)

The Yardville board of directors believes that the merger is in the best interests of Yardville and its shareholders and has unanimously approved the merger and the merger agreement. The Yardville board of directors recommends that Yardville shareholders vote “FOR” approval of the plan of merger.

Yardville’s Directors and Officers Have Financial Interests in the Merger That May Differ From Your Interests (page 46)

In considering the information contained in this document, you should be aware that Yardville’s executive officers and directors have financial interests in the merger that may be different from, or in addition to, the

 

 

7


Table of Contents

interests of Yardville shareholders. These additional interests of Yardville’s executive officers and directors may create potential conflicts of interest and cause some of these persons to view the proposed transaction differently than you may view it as a shareholder.

Yardville’s board of directors was aware of these interests and took them into account in its decision to approve and adopt the merger agreement. For information concerning these interests, please see the discussion under the caption “Yardville’s Directors and Officers Have Financial Interests in the Merger.”

Holders of Yardville Common Stock Do Not Have Appraisal Rights (page 45)

Yardville is incorporated under New Jersey law. Under New Jersey law, the shareholders of Yardville do not have any statutory right to dissent from the merger or seek an appraisal of the value of their shares in connection with the merger.

Conditions That Must Be Satisfied or Waived for the Merger to Occur (page 63)

Currently, we expect to complete the merger in the fourth quarter of 2007. As more fully described in this document and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include, among others, approval by Yardville shareholders, the receipt of all required regulatory approvals (such as receipt of approval (or a waiver from the application requirement) from the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board, and the Office of the Comptroller of the Currency, which we refer to as the OCC) without a condition or a restriction that would have a material adverse effect on Yardville or PNC, with materiality being measured on a scale relative to Yardville, and the receipt of legal opinions by each company regarding the tax treatment of the merger.

We cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Termination of the Merger Agreement (page 64)

We may mutually agree to terminate the merger agreement before completing the merger, even after shareholder approval. In addition, either of us may decide to terminate the merger agreement, even after shareholder approval, if a governmental entity issues a non-appealable final order prohibiting the merger, if a bank regulator which must grant a regulatory approval as a condition to the merger denies such approval of the merger and such denial has become final and non-appealable, or if the other party breaches the merger agreement in a way that would entitle the party seeking to terminate the agreement not to consummate the merger, subject to the right of the breaching party to cure the breach within 30 days following written notice (unless it is not possible due to the nature or timing of the breach for the breaching party to cure the breach). Either of us may terminate the merger agreement if the merger has not been completed by March 31, 2008, unless the reason the merger has not been completed by that date is a breach of the merger agreement by the company seeking to terminate the merger agreement. Either of us may terminate the merger agreement if the Yardville shareholders fail to approve the plan of merger at the special meeting, provided that Yardville cannot terminate the merger agreement for this reason if it has failed to comply with its obligation to hold the special meeting.

PNC may terminate the merger agreement if the Yardville board of directors (1) fails to recommend that Yardville shareholders approve the merger, (2) withdraws, qualifies, or modifies its recommendation (or proposes to do so) in a manner adverse to PNC, (3) recommends an alternative business combination proposal in a manner adverse to PNC, or (4) resolves to do any of the foregoing. PNC may also terminate the merger agreement if Yardville breaches its obligation to call and hold a shareholder meeting to consider the merger or its obligation to not solicit competing acquisition proposals.

 

 

8


Table of Contents

In addition, Yardville may terminate the merger agreement if (1) the value of the aggregate merger consideration to be paid by PNC declines by more than 15% and (2) the five-day average closing price of PNC common stock price underperforms a peer-group index by more than 15%, unless PNC exercises its option to increase the number of PNC common shares to be received by Yardville shareholders such that the 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. These calculations are made as of the later of (1) the date on which the last required regulatory approval is obtained (without regard to any waiting period) and (2) the business day immediately preceding the date of the special shareholder meeting, except that if the later of those two dates occurs more than fifteen days prior to the date of completion of the merger, the calculations are made as of the third business day prior to the date of completion.

Termination Fee (page 64)

In the event that PNC terminates the merger agreement because

 

   

the Yardville board of directors (1) fails to recommend that Yardville shareholders approve the merger, (2) withdraws, qualifies, or modifies its recommendation (or proposes to do so) in a manner adverse to PNC, (3) recommends an alternative business combination proposal, or (4) resolves to do any of the foregoing,

 

   

Yardville breaches its obligation to call and hold a shareholder meeting to consider the merger or its obligation to not solicit competing acquisition proposals,

 

   

of a willful breach by Yardville and Yardville then enters into a definitive agreement relating to a competing takeover proposal before the twelve month anniversary of the termination, or

 

   

prior to termination a competing takeover proposal is made to Yardville or its shareholders or has been publicly announced, the agreement is then terminated by PNC because the Yardville shareholders do not approve the merger at the shareholder meeting, and Yardville then enters into a definitive agreement relating to a competing takeover proposal before the twelve month anniversary of the termination,

Yardville will pay PNC a $14 million termination fee.

Regulatory Approvals Required for the Merger (page 45)

Yardville and PNC have agreed to use their reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement, including the receipt of approval (or a waiver from the application requirement) from the Federal Reserve Board and the OCC. PNC and Yardville have completed, or will complete, the filing of applications and notifications to obtain the required regulatory approvals. In obtaining the required regulatory approvals, PNC is not required to agree to any restriction or condition that would have a material adverse effect on Yardville or PNC, measured on a scale relative to Yardville.

Although we do not know of any reason why we cannot obtain these regulatory approvals in a timely manner, we cannot be certain when or if we will obtain them.

The Rights of Yardville Shareholders who Receive the Stock Consideration will be Governed by Pennsylvania Law and the PNC Articles of Incorporation and Bylaws after the Merger (page 72)

The rights of Yardville shareholders will change as a result of the merger due to differences in PNC’s and Yardville’s governing documents and due to the fact that the companies are incorporated in different states (Yardville in New Jersey and PNC in Pennsylvania). Page 72 of this document contains a description of shareholder rights under each of the PNC and Yardville governing documents and applicable state law, and describes the material difference between them.

 

 

9


Table of Contents

Yardville will Hold its Special Meeting on October 19, 2007 (page 19)

The special meeting will be held on October 19, 2007, at 10:00 a.m., local time, at the La Villa Ristorante, 2275 Kuser Road, Hamilton Square, New Jersey 08690. At the special meeting, Yardville shareholders will be asked to:

 

   

approve the plan of merger; and

 

   

approve the adjournment of the special meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the special meeting to approve the merger.

Record Date. Only holders of record of Yardville common stock at the close of business on August 24, 2007 will be entitled to vote at the special meeting. Each share of Yardville common stock is entitled to one vote. As of the record date of August 24, 2007, there were approximately 11,358,802 shares of Yardville common stock entitled to vote at the special meeting.

Required Vote. A majority of the votes cast at the Yardville special meeting is required to approve the merger agreement, and a majority of the outstanding Yardville common stock entitled to vote is necessary to constitute a quorum in order to transact business at the special meeting.

As of the record date, directors and executive officers of Yardville and their affiliates had the right to vote approximately 1,460,993 shares of Yardville common stock, or 12.86% of the outstanding Yardville common stock entitled to be voted at the special meeting. The directors and certain executive officers of Yardville, who in the aggregate have the power to vote approximately 12.85% of the outstanding shares of Yardville common stock, have each executed a voting agreement with PNC pursuant to which they have agreed to vote their shares of Yardville common stock in favor of the merger and against any competing business combination transaction.

Information about the Companies (page 71)

The PNC Financial Services Group, Inc.

The PNC Financial Services Group, Inc. is a Pennsylvania corporation, a bank holding company and a financial holding company under U.S. federal law. PNC is one of the largest diversified financial services companies in the United States based on assets, with businesses engaged in retail banking, corporate and institutional banking, asset management and global fund processing services. PNC provides many of its products and services nationally and others in PNC’s primary geographic markets located in Pennsylvania; New Jersey; Washington, DC; Maryland; Virginia; Ohio; Kentucky; and Delaware. PNC also provides certain global fund processing services internationally. PNC stock (NYSE: PNC) is listed on the New York Stock Exchange. As of June 30, 2007 PNC had total consolidated assets of approximately $125.7 billion, total consolidated deposits of approximately $77.2 billion and total consolidated stockholders’ equity of approximately $14.5 billion. The principal executive offices of PNC are located at One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707, and its telephone number is (412) 762-2000.

Yardville National Bancorp

Yardville National Bancorp is a New Jersey corporation and a registered bank holding company under U.S. federal law. Yardville conducts a general commercial and retail banking business through its principal operating subsidiary, The Yardville National Bank, which commenced operations as a commercial bank in 1925. Yardville provides a broad range of lending, deposit and other financial products and services with an emphasis on commercial real estate and commercial and industrial lending to small to mid-sized businesses and individuals. Yardville’s existing and target markets are located in the corridor between New York City and Philadelphia. Yardville stock (NASDAQ: YANB) is listed on The Nasdaq Global Select Market. As of June 30, 2007, Yardville had total consolidated assets of approximately $2.6 billion, total consolidated deposits of approximately $2.0 billion, and total consolidated stockholders’ equity of approximately $189 million. The principal executive offices of Yardville are located at 2465 Kuser Road, Hamilton, New Jersey 08690 and its telephone number is (609) 585-5100.

 

 

10


Table of Contents

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PNC

Set forth below are highlights from PNC’s consolidated financial data as of and for the years ended December 31, 2002 through 2006 and as of and for the six months ended June 30, 2006 and 2007. The results of operations for the six months ended June 30, 2006 and 2007 are not necessarily indicative of the results of operations for the full year or any other interim period. PNC management prepared the unaudited information on the same basis as it prepared PNC’s audited consolidated financial statements. In the opinion of PNC management, this information reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of this data for those dates. You should read this information in conjunction with PNC’s consolidated financial statements and related notes included in PNC’s Annual Report on Form 10-K for the year ended December 31, 2006, and PNC’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2007 and March 31, 2007, which are incorporated by reference in this document and from which this information is derived. See “Where You Can Find More Information” on page 83.

PNC — Summary of Consolidated Financial Data

 

    

Six months

ended June 30,

   Year ended December 31,  
     2007(a)    2006    2006(b)    2005    2004    2003     2002  

Earnings (in millions)

                   

Net interest income

   $ 1,361    $ 1,112    $ 2,245    $ 2,154    $ 1,969    $ 1,996     $ 2,197  

Provision for credit losses

     62      66      124      21      52      177       309  

Noninterest income

     1,966      2,415      6,327      4,173      3,572      3,263       3,197  

Noninterest expense

     1,984      2,307      4,443      4,306      3,712      3,467       3,223  
                                                   

Income before minority interest and income taxes

     1,281      1,154      4,005      2,000      1,777      1,615       1,862  

Minority interest in income of BlackRock

        41      47      71      42      47       41  

Income taxes

     399      378      1,363      604      538      539       621  
                                                   

Income from continuing operations

     882      735      2,595      1,325      1,197      1,029       1,200  

(Loss) Income from discontinued operations, net of tax

     —        —        —        —        —        —         (16 )
                                                   

Income before cumulative effect of accounting change

     882      735      2,595      1,325      1,197      1,029       1,184  

Cumulative effect of accounting change, net of tax

     —        —        —        —        —        (28 )     —    
                                                   

Net income

   $ 882    $ 735    $ 2,595    $ 1,325    $ 1,197    $ 1,001     $ 1,184  
                                                   

Per common share data

                   

Basic earnings (loss)

                   

Continuing operations

   $ 2.71    $ 2.51    $ 8.89    $ 4.63    $ 4.25    $ 3.68     $ 4.23  

Discontinued operations

     —        —        —        —        —        —         (0.05 )
                                                   

Before cumulative effect of accounting change

     2.71      2.51      8.89      4.63      4.25      3.68       4.18  

Cumulative effect of accounting change

     —        —        —        —        —        (0.10 )     —    
                                                   

Net income

   $ 2.71    $ 2.51    $ 8.89    $ 4.63    $ 4.25    $ 3.58     $ 4.18  
                                                   

Diluted earnings (loss)

                   

Continuing operations

   $ 2.67    $ 2.47    $ 8.73    $ 4.55    $ 4.21    $ 3.65     $ 4.20  

Discontinued operations

     —        —        —        —        —        —         (0.05 )
                                                   

Before cumulative effect of accounting change

     2.67      2.47      8.73      4.55      4.21      3.65       4.15  

Cumulative effect of accounting change

     —        —        —        —        —        (0.10 )     —    
                                                   

Net income

   $ 2.67    $ 2.47    $ 8.73    $ 4.55    $ 4.21    $ 3.55     $ 4.15  
                                                   

Period end balances (in millions)

                   

Total assets

   $ 125,651    $ 94,914    $ 101,820    $ 91,954    $ 79,723    $ 68,168     $ 66,377  

Total deposits

     77,221      63,493      66,301      60,275      53,269      45,241       44,982  

Total borrowed funds

     24,516      15,651      15,028      16,897      11,964      11,453       9,116  

Total shareholders’ equity

     14,504      8,827      10,788      8,563      7,473      6,645       6,859  

(a) Amounts for 2007 reflect the impact of PNC’s March 2, 2007 acquisition of Mercantile Bankshares Corporation.

 

(b) Noninterest income for 2006 included the pretax impact of the following: gain on the BlackRock/Merrill Lynch Investment Managers (“MLIM”) transaction of $2.1 billion; securities portfolio rebalancing loss of $196 million; and mortgage loan portfolio repositioning loss of $48 million. Noninterest expense for 2006 included the pretax impact of BlackRock/MLIM transaction integration costs of $91 million. An additional $10 million of integration costs, recognized in the fourth quarter of 2006, were included in noninterest income as a negative component of the asset management line. The after-tax impact of these items was as follows: BlackRock/MLIM transaction gain—$1.3 billion; securities portfolio rebalancing loss—$127 million; mortgage loan portfolio repositioning loss—$31 million; and BlackRock/MLIM transaction integration costs—$47 million.

The aggregate after-tax impact of these items increased net income for the year ended December 31, 2006 by $1.1 billion. On a per share basis, the aggregate after-tax impact of these items increased net income by $3.72 per basic common share or $3.67 per diluted common share.

 

 

11


Table of Contents

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF YARDVILLE

Set forth below are highlights from Yardville’s audited consolidated financial data as of and for the years ended December 31, 2002 through 2006 and Yardville’s unaudited consolidated financial data as of and for the six months ended June 30, 2006 and 2007. The results of operations for the six months ended June 30, 2006 and 2007 are not necessarily indicative of the results of operations for the full year or any other interim period. The unaudited information was prepared on the same basis as Yardville’s audited consolidated financial statements. In the opinion of Yardville management, this information reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of this data for those dates. You should read this information in conjunction with Yardville’s consolidated financial statements and related notes included in Yardville’s Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2006, and Yardville’s Quarterly Report on Form 10-Q, as amended by Form 10-Q/A, for the quarter ended June 30, 2007 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, which are incorporated by reference in this document and from which this information is derived. See “Where You Can Find More Information” on page 83.

Yardville—Summary of Consolidated Financial Data

 

    

Six months

ended June 30,

   Year ended December 31,
     2007    2006    2006(a)     2005    2004    2003    2002

Earnings (in millions)

                   

Net interest income

   $ 40    $ 42    $ 84     $ 83    $ 71    $ 53    $ 46

Provision for credit losses

     2      4      11       10      10      9      4

Noninterest income

     3      3      1       8      8      8      8

Noninterest expense

     30      27      71       50      43      38      31
                                                 

Income before minority interest and income taxes (benefit)

     11      14      3       31      26      14      19

Income taxes (benefit)

     3      4      (2 )     10      8      4      5
                                                 

Net income

   $ 8    $ 10    $ 5     $ 21    $ 18    $ 10    $ 14
                                                 

Per common share data

                   

Basic earnings

                   

Net income

   $ 0.75    $ 0.94    $ 0.48     $ 1.97    $ 1.77    $ 0.99    $ 1.72
                                                 

Diluted earnings

                   

Net income

   $ 0.72    $ 0.90    $ 0.46     $ 1.89    $ 1.71    $ 0.97    $ 1.68
                                                 

Period end balances (in millions)

                   

Total assets

   $ 2,562    $ 3,024    $ 2,621     $ 2,957    $ 2,806    $ 2,431    $ 2,232

Total deposits

     2,000      2,047      2,003       1,973      1,810      1,484      1,272

Total borrowed funds

     339      770      400       781      816      786      791

Total shareholders’ equity

     189      178      186       177      160      144      146

(a) In the fourth quarter of 2006 a portion of the balance sheet was restructured. Securities and Federal Home Loan Bank (“FHLB”) advances of $320.0 million were sold as part of the restructuring. Noninterest income included the impact of securities losses of $6.5 million pretax associated with the balance sheet restructuring. Noninterest expense included the impact of losses incurred with the retirement and refinancing of FHLB advances of $15.3 million pretax. The restructuring resulted in a charge to fourth quarter 2006 earnings of approximately $12.9 million after tax, or $1.13 diluted share.

 

 

12


Table of Contents

COMPARATIVE PER SHARE DATA

The following table sets forth for PNC common stock and Yardville common stock certain historical, pro forma and pro forma-equivalent per share financial information. The pro forma and pro forma-equivalent per share information gives effect to the merger as if the merger had been effective on the dates presented, in the case of the book value data, and as if the merger had become effective on January 1, 2006, in the case of the net income and dividends declared data. The pro forma data in the tables assume that the merger is accounted for using the purchase method of accounting and represents a current estimate based on available information of the combined company’s results of operations. The pro forma financial adjustments record the assets and liabilities of Yardville at their estimated fair values and are subject to adjustment as additional information becomes available and as additional analyses are performed. See “Accounting Treatment” on page 66. The information in the following table is based on, and should be read together with, the historical financial information that we have presented in our prior filings with the Securities and Exchange Commission, which we refer to as the SEC. See “Where You Can Find More Information” on page 83.

We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses and revenue enhancement opportunities. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of possible revenue enhancements, expense efficiencies, asset dispositions and share repurchases, among other factors, that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods. The Comparative Per Share Data Table for the six months ended June 30, 2007 and the year ended December 31, 2006 combines the historical income per share data of PNC and its subsidiaries and Yardville and its subsidiaries giving effect to the merger as if the merger had become effective on January 1, 2006, using the purchase method of accounting. Upon completion of the merger, the operating results of Yardville will be reflected in the consolidated financial statements of PNC on a prospective basis.

 

     PNC
Historical (a), (d)
  
Yardville
Historical (b)
   Pro Forma
Combined (c)
   Pro Forma
Equivalent
Yardville
Share

Net income for the twelve months ended December 31, 2006:

           

Basic

   $ 8.89    $ 0.48    $ 8.78    $ 4.28

Diluted

     8.73      0.46      8.62      4.20

Net income for the six months ended June 30, 2007:

           

Basic

     2.71      0.75      2.70      1.32

Diluted

     2.67      0.72      2.65      1.29

Dividends Declared:

           

For the year ended December 31, 2006

     2.15      0.46      2.15      1.05

For the six months ended June 30, 2007

     1.18      0.23      1.18      0.57

Book Value:

           

As of December 31, 2006

     36.80      16.88      37.19      18.12

As of June 30, 2007

     42.36      16.94      42.64      20.78

(a)

Noninterest income for 2006 included the pretax impact of the following: gain on the BlackRock/MLIM transaction of $2.1 billion; securities portfolio rebalancing loss of $196 million; and mortgage loan portfolio repositioning loss of $48 million. Noninterest expense for 2006 included the pretax impact of BlackRock/MLIM transaction integration costs of $91 million. An additional $10 million of integration costs, recognized in the fourth quarter of 2006, were included in noninterest income as a negative component of

 

 

13


Table of Contents
 

the asset management line. The after-tax impact of these items was as follows: BlackRock/MLIM transaction gain—$1.3 billion; securities portfolio rebalancing loss—$127 million; mortgage loan portfolio repositioning loss—$31 million; and BlackRock/MLIM transaction integration costs—$47 million.

The aggregate after-tax impact of these items increased net income for the year ended December 31, 2006 by $1.1 billion. On a per share basis, the aggregate after-tax impact of these items increased net income by $3.72 per basic common share or $3.67 per diluted common share.

 

(b) In the fourth quarter of 2006 a portion of the balance sheet was restructured. Securities and FHLB advances of $320.0 million were sold as part of the restructuring. Noninterest income included the impact of securities losses of $6.5 million associated with the balance sheet restructuring. Noninterest expenses included the impact of losses incurred with the retirement and refinancing of FHLB advances of $15.3 million. The restructuring resulted in a charge to fourth quarter 2006 earnings of approximately $12.9 million after tax, or $1.13 per diluted share.

 

(c) Due to the significant one-time adjustments for both PNC and Yardville during 2006, the pro forma combined results for that year may not be typical. If the one-time adjustments are excluded, the difference between the historical results and the pro forma combined results would decrease significantly for both PNC and Yardville.

 

(d) Amounts for 2007 reflect the impact of PNC’s March 2, 2007 acquisition of Mercantile Bankshares Corporation.

 

 

14


Table of Contents

RISK FACTORS

In addition to general investment risks and the other information contained in or incorporated by reference into this document, including the matters under the caption “Cautionary Statement Regarding Forward-Looking Statements” and the matters discussed under the caption “Risk Factors” included in the Annual Reports on Form 10-K filed by each of PNC and Yardville for the year ended December 31, 2006 as updated by subsequently filed Forms 10-Q and 10-K/A, you should carefully consider the following factors in deciding whether to vote for adoption of the merger agreement.

Because the Market Price of PNC Common Stock Will Fluctuate, Yardville Shareholders Cannot Be Sure of the Trading Price of the Merger Consideration They Will Receive.

Upon completion of the merger, each share of Yardville common stock will be converted into the right to receive merger consideration consisting of shares of PNC common stock and/or cash pursuant to the terms of the merger agreement. The value of the merger consideration to be received by Yardville shareholders will be based on the average closing price of PNC common stock on Nasdaq for the five trading days ending on the day before the completion of the merger. This average price may vary from the closing price of PNC common stock on the date we announced the merger, on the date this document was mailed to Yardville shareholders and on the date of the meeting of the Yardville shareholders. Any change in the market price of PNC common stock prior to completion of the merger will affect the value of the merger consideration that Yardville shareholders will receive upon completion of the merger. Accordingly, at the time of the Yardville special meeting and prior to the election deadline, Yardville shareholders will not necessarily know or be able to calculate the amount of the cash consideration they would receive or the exchange ratio used to determine the number of any shares of PNC common stock they would receive upon completion of the merger. Yardville is not permitted to resolicit the vote of Yardville shareholders solely because of changes in the market price of either company’s stock. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond our control. You should obtain current market quotations for shares of PNC common stock and for shares of Yardville common stock.

We May Fail To Realize All of the Anticipated Benefits of the Merger.

The success of the merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining the businesses of PNC and Yardville. However, to realize these anticipated benefits and cost savings, we must successfully combine the businesses of PNC and Yardville. If we are not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully or at all or may take longer to realize than expected.

PNC and Yardville have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Yardville and PNC during the transition period.

The Market Price of PNC Common Stock after the Merger May Be Affected by Factors Different from Those Affecting the Shares of Yardville or PNC Currently.

The businesses of PNC and Yardville differ and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations of Yardville. For a discussion of the

 

15


Table of Contents

businesses of PNC and Yardville and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this document and referred to under “Where You Can Find More Information.”

Yardville Shareholders Will Have a Reduced Ownership and Voting Interest After the Merger and Will Exercise Less Influence Over Management.

Yardville’s shareholders currently have the right to vote in the election of the board of directors of Yardville and on other matters affecting Yardville. When the merger occurs, each Yardville shareholder that receives shares of PNC common stock will become a shareholder of PNC with a percentage ownership of the combined organization that is much smaller than the shareholder’s percentage ownership of Yardville. In fact, it is expected that the former shareholders of Yardville as a group will own less than 1% of the outstanding shares of PNC immediately after the merger. Because of this, Yardville’s shareholders will have less influence on the management and policies of PNC than they now have on the management and policies of Yardville.

The Merger Agreement Limits Yardville’s Ability to Pursue Alternatives to the Merger.

The merger agreement contains “no shop” provisions that, subject to specified exceptions, limit Yardville’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of Yardville, as well as a termination fee that is payable by Yardville under certain circumstances. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Yardville from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire Yardville than it might otherwise have proposed to pay.

Yardville Shareholders May Receive a Form of Consideration Different From What They Elect.

While each Yardville shareholder may elect to receive all cash or all PNC common stock in the merger, the pools of cash and PNC common stock available for all Yardville shareholders will be fixed amounts (subject to increase in the available number of shares of PNC common stock as a result of exercise of outstanding Yardville stock options and stock warrants, or as otherwise permitted by the merger agreement prior to the completion of the merger). As a result, if either a cash or stock election proves to be more popular among Yardville shareholders, you are a Yardville shareholder and you choose the election that is more popular, you might receive a portion of your consideration in the form you did not elect.

If You Are a Yardville Shareholder and You Tender Shares of Yardville Common Stock to Make an Election, You Will Not be Able to Sell Those Shares, Unless You Revoke Your Election Prior to the Election Deadline.

If you are a registered Yardville shareholder and want to make a valid cash or stock election, you will have to deliver your stock certificates (or follow the procedures for guaranteed delivery), and a properly completed and signed form of election to the exchange agent. For further details on the determination of the election deadline, see “The Merger Agreement—Conversion of Shares; Exchange of Certificates; Elections as to Form of Consideration—Form of Election.” The election deadline may be significantly in advance of the closing of the merger. You will not be able to sell any shares of Yardville common stock that you have delivered as part of your election 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 Yardville common stock for any reason until you receive cash and/or PNC common stock in the merger. In the time between the election deadline and the closing of the merger, the trading price of Yardville or PNC common stock may decrease, and you might otherwise want to sell your shares of Yardville common stock to gain access to cash, make other investments, or reduce the potential for a decrease in the value of your investment. The date that you will receive your merger consideration depends on the completion date of the merger, which is uncertain. The completion

 

16


Table of Contents

date of the merger might be later than expected due to unforeseen events, such as delays in obtaining regulatory approvals.

The Merger is Subject to the Receipt of Consents and Approvals from Government Entities that May Impose Conditions that Could Have an Adverse Effect on PNC.

Before the merger may be completed, various waivers, approvals or consents must be obtained from the Federal Reserve Board, the OCC and other authorities in the United States. These governmental entities may impose conditions on the completion of the merger or require changes to the terms of the merger. Although PNC and Yardville do not currently expect that any such conditions or changes will be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of PNC following the merger, any of which might have an adverse effect on PNC following the merger. PNC is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger include any condition or restrictions that, in the aggregate, would reasonably be expected to have a material adverse effect on Yardville or PNC, measured relative to Yardville, but PNC could choose to waive this condition.

Yardville Executive Officers and Directors Have Financial Interests in the Merger that May be Different from, or in Addition to, the Interests of Yardville Shareholders.

Yardville’s officers and directors have financial interests in the merger that may be different from, or in addition to, the interests of Yardville shareholders. For example, certain executive officers and employees of Yardville may receive tax gross up, bonus or retention payments, payments with respect to outstanding equity awards, or new equity awards with respect to PNC common stock.

Yardville’s board of directors was aware of these interests and took them into account in its decision to approve and adopt the merger agreement. For information concerning these interests, please see the discussion under the caption “Yardville’s Directors and Officers Have Financial Interests in the Merger.”

The Shares of PNC Common Stock to be Received by Yardville Shareholders Receiving the Stock Consideration as a Result of the Merger Will Have Different Rights from the Shares of Yardville Common Stock.

Upon completion of the merger, Yardville shareholders who receive the stock consideration will become PNC shareholders and their rights as shareholders will be governed by the articles incorporation and by-laws of PNC and Pennsylvania corporate law. The rights associated with Yardville common stock are different from the rights associated with PNC common stock. See the section of this proxy statement/prospectus titled “Comparison of Shareholders’ Rights” beginning on page 72 for a discussion of the different rights associated with PNC common stock.

 

17


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document contains or incorporates by reference a number of forward-looking statements, including statements about the financial conditions, results of operations, earnings outlook and prospects of PNC, Yardville and the potential combined company and may include statements for the period following the completion of the merger. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions.

The forward-looking statements involve certain risks and uncertainties. The ability of either PNC or Yardville to predict results or the actual effects of its plans and strategies, or those of the combined company, is subject to inherent uncertainty. Factors that may cause actual results or earnings to differ materially from such forward-looking statements include those set forth on page 15 under “Risk Factors,” as well as, among others, the following:

 

   

those discussed and identified in public filings with the SEC made by PNC or Yardville;

 

   

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 and which may not be received at all;

 

   

the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

 

   

the integration of Yardville’s business and operations with those of PNC may take longer than anticipated, may be more costly than anticipated and may have unanticipated adverse results relating to Yardville’s or PNC’s existing businesses; and

 

   

the anticipated cost savings and other synergies of the merger may take longer to be realized or may not be achieved in their entirety, and attrition in key client, partner and other relationships relating to the merger may be greater than expected.

Because these forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this document or the date of any document incorporated by reference in this document.

All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to PNC or Yardville or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document. Except to the extent required by applicable law or regulation, PNC and Yardville undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

 

18


Table of Contents

THE YARDVILLE SPECIAL MEETING

This section contains information about the special meeting of Yardville shareholders that has been called to consider and approve the merger of Yardville with and into PNC, with PNC as the surviving corporation in the merger.

Together with this document, we are also sending you a notice of the special meeting and a form of proxy that is solicited by the Yardville board of directors. The special meeting will be held on October 19, 2007, at 10:00 a.m. local time, at the La Villa Ristorante, 2275 Kuser Road, Hamilton Square, New Jersey 08690, subject to any adjournments or postponements.

Matters to Be Considered

The purpose of the special meeting is to vote on a proposal for approval of the plan of merger.

You also will be asked to vote upon a proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the merger.

Proxies

Each copy of this document mailed to holders of Yardville common stock is accompanied by a form of proxy with instructions for voting. If you hold stock in your name as a shareholder of record, you should complete and return the proxy card accompanying this document to ensure that your vote is counted at the special meeting, or at any adjournment or postponement of the special meeting, regardless of whether you plan to attend the special meeting. You may also authorize a proxy to vote your shares by telephone or through the Internet as instructed on the proxy card.

If you hold your stock in “street name” through a bank or broker, you must direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker.

If you hold stock in your name as a shareholder of record, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date or submitting another proxy via the Internet or by telephone, (2) delivering a written revocation letter to Yardville’s Secretary or (3) attending the special meeting in person, notifying the Secretary, and voting by ballot at the special meeting. If you hold your stock in “street name” through a bank or broker, you must follow your bank’s or broker’s instructions to revoke your proxy.

Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy but the mere presence (without notifying Yardville’s Secretary) of a shareholder at the special meeting will not constitute revocation of a previously given proxy.

Written notices of revocation and other communications about revoking your proxy should be addressed to:

Yardville National Bancorp

2465 Kuser Road

Hamilton, New Jersey 08690

Attention: Secretary

 

19


Table of Contents

All shares represented by valid proxies that we receive through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” approval of the plan of merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the merger. According to the Yardville by-laws, business to be conducted at a special meeting of shareholders may only be brought before the meeting by means of Yardville’s notice of the meeting. Accordingly, no matters other than the matters described in this document will be presented for action at the special meeting or at any adjournment or postponement of the special meeting.

Solicitation of Proxies

Yardville will bear the entire cost of soliciting proxies from you. In addition to solicitation of proxies by mail, Yardville will request that banks, brokers and other record holders send proxies and proxy material to the beneficial owners of Yardville common stock and secure their voting instructions. Yardville will reimburse the record holders for their reasonable expenses in taking those actions. Yardville has also made arrangements with Georgeson Shareholder to assist in soliciting proxies and has agreed to pay them $30,000 plus reasonable expenses for these services. If necessary, Yardville may use several of its regular employees, who will not be specially compensated, to solicit proxies from Yardville shareholders, either personally or by telephone, facsimile, letter or other electronic means.

PNC and Yardville will share equally the expenses incurred in connection with the printing and mailing of this document.

Record Date

The close of business on August 24, 2007 has been fixed as the record date for determining the Yardville shareholders entitled to receive notice of and to vote at the special meeting. At that time, approximately 11,358,802 shares of Yardville common stock were outstanding, held by approximately 659 holders of record.

Voting Rights and Vote Required

The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of Yardville common stock entitled to vote is necessary to constitute a quorum at the special meeting. Abstentions will be counted for the purpose of determining whether a quorum is present.

Under applicable New Jersey law, a majority of the votes cast at the Yardville 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. Abstentions and any broker non-votes 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.

As of the record date, directors and executive officers of Yardville and their affiliates, had the right to vote approximately 1,460,993 shares of Yardville common stock, or 12.86% of the outstanding Yardville common stock at that date. The directors and certain executive officers of Yardville, who in the aggregate have the power to vote approximately 12.85% of the outstanding shares of Yardville common stock, have each executed a voting agreement with PNC pursuant to which they have agreed to vote their shares of Yardville common stock in favor of the merger and against any competing business combination transaction.

Approval of any proposal to adjourn or postpone the meeting, if necessary, for the purpose of soliciting additional proxies may be obtained by approval of the holders of a majority of the shares of Yardville common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present.

 

20


Table of Contents

Recommendation of the Yardville Board of Directors

The Yardville board of directors has unanimously approved the merger agreement and the transactions it contemplates, including the merger. The Yardville board of directors determined that the merger, merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Yardville and its shareholders and recommends that you vote “FOR” approval of the plan of merger. See “The Merger—Yardville’s Reasons for the Merger; Recommendation of the Yardville Board of Directors” for a more detailed discussion of the Yardville board of directors’ recommendation.

Attending the Meeting

All holders of Yardville common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the special meeting. Shareholders of record can vote in person at the special meeting. If you are not a shareholder of record, you must obtain a proxy executed in your favor from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the special meeting. If you plan to attend the special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership and you must bring a form of personal photo identification with you in order to be admitted. We reserve the right to refuse admittance to anyone without both proper proof of share ownership and proper photo identification.

 

21


Table of Contents

THE MERGER

Background of the Merger

PNC’s board of directors and senior management regularly review the financial services industry environment, including the trend towards consolidation in the industry, and periodically discuss ways in which to enhance PNC’s competitive position. Senior management of PNC has, over time, considered the possibility of acquisitions and strategic combinations with a variety of financial institutions and the potential strategic fit with such institutions based on their lines of businesses, their management and employee cultures and their geographic locations.

Similarly, the board of directors of Yardville has from time to time engaged with its senior management in reviews of Yardville’s strategic direction. During such reviews, Yardville’s board has considered various alternatives to enhance its company’s performance and prospects in the context of developments in the financial services industry, the competitive landscape and the ongoing consolidation in financial services. As noted below, these discussions have, on occasion, included informal discussions with representatives of other financial institutions, including PNC, regarding industry trends and issues and exploratory discussions of the potential benefits and issues arising from possible business combinations.

In connection with the election of directors at Yardville’s 2006 annual meeting of shareholders, the director candidates nominated by Yardville’s board of directors were opposed by a shareholder committee led by Lawrence B. Seidman. Following Yardville’s 2006 annual meeting of shareholders, the Yardville board of directors determined to augment its strategic planning process by engaging an experienced financial advisor. In July 2006, the board interviewed several investment banking firms and subsequently engaged Hovde Financial, Inc. to serve as its financial advisor in connection with the ongoing evaluation of Yardville’s strategic direction. Together with its financial advisor, the board evaluated various strategic alternatives, including remaining as an independent institution, raising additional capital through debt or equity securities sales, acquiring other financial institutions, restructuring Yardville’s balance sheet, or seeking a sale of Yardville to another financial institution. As part of its consideration of a possible sale of Yardville, the board directed the financial advisor to contact prospective strategic suitors in order to assess the level of interest, if any, in a business combination with Yardville.

In response to this directive, during the summer and fall of 2006, Yardville engaged in exploratory discussions with other financial institutions. In October 2006, three of these financial institutions expressed preliminary interest with respect to a possible transaction with Yardville. The board appointed a special committee of independent directors to review the indications of interest with the assistance of the financial advisor. Two of the institutions, however, determined not to proceed further. In November 2006, the Yardville board of directors determined not to engage in a combination with a larger institution, and instead authorized a restructuring of Yardville’s balance sheet.

Yardville completed its balance sheet restructuring in December 2006, which enhanced its net interest margin by selling lower yielding securities and using the proceeds to retire higher fixed rate Federal Home Loan Bank advances. At the same time, the board and its financial advisor initiated discussions with potential acquisition candidates.

In February 2007, one of the financial institutions with which Yardville had previously had discussions regarding a potential transaction, referred to as “Company A,” contacted senior management of Yardville to express a renewed interest in a potential transaction with Yardville. In response, Yardville’s board of directors met on February 13 to discuss and determine whether a potential transaction with a larger financial institution should be given further consideration. During its deliberations, the board considered that circumstances facing Yardville had changed significantly since the board last determined not to proceed with such a transaction. In particular, the board noted the completion of the restructuring of its balance sheet, an increased likelihood that the formal agreement with the Office of the Comptroller of the Currency would be continued through 2007, ongoing challenges of operating as an independent financial institution in light of imposed regulatory constraints, a persistent unfavorable interest rate environment and the level of competition for deposits and loans, and Yardville’s operating results and prospects relative to management’s and the board’s expectations in 2006, as reasons for revisiting the possible sale of Yardville.

 

22


Table of Contents

In light of these developments, Yardville’s board of directors authorized management to engage in discussions with Company A regarding the parameters of a potential transaction. In addition, the board directed its financial advisor to ascertain whether other financial institutions might have an interest in a potential transaction and authorized a special committee to work with management and Yardville’s advisors to explore such a potential transaction.

On March 15, 2007, Company A provided an indication of interest to engage in a transaction with Yardville. In the succeeding weeks, the institution had its financial, legal and other advisors conduct due diligence reviews of Yardville. In addition senior management of both institutions and their advisors held discussions relating to the key terms of a potential transaction. On March 26, 2007, the special committee engaged Boenning & Scattergood, Inc. as its own financial advisor. In early April, 2007, however, Company A informed Yardville senior management that it had determined it was not interested in pursuing a transaction with Yardville.

During this time, two other financial institutions with which Yardville had held discussions in 2006, referred to as “Company B” and “Company C” each expressed renewed interest in a potential transaction with Yardville. On April 4, 2007, Yardville’s board of directors met and authorized management to explore discussions with both companies. Shortly thereafter, following preliminary due diligence, Company C determined to discontinue discussions, but discussions continued with Company B into May and Company B began to engage in due diligence.

During the week of May 13, 2007, Patrick M. Ryan, Yardville’s Chief Executive Officer scheduled a meeting with Jim Rohr, Chairman and Chief Executive Officer of PNC to discuss the possibility of a strategic combination of PNC and Yardville. On May 18, 2007, Messrs. Ryan and Rohr, together with members of their management teams, met to discuss the possibility of a potential merger of Yardville with PNC. At this meeting, Mr. Rohr indicated that, subject to due diligence and PNC board approval, PNC would be prepared to undertake a transaction that could be mutually beneficial to both Yardville and PNC.

On May 19, 2007, the special committee met to discuss management’s contacts with PNC. On May 21, 2007, the Yardville board of directors met and re-affirmed its belief that a business combination with another financial institution was in the best interests of Yardville’s shareholders, and that shareholder value was likely to be maximized by a combination with a larger and stronger financial institution than Company B. The board determined that, based on the interest previously exhibited by PNC, as well as PNC’s then-recent acquisition activities, Yardville’s management should focus its efforts on exploring PNC’s possible interest in an acquisition of Yardville.

PNC and Yardville executed mutual confidentiality agreements and during the week of May 21, exchanged information as part of PNC’s due diligence investigation. Over the course of the next week, PNC, together with its financial, legal and other advisors, conducted its diligence investigation while the parties and their advisors held discussions relating to the key terms of a transaction. Also during this period, counsel to PNC and Yardville, working with the companies, began to draft and negotiate definitive transaction documentation. In late May, Company B notified Yardville that it had determined to discontinue discussions regarding a transaction.

On May 30, PNC proposed that, subject to the finalization of due diligence and definitive deal documentation, and further subject to the Yardville board and senior management members’ willingness to enter into voting agreements to support the transaction, PNC would be willing to pay a purchase price of $35.00 per Yardville share in a combination of cash and a number of shares of PNC common stock reflected in the exchange ratio described below under “The Merger Agreement—Consideration to be Received in the Merger.” That same day the special committee of the Yardville board of directors met to discuss the PNC proposal. Following discussions among the special committee members, financial advisors and legal counsel, the special committee determined to recommend to the Yardville board of directors that the board authorize and direct management, with the assistance of members of the Committee and financial advisors and legal counsel, to continue to negotiate definitive transaction documents. Following the meeting of the special committee, the Yardville board

 

23


Table of Contents

met to discuss the PNC proposal with Yardville’s senior management, financial advisors and legal counsel. At such meeting, the Yardville board determined that such a transaction was in the best interests of its shareholders and instructed management, certain directors and Yardville’s advisors to continue to negotiate definitive transaction documentation, including the proposed voting support agreements.

The parties continued to negotiate the final terms of the transaction and prepare the definitive documentation. In addition, Yardville conducted a due diligence investigation of PNC and PNC completed its due diligence investigation of Yardville. During this time, PNC also negotiated the terms of a non-interference agreement with Lawrence B. Seidman, who proposed the competing slate of director-nominees at Yardville’s 2006 annual meeting of shareholders and was expected to solicit proxies for a competing slate of director-nominees at Yardville’s 2007 annual meeting of shareholders. Under that agreement, Mr. Seidman agreed not to seek to interfere with the proposed transaction with PNC, through litigation or otherwise.

On June 6, 2007, the special committee of Yardville’s board of directors met to discuss the proposed merger of Yardville and PNC. After discussion with the financial advisors and legal counsel, the special committee resolved to recommend the merger to Yardville’s board of directors. Following the special committee meeting, Yardville’s board of directors met to discuss the proposed merger of Yardville and PNC. Mr. Ryan updated the board on the progress of negotiations with PNC, described the key elements of the proposed merger and discussed with the board the strategic reasons for the proposed merger. Senior management described their due diligence results regarding PNC along with its advisors. Representatives of Hovde Financial, Inc. and Boenning & Scattergood, Inc. each presented a summary of their respective financial analyses of the proposed transaction, focusing in particular on the calculation of the merger consideration, and delivered their respective opinions that, as of that date, the consideration to be received by Yardville’s shareholders in the merger was fair from a financial point of view to the shareholders. Representatives from Pepper Hamilton LLP as counsel to Yardville made a detailed presentation describing the key terms of the merger and the merger agreement, and led a discussion of the directors’ fiduciary duties in evaluating and approving the merger.

Following these discussions, and review and discussion among the members of the Yardville board, the Yardville board of directors determined that the proposed transaction was in the best interests of Yardville and its shareholders, and the directors voted unanimously to approve the merger with PNC and to submit the proposed merger agreement and the merger to Yardville shareholders for their consideration and approval.

Also on June 6, the PNC board of directors held a special meeting at which members of PNC’s senior management and PNC’s outside legal and financial advisors made various presentations about, and the board discussed, the potential strategic combination with Yardville and the proposed terms of the merger. At this meeting, the PNC board unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The merger agreement was subsequently executed and delivered and PNC issued a press release prior to the opening of the financial markets in New York City on June 7, 2007 announcing the transaction.

Yardville’s Reasons for the Merger; Recommendation of the Yardville Board of Directors

In reaching its conclusion that the merger agreement and the merger are advisable and in the best interests of Yardville and its shareholders, and in approving the merger agreement and the transactions contemplated thereby, Yardville’s board of directors considered and reviewed the transaction and its terms with Yardville’s senior management, as well as its financial and legal advisors, and considered a number of factors, including:

 

   

Its knowledge of Yardville’s business, operations, financial condition, earnings and prospects and of PNC’s business, operations, financial condition, earnings and prospects, taking into account the results of Yardville’s due diligence review of PNC;

 

   

Its knowledge of the current environment in the financial services industry, including national and regional economic conditions, continued consolidation, evolving trends in technology and

 

24


Table of Contents
 

increasing nationwide and global competition, and the likely effect of these factors on Yardville in light of, and in the absence of, the proposed transaction;

 

   

The value to Yardville’s shareholders of the proposal to allow each shareholder to elect to receive his, her or its consideration in cash or PNC common stock;

 

   

The greater liquidity of PNC common stock relative to Yardville common stock;

 

   

The dividend yield and payment history of PNC common stock relative to Yardville common stock;

 

   

The ability of Yardville shareholders, through the PNC common stock component of the merger consideration, to participate in the potential growth of the combined PNC and Yardville institutions following consummation of the transaction;

 

   

The financial analyses conducted by Hovde Financial, Inc. and Boenning & Scattergood, Inc. and their opinions to the board of directors that, as of the date of the merger agreement, the consideration to be received by Yardville shareholders was fair from a financial point of view to Yardville shareholders;

 

   

The expectation that the receipt of PNC common stock by Yardville shareholders would generally be tax-free for U.S. federal income tax purposes;

 

   

The potential alternatives available to Yardville, including other potential extraordinary transactions and the alternative of remaining independent, and the risks and challenges inherent in successfully implementing Yardville’s business plans, including regulatory compliance, potential changes in management, the ongoing costs of the Company’s retail strategy, the continued unfavorable yield curve, weakness in commercial real estate in the Company’s markets, the Company’s dependence on large borrower relationships and the potential of downsizing larger borrower relationships. The board also considered the value to the shareholders of these alternatives, the timing and likelihood of achieving value from these alternatives;

 

   

The competitive environment facing regional banks like Yardville, and management’s belief that Yardville’s customers and employees would benefit from a combination with PNC due to the combined entity’s enhanced ability to serve its customers more broadly and effectively because of the combined entity’s greater scale, broader product portfolio and more comprehensive technology;

 

   

The ability to complete the merger, including, in particular, the likelihood of obtaining regulatory approval and the provisions of the merger agreement regarding Yardville’s and PNC’s obligations to pursue the regulatory approvals;

 

   

The historical and current market prices of Yardville common stock and PNC common stock;

 

   

The terms and conditions of the merger agreement, including:

 

   

the termination fee of $14 million that Yardville would be required to pay if the merger agreement is terminated under certain circumstances;

 

   

the restrictions imposed on Yardville from soliciting alternative transactions and the inability of Yardville to terminate the merger agreement in order to accept an alternative proposal;

 

   

the fact that Yardville’s board of directors may withdraw, modify or condition its recommendation that Yardville’s shareholders approve the merger only if the board determines, after consultation with its outside financial and legal advisors, that the failure to take such action would be inconsistent with its fiduciary obligations under applicable law; and

 

25


Table of Contents
   

the requirement that Yardville must submit the merger agreement to a vote of Yardville’s shareholders notwithstanding any withdrawal or modification of the board of director’s recommendation that Yardville’s shareholders approve the merger.

 

   

The existence and nature of the voting agreements.

 

   

The complexity and risks involved in successfully integrating Yardville and PNC in a timely manner, and the potential impact of integration on various constituencies.

 

   

The taxable nature for U.S. federal income tax purposes of the cash portion of the merger consideration received by Yardville shareholders.

 

   

The fact that the interests of certain of Yardville’s officers and directors may be said to be different from, or in addition to, the interests of shareholders generally.

 

   

The possible effects of the merger on Yardville’s employees, customers, suppliers and creditors and on the communities in which Yardville’s facilities are located.

The above discussion of the information and factors considered by Yardville’s board of directors is not intended to be exhaustive, but indicates the material matters considered by the board of directors. In reaching its determination to approve the merger agreement and the transactions which it contemplates, the board did not quantify, rank or assign any relative or specific weight to, the foregoing factors, and individual directors may have considered various factors differently and may have given differing weights to different factors. Yardville’s board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Yardville’s board of directors based its determination on the totality of the information presented.

Yardville’s board of directors determined, by unanimous vote of all directors present at the meeting of the board of directors, that the merger on the terms and conditions set forth in the merger agreement is advisable and in the best interests of Yardville and its shareholders. Accordingly, Yardville’s board of directors unanimously approved and adopted the merger agreement and the transactions contemplated thereby, and recommends that Yardville shareholders vote “FOR” the proposal to approve the merger agreement.

Opinions of Yardville’s Financial Advisors

Hovde Financial, Inc.

On August 28, 2006, Yardville retained Hovde Financial, Inc. to provide its financial services to Yardville, including in connection with a potential sale of Yardville. Hovde has delivered to the board of directors of Yardville its opinion that, based upon and subject to the various considerations set forth in its written opinion dated June 6, 2007, the merger consideration to be paid to the shareholders of Yardville is fair from a financial point of view as of such date. In requesting Hovde’s advice and opinion, no limitations were imposed by Yardville upon Hovde with respect to the investigations made or procedures followed by it in rendering its opinion. The full text of the opinion of Hovde, dated June 6, 2007, which describes the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached hereto as Annex B. Yardville’s shareholders should read the opinion in its entirety.

Hovde is a nationally recognized investment banking firm and, as part of its investment banking business, is continually engaged in the valuation of financial institutions in connection with mergers and acquisitions, private placements and valuations for other purposes. As a specialist in securities of financial institutions, Hovde has experience in, and knowledge of, banks, thrifts and bank and thrift holding companies. The board of directors of Yardville selected Hovde to act as its financial advisor in connection with the merger on the basis of the firm’s reputation and expertise in transactions such as the merger.

 

26


Table of Contents

Pursuant to the terms of its engagement with Yardville, beginning with the third quarter of 2006, Hovde received a cash retainer fee in the amount of $15,000 per quarter. In addition, Hovde received a cash fee in the amount of $250,000 from Yardville for performing a financial analysis of the merger and rendering a written opinion to the board of directors of Yardville as to the fairness, from a financial point of view, of the merger to the shareholders of Yardville. Yardville has also agreed to pay Hovde completion fees, which are contingent upon the consummation of the merger, for its services as financial advisor in connection with the merger. The completion fee will be an amount equal to one percent (1%) of the value of the merger consideration, calculated in accordance with Hovde’s engagement letter, or approximately $4.3 million. In addition to its fees and regardless of whether the merger is consummated, Yardville has agreed to reimburse Hovde for its reasonable out-of-pocket expenses. Yardville has also agreed to indemnify Hovde against any claims, losses and expenses arising out of the merger or Hovde’s engagement that did not arise from Hovde’s gross negligence or willful misconduct.

Hovde’s opinion is directed only to the fairness, from a financial point of view, of the merger consideration, and, as such, does not constitute a recommendation to any shareholder of Yardville as to how the shareholder should vote at the Special Meeting. The summary of the opinion of Hovde set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

The following is a summary of the analyses performed by Hovde in connection with its fairness opinion. Certain of these analyses were discussed in a presentation to the board of directors of Yardville by Hovde. The summary set forth below does not purport to be a complete description of either the analyses performed by Hovde in rendering its opinion or the presentation delivered by Hovde to the board of directors of Yardville, but it does summarize all of the material analyses performed and presented by Hovde.

The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances. In arriving at its opinion, Hovde did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Hovde believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, without considering all factors and analyses, could create an incomplete view of the process underlying the analyses set forth in its report to the board of directors of Yardville and its fairness opinion.

In performing its analyses, Hovde made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Yardville and PNC. The analyses performed by Hovde are not necessarily indicative of actual value or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Hovde’s analysis of the fairness of the merger consideration, from a financial point of view, to the shareholders of Yardville. The analyses do not purport to be an appraisal or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future. Hovde’s opinion does not address the relative merits of the merger as compared to any other business combination in which Yardville might engage. In addition, as described above, Hovde’s opinion to the board of directors of Yardville was one of many factors taken into consideration by the board of directors of Yardville in making its determination to approve the merger agreement.

The opinion expressed by Hovde was based on market, economic and other relevant considerations as they existed and could be evaluated as of the date of the opinion. Events occurring after the date of issuance of the opinion, including changes affecting the securities markets, the results of operations or material changes in the financial condition of either Yardville or PNC could materially affect the assumptions used in preparing the opinion.

 

27


Table of Contents

During the course of its engagement, and as a basis for arriving at its opinion, Hovde reviewed and analyzed material bearing upon the financial and operating conditions of Yardville and PNC and material prepared in connection with the merger, including, among other things, the following:

 

   

the merger agreement and all attachments thereto;

 

   

certain historical publicly available information concerning the Yardville and PNC;

 

   

certain internal financial statements and other financial and operating data concerning Yardville and PNC;

 

   

certain financial projections prepared by the management team of Yardville;

 

   

discussions with members of the senior management teams of Yardville and PNC for the purpose of reviewing the future prospects of Yardville and PNC;

 

   

the historical market prices and trading volumes of Yardville and PNC;

 

   

the nature and terms of recent merger and acquisition transactions to the extent publicly available, involving banks and bank holding companies that Hovde considered relevant; and

 

   

the pro forma ownership of PNC Common Stock by the holders of Yardville Common Stock relative to the pro forma contribution of the Yardville’s assets, liabilities, equity and earnings.

In addition, Hovde:

 

   

analyzed the pro forma impact of the merger on the combined company’s earnings, consolidated equity capitalization and financial ratios;

 

   

took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its knowledge of the banking industry and its general experience in securities valuations; and

 

   

performed such other analyses and considered other factors as it deemed appropriate.

In rendering its opinion, Hovde assumed, without independent verification, the accuracy and completeness of the financial and other information provided to it and relied upon the accuracy of the representations of the parties contained in the merger agreement. Hovde also assumed the financial forecasts furnished to or discussed with Hovde by Yardville and PNC were reasonably prepared and reflected the best currently available estimates and judgments of senior management of Yardville and PNC as to the future financial performance of Yardville, PNC or the combined company, as the case may be. Hovde has not made any independent evaluation or appraisal of any properties, assets or liabilities of Yardville.

Contribution Analysis. Hovde prepared a contribution analysis showing percentages of assets, net loans, deposits and equity at March 31, 2006 for Yardville and PNC, and the trailing twelve months and estimated calendar-year 2007 net income that would be contributed to the combined company on a pro-forma basis.

 

     Yardville
(%)
   PNC
(%)

Assets

   2.1    97.9

Net Loans

   3.0    97.0

Deposits

   2.6    97.4

Equity

   1.3    98.7

LTM Net Income

   0.7    99.3

2007 Estimated Net Income

   1.1    98.9

 

28


Table of Contents

Trading Price Analysis. Hovde reviewed the average trading prices for PNC at different intervals during the period commencing June 4, 2007, using the 5-day, 10-day, 20-day, 30-day, 45-day, 60-day and 90-day average closing price of PNC common stock during such period.

 

    

PNC

average

closing price

Last trading day

   $ 73.83

Last 5 Trading Days

   $ 73.80

Last 10 Trading Days

   $ 73.90

Last 20 Trading Days

   $ 74.33

Last 30 Trading Days

   $ 74.43

Last 45 Trading Days

   $ 73.96

Last 60 Trading Days

   $ 73.33

Last 90 Trading Days

   $ 73.59

Stock Trading History Analysis. Hovde reviewed the relationship between the movements in the prices of PNC’s common stock to movements in the SNL Bank Index for one year and three year period. Hovde noted that during the one year period ended June 4, 2007, PNC’s common stock outperformed the index.

 

    

Beginning Index
Value on

June 4, 2006

   

Ending Index
Value on

June 4, 2007

 

PNC

   100.00 %   106.74 %

SNL Bank Index

   100.00 %   105.14 %

Hovde also noted that during the three year period ended June 4, 2007, PNC’s common stock outperformed the SNL Bank Index.

 

    

Beginning Index
Value on

June 4, 2004

   

Ending Index
Value on

June 4, 2007

 

PNC

   100.00 %   134.95 %

SNL Bank Index

   100.00 %   119.06 %

Comparable Company Analysis. Using publicly available information, Hovde compared the stock market valuation and operating characteristics of PNC on standalone basis with other Nationwide banks with assets greater than $50.0 billion (the “Comparable Group”). The Comparable Group consisted of the following 12 publicly traded institutions:

 

Company Name

  

Headquarters

  

Ticker

BB&T Corporation

   North Carolina    BBT

Comerica Incorporated

   Michigan    CMA

Fifth Third Bancorp

   Ohio    FITB

KeyCorp

   Ohio    KEY

M&T Bank Corporation

   New York    MTB

National City Corporation

   Ohio    NCC

Regions Financial Corporation

   Alabama    RF

State Street Corporation

   Massachusetts    STT

SunTrust Banks, Inc.

   Georgia    STI

U.S. Bancorp

   Minnesota    USB

Wachovia Corporation

   North Carolina    WB

Wells Fargo & Company

   California    WFC

 

29


Table of Contents

Indications of such financial performance and stock market valuation included the calculation of price-to-last twelve months trailing core earnings, price-to-2007 estimated GAAP earnings, price to 2008 estimated GAAP earnings, price-to-book value and price-to-tangible book value.

 

     Price to:
     LTM
Earnings
(x)
   2007
Estimated
Earnings
(x)
   2008
Estimated
Earnings
(x)
   Book
Value
(x)
   Tangible
Book
Value
(x)

PNC(1)

   8.2    13.2    12.0    1.73    3.89

Comparable Group median

   14.1    13.2    12.0    1.93    3.53

(1) Based on PNC closing price of $73.83 on June 4, 2007.

Premium to Market Analysis. Hovde reviewed the merger consideration premium to Yardville common stock price on June 4, 2007 and noted that the offer represented a 2.2% discount to Yardville’s market price of $35.79. Hovde also reviewed the merger consideration over different intervals during the period commencing June 4, 2007, using the 5-day, 10-day, 20-day, 30-day, 45-day, 60-day and 90-day average closing price of PNC common stock during such period. Using such average closing prices, Hovde observed that the premium to the current offer of $35.00 was as follows:

 

    

PNC

average

closing price

   Implied deal
value to Yardville
   Implied
premium to
Offer
 

Last trading day

   $ 73.83    $ 35.01    0.0 %

Last 5 Trading Days

   $ 73.80    $ 35.00    0.0 %

Last 10 Trading Days

   $ 73.90    $ 35.03    0.1 %

Last 20 Trading Days

   $ 74.33    $ 35.15    0.4 %

Last 30 Trading Days

   $ 74.43    $ 35.18    0.5 %

Last 45 Trading Days

   $ 73.96    $ 35.05    0.1 %

Last 60 Trading Days

   $ 73.33    $ 34.87    -0.4 %

Last 90 Trading Days

   $ 73.59    $ 34.94    -0.2 %

 

30


Table of Contents

Analysis of Selected Transactions. As part of its analysis, Hovde reviewed three groups of comparable transactions. The first peer group included transactions, which have occurred since January 1, 2000, that involved target banks headquartered in Mid-Atlantic region (MD, NJ, NY and PA), in which the total assets of the seller were between $1.0 billion and $40.0 billion (the “Mid Atlantic Merger Group”). This Mid-Atlantic Merger Group consisted of the following 17 transactions:

 

Buyer

  

Seller

Susquehanna Bancshares Inc.

   Community Banks Inc.

TD Banknorth Inc.

   Interchange Financial Services

New York Community Bancorp

   Atlantic Bank of New York

TD Banknorth Inc.

   Hudson United Bancorp

Omega Financial Corp.

   Sun Bancorp Inc.

Partners Trust Financial (MHC)

   BSB Bancorp Inc.

North Fork Bancorp.

   Trust Co. of New Jersey

Susquehanna Bancshares Inc.

   Patriot Bank Corp.

PNC Financial Services Group

   United National Bancorp

M&T Bank Corp.

   Allfirst Financial Inc.

Sky Financial Group Inc.

   Three Rivers Bancorp Inc.

Sovereign Bancorp Inc.

   Main Street Bancorp Inc.

F.N.B. Corp

   Promistar Financial Corp.

North Fork Bancorp.

   Commercial Bank NY

Citigroup Inc.

   European American Bank

FleetBoston Financial Corp.

   Summit Bancorp

BB&T Corp.

   FCNB Corp.

Hovde then reviewed comparable transactions involving banks headquartered in the Mid-Atlantic region (MD, NJ, NY and PA) announced since January 1, 2000, in which the total assets of the seller were between $200 million and $8.0 billion in which the nonperforming assets of the seller were greater than one-half of one percent of total assets (the “Second Mid-Atlantic Merger Group”). This Mid-Atlantic Merger Group consisted of the following 18 transactions:

 

Buyer

  

Seller

Northwest Bancorp Inc. (MHC)

   Penn Laurel Financial Corp

Alliance Financial Corp.

   Bridge Street Financial

Willow Grove Bncp. Inc.

   Chester Valley Bancorp Inc.

F.N.B. Corp

   NSD Bancorp Inc.

F.N.B. Corp

   Slippery Rock Financial Corp.

Partners Trust Financial (MHC)

   BSB Bancorp Inc.

Fulton Financial Corp.

   Premier Bancorp Inc.

Partners Trust Financial (MHC)

   Herkimer Trust Corp. Inc.

United National Bancorp

   Vista Bancorp Inc.

Sovereign Bancorp Inc.

   Main Street Bancorp Inc.

NBT Bancorp Inc.

   CNB Financial Corp.

F.N.B. Corp.

   Promistar Financial Corp.

Financial Institutions Inc.

   Bath National Corp.

BB&T Corp.

   FCNB Corp.

M&T Bank Corp.

   Premier National Bancorp Inc.

M&T Bank Corp.

   Keystone Financial Inc.

Niagara Bancorp Inc. (MHC)

   Iroquois Bancorp Inc.

Fulton Financial Corp.

   Skylands Financial Corp.

 

31


Table of Contents

Hovde then reviewed comparable transactions involving banks headquartered throughout the United States in which the nonperforming assets of the seller were greater than one-half of one percent of total assets announced since January 1, 2001, in which the total assets of the seller were between $500 million and $3.0 billion (the “Nationwide Merger Group”). This Nationwide Merger Group consisted of the following 17 transactions:

 

Buyer

  

Seller

Wells Fargo & Co.

   Placer Sierra Bancshares

Cullen/Frost Bankers Inc.

   Summit Bancshares Inc.

Banc Corp.

   Community Bancshares Inc.

Prosperity Bancshares Inc.

   SNB Bancshares Inc.

FNB Corp.

   Integrity Financial Corp

Associated Banc-Corp

   State Financial Services Corp

Willow Grove Bncp Inc.

   Chester Valley Bancorp Inc.

Huntington Bancshares Inc.

   Unizan Financial Corp.

South Financial Group Inc.

   CNB Florida Bancshares Inc.

Partners Trust Financial (MHC)

   BSB Bancorp Inc.

National City Corp.

   Allegiant Bancorp Inc.

City National Corp.

   Civic BanCorp

Sovereign Bancorp Inc.

   Main Street Bancorp Inc.

NBT Bancorp Inc.

   CNB Financial Corp.

FNB Corp.

   Promistar Financial Corp.

Financial Federal MHC, Inc.

   Success Bancshares Inc.

Allegiant Bancorp Inc.

   Southside Bancshares Corp.

Hovde calculated the medians of the following relevant transaction ratios in the Mid-Atlantic Merger Group, the Second Mid-Atlantic Merger Group and the Nationwide Merger Group: the multiple of the offer value to the acquired company’s book value; the multiple of the offer value to the acquired company’s tangible book value; the multiple of the offer value to the acquired company’s earnings for the twelve months preceding the announcement date of the transaction; the multiple of the offer value to the acquired company’s estimated earnings for 2007; and the tangible book value premium to core deposits. Hovde compared these multiples with the corresponding multiples for the merger, valuing the per share consideration that would be received pursuant to the merger agreement at $35.00 per diluted share of Yardville. In calculating the multiples for the merger, Hovde used Yardville’s earnings for the twelve months ended March 31, 2007 and estimated earnings for the current year published by I/B/E/S and Yardville’s book value, tangible book value and core deposits as of March 31, 2007. The results of this analysis are as follows:

 

     Offer Value to:
     Book
Value
(x)
   Tangible
Book
Value
(x)
   12 months
Preceding
Earnings(1)
(x)
   Estimated
Earnings
(x)
   Ratio of
Tangible
Book Value
Premium to
Core
Deposits(2)
(%)

PNC

   2.11    2.12    22.4    20.0    12.1

Mid-Atlantic Merger Group median

   2.30    2.76    19.9    19.1    16.6

Second Mid-Atlantic Merger Group median

   2.28    2.33    21.2    15.9    15.4

Nationwide Merger Group median

   2.08    2.63    23.0    19.5    19.5

(1) 12 months preceding earnings excludes one time costs associated with balance sheet restructuring in fourth quarter of 2006.
(2) Core deposits defined as total deposits less CD’s greater than $100,000 and Express Data CD’s for Yardville.

This analysis produced an implied value of approximately $28 to $46 per share of Yardville common stock.

 

32


Table of Contents

Discounted Cash Flow Analysis. Hovde estimated the present value of all shares of the Yardville’s common stock by utilizing Yardville’s estimated future earnings stream. Reflecting published analyst estimates, Yardville’s internal projections and historical averages, Hovde assumed a 2007-2011 net income of $20.1 million, $20.7 million, $22.8 million, $25.1 million, and $27.6 million, respectively. The dividends were projected to be $5.1 million, $5.1 million, $5.4 million, $5.6 million and $5.9 million in 2007-2011, respectively. In all cases, the present value of these cash flows was calculated based on a range of discount rates of 12.0%, 13.0%, and 14.0%. These rates and values were chosen to reflect different assumptions regarding the required rates of return of holders or prospective buyers of Yardville’s common stock.

Hovde derived the take-out value of Yardville’s common stock using both the terminal value earnings multiple and book value approaches. In arriving at the terminal value of Yardville’s earnings stream in 2011, Hovde assumed a terminal earnings value multiple at a range of 17.0x, 18.0x and 19.0x. Similarly, in arriving at the terminal value of Yardville’s book value in 2011, Hovde assumed a terminal book value multiple at a range of 2.5x, 2.6x and 2.7x. The terminal values were then discounted, along with annual cash flows, to arrive at the present value for Yardville’s common stock. These analyses and its underlying assumptions yielded a per share range of value for Yardville’s common stock of approximately $23.17 to $27.77 with a midpoint of $25.64 based on the earnings approach and $32.26 to $37.68 with a midpoint of $34.88 based on the book value approach.

Financial Implications to Yardville Shareholders. Hovde prepared an analysis of the financial implications of PNC’s offer to a holder of Yardville common stock. This analysis indicated that on a pro forma equivalent basis, assuming both a 60% stock/40% cash consideration and that the respective exchange ratio that a stock electing Yardville shareholder would receive would be approximately 0.47 shares for Yardville shareholders electing and receiving stock consideration for their shares and exclude any potential revenue enhancement opportunities a shareholder of Yardville would receive. The 60% stock/40% cash consideration would achieve approximately 66.5% accretion in cash earnings per share, approximately 62.9% accretion in GAAP earnings per share, an increase in book value per share of approximately 36.8%, a decrease in tangible book value per share of approximately 34.2%, and an increase in dividends per share of approximately 160.8% as a result of the consummation of the merger for Yardville shareholders receiving stock. The table below summarizes the results discussed above:

 

     Per Share:  
     2008E Cash
Earnings
    2008E GAAP
Earnings
    Book Value     Tangible
Book Value(1)
    Dividends  

Yardville standalone

   $ 1.82     $ 1.80     $ 17.77     $ 17.65     $ 0.46  

Yardville Pro Forma Equivalent(2)

   $ 3.03     $ 2.93     $ 24.30     $ 11.61     $ 1.20  

% Accretion (Dilution)

     66.5 %     62.9 %     36.8 %     (34.2 )%     160.8 %

(1) Assumptions based on March 31, 2007.
(2) Based on a 60% stock/ 40% cash consideration with an exchange ratio of 0.4743 for stock electing shareholders.

 

33


Table of Contents

Comparable Company Analysis. Using publicly available information, Hovde compared the stock market valuation and operating characteristics of Yardville on a standalone basis with other Mid-Atlantic banks with assets between $1.0 billion and $6.0 billion (the “Comparable Group”). The Comparable Group consisted of the following 13 publicly traded institutions:

 

Company Name

  

Headquarters

  

Ticker

Center Bancorp, Inc.

   New Jersey    CNBC

Community Banks, Inc.

   Pennsylvania    CMTY

First Mariner Bancorp

   Maryland    FMAR

First United Corporation

   Maryland    FUNC

Harleysville National Corporation

   Pennsylvania    HNBC

Lakeland Bancorp, Inc.

   New Jersey    LBAI

National Penn Bancshares, Inc.

   Pennsylvania    NPBC

Peapack-Gladstone Financial

   New Jersey    PGC

S&T Bancorp, Inc.

   Pennsylvania    STBA

Sandy Spring Bancorp, Inc.

   Maryland    SASR

Sterling Financial Corporation

   Pennsylvania    SLFI

Sun Bancorp, Inc.

   New Jersey    SNBC

Univest Corporation of PA

   Pennsylvania    UVSP

Indications of such financial performance and stock market valuation included the calculation of price-to-last twelve months trailing core earnings, price-to-2007 estimated GAAP earnings, price-to-2008 estimated GAAP earnings, price-to-book value, price-to-tangible book value and price–to-ratio of tangible book premium to core deposits.

 

     Price to:
     LTM
Earnings(1)
(x)
   2007
Estimated
Earnings
(x)
   2008
Estimated
Earnings
(x)
   Book
Value
(x)
   Tangible
Book
Value
(x)
   Ratio of
Tangible
Book
Premium to
Core
Deposits(2)
(%)

YNB(3)

   22.7    20.5    19.9    2.07    2.09    11.5

Comparable Group median

   16.3    16.2    14.5    1.59    2.22    12.1

(1) 12 months preceding earnings excludes one time costs associated with balance sheet restructuring in fourth quarter of 2006.
(2) Core deposits defined as total deposits less CD’s greater than $100,000 and Express Data CD’s for Yardville.
(3) Based on YNB closing price of $35.79 on June 4, 2007.

This analysis produced a range of implied trading values for Yardville of $25.75 to $36.59 with a median value of $27.63 or an approximately 29.5% discount to Yardville’s closing price of $35.79 on June 4, 2007.

Based upon the foregoing analyses and other investigations and assumptions set forth in its opinion, without giving specific weightings to any one factor or comparison, Hovde determined that the merger consideration was fair from a financial point of view to the shareholders of Yardville.

 

34


Table of Contents

Boenning & Scattergood, Inc.

Pursuant to an engagement letter dated as of March 27, 2007, the special committee of the board of directors of Yardville retained Boenning to render a fairness opinion as to the merger consideration to the holders of Yardville common stock from a financial point of view in connection with Yardville’s consideration of a possible business combination. In connection with the merger with PNC, Yardville’s special committee of the board of directors requested Boenning to render its opinion as to the fairness of the merger consideration to the holders of Yardville common stock from a financial point of view. At the June 6, 2007 meeting at which Yardville’s board considered the merger agreement, Boenning rendered its opinion to the board that, based upon and subject to the various considerations set forth therein, as of June 6, 2007, the merger consideration was fair to the holders of Yardville common stock from a financial point of view.

The full text of Boenning’s opinion, which sets forth the assumptions made, matters considered and limitations of the review undertaken, is attached as Annex C to this proxy statement/prospectus, is incorporated herein by reference, and should be read in its entirety in connection with this document. The summary of the opinion of Boenning set forth below is qualified in its entirety by reference to the full text of the opinion attached as Annex C to this document. Boenning’s opinion speaks only as of the date of the opinion.

Boenning was selected to act as Yardville’s financial advisor in connection with the merger with PNC based upon its qualifications, expertise, reputation and experience. Boenning has knowledge of, and experience with the New Jersey, Pennsylvania, and surrounding banking markets, as well as banking organizations operating in those markets, and was selected by Yardville because of its knowledge of, experience with, and reputation in the financial services industry. Boenning, as part of its investment banking business, is engaged regularly in the valuation of assets, securities and companies in connection with various types of asset and securities transactions, including mergers, acquisitions, public offerings, private placements, and valuations for various other purposes and in the determination of adequate consideration in such transactions. In the ordinary course of its business as a broker-dealer, Boenning may, from time to time, purchase securities from, and sell securities to, Yardville and PNC. In the ordinary course of business, Boenning may actively trade the securities of Yardville and PNC for its own account and for the accounts of customers and accordingly may at any time hold a long or short position in such securities. Boenning is a market maker in Yardville’s common stock.

On June 6, 2007, Yardville’s board of directors approved and executed the merger agreement. Prior to the approval, Boenning delivered its opinion to Yardville’s board stating that, as of such date, the merger consideration pursuant to the merger agreement was fair to the shareholders of Yardville from a financial point of view. The full text of the opinion which sets forth assumptions made, matters considered and limits on the review undertaken is attached as Annex C to this document.

No limitations were imposed by Yardville’s board of directors upon Boenning with respect to the investigations made or procedures followed by Boenning in rendering the opinion.

In arriving at its opinion, Boenning, among other things:

 

   

Reviewed the merger agreement;

 

   

Reviewed historical financial performance, current financial position and general prospects of Yardville and certain historical publicly available business and financial information concerning PNC;

 

   

Reviewed certain internal financial analyses and forecasts prepared by the management of Yardville and certain publicly available research analyst reports with respect to the future financial performance of PNC;

 

   

Reviewed and analyzed historical market prices and trading volumes of both the Yardville common stock and the PNC common stock;

 

35


Table of Contents
   

Reviewed consensus earnings per share estimates for Yardville for the years ending December 31, 2007 and 2008 published by I/B/E/S and reviewed with management of Yardville;

 

   

Reviewed consensus earnings per share estimates for PNC for the years ending December 31, 2007 and 2008 published by I/B/E/S and reviewed with management of PNC;

 

   

Studied and analyzed the consolidated financial and operating data of Yardville;

 

   

Reviewed the pro forma financial impact of the merger on PNC, based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings and other synergies determined by senior management of Yardville and PNC;

 

   

Considered the financial terms and conditions of the merger between Yardville and PNC as compared with the financial terms and conditions of comparable bank, bank holding company and financial holding company mergers and acquisitions;

 

   

Met and/or communicated with certain members of Yardville’s senior management and PNC’s senior management to discuss their respective operations, historical financial statements and future prospects; and

 

   

Conducted such other financial analyses, studies and investigations as it deemed appropriate.

In connection with rendering its opinion, Boenning assumed that in the course of obtaining the necessary regulatory and governmental approvals for the merger, no restriction will be imposed on PNC or Yardville that would have a material adverse effect on the contemplated benefits of the merger. Boenning also assumed that all of the representations and warranties contained in the merger agreement and all related agreements are true and correct, that each party under the agreements will perform all of the covenants required to be performed by such party, that the conditions precedent in the agreements are not waived, that the merger will qualify as a tax-free reorganization for federal income tax purposes and that no change in applicable law or regulation will occur that would cause a material adverse change in the prospects or operations of PNC after the merger.

Boenning relied, without independent verification, upon the accuracy and completeness of all of the financial and other information reviewed by and discussed with it for purposes of its opinions. With respect to Yardville’s and PNC’s financial forecasts and other information reviewed by Boenning in rendering its opinions, Boenning assumed that such information was reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Yardville and PNC as to their most likely future performance and the cost savings and other potential synergies (including the amount, timing and achievability thereof) anticipated to result from the merger. Boenning did not make an independent evaluation or appraisal of the assets (including loans) or liabilities of Yardville or PNC nor was it furnished with any such appraisal. Boenning also did not independently verify, and has relied on and assumed, that all allowances for loan and lease losses set forth in the balance sheets of Yardville and PNC were adequate and complied fully with applicable law, regulatory policy and sound banking practice as of the date of such financial statements. In addition, Boenning did not review credit files of either Yardville or PNC.

The following is a summary of the material analyses prepared by Boenning and presented to Yardville’s board in connection with the opinion and analyzed by Boenning in connection with the opinion. None of the analyses prepared by Boenning in connection with the issuance of the opinion failed to support Boenning’s conclusion that the merger consideration was fair to the holders of Yardville common stock from a financial point of view.

Summary of Transaction. Boenning calculated the implied pricing and valuation multiples based upon the implied per share consideration to Yardville common stock of $35.00 as of June 6, 2007, consisting of on the date of the opinion (i) $14.00 in cash and (ii) $21.00 in PNC common stock. The offer price in stock was derived by multiplying the fixed exchange ratio of .2923 by the last reported per share sale price of PNC’s common stock of $71.84 as of June 6, 2007. In addition, Boenning calculated the value of the difference between the implied consideration offered to Yardville common stock per share of $35.00 and the respective strike prices of

 

36


Table of Contents

outstanding warrants and stock options to purchase Yardville common stock. A summary of the implied pricing is provided below.

 

Fixed Exchange Ratio Offered for Stock

     .2923   

PNC Stock Price on June 6, 2007

   $ 71.84   
         

Implied Price Offered for Stock

   $ 21.00    60 %

Price Per Share Offered in Cash

   $ 14.00    40 %
             

Implied Price Per Share for Yardville Shareholders

   $ 35.00    100 %
             

Implied Total Consideration to Yardville Common Shareholders1

   $ 387,936,000   

Total “Economic Value” Offered to Warrant Holders2

   $ 1,495,000   

Total “Economic Value” Offered to Option Holders3

   $ 12,545,000   
         

Aggregate Consideration to Yardville

   $ 401,976,000   
         

1

Based on 11,083,891 common shares outstanding.

2

Based on 65,000 outstanding warrants with a weighted average strike price of $12.00.

3

Based on 743,810 outstanding options with a weighted average strike price of $18.13.

Boenning calculated certain standard industry valuation statistics applicable to the transaction based on certain financial results for Yardville. The financial results utilized were based on the twelve month period ended March 31, 2007, unless otherwise indicated, and included:

 

   

net income of $5.2 million;

 

   

net income adjusted to reflect performance absent certain non-recurring events of $17.9 million (referred to throughout as adjusted net income);

 

   

I/B/E/S consensus EPS estimate for 2007;

 

   

common shareholders’ equity of $190.8 million;

 

   

common shareholders’ tangible equity of $189.4 million;

 

 

 

June 6th closing market price per share; and

 

 

 

June 6th 30 day average closing market price per share.

The valuation statistics were calculated as follows:

 

Aggregate Consideration / Net Income

   76.9 x

Aggregate Consideration / Adjusted Net Income

   22.5 x

Aggregate Consideration / I/B/E/S consensus EPS estimate for 2007

   20.7 x

Aggregate Consideration / Common Shareholders’ Equity

   210.7 %

Aggregate Consideration / Tangible Common Shareholders’ Equity

   212.3 %

June 6th Closing Market Price

   (2.2 )%

June 6th 30 Day Average Closing Market Price

   (2.9 )

Comparable Companies Analysis. Boenning compared selected publicly available financial, operating and stock market data for Yardville with those of a peer group in order to compare Yardville’s historical financial and operating performance with the peers and examine the merger consideration offered by PNC relative to the market valuations of the peers. The financial and operating data is as of March 31, 2007 and the stock market data is as of June 6, 2007. The peers consisted of SEC reporting bank and financial holding companies with assets between $2 billion and $5 billion headquartered in New Jersey, New York and Pennsylvania.

The companies in the peer group were:

 

   

S&T Bancorp, Inc., Indiana, PA;

 

   

Sun Bancorp, Inc., Vineland, NJ;

 

37


Table of Contents
   

Harleysville National Corporation, Harleysville, PA;

 

   

U.S.B. Holding Co., Inc., Orangeburg, NY;

 

   

Hudson Valley Holding Corp., Yonkers, NY;

 

   

Lakeland Bancorp, Inc., Oak Ridge, NJ;

 

   

Tompkins Trust co, Inc., Ithaca, NY: and

 

   

Interest Bancshares Corporation, New York, NY.

The results of these comparisons, based on March 31, 2007 financial information and stock price data as of June 6, 2007, are set forth in the following table.

 

     Yardville     Median  
     ($s in millions)  

Assets

   $ 2,676.9     $ 2,667.3  

Common Equity Capital / Assets

     7.1 %     8.8 %

Loans / Deposits

     96.9 %     86.0 %

Nonperforming Assets1 / Assets

     0.98 %     0.52 %

Return on Average Assets

     0.18 %     1.15 %

Return on Average Common Equity

     2.81 %     14.11 %

Non-Interest Income / Average Assets

     0.26 %     0.70 %

Non-Interest Expense / Average Assets

     2.52 %     2.33 %

Efficiency Ratio2

     76.8 %     55.1 %

Net Interest Margin

     3.11 %     3.41 %

Four Year Average Results:

    

Return on Average Assets

     0.63 %     1.26 %

Return on Average Common Equity

     11.37 %     15.66 %

Efficiency Ratio2

     56.8 %     51.8 %

Net Interest Margin

     2.67 %     3.74 %

Compound Annual Growth Rate3

    

Assets

     3.9 %     4.9 %

Loans

     11.4 %     7.5 %

Deposits

     10.7 %     5.6 %

Common Equity Market Capitalization

   $ 397.3     $ 411.3  

Price / 52 Week High Price

     89.4 %     82.7 %

Price to:

    

Book Value Per Common Share

     207.4 %     171.7 %

Tangible Book Value Per Common Share

     208.8 %     204.1 %

LTM4 Earnings Per Common Share

     83.2 x     15.0 x

LTM4,5 Adjusted Earnings Per Common Share

     25.4 x     15.0 x

I/B/E/S Consensus EPS Est. for 2007

     20.5 x     14.7 x

I/B/E/S Consensus EPS Est. for 2008

     19.9 x     13.5 x

Dividend Yield

     1.29 %     3.11 %

LTM4 Dividend Payout Ratio

     107.0 %     47.1 %

LTM4,5 Adjusted Dividend Payout Ratio

     31.3 %     47.1 %

Avg. Weekly Volume / Common Shares Outstanding

     1.40 %     0.85 %

1

Defined as total nonaccrual loans plus other real estate owned plus accruing loans that are 90 days past due.

2

Defined as non-interest expense less intangible amortization divided by the sum of net interest income plus non-interest income.

3

Reflects the compound annual growth rate from fiscal year 2002 to most recent quarter.

4

LTM stands for the latest twelve months.

5

Reflects adjusted net income.

 

38


Table of Contents

Boenning also compared selected publicly available financial, operating and stock market data for PNC with a peer group of SEC reporting financial and bank holding companies with assets between $75 billion and $200 billion headquartered in the United States. This analysis was performed in order to compare PNC’s historical financial and operating performance with comparable institutions and to examine its market valuation relative to its peer group. The financial and operating data is as of March 31, 2007 and the stock market data is as of June 6, 2007.

The companies in the peer group were:

 

   

SunTrust Banks, Inc., Atlanta, GA;

 

   

Capital One Financial Corporation, Mclean, VA;

 

   

National City Corporation, Cleveland, OH;

 

   

Regions Financial Corporation, Birmingham, AL;

 

   

BB&T Corporation, Winston-Salem, NC;

 

   

State Street Corporation, Boston, MA;

 

   

Bank of New York Company, Inc., New York, NY;

 

   

Fifth Third Bancorp, Cincinnati, OH; and

 

   

KeyCorp, Cleveland, OH.

 

39


Table of Contents

The results of these comparisons, based on March 31, 2007, financial information and stock price data as of June 6, 2007, are set forth in the following table.

 

     PNC     Median  
     ($s in millions)  

Assets

   $ 122,563.0     $ 121,694.0  

Common Equity Capital / Assets

     12.0 %     9.6 %

Loans / Deposits

     81.3 %     103.7 %

Nonperforming Assets1 / Assets

     0.20 %     0.45 %

Return on Average Assets2

     2.73 %     1.39 %

Return on Average Common Equity2

     26.71 %     13.15 %

Non-Interest Income / Average Assets

     4.19 %     2.32 %

Non-Interest Expense / Average Assets

     4.29 %     3.43 %

Efficiency Ratio3

     64.9 %     59.3 %

Net Interest Margin2

     2.92 %     3.62 %

Four Year Average Results:

    

Return on Average Assets

     1.16 %     1.30 %

Return on Average Common

Equity

     16.98 %     14.63 %

Efficiency Ratio3

     64.9 %     58.9 %

Net Interest Margin

     3.46 %     3.71 %

Compound Annual Growth Rate4:

    

Assets

     13.8 %     2.7 %

Loans

     12.7 %     5.8 %

Deposits

     12.1 %     5.1 %

Common Equity Market Capitalization

   $ 25,465.4     $ 23,466.3  

Price / 52 Week High Price

     96.6 %     92.7 %

Price to:

    

Book Value Per Common Share

     173.2 %     184.4 %

Tangible Book Value Per Common Share

     388.8 %     313.9 %

LTM5 Earnings Per Common Share

     8.2 x     14.1 x

LTM5,6 Adjusted Earnings Per Common Share

     16.1 x     14.1 x

I/B/E/S Consensus EPS Est. for 2007

     12.9 x     13.6 x

I/B/E/S Consensus EPS Est. for 2008

     11.6 x     12.9 x

Dividend Yield

     3.41 %     3.94 %

LTM5 Dividend Payout Ratio

     25.3 %     46.3 %

LTM5,6 Dividend Payout Ratio

     49.3 %     46.3 %

Avg. Weekly Volume / Common Shares Outstanding

     2.19 %     2.35 %

1

Defined as total nonaccrual loans plus other real estate owned, plus accruing loans that are 90 days past due.

2

These ratios differ from those reported in PNC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 due to differences in the periods used to calculate average assets, average common equity, and average interest-earning assets as those amounts are used in the determination of these ratios.

3

Defined as non-interest expense less intangible amortization divided by the sum of net interest income, plus non-interest income.

4

Reflects the compound annual growth rate from fiscal year 2002 to most recent quarter.

5

LTM stands for latest twelve months.

6

Reflects results exclusive of pre-tax income from PNC’s Black Rock/Merrill Lynch Investment Managers transaction of $2.1 billion.

 

40


Table of Contents

No company, however, used in this analysis is identical to Yardville or PNC. Accordingly, an analysis of the result of the foregoing is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that would affect the public trading values of the companies or company to which they are being compared.

Discounted Dividend Analysis. Using a discounted dividend analysis, Boenning estimated the present value of the future cash flows that would accrue to a holder of a share of Yardville common stock over a five-year period. This analysis was performed in order to compare the merger consideration offered by PNC to a range of estimated implied values for Yardville common stock based on projected future cash flows. This stand-alone analysis was based on several assumptions, including a range of price to earnings multiples of 13.0x to 17.0x to Yardville’s terminal year common earnings per share, a range of EPS growth rates based upon Yardville management’s five year projected earnings per share growth rate of 13.9% to 17.9%, and Yardville’s current adjusted common stock cash dividend payout ratio of 31.3%. The range of multiples applied to Yardville’s estimated five-year earnings per share value reflected a variety of scenarios regarding the growth and profitability prospects of Yardville and valuation for banking securities in general. The terminal values and projected annual cash dividends were then discounted to present value using a discount rate of 14%. This discount rate was used in order to reflect an expected rate of return required by holders or prospective buyers of Yardville’s common stock. The analysis indicated that, based upon the aforementioned assumptions, the per common share value of the present value of Yardville’s common stock, on a stand-alone basis, ranged from $24.32 – $35.39 with a median value of $29.56. The table below summarizes the results under different assumption scenarios.

 

     Terminal Multiple
     13.0x    14.0x    15.0x    16.0x    17.0x

EPS Growth Rate (%)

              

13.9

   $ 24.32    $ 25.99    $ 27.66    $ 29.33    $ 31.00

14.9

     25.14      26.87      28.60      30.33      32.06

15.9

     25.98      27.77      29.56      31.35      33.14

16.9

     26.84      28.69      30.55      32.40      34.25

17.9

     27.73      29.64      31.56      33.48      35.39

In connection with the discounted dividend analysis performed, Boenning considered and discussed with Yardville’s board how the present value analysis would be affected by changes in the underlying assumptions, including variations with respect to the growth rate of assets, net interest spread, non-interest income, non-interest expenses and dividend payout ratio. Boenning noted that the discounted dividend stream and terminal value analysis is a widely used valuation methodology, but the assumptions that must be made, and the results of this analysis, are not necessarily indicative of actual values or future results.

Comparable Transactions Analysis. Boenning also compared the per share values to Yardville common shareholders in the transaction with PNC to those implied per share prices to Yardville derived by applying the median multiples of latest twelve months’ earnings, book value, tangible book value, and core deposits in recent acquisitions of banks, bank holding companies, and financial holding companies that Boenning deemed comparable to Yardville. The transactions deemed comparable by Boenning included both interstate and intrastate bank, bank holding company, and financial holding company acquisitions announced after January 1, 2005, in which the selling institution’s assets were between $1.5 billion and $9 billion as of the most recent period publicly available prior to announcement. Boenning compared this “national group” as a whole as well as certain of its subgroups, including a regional group, a performance group, and a recent group, with the Yardville/PNC transaction. The “regional group” included transactions involving banks, bank holding companies, and financial holding companies in which the acquired company was located in the Mid-Atlantic region. The “performance group” included transactions involving banks, bank holding companies, and financial holding companies which had equity to assets ratio between 5% and 9% and a NPAs/Assets ratio greater than 0.30%. In addition to the national, regional, and performance groups, Boenning also compared transactions involving “recent” banking companies that were announced after January 1, 2007. Lastly, Boenning compared the Yardville/PNC transaction to a “market area group” which included transactions involving banks, bank holding

 

41


Table of Contents

company, and financial holding companies located in New Jersey and Pennsylvania with assets greater than $250 million which had announced their intention to sell since January 1, 2005. The results of these comparisons are set forth in the following table.

 

     National     Regional     Performance     Recent     Market
Area
 

Number of Transactions

     20       44       3       5       10  

Seller Information:

          

Assets (000s)

   $ 2,836,762     $ 3,314,653     $ 6,243,670     $ 3,441,261     $ 634,064  

Common Equity Capital / Assets

     10.2 %     10.0 %     6.5 %     12.9 %     9.0 %

LTM1 Return on Average Assets

     1.13 %     1.22 %     1.32 %     0.97 %     1.02 %

LTM1 Return on Average Common Equity

     11.09 %     13.16 %     17.78 %     7.93 %     9.91 %

NPAs2 / Assets

     0.39 %     0.31 %     0.38 %     1.01 %     0.29 %

Implied Per Share Value to Yardville

Based on Application of

Transaction Multiples:

          

Book Value

   $ 36.69     $ 36.67     $ 58.57     $ 29.07     $ 42.70  

Tangible Book Value

   $ 62.49     $ 71.77     $ 64.40     $ 43.27     $ 49.33  

LTM1,3Net Income

   $ 36.67     $ 28.40     $ 23.93     $ 30.80     $ 37.93  

Franchise Premium/ Core Deposits4

   $ 45.72     $ 44.02     $ 44.02     $ 37.52     $ 35.56  

1

LTM stands for latest twelve months.

2

Defined as total nonaccrual loans and other real estate owned.

3

In calculating the implied per share value to Yardville, Boenning utilized Yardville’s adjusted net income.

4

Reflects the difference between total consideration and tangible book value by core deposits (i.e. total deposits minus all certificate of deposits with face values in excess of $100,000).

No company or transaction, however, used in this analysis is identical to Yardville, PNC or the transaction. Accordingly, an analysis of the result of the foregoing is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that would affect the public trading values of the companies or company to which they are being compared.

Contribution Analysis. Boenning analyzed the contribution that Yardville and PNC would have made to the combined company’s assets, loans, deposits and equity as of March 31, 2007. In addition, Boenning analyzed the contribution Yardville and PNC would have made to the combined company’s estimated net income on a historical full year basis. This analysis was conducted in order to compare the amount of these categories Yardville is contributing to the pro forma entity versus the proportionate amount of value its shareholders are receiving. Boenning has not expressed any opinion as to the actual value of PNC common stock when issued in the merger or the price at which PNC common stock will trade after the merger. The analysis indicated the following information as of and for the last twelve months ended March 31, 2007:

 

     Yardville     PNC  

Contribution of:

    

Assets

     2.1%   97.9 %

Common Equity

     1.3%   98.7 %

Loans

     3.1%   69.9 %

Deposits

     2.6%   97.4 %

LTM1 Adjusted Net Income

     1.3%   98.7 %

Market Value2

     1.6%   98.4 %

1

LTM stands for latest twelve months.

2

Market value consists of total cash consideration and the implied value of stock consideration to be received by Yardville based on PNC’s closing price on June 6, 2007.

 

42


Table of Contents

Hurdle Rate Analysis. Using a range of discount rates and a range of terminal price to earnings per common share multiples, Boenning estimated a range of compound annual earnings per common share growth rates required over a five year period for Yardville to obtain an implied per common share stand alone market price comparable to the value implied by the merger consideration offered by PNC on a present value basis. This analysis was performed in order to examine the earnings per common share growth rates that would be required to offer Yardville shareholders similar value to that implied by the merger consideration. Boenning calculated a range of future values of the per common share implied value of the PNC transaction over a five-year period based on a range of discount rates from 12.0% to 14.0%. The range of discount rates reflected the expected rate of return required by holders or prospective buyers of Yardville common stock. Utilizing the range of discount rates, Boenning calculated Yardville’s five year required per share value to be indifferent on a nominal basis to the implied per share consideration offered to Yardville by PNC of $35.00. From these numbers, Boenning subtracted a five year projected cumulative value of Yardville’s cash dividend assuming Yardville’s current annual divided being increased by 5% per year. Using a range of price to earnings per common share multiples of 13.0x to 17.0x to reflect the growth and profitability prospects of Yardville as well as general market valuations for comparable banking companies, Boenning calculated Yardville’s potential earnings per common share at the end of five years by dividing these net future values by the range of earnings per share multiples. The annual growth rate was then calculated based on the potential earnings per common share values at the end of five years and Yardville’s fully diluted earnings per common share value of $.46 for the twelve months ended March 31, 2007. Boenning then compared the resulting earnings growth rates with Yardville’s historical and estimated future earnings per common share growth rates. The table below summarizes the required five year earnings per share growth rate results under different assumption scenarios.

Five Year Projected Annual EPS Growth Rates

 

     Discount Rate  

Terminal Multiple

   12.0%     13.0%     14.0%  

13.0x

   25.7 %   26.8 %   28.0 %

14.0x

   23.8 %   25.0 %   26.1 %

15.0x

   22.1 %   23.3 %   24.4 %

16.0x

   20.5 %   21.7 %   22.8 %

17.0x

   19.1 %   20.2 %   21.3 %

In connection with the hurdle rate analysis performed, Boenning considered and discussed with Yardville’s board how the analysis would be affected by changes in the underlying assumptions, including variations with respect to the range of discount rates and price per common share earnings multiples used.

In connection with rendering its opinion, Boenning performed what it deemed were the material financial analyses. Although the evaluation of the fairness, from a financial point of view, of the merger consideration in the Merger was to some extent a subjective one based on the experience and judgment of Boenning and not merely the result of mathematical analysis of financial data, Boenning principally relied on the previously discussed financial valuation methodologies in its determinations. Boenning believes its analyses must be considered as a whole and that selecting portions of such analyses and factors considered by Boenning without considering all such analyses and factors could create an incomplete view of the process underlying Boenning’s opinion. In its analyses, Boenning made numerous assumptions with respect to business, market, monetary and economic conditions, industry performance and other matters, many of which are beyond Yardville and PNC’s control. Any estimates contained in Boenning’s analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than such estimates.

In reaching its opinion as to fairness, none of the analyses or factors considered by Boenning was assigned any particular weighting by Boenning. As a result of its consideration of the aggregate of all factors present and analyses performed, Boenning reached the conclusion, and opined, that the merger consideration pursuant to the

 

43


Table of Contents

merger agreement was fair to the holders of Yardville common stock from a financial point of view. Boenning’s opinion was based solely upon the information available to it and the economic, market, financial and other circumstances as they existed as of the date its opinion was delivered; events occurring after the date of its opinion could materially affect the assumptions used in preparing its Proxy Opinion. Boenning has not undertaken to reaffirm and revise its opinion or otherwise comment upon any events occurring after the date of the opinion.

The full text of the Boenning opinion, dated as of June 6, 2007, which sets forth assumptions made and matters considered, is attached as Annex C to this document. Yardville’s shareholders are urged to read the opinion in its entirety. Boenning’s opinion expresses no opinion as to the value of the PNC common stock and the Yardville common stock when issued to holders of outstanding shares of Yardville’s common stock pursuant to the merger agreement or the prices at which the PNC common stock or the Yardville common stock may trade at any time. Boenning’s opinion is for the information of the board of directors of Yardville and addresses only the fairness, from a financial point of view, to the holders of Yardville common stock of the merger consideration pursuant to the merger agreement. Boenning’s opinion does not address the underlying business decision of Yardville to engage in the merger, does not address any other aspect of the merger nor does it constitute a recommendation to any holder of Yardville common stock as to how such holder should vote at the Yardville special meeting.

The foregoing provides only a summary of the analyses performed by Boenning in connection with its opinion, and is qualified in its entirety by reference to the full text of that opinion, which is set forth in Annex C to this document.

Compensation of Boenning & Scattergood

Yardville and Boenning entered into an agreement relating to the services to be provided by Boenning in connection with the merger. Yardville agreed to pay Boenning a cash fee of $25,000 upon execution of the engagement letter. In addition, concurrently with the execution of a definitive agreement, Yardville agreed to pay Boenning a cash fee equal to $225,000. Pursuant to the Boenning engagement letter, Yardville also agreed to reimburse Boenning for reasonable out-of-pocket expenses incurred in connection with its retention and to indemnify it against certain liabilities.

Board of Directors and Management of PNC Following Completion of the Merger

Upon completion of the merger, the current directors and officers of PNC are expected to continue in their current positions. Information about the current PNC directors and executive officers can be found in PNC’s proxy statement dated March 23, 2007, which is incorporated by reference in this document. See “Where You Can Find More Information” on page 83.

Public Trading Markets

PNC common stock trades on the NYSE under the symbol “PNC”. Yardville common stock is quoted on The Nasdaq Global Select Market under the symbol “YANB”. Upon completion of the merger, Yardville common stock will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended. The PNC common stock issuable in the merger will be listed on the NYSE.

The shares of PNC common stock to be issued in connection with the merger will be freely transferable under the Securities Act of 1933, as amended, which we refer to as the Securities Act, except for shares issued to any shareholder who is an affiliate of Yardville, as discussed in “The Merger Agreement—Resales of PNC Stock by Affiliates” on page 65.

 

44


Table of Contents

Yardville Shareholders Do Not Have Dissenters’ Appraisal Rights in the Merger

Appraisal rights are statutory rights that allow shareholders to dissent from extraordinary transactions, such as a merger, and to demand that the corporation pay the “fair value” of their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. Appraisal rights are not available in all circumstances, and exceptions to such rights are set forth in the laws of New Jersey, which is the state of incorporation of Yardville. These exceptions are applicable with respect to the rights of Yardville shareholders in the merger. Yardville shareholders are not entitled to appraisal rights under New Jersey law in connection with the merger because the shares of Yardville’s class of common stock are listed on a national securities exchange.

Regulatory Approvals Required for the Merger

We have agreed to use our reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement. These approvals include approval (or a waiver from the application requirement) from the Federal Reserve Board and the OCC, as well as various other federal and state regulatory authorities. PNC and Yardville have completed, or will complete, the filing of applications and notifications to obtain the required regulatory approvals. The Federal Reserve Board must approve, or waive the approval of, the merger of Yardville into PNC and the OCC must approve the merger of The Yardville National Bank into PNC Bank, National Association, which may occur simultaneously with or after the closing of the merger of Yardville into PNC.

Federal Reserve Board. The merger is subject to approval by the Federal Reserve Board pursuant to Section 3 of the Bank Holding Company Act of 1956. On August 23, 2007, PNC completed the filing of the required application with the Federal Reserve Board for approval of the merger.

The Federal Reserve Board is prohibited from approving any transaction under the applicable statutes that (1) would result in a monopoly, (2) would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or (3) may have the effect in any section of the United States of substantially lessening competition, tending to create a monopoly or resulting in a restraint of trade, unless the Federal Reserve Board finds that the anti-competitive effects of the transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served. The Federal Reserve Board may not approve an interstate acquisition without regard to state law if the applicant controls, or after completion of the acquisition the combined entity would control, more than 10 percent of the total deposits of insured depository institutions in the United States. The Federal Reserve Board will also consider the financial and managerial resources of the companies and their subsidiary banks and the convenience and needs of the community to be served as well as the companies’ effectiveness in combating money-laundering activities. In connection with its review, the Federal Reserve Board (unless it were to waive the application requirement) will provide an opportunity for public comment on the application for the merger, and is authorized to hold a public meeting or other proceeding if it determines that would be appropriate.

Under the Community Reinvestment Act of 1977, which we refer to as the CRA, the Federal Reserve Board must take into account the record of performance of each of PNC and Yardville in meeting the credit needs of the entire communities, including low- and moderate-income neighborhoods, served by the company and its subsidiaries. Each of PNC’s and Yardville’s depository institutions has a “satisfactory” or better CRA rating and PNC Bank, National Association currently has an “outstanding” CRA rating.

Office of the Comptroller of the Currency. The merger of Yardville National Bank into PNC Bank, National Association is subject to the approval of the OCC under the Bank Merger Act. On July 6, 2007, PNC filed the required application with the OCC for approval of the bank merger. In reviewing the application, the OCC is required under the Bank Merger Act to consider factors that are similar to those considered by the Federal Reserve Board under the Bank Holding Company Act. Applications or notifications may also be required to be filed with various other federal and state regulatory authorities in connection with the merger.

 

45


Table of Contents

Antitrust Considerations. At any time before or after the acquisition is completed, the Antitrust Division of the United States Department of Justice or the United States Federal Trade Commission, which we refer to as the Antitrust Division and the FTC, respectively, could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition or seeking divestiture of substantial assets of PNC or Yardville on their subsidiaries. Private parties also may seek to take legal action under the antitrust laws under some circumstances. Based upon an examination of information available relating to the businesses in which the companies are engaged, PNC and Yardville believe that the completion of the merger will not violate U.S. antitrust laws. However, PNC and Yardville can give no assurance that a challenge to the merger on antitrust grounds will not be made, or, if such a challenge is made, that PNC and Yardville will prevail.

In addition, the merger may be reviewed by the state attorneys general in the various states in which PNC and Yardville operate. Although PNC and Yardville believe there are substantial arguments to the contrary, these agencies may claim the authority, under the applicable state and federal antitrust laws and regulations, to investigate and/or disapprove the merger. There can be no assurance that one or more state attorneys general will not attempt to file an antitrust action to challenge the merger.

Timing. We cannot assure you that all of the regulatory approvals described above will be obtained, and, if obtained, we cannot assure you as to the date of any approvals or the absence of any litigation challenging such approvals. Likewise, we cannot assure you that the Antitrust Division, the FTC or any state attorney general will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, we cannot assure you as to its result.

The merger may not be completed until 30 days after the Federal Reserve Board has approved the merger (or the OCC, if the Federal Reserve Board were to grant a waiver to the application requirement), during which time the Antitrust Division may challenge the merger on antitrust grounds. The commencement of an antitrust action would “stay”—that is, suspend—the effectiveness of an approval unless a court specifically were to order otherwise. With the approval of the applicable bank regulator and the concurrence of the Antitrust Division, the waiting period may be reduced to no less than 15 days.

PNC and Yardville believe that the merger does not raise substantial antitrust or other significant regulatory concerns and that they will be able to obtain all requisite regulatory approvals on a timely basis without the imposition of any condition that would have a material adverse effect on PNC or Yardville. In connection with obtaining any required regulatory approvals, PNC is not required to agree to conditions or restrictions that would have a material adverse effect on either PNC or Yardville, measured on a scale relative to Yardville.

We are not aware of any material governmental approvals or actions that are required for completion of the merger other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Yardville’s Directors and Officers Have Financial Interests in the Merger

In considering the information contained in this document, you should be aware that Yardville’s executive officers and directors have financial interests in the merger that may be different from, or in addition to, the interests of Yardville shareholders. These additional interests of Yardville’s executive officers and directors may create potential conflicts of interest and cause some of these persons to view the proposed transaction differently than you may view it as a shareholder. Yardville’s board of directors was aware of these interests and took them into account in its decision to approve and adopt the merger agreement.

Yardville Stock Options

Pursuant to the merger agreement, each outstanding option to purchase shares of Yardville common stock granted under any Yardville stock option plan, whether vested or not, will be cancelled in exchange for the right

 

46


Table of Contents

to receive a lump sum cash payment, without interest and less applicable withholding taxes, as soon as practicable following the completion of the merger, equal to the product of (i) the number of shares of Yardville common stock subject to the option and (ii) the excess, if any, of the all cash consideration over the exercise price per share of the option. The all-cash consideration will equal the sum of (a) $14.00 and (b) the product of 0.2923 multiplied by the average of the closing sale prices of PNC common stock for the five trading days immediately preceding the date of completion of the merger. None of Yardville’s executive officers and directors have unvested options.

Agreements with Executive Officers

Yardville and Yardville Bank have previously entered into employment agreements with F. Kevin Tylus, Patrick M. Ryan, Jay G. Destribats, Stephen F. Carman, Timothy J. Losch, Stephen R. Walker and Daniel J. O’Donnell. Upon certain termination of employment events within six months prior to, or within three years following, a change in control (such as the closing of the merger), the covered executives would receive a severance payment equal to three times the sum of his highest annual rate of base salary during the thirty-six month period preceding the effective date of the change in control and the highest annual bonus or similar incentive compensation paid to the executive or accrued on the executive’s behalf during the three most recently completed calendar years preceding the effective date of the change in control. Each such executive officer would also continue to receive health and welfare benefit coverage, or the cash equivalent, for thirty-six months following termination of employment. In the event that any payment, benefit or distribution made or provided by Yardville to or for the benefit of the executive officer would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties would be incurred by the executive officer with respect to such excise tax, the executive officer would be entitled to receive an additional “gross-up” payment in an amount such that, after payment by the executive officer of all taxes, interest and penalties, including taxes imposed on the gross-up payment, the executive officer would retain an amount of the gross-up payment equal to the excise tax.

Messrs. Tylus and Ryan have agreed that at the effective time of the merger, their employment agreements with Yardville and Yardville Bank will be null and void, in exchange for other rights that are set forth in new agreements with Yardville and PNC Bank. These new agreements are dated as of June 6, 2007, and will become effective as of the effective time of the merger.

Mr. Tylus’s new agreement is a three year employment and retention agreement, which provides that PNC Bank will employ Mr. Tylus as a regional president of Mercer and Hunterdon Counties in New Jersey at an annual base salary at a rate no less than $330,750. Under the terms of the agreement, Mr. Tylus will receive a grant of restricted PNC common stock on January 2, 2008 valued at $2,450,000, which will vest three years following the grant date, in settlement of any and all obligations and liabilities under Yardville’s Second Amended and Restated Supplemental Executive Retirement Plan, and in consideration of services to PNC Bank and its affiliates and the restrictive covenants set forth in the agreement. Further, on January 2, 2008, Mr. Tylus will receive a cash payment of $1,600,000 in consideration of a covenant not to compete and a special payment of $166,667 in cash representing compensation payable under his current employment agreement with Yardville for certain benefits which he agreed to forego as a result of his decision to leave his former employer and join Yardville. In the event that Mr. Tylus’ employment was terminated without cause (as defined in the employment agreement) or if Mr. Tylus resigned because of a material breach of the employment agreement by PNC, Mr. Tylus would receive a payment equal to the value of his annual base salary from the date of termination through the end of the employment period (assuming no such termination had occurred) to the extent unpaid. In addition, Mr. Tylus would receive immediate vesting of his restricted shares (or to the extent such shares have not been granted as of such termination, an amount in cash equal to the value of the restricted stock grant) and, to the extent unpaid, payment of the special payment and the payment in consideration of the covenant not to compete. The agreement also contains standard severance provisions and non-competition, non-solicitation and no-hire covenants.

Mr. Ryan’s new agreement provides for the engagement of Mr. Ryan as a consultant for a one year term following the effective time of the merger for a monthly consulting fee of $20,000. Under the terms of the

 

47


Table of Contents

agreement, Mr. Ryan will receive a cash payment of $2,260,000 in settlement of any and all obligations and liabilities under his current employment agreement with Yardville and in consideration of restrictive covenants set forth in the agreement and a cash payment of $4,026,000 in full settlement of any and all obligations and liabilities under any non-qualified deferred compensation plans, programs, or arrangements of PNC Bank, Yardville or their respective affiliates, including Yardville’s Second Amended and Restated Supplemental Executive Retirement Plan. The foregoing cash payments are to be made January 2, 2008. In the event that Mr. Ryan’s consulting services are terminated by PNC other than for “cause” (as defined in the consulting agreement) or by Mr. Ryan for “good reason” (as defined in the consulting agreement), then PNC will be obligated to pay all consulting fees for the full consulting period within 30 days of such termination. The agreement also contains standard non-competition, non-solicitation and no-hire covenants.

In addition to the agreements with the executive officers described above, Yardville Bank has previously entered into employment agreements with the six executive officers who are first senior vice presidents of Yardville Bank, namely Edward J. Dietzler, Brian K. Gray, Howard N. Hall, Joanne C. O’Donnell, John P. Samborski and Patrick L. Ryan (son of Yardville chief executive officer, Patrick M. Ryan). Under the terms of the agreements, upon certain termination of employment events within six months prior to, or within two years following, a change in control (such as consummation of the merger), the covered executives would receive a severance payment equal to two times his or her highest annual rate of base salary during the two-year period preceding the effective date of the change in control.

If we were to complete the merger in October 2007, and each of the executive officer’s employment was terminated without cause or each of the executive officers resigns for good reason immediately after completion of the merger, the lump-sum cash severance payments due to our executive officers under these agreements would be: for Mr. Tylus excluding the value of the payments described above with respect to the restricted stock, the non-compete and the special payment approximately $992,250; for Mr. Ryan approximately $240,000; and for the remaining eleven executive officers, as a group, approximately $5.8 million.

Directors’ Deferred Fee Plan

Under the existing terms of the Yardville Directors’ Deferred Fee Plan, upon any termination of service of a participant as a director, including termination of service in connection with a change in control (such as consummation of the merger), Yardville is to pay the participant a deferral benefit equal to the amount of his deferred benefit account in annual installments or a lump sum, as elected by the participant. As a result of the change in control, participants who have previously elected to receive annual installments may elect to receive a lump sum payment.

Employee Stock Ownership Plan; Supplemental Executive Retirement Plan.

Under the existing terms of the Yardville Amended and Restated Employee Stock Ownership Plan, upon a change of control (such as the consummation of the merger), the interests of participants fully vest. Under the terms of the Yardville Second Amended and Restated Supplemental Executive Retirement Plan, upon a change of control (such as the consummation of the merger), participants fully vest in their target benefits and, if during the three-year period following the change of control, a participant’s employment is involuntarily terminated or the participant voluntarily terminates employment in certain circumstances that amount to a constructive termination, the participant would be entitled to receive the normal retirement benefit without regard to his age and service at termination and based on final average compensation prior to termination. Messrs. Tylus, Ryan, Destribats, Carman, Losch, Walker and O’Donnell participate in the Second Amended and Restated Supplemental Executive Retirement Plan, but only Mr. Destribats is currently fully vested in the normal retirement benefit.

Indemnification and Insurance

The merger agreement requires PNC to maintain in effect for six years after completion of the merger the current rights of Yardville directors, officers and employees to indemnification under the Yardville articles of

 

48


Table of Contents

incorporation or the Yardville bylaws or disclosed agreements of Yardville. The merger agreement also provides that, upon completion of the merger, PNC will indemnify and hold harmless, and provide advancement of expenses to, all past and present officers, directors and employees of Yardville and its subsidiaries in their capacities as such against all losses, claims, damages, costs, expenses, liabilities, judgments or amounts paid in settlement to the fullest extent permitted by applicable laws.

The merger agreement provides that PNC will maintain for a period of six years after completion of the merger Yardville’s current directors’ and officers’ liability insurance policies, or policies of at least the same coverage and amount and containing terms and conditions that are not less advantageous than the current policy, with respect to acts or omissions occurring prior to the effective time of the merger, except that PNC is not required to incur annual premium expense greater than 150% of Yardville’s current annual directors’ and officers’ liability insurance premium.

Engagement of Hovde Financial

Yardville retained Hovde Financial, Inc. to provide its financial services to Yardville in consideration of certain fees, including completion fees, which are contingent upon the consummation of the merger. See “Opinion of Yardville’s Financial Advisor” beginning on page 26. Kevin J. Ryan, the son of Yardville chief executive officer, Patrick M. Ryan, is a Vice President of Hovde Financial, Inc., but is not an executive officer or equity owner of Hovde Financial, Inc. As an investment banking professional employed by Hovde Financial, Inc., Mr. Ryan receives a base salary and investment banking commissions at rates that are equivalent to those received by other similarly situated investment banking professionals employed by Hovde Financial, Inc. and will receive compensation from Hovde Financial, Inc. which is contingent upon the consummation of the merger.

 

49


Table of Contents

THE MERGER AGREEMENT

The following describes certain aspects of the merger, including material provisions of the merger agreement. The following description of the merger agreement is subject to, and qualified in its entirety by reference to, the merger agreement, which is attached to this document as Annex A and is incorporated by reference in this document. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing this merger.

Terms of the Merger

Each of the Yardville board of directors and the PNC board of directors has unanimously approved the merger agreement which provides for the merger of Yardville with and into PNC. PNC will be the surviving corporation in the merger. Each share of PNC common or preferred stock issued and outstanding immediately prior to completion of the merger will remain issued and outstanding as one share of common or preferred stock of PNC, as applicable, and each share of Yardville common stock issued and outstanding at the effective time of the merger will be converted into either cash or PNC common stock, as described below. See “—Consideration To Be Received in the Merger.”

The PNC articles of incorporation will be the articles of incorporation, and the PNC bylaws will be the bylaws, of the combined company after completion of the merger. The merger agreement provides that PNC may change the structure of the merger if consented to by Yardville (but Yardville’s consent cannot be unreasonably withheld or delayed). No such change will alter the amount or kind of merger consideration to be provided under the merger agreement, adversely affect the tax consequences to Yardville shareholders in the merger or materially impede or delay completion of the merger.

Closing and Effective Time of the Merger

The merger will be completed only if all of the following occur:

 

   

the merger is approved by Yardville shareholders;

 

   

we obtain all required governmental and regulatory consents and approvals without a condition or restriction that would have a material adverse effect on PNC or Yardville, measured on a scale relative to Yardville; and

 

   

all other conditions to the merger discussed in this document and the merger agreement are either satisfied or waived.

The merger will become effective when articles of merger are filed with the New Jersey Office of the State Treasurer and the Department of State of the Commonwealth of Pennsylvania. However, we may agree to a later time for completion of the merger and specify that time in accordance with New Jersey and Pennsylvania law. In the merger agreement, we have agreed to cause the completion of the merger to occur no later than the fifth business day following the satisfaction or waiver of the last of the conditions specified in the merger agreement, or on another mutually agreed date. If these conditions are first satisfied or waived during the two weeks immediately prior to the end of a fiscal quarter of PNC, then PNC may postpone the closing until the first full week after the end of that quarter. It currently is anticipated that the effective time of the merger will occur in the fourth quarter of 2007, but we cannot guarantee when or if the merger will be completed.

Consideration To Be Received in the Merger

As a result of the merger each Yardville shareholder will have the right, with respect to each share of Yardville common stock held, to elect to receive merger consideration consisting of either cash or shares of PNC common stock, subject to adjustment as described below. The implied value of the merger consideration will fluctuate with the market price 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 ending on the day before the date of completion of the merger.

 

50


Table of Contents

Whether a Yardville shareholder makes a cash election or a stock election, the value of the consideration that such shareholder will receive as of the completion date will be substantially the same based on the average PNC closing price used to calculate the merger consideration. A chart showing the cash and stock merger consideration at various assumed average closing prices of PNC common stock is provided on page 5 of this document.

Yardville shareholders must return their properly completed and signed form of election to the exchange agent prior to the election deadline. If you are a Yardville shareholder and you do not return your form of election by the election deadline or improperly complete or do not sign your form of election, you 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 adjustment described below.

If you are a Yardville shareholder, you may specify different elections with respect to different shares held by you (for example, if you have 100 shares, you 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 Yardville shareholder who makes a valid cash election will have the right to receive, in exchange for each share of Yardville common stock held by such holder, an amount in cash equal to the Per Share Amount (determined as described below), without interest. We sometimes refer to this cash amount as the “cash consideration.” Based on the average of the closing prices of PNC common stock for the five trading days ending August 30, 2007 if the merger had been completed on August 31, 2007, the cash consideration would have been approximately $34.63. The aggregate amount of cash that PNC has agreed to pay to all Yardville shareholders in the merger is fixed at $156,455,236. As a result, even if a Yardville shareholder makes a cash election, that holder may nevertheless receive a mix of cash and stock if Yardville shareholders as a whole elect to receive cash consideration in an aggregate amount greater than such fixed sum.

The “Per Share Amount” is the amount, rounded to the nearest one-tenth of a cent, obtained by adding (A) $14.00 and (B) the product, rounded to the nearest one tenth of a cent, of 0.2923 times the PNC Closing Price.

The “PNC Closing Price” is the average, rounded to the nearest one tenth of a cent, of the closing sale prices of PNC common stock on the NYSE for the five trading days immediately preceding the date of the effective time of the merger.

Stock Election

The merger agreement provides that each Yardville shareholder who makes a valid stock election will have the right to receive, in exchange for each share of Yardville common stock held, a fraction of a share of PNC common stock equal to the Exchange Ratio (determined as described below). We sometimes refer to such fraction of a share of PNC common stock as the “stock consideration.” Based on the average of the closing prices of PNC common stock for the five trading days ended August 30, 2007, if the merger had been completed on August 31, 2007, the stock consideration would have been 0.4907 of a share of PNC common stock. The total number of shares of PNC common stock that will be issued in the merger is fixed, subject to corresponding increases if shares of Yardville common stock are issued upon the exercise of outstanding Yardville stock options or warrants, or as otherwise permitted by the merger agreement, prior to completion of the merger. As a result, even if a Yardville shareholder makes a stock election, that holder may nevertheless receive a prorated mix of cash and stock if Yardville shareholders as a whole elect to receive stock consideration in an aggregate amount greater than such fixed number of shares.

 

51


Table of Contents

The “Exchange Ratio” is defined in the merger agreement as the quotient, rounded to four decimal places, obtained by dividing the Per Share Amount (determined as described above) by the PNC Closing Price (as described above).

No fractional shares of PNC common stock will be issued to any holder of Yardville common stock upon completion of the merger. For each fractional share that would otherwise be issued, PNC will pay cash in an amount equal to the fraction multiplied by the PNC Closing Price. No interest will be paid or accrued on cash payable to holders in lieu of fractional shares. The cash to be paid in respect of fractional shares is not included in the aggregate cash limit described above under “—Cash Election.”

Non-Election Shares

If you are a Yardville shareholder and you do not make an election to receive cash or PNC common stock in the merger, your elections are not received by the exchange agent by the election deadline, your forms of election are improperly completed and/or are not signed, or you do not send together with your forms of elections your certificates representing shares of Yardville common stock (or a properly completed notice of guaranteed delivery), you will be deemed not to have made an “election.” Shareholders not making an election may be paid in only cash, only 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 Yardville shareholders using the proration adjustment described below.

Proration

The total number of shares of PNC common stock that will be issued in the merger is approximately 3,356,240 million, based on the number of shares of Yardville common stock outstanding on August 24, 2007, and the cash that will be paid in the merger is fixed at $156,455,236. As a result, if more Yardville shareholders make valid elections to receive either PNC common stock or cash than is available as merger consideration under the merger agreement, those Yardville shareholders electing the over-subscribed form of consideration will have the over-subscribed consideration proportionately reduced and will receive a portion of their consideration in the other form, despite their election. If the number of shares of Yardville common stock outstanding increases prior to the date of completion of the merger due to the issuance of shares of Yardville common stock upon the exercise of outstanding Yardville stock options or warrants, or as otherwise permitted by the merger agreement, the aggregate number of PNC shares to be issued as consideration in the merger will be increased accordingly. Subject to this potential increase, the total number of shares of PNC common stock that will be issued in the merger is fixed. The cash and stock elections are subject to adjustment to preserve the limitation described above on the stock and cash to be issued and paid in the merger. As a result, if you make an election to receive only cash or only stock, you may nevertheless receive a mix of cash and stock.

Adjustment if Cash Pool is Oversubscribed

Stock may be issued to Yardville shareholders who make cash elections if the available $156,455,236 cash pool is oversubscribed. The total number of shares of Yardville common stock for which valid cash elections are made is referred to as the “Cash Election Number.” The number of shares of Yardville common stock that will be converted into the right to receive cash in the merger, which we refer to as the “Cash Conversion Number,” is equal to the quotient obtained by dividing (1) $156,455,236 by (2) the Per Share Amount. For example, if the Per Share Amount were $35.00, the Cash Conversion Number would be approximately 4,470,150 ($156,455,236 ÷ $35.00), meaning that approximately 4,470,150 shares of Yardville common stock must be converted into the right to receive $35.00 in cash, regardless of whether Yardville shareholders have made cash elections for a greater or lesser number of shares of Yardville common stock.

 

52


Table of Contents

If the Cash Election Number is greater than the Cash Conversion Number, the cash election is oversubscribed. If the cash election is oversubscribed, then:

 

   

a Yardville shareholder making a stock election, no election or an invalid election will receive the stock consideration for each share of Yardville common stock as to which it made a stock election, no election or an invalid election; and

 

   

a Yardville shareholder making a cash election will receive:

 

   

the cash consideration for a number of shares of Yardville common stock equal to the product obtained by multiplying (1) the number of shares of Yardville common stock for which such shareholder has made a cash election by (2) a fraction, the numerator of which is the Cash Conversion Number and the denominator of which is the Cash Election Number; and

 

   

the stock consideration for the remaining shares of Yardville common stock for which the shareholder made a cash election.

Example of Oversubscription of Cash Pool

Assuming that:

 

   

the Cash Conversion Number was 5 million, and

 

   

the Cash Election Number was 10 million (in other words, only 5 million shares of Yardville common stock can receive the cash consideration, but Yardville shareholders have made cash elections with respect to 10 million shares of Yardville common stock),

then a Yardville shareholder making a cash election with respect to 1,000 shares of Yardville common stock would receive the cash consideration with respect to 500 shares of Yardville common stock (1,000 x 5/10) and the stock consideration with respect to the remaining 500 shares of Yardville common stock. Therefore, if the PNC Closing Price was equal to $80.00, the Per Share Amount would be $37.384 ($14.00 + (0.2923 × $80.00)) and that Yardville shareholder would receive 233 (500 x $37.384 ÷ $80.00) shares of PNC common stock and approximately $18,744 in cash (which includes $52.00 in cash for the fractional shares) ((500 x $37.384) + $52.00).

Adjustment if the Cash Pool is Undersubscribed

Cash may be issued to shareholders who make stock elections if the available $156,455,236 cash pool is undersubscribed. If the Cash Election Number is less than the Cash Conversion Number, the cash election is undersubscribed. The amount by which the Cash Election Number is less than the Cash Conversion Number is referred to as the “Shortfall Number.” If the cash election is undersubscribed, then all Yardville shareholders making a cash election will receive the cash consideration for all shares of Yardville common stock as to which they made a cash election. Yardville shareholders making a stock election, Yardville shareholders who make no election and Yardville shareholders who failed to make a valid election will receive cash and/or PNC common stock based in part on whether the Shortfall Number is lesser or greater than the number of non-election shares, as described below.

Scenario 1: Undersubscription of Cash Pool and Shortfall Number is Less than or Equal to Number of Non-Election Shares.

If the Shortfall Number is less than or equal to the number of non-election shares, then:

 

   

a Yardville shareholder making a stock election will receive the stock consideration for each share of Yardville common stock as to which it made a stock election; and

 

   

a Yardville shareholder who made no election or who did not make a valid election with respect to any of its shares will receive:

 

   

the cash consideration with respect to the number of shares of Yardville common stock equal to the product obtained by multiplying (1) the number of non-election shares held by such Yardville shareholder by (2) a fraction, the numerator of which is the Shortfall Number and the denominator of which is the total number of non-election shares; and

 

   

the stock consideration with respect to the remaining non-election shares held by such shareholder.

 

53


Table of Contents

Example of Scenario 1

Assuming that:

 

   

the Cash Conversion Number is 5 million,

 

   

the Cash Election Number is 2 million (in other words, 5 million shares of Yardville common stock must be converted into cash consideration but Yardville shareholders have made a cash election with respect to only 2 million shares of Yardville common stock, so the Shortfall Number is 3 million), and

 

   

the total number of non-election shares is 4 million,

then a Yardville shareholder that has not made an election with respect to 1,000 shares of Yardville common stock would receive the per share cash consideration with respect to 750 shares of Yardville common stock (1,000 x 3/4) and the per share stock consideration with respect to the remaining 250 shares of Yardville common stock. Therefore, if the PNC Closing Price was equal to $80.00 the Per Share Amount would be $37.384 ($14.00 + (0.2923 × $80.00)) and that Yardville shareholder would receive 116 (250 x $37.384 ÷ $80.00) shares of PNC common stock and approximately $28,104 in cash (which includes $66.00 in cash for the fractional shares) ((750 x $37.384) + $66.00).

Scenario 2: Undersubscription of Cash Pool and Shortfall Number Exceeds Number of Non-Election Shares.

If the Shortfall Number exceeds the number of non-election shares, then:

 

   

a Yardville shareholder who made no election or who has not made a valid election will receive the cash consideration for each share of Yardville common stock for which it did not make a valid election; and

 

   

a Yardville shareholder making a stock election will receive:

 

   

The cash consideration with respect to the number of shares of Yardville common stock equal to the product obtained by multiplying (1) the number of shares of Yardville common stock with respect to which the shareholder made a stock election by (2) a fraction, the numerator of which is equal to the amount by which the Shortfall Number exceeds the number of non-election shares and the denominator of which is equal to the total number of stock election shares; and

 

   

stock consideration with respect to the remaining shares of Yardville common stock held by such shareholder as to which it made a stock election.

Example of Scenario 2

Assuming that:

 

   

the Cash Conversion Number is 5 million,

 

   

the Cash Election Number is 2 million (in other words, 5 million shares of Yardville common stock must be converted into the cash consideration but Yardville shareholders have made a cash election with respect to only 2 million shares of Yardville common stock, so the Shortfall Number is 3 million),

 

   

the number of non-election shares is 2 million (so the Shortfall Number exceeds the number of non-election shares by 1 million), and

 

   

the number of stock election shares is 5 million,

then a Yardville shareholder that has made a stock election with respect to 1,000 shares of Yardville common stock would receive the cash consideration with respect to 200 shares of Yardville common stock (1,000 x 1/5)

 

54


Table of Contents

and the stock consideration with respect to the remaining 800 shares of Yardville common stock. Therefore, if the PNC Closing Price was equal to $80.00, the Per Share Amount would be $37.384 (($14.00 + 0.2923) × $80.00) and that Yardville shareholder would receive 373 (800 x $37.384 ÷ $80.00) shares of PNC common stock, and approximately $7,544 in cash (including $67.20 in cash for the fractional shares) ((200 x $37.384) + $67.20).

Treatment of Yardville Stock Options

Each outstanding option to purchase shares of Yardville common stock granted under any Yardville stock option plan, whether vested or not, will be cancelled in exchange for the right to receive a lump sum cash payment, without interest and less applicable withholding taxes, as soon as practicable following the completion of the merger, equal to the product of (i) the number of shares of Yardville common stock subject to the option and (ii) the excess, if any, of the all cash consideration over the exercise price per share of the option. The all cash consideration will equal the sum of (a) $14.00 and (b) the product of 0.2923 multiplied by the average of the closing sale prices of PNC common stock for the five trading days immediately preceding the date of completion of the merger.

Conversion of Shares; Exchange of Certificates; Elections as to Form of Consideration

The conversion of Yardville 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 completion of the merger, the exchange agent will exchange certificates representing shares of Yardville common stock for merger consideration, without interest, to be received in the merger pursuant to the terms of the merger agreement. ComputerShare will be the exchange agent in the merger and will receive your form of election, exchange certificates for the merger consideration and perform other duties as explained in the merger agreement.

Form of Election

The form of election and related transmittal materials are being mailed to Yardville shareholders separately following the mailing of this document. The form of election and related documents will allow you to make cash or stock elections or a combination of both.

Unless otherwise agreed to in advance by PNC and Yardville, the election deadline will be 5:00 p.m., Eastern Time, on October 18, 2007, which is the day prior to the Yardville shareholders’ meeting. PNC and Yardville will issue a press release announcing the date of the election deadline not more than 15 business days before, and at least five business days prior to, the election deadline.

If you wish to elect the type of merger consideration you will receive in the merger, you should carefully review and follow the instructions that will be set forth in the form of election. Shareholders who hold their shares of Yardville common stock in “street name” or through a bank, broker or other nominee should follow the instructions of the bank, broker or other nominee for making an election with respect to such shares of Yardville common stock. Shares of Yardville common stock as to which the holder has not made a valid election prior to the election deadline will be treated as though they had not made an election.

To make a valid election, each Yardville shareholder must submit a properly completed form of election, 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 form of election. A form of election will be properly completed only if accompanied by certificates (or book-entry transfer of uncertificated shares) representing all shares of Yardville common stock covered by the form of election (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 will be described in the form of election). If you are a Yardville shareholder and you cannot deliver your stock certificates to the exchange agent by the election deadline, you may deliver a

 

55


Table of Contents

notice of guaranteed delivery promising to deliver your stock certificates, as will be described in the form of election, so long as (1) the guarantee of delivery is from a firm which is a member of any registered national securities exchange or a commercial bank or trust company 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 revised 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 Yardville common stock tendered by book-entry transfer into the exchange agent’s account at the Depository Trust Company, or “DTC,” by crediting to an account maintained by such shareholder with DTC promptly following the termination of the merger or revocation of the election. Yardville shareholders will not be entitled to revoke or change their elections following the election deadline. As a result, if you have made elections, you will be unable to revoke your elections or sell your shares of Yardville common stock during the interval between the election deadline and the date of completion of the merger.

Shares of Yardville 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-election 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 mail a letter of transmittal to only those persons who were Yardville shareholders at the effective time of the merger and who have not previously submitted a form of election and properly surrendered shares of Yardville common stock to the exchange agent. This mailing will contain instructions on how to surrender shares of Yardville 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 Yardville 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 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.

Withholding

The exchange agent will be entitled to deduct and withhold from the cash consideration or cash instead of fractional shares payable to any Yardville 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.

Dividends and Distributions

Until Yardville 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 Yardville common stock may have been converted will accrue but will not be paid. PNC will pay to former Yardville shareholders any unpaid dividends or other distributions, without interest, only after they have duly surrendered their Yardville stock certificates.

 

56


Table of Contents

Prior to the effective time of the merger, Yardville and its subsidiaries may not declare or pay any dividend or distribution on its capital stock or repurchase any shares of its capital stock, other than:

 

   

regular quarterly cash dividends at a rate of $0.115 per share of Yardville common stock with record dates and payment dates consistent with past practice;

 

   

dividends paid by any Yardville subsidiary to its parent company consistent with past practice; and

 

   

the acceptance of shares of Yardville common stock in payment of the exercise of a stock option granted under a Yardville stock option plan.

Yardville and PNC have agreed to coordinate declaration of dividends so that holders of Yardville common stock will not receive two dividends, or fail to receive one dividend, for any quarter with respect to their Yardville common stock and any PNC common stock any holder receives in the merger.

Representations and Warranties

The merger agreement contains customary representations and warranties of Yardville and PNC relating to their respective businesses. With the exception of certain representations that must be true and correct in all material respects (or, in the case of specific representations and warranties regarding capitalization of Yardville, true and correct except to a de minimis extent), no representation or warranty will be deemed untrue or incorrect as a consequence of the existence or absence of any fact, circumstance or event unless that fact, circumstance or event, individually or when taken together with all other facts, circumstances or events, has had or is reasonably likely to have a material adverse effect on the ability of the company making the representation to consummate the merger, or on the business, results of operations or financial conditions of the company making the representation. In determining whether a material adverse effect has occurred or is reasonably likely, the parties will disregard effects resulting from (1) changes in general economic conditions affecting banking or bank holding company businesses, to the extent the change does not have a disproportionate adverse affect on such party, (2) changes in generally accepted accounting principles or regulatory accounting requirements generally applicable to banks or savings associations and their holding companies but not uniquely relating to such party, (3) changes in laws, rules or regulations of general applicability to banking or bank holding company businesses, or their interpretations by courts or governmental entities, except as uniquely relating to such party, (4) actions and omissions of a party taken with the prior written consent of the other party or to the extent expressly permitted or required by the specific terms of the merger agreement, (5) engagement by the United States in hostilities or the occurrence of any military attack or terrorist attack on or in the United States, or any of its territories, possessions or diplomatic or consular offices or on any military installation, equipment or personnel of the United States, to the extent that such engagement or occurrence does not have a disproportionate adverse affect on such party, or (6) public disclosure of the merger agreement or the merger. The representations and warranties in the merger agreement do not survive the effective time of the merger.

Each of PNC and Yardville has made representations and warranties to the other regarding, among other things:

 

   

corporate matters, including due organization and qualification;

 

   

capitalization;

 

   

authority relative to execution and delivery of the merger agreement and the absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger;

 

   

required governmental filings and consents;

 

   

the timely filing of reports with governmental entities, and the absence of investigations by regulatory agencies;

 

   

financial statements, internal controls and accounting;

 

   

broker’s fees payable in connection with the merger;

 

57


Table of Contents
   

the absence of material adverse changes;

 

   

legal proceedings;

 

   

tax matters;

 

   

compliance with applicable laws;

 

   

property;

 

   

environmental liabilities;

 

   

tax treatment of the merger; and

 

   

the accuracy of information supplied for inclusion in this document and other similar documents.

In addition, Yardville has made other representations and warranties about itself to PNC as to:

 

   

employee matters, including employee benefit plans;

 

   

material contracts, exclusivity arrangements, and other certain types of contracts;

 

   

intellectual property;

 

   

the inapplicability of state takeover laws;

 

   

insurance coverage;

 

   

investment and loan portfolios;

 

   

brokered deposits

 

   

absence of related party transactions;

 

   

absence of registration obligations;

 

   

risk management instruments;

 

   

trust accounts;

 

   

labor matters;

 

   

unexercised Yardville warrants;

 

   

dissenters rights; and

 

   

the receipt of a financial advisor’s opinion.

PNC also has made representations and warranties to Yardville regarding the availability of cash to pay the cash portion of the merger consideration and the authorization and valid issuance of the PNC common stock to pay the stock portion of the merger consideration.

The representations and warranties described above and included in the merger agreement were made by each of PNC and Yardville to the other. These representations and warranties were made as of specific dates, may be subject to important qualifications and limitations agreed to by PNC and Yardville in connection with negotiating the terms of the merger agreement, and may have been included in the merger agreement for the purpose of allocating risk between PNC and Yardville rather than to establish matters as facts. The merger agreement is described in, and included as an annex to, this document only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Yardville, PNC or their respective businesses. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this document and in the documents incorporated by reference into this document. See “Where You Can Find More Information” on page 83.

 

58


Table of Contents

Covenants and Agreements

Each of Yardville and PNC has undertaken customary covenants that place restrictions on it and its subsidiaries until the effective time of the merger. In general, each of PNC and Yardville agreed to take no action that is intended to or would reasonably be expected to adversely affect or materially delay its respective ability to obtain any necessary regulatory approvals or adversely affect its ability to perform its covenants under the merger agreement.

Yardville has agreed to operate its business only in the ordinary course of business and to use reasonable best efforts to preserve intact its business organization and assets and maintain its rights and franchises. Yardville has also agreed that, with certain exceptions and except with PNC’s prior written consent (which is not to be unreasonably withheld or delayed in certain circumstances), Yardville will not, and will not permit any of its subsidiaries to, among other things, undertake the following extraordinary actions:

 

   

change or waive any provision of its certificate of incorporation, charter, or bylaws, except as required by law, or appoint a new director to the board of directors;

 

   

adjust, split, combine or reclassify any of its capital stock; redeem or acquire any shares of its capital stock or make, declare or pay any dividends or other distributions on any shares of its capital stock, except as set forth above in “—Conversion of Shares; Exchange of Certificates—Dividends and Distributions”;

 

   

take specified actions relating to director and employee compensation, benefits, hiring and promotion;

 

   

undertake extraordinary corporate transactions, such as mergers and acquisitions, or other transactions, such as sales of assets or incurrence or waivers of indebtedness outside the ordinary course of business;

 

   

take any action that would result in any of the representations and warranties becoming untrue or that would cause the failure of a closing condition, except as required by applicable law;

 

   

purchase any equity securities, or any other securities outside the ordinary course of business, make material investments, restructure its investment securities portfolio or gap position, change the manner in which its investment securities portfolio is classified or reported, or enter into derivative transactions, with specified exceptions;

 

   

make any change to its financial accounting methods, except as required by applicable law, generally accepted accounting principles or any bank regulator responsible for regulating Yardville;

 

   

other than in the ordinary course, and subject to certain other limitations, enter into, renew, amend in any material respect or terminate any contract or agreement or make or renew certain loans or credit facilities;

 

   

make, change, or revoke any material tax election, adopt or change an annual tax accounting period, change any tax accounting method, file any material amended tax return, enter into any closing agreement with respect to taxes, settle any material tax claim or surrender any material claim for a refund of taxes;

 

   

file any application to open, relocate or close any, or open, close or relocate any, branch or automated banking facility;

 

   

make any capital expenditures in excess of $50,000 individually or $250,000 in the aggregate, other than as disclosed in Yardville’s capital budget;

 

   

settle any material claim other than payments in cash in the ordinary course of business consistent with past practice that do not exceed $100,000 individually or $250,000 in the aggregate, and that do not create negative precedent for other pending or potential claims;

 

59


Table of Contents
   

enter into any new line of business or change in any material respect its lending, investment, underwriting, risk and asset liability management and other banking, operating, and servicing policies, except as required by applicable law or government regulation or policy; or

 

   

agree to do any of the actions prohibited by the preceding bullets.

Yardville also agrees to take certain actions with respect to the Yardville warrants, and to cooperate with PNC to permit PNC to assume the obligations of Yardville under Yardville’s trust preferred securities.

PNC agrees that, except with Yardville’s prior written consent, PNC will not take any action that would result in any of the conditions to the merger not being satisfied or that would cause any of its representations or warranties to become untrue.

The merger agreement also contains mutual covenants relating to the preparation of this document and the holding of the special meeting of Yardville shareholders, access to information of the other company and public announcements with respect to the transactions contemplated by the merger agreement. Yardville and PNC have also agreed to use all reasonable best efforts to take all actions needed to obtain necessary governmental and third party consents and to consummate the transactions contemplated by the merger agreement. Notwithstanding the foregoing, PNC is not required to take any action in connection with obtaining the necessary governmental and third party consents that would reasonably be expected to have a material adverse effect on PNC or Yardville, measured relative to Yardville.

Bank Merger

PNC and Yardville have agreed to enter into a merger agreement pursuant to which The Yardville National Bank will merge with and into PNC Bank, National Association. The bank merger is intended to become effective simultaneously with or immediately following the closing of the merger of the parent companies, unless PNC requests the bank merger be delayed to a later time.

Reasonable Best Efforts of Yardville to Obtain the Required Shareholder Vote

Yardville has agreed to hold a meeting of its shareholders as soon as is reasonably practicable for the purpose of obtaining shareholder approval of the plan of merger. Yardville will use all reasonable lawful action to obtain such approval. Yardville’s board of directors may withdraw, modify, or qualify its recommendation to approve the plan of merger only in connection with a “Superior Proposal” (as defined below) and only if Yardville’s board of directors determines, in good faith after consultation with its outside financial and legal advisors, that the failure to take such action would be reasonably like to violate its fiduciary obligations under applicable law. Notwithstanding the forgoing, the merger agreement requires Yardville to submit the merger agreement to a shareholder vote even if its board of directors no longer recommends approval of merger agreement, in which event the board may communicate its basis for its lack of a recommendation to shareholders.

Agreement Not to Solicit Other Offers

Yardville also has agreed that it, its subsidiaries and their officers, directors, employees, representatives, agents or affiliates will not, directly or indirectly:

 

   

initiate, solicit, encourage or facilitate any inquiries or proposals that constitutes, or may reasonably be expected to lead to, an “Acquisition Proposal” (as defined below) or enter into or maintain or continue any discussions or negotiations with respect to such inquires; or

 

   

enter into any agreement regarding any Acquisition Proposal or authorize or permit any of its officers, directors, employees, subsidiaries or any representative to take any such action.

 

60


Table of Contents

However, prior to the special meeting, Yardville may consider and participate in discussions and negotiations with respect to an unsolicited Acquisition Proposal if (1) the Yardville board of directors determines in good faith that the Acquisition Proposal, if consummated, is reasonably likely to result in a transaction more favorable to Yardville shareholders, (2) the Yardville board of directors determines in good faith (after consultation with outside legal counsel) that failure to take these actions would be reasonably likely to violate its fiduciary duties, (3) the Acquisition Proposal was not solicited by Yardville (any proposal that satisfies (1) – (3) is a “Superior Proposal”), (4) Yardville has first entered into a confidentiality agreement with the party proposing the Acquisition Proposal on terms comparable to the confidentiality agreement with PNC, and (5) Yardville notifies PNC promptly (but in no event later than 24 hours) after it receives the Acquisition Proposal provides PNC with relevant information regarding the Alternative Proposal or request. Yardville has agreed to promptly provide to PNC any non-public information that is provided to the person making the Acquisition Proposal that was not previously provided to PNC.

Yardville has agreed:

 

   

to notify PNC within one day after receipt of any Acquisition Proposal or any material change to any Acquisition Proposal, or any request for nonpublic information relating to Yardville or any of its subsidiaries or for access to the properties, books or records of Yardville or any of its subsidiaries by any person or entity that informs the board of directors of Yardville that it is considering making, or has made, an Acquisition Proposal, and to provide PNC with relevant information regarding such inquiry, proposal, modification or amendment;

 

   

to keep PNC fully informed of any material changes in the status and any material changes or modifications in the terms of any such Acquisition Proposal, indication or request;

 

   

to cease any existing discussions or negotiations with any persons with respect to any Alternative Proposal, and to use reasonable best efforts to cause all persons other than PNC who have been furnished with confidential information in connection with an Acquisition Proposal within the 12 months prior to the date of the merger agreement to return or destroy such information;

 

   

not to release any third party from the confidentiality and standstill provisions of any agreement to which Yardville or its subsidiaries is or may become a party and to take all steps necessary to terminate any approval that may have been given under any such provisions authorizing any person to make an Acquisition Proposal; and

 

   

not to approve or take any action to render inapplicable to any Acquisition Proposal the New Jersey Shareholders Protection Act or any similar takeover laws.

“Acquisition Proposal” means any proposal or offer as to any of the following (other than the merger) involving Yardville or any of its subsidiaries:

 

   

any merger, consolidation, share exchange, business combination, or other similar transaction;

 

   

any sale, lease, share exchange, mortgage, pledge, transfer or other disposition or change in control of the consolidated assets (including the outstanding equity securities of Yardville subsidiaries and securities of the entity surviving any merger or business combination) of Yardville, or any of its subsidiaries representing more than 25% of the fair market value of all the assets, net revenues or net income of Yardville and its subsidiaries, taken as a whole, immediately prior to such transaction;

 

   

any tender offer or exchange offer, or acquisition from Yardville, pursuant to which any person (or group of persons) (other than PNC or its affiliates) directly or indirectly, acquires or would acquire more than 25% or more of the outstanding shares of capital stock of Yardville or outstanding voting power or of any new series or new class of preferred stock that would be entitled to a class or series vote with respect to the merger, or the filing of a registration statement under the Securities Act;

 

61


Table of Contents
   

any other consolidation, business combination, recapitalization or similar transaction involving Yardville or any of its subsidiaries, other than the transactions contemplated by the merger agreement as a result of which the holders of shares of Yardville immediately prior to such transactions do not, in the aggregate, own at least 75% of the outstanding shares of common stock and the outstanding voting power of the surviving or resulting entity in such transaction immediately after the completion of the transaction in substantially the same proportion as such holders held the shares of Yardville common stock immediately prior to the completion of the transaction, or

 

   

any public announcement of a proposal, plan or intention to do, or any agreement to engage in, any of the actions listed in the foregoing bullets.

Expenses and Fees

In general, each of PNC and Yardville will be responsible for all expenses incurred by it in connection with the negotiation and completion of the transactions contemplated by the merger agreement. However, the costs and expenses of printing and mailing this document, and all filing and other fees paid to the SEC in connection with the merger, shall be borne equally by Yardville and PNC.

Employee Matters

PNC has agreed to honor all Yardville compensation and benefit plans in accordance with their terms, subject to any amendments or termination required by the merger agreement or permitted by the terms of the applicable plans. PNC will review all such Yardville compensation and benefit plans to determine whether to maintain, terminate or continue such plans. If any Yardville employee compensation or benefits are changed or terminated by PNC, PNC will provide those Yardville employees who continue to be employed by PNC following the merger with compensation and benefits that are, in the aggregate, substantially similar to the compensation and benefits provided to similarly situated employees of PNC.

In addition, PNC has agreed, to the extent any Yardville employee participates in PNC compensation and benefit plans following the merger, to recognize each such employee’s service with Yardville prior to the completion of the merger for purposes of eligibility and vesting requirements (except under defined benefit pension plans), but not for benefit accruals except for vacation and as otherwise specified in the merger agreement. For one year following the merger, Yardville employees who continue to be employed by PNC following the merger will participate in PNC’s Displaced Employee Assistance Plan but will receive cash severance equal to the greater of the benefits payable thereunder or the benefits payable under Yardville’s Change in Control Severance Compensation Plan had it not been terminated. Following the one year anniversary of the merger, such continuing employees will participate in PNC’s Displaced Employee Assistance Plan.

In the event of any termination or consolidation of any Yardville health plan with a PNC health plan, PNC has agreed to make available to Yardville employees who continue to be employed by PNC following the merger and their dependents employer-provided health coverage on the same basis as it provides such coverage to PNC employees, but coverage of such Yardville employees under any Yardville health plan will not terminate prior to the time such Yardville employees and their dependents become eligible to participate in the health plans generally available to PNC employees and their dependents, unless a Yardville employee affirmatively terminates coverage prior to such time. In addition, PNC has agreed to waive any coverage limitations for pre-existing conditions under any PNC health plans, to the extent such limitation would have been waived or satisfied under a corresponding Yardville plan and to give credit for any co-payment and deductibles paid under a corresponding Yardville health plan for purposes of satisfying any applicable deductible and out-of-pocket requirements under any health plan of PNC.

However, PNC has no obligation to continue the employment of any Yardville employee for any period following the merger and may review employee benefits programs from time to time and make such changes as it deems appropriate.

 

62


Table of Contents

Indemnification and Insurance

The merger agreement requires PNC to maintain in effect for six years after completion of the merger the current rights of Yardville directors, officers and employees to indemnification under the Yardville articles of incorporation or the Yardville bylaws or disclosed agreements of Yardville. The merger agreement also provides that, upon completion of the merger, PNC will indemnify and hold harmless, and provide advancement of expenses to, all past and present officers, directors and employees of Yardville and its subsidiaries in their capacities as such against all losses, claims, damages, costs, expenses, liabilities, judgments or amounts paid in settlement to the fullest extent permitted by applicable laws.

The merger agreement provides that PNC will maintain for a period of six years after completion of the merger Yardville’s current directors’ and officers’ liability insurance policies, or policies of at least the same coverage and amount and containing terms and conditions that are not less advantageous than the current policy, with respect to acts or omissions occurring prior to the effective time of the merger, except that PNC is not required to incur annual premium expense greater than 150% of Yardville’s current annual directors’ and officers’ liability insurance premium.

Conditions to Complete the Merger

Our respective obligations to complete the merger are subject to the fulfillment or waiver of certain conditions, including:

 

   

the approval of the merger by Yardville shareholders;

 

   

the approval of the listing of PNC common stock to be issued in the merger on the NYSE, subject to official notice of issuance;

 

   

the effectiveness of the registration statement of which this document is a part with respect to the PNC common stock to be issued in the merger under the Securities Act and the absence of any stop order or proceedings initiated or threatened by the SEC for that purpose; and

 

   

the absence of any law, statute, regulation, judgment, decree, injunction or other order in effect by any court or other governmental entity that prohibits completion of the transactions contemplated by the merger agreement.

Each of PNC’s and Yardville’s obligations to complete the merger is also separately subject to the satisfaction or waiver of a number of conditions including:

 

   

the receipt by each of PNC and Yardville of a legal opinion with respect to certain United States federal income tax consequences of the merger;

 

   

the receipt and effectiveness of all governmental and other approvals, registrations and consents, and the expiration of all related waiting periods required to complete the merger (in the case of the conditions to PNC’s obligation to complete the merger, without any conditions or restrictions that would have a material adverse effect on PNC or Yardville, measured on a scale relative to Yardville);

 

   

the absence of a material adverse effect on the other party; and

 

   

the truth and correctness of the representations and warranties of each other party in the merger agreement, subject to the materiality standard provided in the merger agreement, and the performance by each other party in all material respects of their obligations under the merger agreement and the receipt by each party of certificates from the other party to that effect.

We cannot provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party. As of the date of this document, we have no reason to believe that any of these conditions will not be satisfied.

 

63


Table of Contents

Termination of the Merger Agreement

The merger agreement can be terminated at any time prior to completion by mutual consent, if authorized by each of our boards of directors, or by either party in the following circumstances:

 

   

if any of the required regulatory approvals are denied (and the denial is final and nonappealable);

 

   

if the merger has not been completed by March 31, 2008, unless the failure to complete the merger by that date is due to the terminating party’s failure to abide by the merger agreement;

 

   

if there is a breach by the other party that would cause the failure of the closing conditions described above, unless the breach is capable of being, and is, cured within 30 days of notice of the breach; or

 

   

if the shareholders of Yardville fail to approve the merger at the special meeting.

In addition, PNC may terminate the merger agreement if the Yardville board of directors fails to recommend that Yardville shareholders approve the merger, withdraws, modifies, qualifies, or proposes to withdraw, modify, or qualify in a manner adverse to PNC its recommendation of the merger to shareholders, recommends a competing merger proposal in a manner adverse to PNC, or resolves to do the foregoing. PNC may also terminate the merger agreement if Yardville breaches its obligation to call and hold a shareholder meeting to consider the merger or its obligation to not solicit competing acquisition proposals.

In addition, Yardville may terminate the merger agreement within three business days of the “Determination Date” (as defined below) if its board of directors determines that both of the following conditions have occurred and gives written notice to PNC of such determination:

 

   

the value of the aggregate consideration to be received by Yardville shareholders is less than 85% of $403,354,213 (the approximate value of the aggregate consideration that would have been received by Yardville shareholders had the merger closed on June 6, 2007); and

 

   

the five-day average closing price of PNC common stock is such that the price performance of PNC common stock is lower than the price performance of an index of certain peer companies minus 15%.

If Yardville elects to terminate the merger agreement pursuant to this right then PNC shall have 72 hours beginning with receipt of Yardville’s required notice of termination to increase the number of PNC common shares to be received by Yardville shareholders such that the 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. If PNC elects to increase the merger consideration pursuant with the preceding sentence, then the agreement will not terminate.

“Determination Date” means the later of (i) the date on which the last required governmental approval is obtained and (ii) the business day immediately preceding the date of the meeting of Yardville shareholders to approve the merger. However, if the Determination Date would occur more than fifteen days prior to the closing date, then the Determination Date shall be the third business day prior to the closing date.

Effect of Termination. If the merger agreement is terminated, it will become void, and there will be no liability on the part of PNC or Yardville, except that (1) both PNC and Yardville will remain liable for any willful breach of the merger agreement and (2) designated provisions of the merger agreement, including the payment of fees and expenses, the confidential treatment of information and publicity restrictions, will survive the termination.

Termination Fee

Yardville must pay PNC a termination fee of $14 million if:

 

   

the merger agreement is terminated by PNC as a result of the PNC termination rights described under “—Termination of the Merger Agreement” above relating to the Yardville shareholder recommendation and Yardville’s compliance with its obligation to hold the shareholder vote and its non-solicit covenants;

 

64


Table of Contents
   

the agreement is terminated by PNC because of a willful breach by Yardville and Yardville then enters into a definitive agreement relating to a competing takeover proposal before the twelve month anniversary of the termination; or

 

   

prior to termination a competing takeover proposal is made to Yardville or its shareholders or has been publicly announced, the agreement is then terminated by PNC because the Yardville shareholders do not approve the merger at the shareholder meeting, and Yardville then enters into a definitive agreement relating to a competing takeover proposal before the twelve month anniversary of the termination.

Amendment, Waiver and Extension of the Merger Agreement

Subject to applicable law, the parties may amend the merger agreement by action taken or authorized by their boards of directors or by written agreement. However, after any approval of the transactions contemplated by the merger agreement by the Yardville shareholders, there may not be, without further approval of those shareholders, any amendment of the merger agreement that reduces the amount, value or changes the form of consideration to be delivered to Yardville’s shareholders.

At any time prior to the completion of the merger, each of us, by action taken or authorized by our respective board of directors, to the extent legally allowed, may:

 

   

extend the time for the performance of any of the obligations or other acts of the other party;

 

   

waive any inaccuracies in the representations and warranties of the other party; or

 

   

waive compliance by the other party with any of the other agreements or conditions contained in the merger agreement.

Resales of PNC Stock by Affiliates

Shares of PNC common stock to be issued to Yardville shareholders in the merger have been registered under the Securities Act, and may be traded freely and without restriction by those shareholders not deemed to be affiliates (as that term is defined under the Securities Act) of Yardville. Any subsequent transfers of shares, however, by any person who is an affiliate of Yardville at the time the merger is submitted for a vote of the Yardville shareholders will, under existing law, require:

 

   

the further registration under the Securities Act of the PNC stock to be transferred;

 

   

compliance with Rule 145 promulgated under the Securities Act, which permits limited sales under certain circumstances; or

 

   

the availability of another exemption from registration.

An “affiliate” of Yardville is a person who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, Yardville. These restrictions are expected to apply to the directors and executive officers of Yardville and the holders of 10% or more of the outstanding Yardville common stock. The same restrictions apply to the spouses and certain relatives of those persons and any trusts, estates, corporations or other entities in which those persons have a 10% or greater beneficial or equity interest.

PNC will give stop transfer instructions to the exchange agent with respect to the shares of PNC common stock to be received by persons subject to these restrictions, and the certificates for their shares will be appropriately legended. PNC is not required to further register the sale of PNC common stock to be issued to affiliates of Yardville.

Yardville has agreed in the merger agreement to use all reasonable best efforts to cause each person who is an affiliate of Yardville for purposes of Rule 145 under the Securities Act to deliver to PNC a written agreement intended to ensure compliance with the Securities Act.

 

65


Table of Contents

ACCOUNTING TREATMENT

The merger will be accounted for as a “purchase,” as that term is used under generally accepted accounting principles, for accounting and financial reporting purposes. Under purchase accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Yardville as of the effective time of the merger will be recorded at their respective fair values and added to those of PNC. Any excess of purchase price over the fair values is recorded as goodwill. Consolidated financial statements of PNC issued after the merger would reflect these fair values and would not be restated retroactively to reflect the historical financial position or results of operations of Yardville.

 

66


Table of Contents

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following section describes the anticipated material United States federal income tax consequences to “U.S. holders” (as defined below) of Yardville common stock of the merger. This summary is based upon the provisions of the Code, applicable current and proposed United States Treasury Regulations, judicial authorities and administrative rulings and practice, all as in effect as of the date of this registration statement and all of which are subject to change, possibly on a retroactive basis.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Yardville common stock that is for United States federal income tax purposes: (i) a citizen or resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; (iii) a trust if it (a) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (b) has valid election in effect under applicable United States Treasury Regulations to be treated as a United States person; or (iv) an estate the income of which is subject to United States federal income tax regardless of its source.

Holders of Yardville common stock who are not U.S. holders may have different tax consequences than those described below and are urged to consult their own tax advisors regarding the tax treatment to them under United States and non-United States tax laws.

The United States federal income tax consequence to a partner in an entity treated as a partnership, for United States federal income tax purposes, that holds Yardville common stock generally will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding Yardville common stock should consult their own tax advisors.

This discussion assumes that a U.S. holder holds Yardville common stock as a capital asset within the meaning of Section 1221 of the Code. This discussion does not address all aspects of United States federal income taxation that may be relevant to a U.S. holder in light of its personal circumstances or to U.S. holders subject to special treatment under the United States federal income tax laws (for example, insurance companies, dealers or brokers in securities or currencies, traders in securities who elect mark-to-market accounting, tax-exempt organizations, financial institutions, mutual funds, partnerships or other pass-through entities (and persons holding Yardville common stock through a partnership or other pass-through entity), United States expatriates and shareholders subject to alternative minimum tax, U.S. holders who hold Yardville common stock as part of a hedging, “straddle,” conversion or other integrated transaction, a person whose functional currency for United States federal income tax purposes is not the U.S. dollar or U.S. holders who acquired their Yardville common stock through the exercise of employee stock options or other compensation arrangements). In addition, the discussion does not address any aspects of foreign, state, local, estate or gift taxation that may be applicable to a U.S. holder.

Holders of Yardville common stock are strongly urged to consult with their own tax advisors as to the tax consequences of the merger on their particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

Tax Consequences of the Merger Generally

PNC and Yardville have structured the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. It is a condition to PNC’s obligation to complete the merger that PNC receive an opinion of its counsel, Wachtell, Lipton, Rosen & Katz, dated the closing date of the merger, substantially to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. It is a

 

67


Table of Contents

condition to Yardville’s obligation to complete the merger that Yardville receive an opinion of its counsel, Pepper Hamilton LLP, dated the closing date of the merger, substantially to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. These opinions will be based on facts, representations and assumptions set forth in the opinion and representations set forth in certificates to be received from PNC and Yardville. None of the tax opinions given in connection with the merger will be binding on the Internal Revenue Service, and neither PNC nor Yardville intends to request any ruling from the Internal Revenue Service as to 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 those set forth below. In addition, if any of the facts, representations or assumptions upon which those opinions are based is inconsistent with the actual facts, the United States federal income tax consequences of the merger could be adversely affected. It is assumed for purposes of the remainder of the discussion in this section that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. As a result of the merger being treated as a reorganization within the meaning of Section 368(a) of the Code, the following material U.S. federal tax consequences will result from the merger:

 

   

for a U.S. holder who exchanges all of its shares of Yardville common stock solely for shares of PNC common stock in the merger, no gain or loss will be recognized, except with respect to cash received in lieu of a fractional share of PNC common stock (see discussion below under “—Cash Instead of a Fractional Share”);

 

   

for a U.S. holder who exchanges all of its shares of Yardville common stock solely for cash in the merger, capital gain or loss equal to the difference between the amount of cash received and its tax basis in the Yardville common stock generally will be recognized. Any capital gain or loss generally will be long-term capital gain or loss if the U.S. holder held the shares of Yardville common stock for more than one year at the time the merger is completed. Long-term capital gain of an individual generally is subject to a maximum U.S. federal income tax rate of 15%. The deductibility of capital losses is subject to limitations. In some cases, such as if the U.S. holder actually or constructively owns PNC common stock immediately before the merger, and holds it after the merger, the cash received in the merger could be treated as having the effect of the distribution of a dividend, under the tests set forth in Section 302 of the Internal Revenue Code, in which case such cash received would be treated as dividend income. These rules are complex and dependent upon the specific factual circumstances particular to each U.S. holder. Consequently, each U.S. holder that may be subject to those rules should consult its tax advisor as to the application of these rules to the particular facts relevant to such U.S. holder;

 

   

for a U.S. holder who exchanges its shares of Yardville common stock for a combination of PNC common stock and cash (other than cash received in lieu of a fractional share), gain (but not loss) will be recognized, and the gain recognized will be equal to the lesser of:

 

   

the excess, if any of:

 

  the sum of the cash and the fair market value of the PNC common stock the U.S. holder received in the merger, over

 

  the tax basis in the shares of Yardville common stock surrendered by the U.S. holder in the merger, or

 

   

the amount of cash received;

 

   

any capital gain or loss generally will be long-term capital gain or loss if the U.S. holder held the shares of Yardville common stock for more than one year at the time the merger is completed. Long-term capital gain of an individual generally is subject to a maximum U.S. federal income tax rate of 15%. The deductibility of capital losses is subject to limitations. In some cases, such as if the U.S. holder actually or constructively owns PNC common stock immediately before the merger, and holds it after the merger, the cash received in the merger could be treated as having the effect of the distribution

 

68


Table of Contents
 

of a dividend, under the tests set forth in Section 302 of the Internal Revenue Code, in which case such gain would be treated as dividend income. These rules are complex and dependent upon the specific factual circumstances particular to each U.S. holder. Consequently, each U.S. holder that may be subject to those rules should consult its tax advisor as to the application of these rules to the particular facts relevant to such U.S. holder;

 

   

for a U.S. holder who acquired different blocks of Yardville common stock at different times and at different prices, realized gain or loss generally must be calculated separately for each identifiable block of shares exchanged in the merger, and a loss realized on the exchange of one block of shares cannot be used to offset a gain realized on the exchange of another block of shares;

 

   

if a U.S. holder has differing bases or holding periods in respect of shares of Yardville common stock, the U.S. holder should consult its tax advisor prior to the exchange with regard to identifying the bases or holding periods of the particular shares of PNC common stock received in the merger; and

 

   

no gain or loss will be recognized by PNC or Yardville in the merger.

Tax Basis and Holding Period

A U.S. holder’s aggregate tax basis in the shares of PNC common stock received in the merger, including any fractional share interests deemed received by the U.S. holder under the treatment described below, will equal its aggregate adjusted tax basis in the Yardville common stock surrendered in the merger, increased by the amount of taxable gain, if any, recognized in the merger (including any portion of the gain that is treated as a dividend but excluding any gain or loss resulting from the deemed receipt and redemption of a fractional share interest described below) and decreased by the amount of cash, if any, received in the merger (excluding any cash received instead of a fractional share interest). The holding period for the shares of PNC common stock received in the merger (including a fractional share interest deemed received and redeemed as described below) will include the holding period for the shares of Yardville common stock surrendered in the merger.

Cash Instead of a Fractional Share

A U.S. holder who receives cash instead of a fractional share of PNC common stock will be treated as having received the fractional share of PNC common stock pursuant to the merger and then as having exchanged the fractional share of PNC common stock for cash in a redemption by PNC. In general, this deemed redemption will be treated as a sale or exchange, provided the redemption is not essentially equivalent to a dividend. The determination of whether a redemption is essentially equivalent to a dividend depends upon whether and to what extent the redemption reduces the U.S. holder’s deemed percentage stock ownership of PNC. While this determination is based on each U.S. holder’s particular facts and circumstances, the Internal Revenue Service has ruled that a redemption is not essentially equivalent to a dividend and will therefore result in sale or exchange treatment in the case of a shareholder of a publicly held company whose relative stock interest is minimal and who exercises no control over corporate affairs if the redemption results in even a minor reduction in the stock interest of the shareholder. As a result, the deemed redemption of a fractional share of PNC common stock is generally treated as a sale or exchange and not as a dividend, and a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount of cash received and the basis in its fractional share of PNC common stock as set forth above. This capital gain or loss generally will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for the fractional share (including the holding period for the share(s) of Yardville common stock surrendered therefor) is greater than one year. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding

Cash payments received in the merger by a U.S. holder may, under certain circumstances, be subject to information reporting and backup withholding (currently at a rate of 28%) of the cash payable to the holder,

 

69


Table of Contents

unless the holder provides proof of an applicable exemption or furnishes its taxpayer identification number, and otherwise complies with all applicable requirements of the backup withholding rules. Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not additional tax and will be allowed as a refund or credit against the U.S. holder’s United States federal income tax liability, provided that the required information is timely furnished to the Internal Revenue Service.

Reporting Requirements

A U.S. holder who receives shares of PNC common stock as a result of the merger will be required to retain records pertaining to the merger and will be required to file with its United States federal income tax return for the year in which the merger takes place a statement setting forth certain facts relating to the merger.

 

70


Table of Contents

INFORMATION ABOUT THE COMPANIES

The PNC Financial Services Group, Inc.

The PNC Financial Services Group, Inc. is a Pennsylvania corporation, a bank holding company and a financial holding company under U.S. federal law. PNC is one of the largest diversified financial services companies in the United States based on assets, with businesses engaged in retail banking, corporate and institutional banking, asset management and global fund processing services. PNC provides many of its products and services nationally and others in PNC’s primary geographic markets located in Pennsylvania; New Jersey; Washington, DC; Maryland; Virginia; Ohio; Kentucky; and Delaware. PNC also provides certain global fund processing services internationally. PNC stock (NYSE: PNC) is listed on the New York Stock Exchange. As of June 30, 2007, PNC had total consolidated assets of approximately $125.7 billion, total consolidated deposits of approximately $77.2 billion and total consolidated stockholders’ equity of approximately $14.5 billion. The principal executive offices of PNC are located at One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707, and its telephone number is (412) 762-2000.

Additional information about PNC and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information” on page 83.

Yardville National Bancorp

Yardville National Bancorp is a New Jersey corporation and a registered bank holding company under U.S. federal law. Yardville conducts a general commercial and retail banking business through its principal operating subsidiary, The Yardville National Bank, which commenced operations as a commercial bank in 1925. Yardville provides a broad range of lending, deposit and other financial products and services with an emphasis on commercial real estate and commercial and industrial lending to small to mid-sized businesses and individuals. Yardville’s existing and target markets are located in the corridor between New York City and Philadelphia. Yardville stock (NASDAQ: YANB) is listed on The Nasdaq Global Select Market. As of June 30, 2007, Yardville had total consolidated assets of approximately $2.6 billion, total consolidated deposits of approximately $2.0 billion, and total consolidated stockholders’ equity of approximately $189 million. The principal executive offices of Yardville are located at 2465 Kuser Road, Hamilton, New Jersey 08690 and its telephone number is (609) 585-5100.

Additional information about Yardville and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information” on page 83.

 

71


Table of Contents

COMPARISON OF SHAREHOLDERS’ RIGHTS

PNC is incorporated in Pennsylvania and Yardville is incorporated in New Jersey. Your rights as a Yardville shareholder are governed by the New Jersey Business Corporation Act, the Yardville restated certificate of incorporation, as amended and the Yardville by-laws. Upon completion of the merger, if you receive the stock consideration, as a PNC shareholder your rights will be governed by the Pennsylvania Business Corporation Law, the PNC articles of incorporation and the PNC bylaws.

The following is a summary of the material differences between the rights of holders of PNC common stock and the rights of holders of Yardville common stock, but does not purport to be a complete description of those differences. These differences may be determined in full by reference to the Pennsylvania Business Corporation Law, the New Jersey Business Corporation Act, the PNC amended and restated articles of incorporation, the Yardville restated certificate of incorporation, as amended, the PNC bylaws and the Yardville by-laws. The PNC amended and restated articles of incorporation, the Yardville restated certificate of incorporation, as amended, the PNC bylaws, and the Yardville by-laws are subject to amendment in accordance with their terms. Copies of the governing corporate instruments are available, without charge, to any person, including any beneficial owner to whom this document is delivered, by following the instructions listed under “Where You Can Find More Information” on page 83.

 

YARDVILLE

 

PNC

AUTHORIZED CAPITAL STOCK
Authorized Shares. Yardville is authorized under its restated certificate of incorporation to issue 20,000,000 shares of common stock, without par value, and 1,000,000 shares of preferred stock, without par value.   Authorized Shares. PNC is authorized under its amended and restated articles of incorporation to issue 800,000,000 shares of common stock, par value $5.00 per share, and 20,000,000 shares of preferred stock, par value $1.00 per share.
Preferred Stock. Yardville’s restated certificate of incorporation, authorizes the Board, without further shareholder action, to amend the certificate of incorporation to issue additional classes or series of Preferred Stock. In such an amendment, the Board is expressly authorized to determine the designation preferences, qualifications, privileges, options, relative and special rights, and limitations, if any, relating to the shares of the series. The rights of preferred shareholders may supersede the rights of common shareholders.   Preferred Stock. PNC’s amended and restated articles of incorporation authorize the Board, without further shareholder action, to issue up to 20,000,000 shares of preferred stock, in one or more series, and determine by resolution any designations, preferences, qualifications, privileges, limitations, restrictions, or special or relative rights of additional series. The rights of preferred shareholders may supersede the rights of common shareholders.
VOTING RIGHTS IN AN EXTRAORDINARY TRANSACTION
The New Jersey Business Corporation Act requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote on a matter unless a greater vote is specified in the certificate of incorporation.   Pursuant to Section 1924 of the Pennsylvania Business Corporation Law, a plan of merger or consolidation 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.

 

72


Table of Contents

YARDVILLE

 

PNC

AMENDMENT TO THE CERTIFICATE/ARTICLES OF INCORPORATION
Generally, under the New Jersey Business Corporation Act, an amendment to Yardville’s restated certificate of incorporation requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote on the matter, unless a greater vote is specified in the certificate of incorporation. Yardville’s restated certificate of incorporation requires the affirmative vote of at least eighty percent (80%) of the shares entitled to vote thereon to amend or repeal the provisions relating to the board of directors, shareholder action and special meetings, and certain business combinations with interested shareholders.   Under the Pennsylvania Business Corporation Law, an amendment to the articles of incorporation can be proposed by adoption of a resolution by the PNC board. An amendment must be submitted to a vote and 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.
AMENDMENT TO THE BYLAWS
Yardville’s by-laws may be altered or repealed and new by-laws may be adopted by shareholders or by the board of directors. Any shareholder action to alter, repeal or adopt new bylaws must be brought before an annual or special meeting of shareholders in accordance with the by-laws, and requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote on the matter. Any by-law altered, repealed or adopted by the shareholders may be reinstated, altered or repealed by the board of directors, unless the shareholder resolution adopting such by-law provides that the by-law shall not be altered or repealed by the board of directors. Yardville’s board of directors may amend, repeal or adopt new by-laws by the affirmative vote of a majority of Yardville’s board of directors at any regular or special meeting of Yardville’s board of directors.   PNC’s bylaws 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 bylaws, 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 bylaw on certain subjects committed expressly to the shareholders by Section 1504(b) of the PBCL.
APPRAISAL RIGHTS
Under the New Jersey Business Corporation Act, appraisal rights are available only in connection with specific transactions. However, appraisal rights are not available in the merger context if the shares are (i) listed on a national securities exchange or held of record by at least 1,000 holders on the record date fixed to determine the shareholders entitled to vote upon the merger, or (ii) for which the shareholder will receive (x) cash, (y) shares listed on a national securities exchange or held of record by at least 1,000 holders, or (z) cash and such securities. See the discussion in the “The Merger—Yardville Shareholders Do Not Have Dissenters’ Appraisal Rights in the Merger” on page 45.  

Under the PBCL Section 1571, appraisal rights are available only in connection with specific transactions. However, appraisal rights are not available in the merger for shareholders if the shares are (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.; or (ii) held beneficially or of record by more than 2,000 persons.

 

PNC shareholders have no appraisal rights because PNC common stock is listed on the NYSE and PNC has more than 2,000 shareholders.

 

73


Table of Contents

YARDVILLE

 

PNC

SPECIAL MEETINGS OF SHAREHOLDERS
The New Jersey Business Corporation Act provides that a special meeting may be called by the president or the Board, or by such other officers, directors or shareholders as may be provided in the by-laws. The Yardville by-laws provide that special meetings of shareholders may be called only by the Board pursuant to a resolution approved by the majority of the Board or by the Chairman of the Board or the President/Chief Executive Officer.   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 1) pursuant to PNC’s notice of such meeting, 2) by the presiding officer or 3) at the direction of a majority of the board, may be conducted at such special meeting of shareholders.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Yardville’s by-laws provide that a shareholder wanting to submit a shareholder proposal at any annual or special meeting must deliver written notice to the Secretary of Yardville, (i) with respect to an annual meeting not less than 45 calendar days prior to the date fixed for the annual meeting or, if no date has then been fixed by the Board, then 60 calendar days in advance of the previous years’ annual meeting and (ii) with respect to a special meeting, the earlier of 30 days before the date on which the shareholder proposes to the Board that it call any special meeting or 5 days after the shareholder learns (or with the exercise of reasonable care should have learned) of the Board’s intention to call a special meeting (but in no event later than 5 days after the notice of meeting is first mailed to shareholders).   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 must conform to the requirements set out in PNC’s bylaws that are applicable to such nominations or proposals.

BOARD OF DIRECTORS

 

Number of Directors

Under the New Jersey Business Corporation Act, a corporation must have a board of directors consisting of at least one director. The board of Yardville currently has 12 directors. The restated certificate of incorporation and by-laws of Yardville provide that the number of directors will not be less than 5 nor more than 25.   The board of directors of PNC has 18 directors. The bylaws of PNC provide that the number of directors will be not less than 5 nor more than 36.

 

74


Table of Contents

YARDVILLE

 

PNC

Classification
The New Jersey Business Corporation Act permits classification of a New Jersey corporation’s board of directors if the corporation’s certificate of incorporation so provides. The Yardville Board is classified into three classes. One class of directors is elected at each annual meeting of shareholders to hold office for a term of three years.   Pennsylvania law permits classified boards but PNC has not adopted one.
Removal
Yardville’s restated certificate of incorporation requires the affirmative vote of the holders of at least 80% of the shares entitled to vote for the election of the directors to remove any directors. Directors may be removed with or without cause. The Board may remove any director for cause by a majority vote of the entire Board.   The PBCL provides that any director 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 bylaws contain provisions addressing shareholder removal of directors, but none of these restrictions apply to PNC. Directors may remove a fellow director if he or she has been judicially declare 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 bylaws may specify. A court may remove a director upon application in a derivative suit in cases of fraudulent or dishonest acts, gross abuse of authority or discretion, or for any other proper cause.
Vacancies
Under the Yardville restated certificate of incorporation, a vacancy on the board of directors shall be filled by vote of a majority of directors remaining in office even though less than a quorum or by a sole remaining director. Vacancies resulting from any increase in the number of directors may be filled by the Board.   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.
Special Meetings of the Board
Special meetings of the Board of Directors may be called by the President/Chief Executive Officer, the Chairman of the Board or by three or more of the directors.   Special meetings of the board of directors may be called by the Chairman of the Board, the Chief Executive Officer, the President, any Vice Chairman, or at the written request of any three directors.

 

75


Table of Contents

YARDVILLE

 

PNC

Director Liability and Indemnification

The New Jersey Business Corporation Act permits a New Jersey corporation to indemnify any person who is or was a director, officer, employee or agent of the corporation against his expenses and liabilities in connection with any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding involving the director, officer, employee or agent by reason of his position with the corporation, other than a proceeding by or in the right of the corporation, if the person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal proceeding, such person had no reasonable cause to believe his conduct was unlawful.

 

The New Jersey Business Corporation Act requires a corporation to indemnify reasonable expenses for a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made, or threatened to be made, a party by reason of his service in that capacity.

 

Under the New Jersey Business Corporation Act, a corporation may specify in its certificate of incorporation that a director or officer shall not be personally liable, or shall be liable only to the extent therein provided, to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders, except that such provision shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (a) in breach of such person’s duty of loyalty to the corporation or its shareholders, (b) not in good faith or involving a knowing violation of law or (c) resulting in receipt by such person of an improper personal benefit. Act or omission as used in this section of the New Jersey Business Corporation Act means an act or omission which that person knows or believes to be contrary to the best interests of the corporation or its shareholders in connection with a matter in which he has a material conflict of interest.

 

The Yardville certificate provides, in accordance with New Jersey law, that the liability of directors and officers to Yardville or its shareholders for money damages shall be limited to the maximum extent that

 

The PBCL permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a representative of the corporation, against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. In an action by or in the right of the corporation, indemnification will not be made in respect of any claim, issue, or matter as to which the person has been adjudged to be liable to the corporation.

 

Unless ordered by a court, the determination of whether indemnification is proper in a specific case will be determined by 1) the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action or proceeding; 2) if such a quorum is not obtainable or if obtainable and a majority vote of a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or 3) by the shareholders.

 

To the extent that a representative of a business corporation has been successful on the merits or otherwise in defense of a third-party action, derivative action, or corporate action, he must be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him in connection therewith.

 

Pennsylvania law permits a corporation to purchase and maintain insurance for a director or officer against any liability asserted against him, and incurred in his capacity as a director or officer or arising out of his position, whether or not the corporation would have the power to indemnify him against such liability under Pennsylvania law.

 

The PNC bylaws provide that a director shall to the maximum extent permitted by Pennsylvania law, have no personal liability or monetary damages for any

 

76


Table of Contents

YARDVILLE

 

PNC

the liability of directors and officers of a New Jersey corporation is permitted to be limited by New Jersey law.

 

New Jersey law permits a corporation to purchase and maintain insurance for a director, officer, employee or agent of the corporation against any liability asserted against him, and incurred in his capacity as a director or officer or arising out of his position, whether or not the corporation would have the power to indemnify him against such liability under New Jersey law.

  action taken, or any failure to take any action as a director. The PNC bylaws also provide for indemnification for current and former directors, officers, employees, or agents serving at the request of the corporation to the fullest extent permitted by Pennsylvania law.
SHAREHOLDER RIGHTS PLAN
While the New Jersey Business Corporation Act authorizes a corporation to adopt a shareholder rights plan, Yardville does not have a shareholder rights plan currently in effect.   While the PBCL authorizes a corporation to adopt a shareholder rights plan, PNC does not have a shareholder rights plan currently in effect.

STATE ANTI-TAKEOVER STATUTES

 

Business Combinations

The New Jersey Business Corporation Act restricts the transactions that a publicly held corporation organized under the laws of New Jersey with its principal executive offices or significant operations located in New Jersey, referred to as a resident domestic corporation, can engage. For example, the New Jersey Business Corporation Act provides that no resident domestic corporation may engage in a “business combination,” as defined in the New Jersey Business corporation Act, with an “interested shareholder” of the corporation for a period of five years following the interested shareholder’s stock acquisition, unless the business combination is approved by the board of directors of the corporation prior to the interested shareholder’s stock acquisition. An interested shareholder is a beneficial owner of ten percent or more of the voting power of a corporation.

 

In addition, the New Jersey Business Corporation Act provides that no resident domestic corporation may engage, at any time, in any business combination, with any interested shareholders of the corporation other than:

 

•     a business combination approved by the board of directors of such corporation prior to the interested shareholder’s stock acquisition;

  In its bylaws, 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.

 

77


Table of Contents

YARDVILLE

 

PNC

•     a business combination approved by the affirmative vote of the holders of two-thirds of the voting stock not beneficially owned by that interested shareholder at a meeting called for such purpose; or

 

•     a business combination in which the interested shareholder pays a formula price designed to ensure that all other shareholders receive at least the highest price per share paid by that interested shareholder.

 

Yardville cannot opt out of the foregoing provisions of the New Jersey Business Corporation Act. None of the foregoing provisions of New Jersey law apply to the merger.

 

In addition to any affirmative vote required by New Jersey Law, Yardville’s restated certificate of incorporation requires an affirmative vote of eighty percent (80%) of the then outstanding shares of stock entitled to vote generally in the election of directors to approve a business combination with an interested shareholder unless approved by continuing directors or certain fair price requirements are met. A continuing director is defined as any member of the Board who was on the Board on April 29, 1986, and any subsequent member of the Board who is unaffiliated with the interested shareholder and was a member of the Board prior to the time the interested shareholder became an interested shareholder, and any successor of a continuing director who is unaffiliated with the interested shareholder and is recommended to succeed a continuing director by a majority of continuing directors then on the board. The foregoing provision does not apply to the merger.

 

The New Jersey Business Corporation Act allows, and the Yardville restated certificate of incorporation requires, the directors to look at various factors in considering a proposal or offer to acquire the corporation. Specifically, the New Jersey Business Corporation Act provides that a director of a New Jersey corporation in evaluating a proposal or offer to acquire the corporation may consider any of the following:

 

•     the effects of any action on the corporation’s shareholders;

 

•     the effects of the action on the corporation’s employees, suppliers, creditors and customers;

 

 

78


Table of Contents

YARDVILLE

 

PNC

•     the effects of the action on the community in which the corporation operates; and

 

•     the long-term as well as the short-term interests of the corporation and its shareholders, including the possibility that these interests may best be served by the continued independence of the corporation.

 

If, on the basis of the foregoing factors, the board of directors determines that any proposal or offer to acquire the corporation is not in the best interest of the corporation, it may reject such proposal or offer, in which event the board of directors will have no duty to facilitate, remove any barriers to, or refrain from impeding, such proposal or offer.

 
DUTIES OF DIRECTORS
Under the New Jersey Business Corporation Act, the standard of conduct for directors is governed by statute. The New Jersey Business Corporation Act requires that a director of a New Jersey corporation perform his or her duties in good faith and with that degree of diligence, care and skill which ordinarily prudent people would exercise under similar circumstances in like positions.   Under the PBCL, the standard of conduct for directors is governed by statute. The PBCL requires that a director of a Pennsylvania corporation perform his or her duties: (1) in good faith, (2) in a manner he or she reasonably believes to be in the best interests of the corporation, and (3) with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances.

 

79


Table of Contents

COMPARATIVE MARKET PRICES AND DIVIDENDS

PNC common stock is listed on the NYSE and Yardville common stock is listed on The Nasdaq Global Select Market. The following table sets forth the high and low sales prices of shares of PNC common stock and Yardville common stock as reported on the NYSE and Nasdaq, respectively, and the quarterly cash dividends declared per share for the periods indicated.

 

     PNC Common Stock    Yardville Common Stock
     High    Low    Dividend    High    Low    Dividend

2005

                 

First Quarter

   $ 57.57    $ 50.30    $ 0.50    $ 34.25    $ 31.01    $ 0.115

Second Quarter

     55.90      49.35      0.50      36.36      32.10      0.115

Third Quarter

     58.95      53.80      0.50      37.00      34.55      0.115

Fourth Quarter

     65.66      54.73      0.50      38.25      32.25      0.115

2006

                 

First Quarter

     71.42      61.78      0.50      38.00      34.55      0.115

Second Quarter

     72.00      65.30      0.55      39.19      34.58      0.115

Third Quarter

     73.55      68.09      0.55      37.00      33.63      0.115

Fourth Quarter

     75.15      67.61      0.55      40.02      35.25      0.115

2007

                 

First Quarter

     76.41      68.60      0.55      38.82      34.31      0.115

Second Quarter

     76.15      70.31      0.63      37.40      33.80      0.115

Third Quarter (through August 30, 2007)

     75.99      64.00      0.63      35.25      30.99      0.115

On June 6, 2007, the last full trading day before the public announcement of the merger agreement, the high and low sales prices of shares of PNC common stock as reported on the NYSE were $72.30 and $71.32, respectively. On August 30, 2007, the last full trading day before the date of this document, the high and low sale prices of shares of PNC common stock as reported on the NYSE were $70.73 and $69.40, respectively.

On June 6, 2007, the last full trading day before the public announcement of the merger agreement, the high and low sales prices of shares of Yardville common stock as reported on Nasdaq were $35.80 and $35.49, respectively. On August 30, 2007, the last full trading day before the date of this document, the high and low sale prices of shares of Yardville common stock as reported on Nasdaq were $34.00 and $33.59, respectively.

As of August 30, 2007, the last date prior to printing this document for which it was practicable to obtain this information, there were approximately 49,398 registered holders of PNC common stock and approximately 662 registered holders of Yardville common stock.

PNC shareholders and Yardville shareholders are advised to obtain current market quotations for PNC common stock and Yardville common stock. The market price of PNC common stock and Yardville common stock will fluctuate between the date of this document and the completion of the merger. No assurance can be given concerning the market price of PNC common stock or Yardville common stock before or after the effective date of the merger.

LEGAL MATTERS

The validity of the PNC common stock to be issued in connection with the merger will be passed upon for PNC by George P. Long, III, Senior Counsel and Corporate Secretary of PNC. Certain U.S. federal income tax consequences relating to the merger will also be passed upon for PNC by Wachtell, Lipton, Rosen & Katz, and for Yardville by Pepper Hamilton LLP.

 

80


Table of Contents

EXPERTS

The consolidated financial statements and management’s report on the effectiveness of internal control over financial reporting incorporated in this document by reference from PNC’s Annual Report on Form 10-K for the year ended December 31, 2006, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance on the reports of such firm given upon their authority as experts in accounting and auditing.

The consolidated financial statements of Yardville National Bancorp as of December 31, 2006 and 2005, and for each of the years in the three-year period ended December 31, 2006 and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, have been incorporated by reference herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, which is incorporated by reference herein and, upon the authority of said firm as experts in auditing and accounting.

The audit report on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2006, expresses an opinion that Yardville National Bancorp did not maintain effective internal control over financial reporting at December 31, 2006 because of the effect of a material weakness on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states that Yardville’s policies and procedures did not provide for effective updating of risk ratings on seasoned loans and that there was ineffective monitoring and review by credit risk review personnel to identify and resolve discrepancies in risk ratings on seasoned loans as compared to Yardville’s standard risk rating matrix. This deficiency resulted in material misstatements in Yardville’s allowance for loan losses and provision for loan losses in the preliminary 2006 consolidated financial statements and resulted in more than a remote likelihood that a material misstatement of Yardville’s annual or interim consolidated financial statements would not be prevented or detected.

OTHER MATTERS

According to the Yardville bylaws, business to be conducted at a special meeting of shareholders may only be brought before the meeting pursuant to a notice of meeting. Accordingly, no matters other than the matters described in this document will be presented for action at the special meeting or at any adjournment or postponement of the special meeting.

YARDVILLE 2007 ANNUAL MEETING SHAREHOLDER PROPOSALS

Yardville will hold a 2007 annual meeting of shareholders only if the merger is not completed as contemplated by the merger agreement. If it is determined that the merger will not be completed as contemplated by the merger agreement, Yardville will provide notice of the date fixed for the annual meeting, as well as the deadline for submitting shareholder proposals for such meeting and to have shareholder proposals included in Yardville’s proxy statement.

SHAREHOLDERS SHARING AN ADDRESS

Only one copy of this proxy statement is being delivered to multiple shareholders of Yardville sharing an address unless Yardville has previously received contrary instructions from one or more of such shareholders. On written or oral request to the Secretary of Yardville at 2465 Kuser Road, Hamilton, New Jersey 08690, (609) 586-4800, Yardville will deliver promptly a separate copy of this proxy statement to a shareholder at a shared address to which a single copy of the documents was delivered. Shareholders sharing an address who wish, in the future, to receive separate copies or a single copy of Yardville’s proxy statements and annual reports should provide written or oral notice to the Secretary of the Company at the address and telephone number set forth above.

 

81


Table of Contents

COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

The PNC bylaws provide for indemnification for current and former directors, officers, employees, or agents serving at the request of the corporation to the fullest extent permitted by Pennsylvania law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed 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.

 

82


Table of Contents

WHERE YOU CAN FIND MORE INFORMATION

PNC has filed with the SEC a registration statement under the Securities Act that registers the distribution to Yardville shareholders of the shares of PNC common stock to be issued in connection with the merger. The registration statement, including the attached exhibits and schedules, contains additional relevant information about PNC and PNC stock. The rules and regulations of the SEC allow us to omit certain information included in the registration statement from this document.

You may read and copy this information at the Public Reference Room of the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website that contains reports, proxy statements and other information about issuers, like PNC and Yardville, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by PNC with the SEC are also available at PNC’s internet website. The address of the site is www.pnc.com. The reports and other information filed by Yardville with the SEC are also available at Yardville’s internet website. The address of the site is www.ynb.com. We have included the web addresses of the SEC, PNC, and Yardville as inactive textual references only. Except as specifically incorporated by reference into this document, information on those websites is not part of this document.

The SEC allows PNC and Yardville to incorporate by reference information in this document. This means that PNC and Yardville can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this document, except for any information that is superseded by information that is included directly in this document.

This document incorporates by reference the documents listed below that PNC and Yardville previously filed with the SEC. They contain important information about the companies and their financial condition.

 

PNC SEC Filings

(SEC File No. 001-09718; CIK No. 0000713676)

 

Period or Date Filed

Annual Report on Form 10-K

  Year ended December 31, 2006

Quarterly Report on Form 10-Q

  Quarters ended March 31, 2007 and June 30, 2007

Current Reports on Form 8-K

  Filed on January 10, 2007, January 24, 2007, February 2, 2007, February 9, 2007, February 20, 2007, March 6, 2007, March 7, 2007, March 8, 2007, March 28, 2007, March 30, 2007, April 30, 2007, June 13, 2007, June 14, 2007, July 3, 2007, July 25, 2007, August 13, 2007 (other than the portions of those documents not deemed to be filed)
The description of PNC common stock set forth in a registration statement filed pursuant to Section 12 of the Exchange Act and any amendment or report filed for the purpose of updating those descriptions  

 

83


Table of Contents

Yardville SEC Filings

(SEC File No. 0-26086; CIK No. 0000787849)

 

Period or Date Filed

Annual Report on Form 10-K

  Year ended December 31, 2006 (as amended by Form 10-K/A filed on May 10, 2007)

Quarterly Report on Form 10-Q

  Quarters ended March 31, 2007 and June 30, 2007 (as amended by Form 10-Q/A filed on August 13, 2007)

Current Reports on Form 8-K

  Filed on January 20, 2007, February 1, 2007, February 2, 2007, February 14, 2007, March 16, 2007, March 30, 2007 (two filings), May 2, 2007, May 9, 2007, June 8, 2007, June 11, 2007, June 15, 2007, July 27, 2007, August 23, 2007 (other than the portions of those documents not deemed to be filed)

In addition, PNC and Yardville also incorporate by reference additional documents that either company files with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended, between the date of this document and the date of the Yardville special meeting. These documents 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.

PNC has supplied all information contained or incorporated by reference in this document relating to PNC, as well as all pro forma financial information, and Yardville has supplied all information relating to Yardville.

Documents incorporated by reference are available from PNC and Yardville without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this document. You can obtain documents incorporated by reference in this document by requesting them in writing or by telephone from the appropriate company at the following addresses:

 

The PNC Financial Services Group, Inc.   Yardville National Bancorp

One PNC Plaza

249 Fifth Avenue

Pittsburgh, Pennsylvania 15222-2707

Attention: Shareholder Services

Telephone: (800) 982-7652

Email: webqueries@computershare.com

 

2465 Kuser Road

Hamilton, New Jersey 08690

Attention: Howard N. Hall

Assistant Treasurer’s Office

Telephone: (609) 631-6223

Yardville shareholders requesting documents should do so by October 12, 2007 to receive them before the special meeting. You will not be charged for any of these documents that you request. If you request any incorporated documents from PNC or Yardville, Yardville will mail them to you by first class mail, or another equally prompt means after it receives your request.

Neither PNC nor Yardville has authorized anyone to give any information or make any representation about the merger or our companies that is different from, or in addition to, that contained in this document or in any of the materials that have been incorporated in this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.

 

84


Table of Contents

This document contains a description of the representations and warranties that each of PNC and Yardville made to the other in the merger agreement. Representations and warranties made by PNC, Yardville and other applicable parties are also set forth in contracts and other documents (including the merger agreement and option agreement) that are attached or filed as exhibits to this document or are incorporated by reference into this document. These representations and warranties were made as of specific dates, may be subject to important qualifications and limitations agreed to between the parties in connection with negotiating the terms of the agreement, and may have been included in the agreement for the purpose of allocating risk between the parties rather than to establish matters as facts. These materials are included or incorporated by reference only to provide you with information regarding the terms and conditions of the agreements, and not to provide any other factual information regarding Yardville, PNC or their respective businesses. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this document.

 

85


Table of Contents

ANNEX A

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

THE PNC FINANCIAL SERVICES GROUP, INC.

AND

YARDVILLE NATIONAL BANCORP

JUNE 6, 2007


Table of Contents

TABLE OF CONTENTS

 

ARTICLE 1    CERTAIN DEFINITIONS    A-1
Section 1.1.    Certain Definitions    A-1
ARTICLE 2    THE MERGER    A-9
Section 2.1.    Merger    A-9
Section 2.2.    Effective Time    A-9
Section 2.3.    Certificate of Incorporation and Bylaws    A-9
Section 2.4.    Directors and Officers of Surviving Corporation    A-10
Section 2.5.    Effects of the Merger    A-10
Section 2.6.    Bank Merger    A-10
Section 2.7.    Tax Consequences    A-10
Section 2.8.    Additional Actions    A-10
ARTICLE 3    CONVERSION OF SHARES; DELIVERY OF MERGER CONSIDERATION    A-11
Section 3.1.    Conversion of Yardville Common Stock; Merger Consideration    A-11
Section 3.2.    Procedures for Exchange of Yardville Common Stock    A-13
Section 3.3.    Treatment of Yardville Options    A-16
Section 3.4.    Reservation of Shares    A-16
ARTICLE 4    REPRESENTATIONS AND WARRANTIES OF YARDVILLE    A-16
Section 4.1.    Standard    A-16
Section 4.2.    Organization    A-17
Section 4.3.    Capitalization    A-17
Section 4.4.    Authority; No Violation    A-18
Section 4.5.    Consents    A-19
Section 4.6.    Financial Statements/Regulatory Reports    A-19
Section 4.7.    Taxes    A-20
Section 4.8.    No Material Adverse Effect    A-21
Section 4.9.    Material Contracts; Leases; Defaults    A-21
Section 4.10.    Ownership of Property; Insurance Coverage    A-23
Section 4.11.    Legal Proceedings    A-24
Section 4.12.    Compliance With Applicable Law    A-24
Section 4.13.    Employee Benefit Plans    A-25
Section 4.14.    Brokers, Finders and Financial Advisors    A-27
Section 4.15.    Environmental Matters    A-27
Section 4.16.    Loan Portfolio    A-28
Section 4.17.    Securities Documents    A-30
Section 4.18.    Related Party Transactions    A-30
Section 4.19.    Deposits    A-30
Section 4.20.    Anti-takeover Provisions Inapplicable; Required Vote    A-30
Section 4.21.    Registration Obligations    A-31
Section 4.22.    Risk Management Instruments    A-31
Section 4.23.    Fairness Opinion    A-31
Section 4.24.    Trust Accounts    A-31
Section 4.25.    Intellectual Property    A-31
Section 4.26.    Labor Matters    A-32
Section 4.27.    Internal Controls    A-32
Section 4.28.    Yardville Warrants    A-33
Section 4.29.    Yardville Information Supplied    A-33
Section 4.30.    No Dissenters Rights    A-33

 

A-i


Table of Contents
ARTICLE 5    REPRESENTATIONS AND WARRANTIES OF ACQUIRER    A-33
Section 5.1.    Standard    A-33
Section 5.2.    Organization    A-34
Section 5.3.    Capitalization    A-34
Section 5.4.    Authority; No Violation    A-35
Section 5.5.    Consents    A-35
Section 5.6.    Availability of Funds    A-36
Section 5.7.    Financial Statements/Regulatory Reports    A-36
Section 5.8.    Taxes    A-36
Section 5.9.    No Material Adverse Effect    A-37
Section 5.10.    Ownership of Property    A-37
Section 5.11.    Legal Proceedings    A-37
Section 5.12.    Compliance With Applicable Law    A-37
Section 5.13.    Environmental Matters    A-39
Section 5.14.    Securities Documents    A-39
Section 5.15.    Brokers, Finders and Financial Advisors    A-39
Section 5.16.    Acquirer Common Stock    A-39
Section 5.17.    Reserved    A-40
Section 5.18.    Acquirer Information Supplied    A-40
Section 5.19.    Internal Controls    A-40
ARTICLE 6    COVENANTS OF YARDVILLE    A-41
Section 6.1.    Conduct of Business    A-41
Section 6.2.    Current Information    A-44
Section 6.3.    Access to Properties and Records    A-45
Section 6.4.    Financial and Other Statements    A-46
Section 6.5.    Maintenance of Insurance    A-46
Section 6.6.    Disclosure Supplements    A-46
Section 6.7.    Consents and Approvals of Third Parties    A-46
Section 6.8.    All Reasonable Best Efforts    A-47
Section 6.9.    Failure to Fulfill Conditions    A-47
Section 6.10.    No Solicitation    A-47
Section 6.11.    Reserves and Merger-Related Costs    A-48
Section 6.12.    Takeover Laws    A-49
Section 6.13.    Yardville Warrants    A-49
ARTICLE 7    COVENANTS OF ACQUIRER    A-49
Section 7.1.    Conduct of Business    A-49
Section 7.2.    Current Information    A-49
Section 7.3.    Financial and Other Statements    A-50
Section 7.4.    Disclosure Supplements    A-50
Section 7.5.    Consents and Approvals of Third Parties    A-50
Section 7.6.    All Reasonable Best Efforts    A-50
Section 7.7.    Failure to Fulfill Conditions    A-50
Section 7.8.    Employee Benefits    A-50
Section 7.9.    Directors and Officers Indemnification and Insurance    A-51
Section 7.10.    Stock Listing    A-53
Section 7.11.    Stock Reserve    A-53
Section 7.12.    Section 16(b) Exemption    A-53

 

A-ii


Table of Contents
ARTICLE 8    REGULATORY AND OTHER MATTERS    A-53
Section 8.1.    Yardville Stockholders Meeting    A-53
Section 8.2.    Proxy Statement-Prospectus    A-54
Section 8.3.    Regulatory Approvals    A-55
Section 8.4.    Affiliates    A-55
Section 8.5.    Yardville Trust Preferred Securities    A-55
ARTICLE 9    CLOSING CONDITIONS    A-56
Section 9.1.    Conditions to Each Party’s Obligations under this Agreement    A-56
Section 9.2.    Conditions to the Obligations of Acquirer under this Agreement    A-57
Section 9.3.    Conditions to the Obligations of Yardville under this Agreement    A-57
ARTICLE 10    THE CLOSING    A-58
Section 10.1.    Time and Place    A-58
Section 10.2.    Deliveries at the Pre-Closing and the Closing    A-58
ARTICLE 11    TERMINATION, AMENDMENT AND WAIVER    A-58
Section 11.1.    Termination    A-58
Section 11.2.    Effect of Termination    A-60
Section 11.3.    Amendment, Extension and Waiver    A-61
ARTICLE 12    MISCELLANEOUS    A-62
Section 12.1.    Confidentiality    A-62
Section 12.2.    Public Announcements    A-62
Section 12.3.    Survival    A-62
Section 12.4.    Notices    A-62
Section 12.5.    Parties in Interest    A-63
Section 12.6.    Complete Agreement    A-63
Section 12.7.    Counterparts    A-63
Section 12.8.    Severability    A-63
Section 12.9.    Governing Law    A-63
Section 12.10.    Interpretation    A-63
Section 12.11.    Covenants with Respect to Subsidiaries and Affiliates    A-64
Section 12.12.    Waiver of Jury Trial    A-64
Section 12.13.    Specific Performance    A-64
Exhibit A    Form of Voting Agreement   
Exhibit B    Affiliates Agreement   
Exhibit C    Index Group Members and Weights   

 

A-iii


Table of Contents

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of June 6, 2007, is by and between The PNC Financial Services Group, Inc., a Pennsylvania corporation (“Acquirer”), and Yardville National Bancorp, a New Jersey corporation (“Yardville”).

RECITALS

WHEREAS, the Board of Directors of each of Acquirer and Yardville (i) has determined that this Agreement and the business combination and related transactions contemplated hereby are in the best interests of their respective companies and stockholders and (ii) has adopted a resolution approving this Agreement and declaring its advisability; and

WHEREAS, in accordance with the terms of this Agreement, Yardville will merge with and into Acquirer (the “Merger”); and

WHEREAS, as a condition to the willingness of Acquirer to enter into this Agreement, each director and the executive officers of Yardville identified on YARDVILLE DISCLOSURE SCHEDULE 1 has entered into a Voting Agreement, substantially in the form of Exhibit A hereto, dated as of the date hereof, with Acquirer (the “Voting Agreement”), pursuant to which each such director and executive officer has agreed, among other things, to vote all shares of common stock of Yardville owned by such person in favor of the approval of this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth in such Voting Agreement; and

WHEREAS, the parties intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”); and

WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the business transactions described in this Agreement and to prescribe certain conditions thereto.

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

CERTAIN DEFINITIONS

Section 1.1. Certain Definitions.

As used in this Agreement, the following terms have the following meanings.

“Acquirer” has the meaning set forth in the preamble to this Agreement.

“Acquirer Average Price” has the meaning set forth in Section 11.1.9.

“Acquirer Bank” means PNC Bank, National Association, a national banking association.

“Acquirer Capitalization Date” has the meaning set forth in Section 5.3.

“Acquirer Closing Price” means the average, rounded to the nearest one tenth of a cent, of the closing sale prices of Acquirer Common Stock on the Stock Exchange as reported by The Wall Street Journal for the five trading days immediately preceding the date of the Effective Time.

 

A-1


Table of Contents

“Acquirer Common Stock” means the common stock, par value $5.00 per share, of Acquirer.

“ACQUIRER DISCLOSURE SCHEDULE” means a written disclosure schedule delivered by Acquirer to Yardville prior to the execution and delivery hereof specifically referring to the appropriate section of this Agreement.

“Acquirer Fee” has the meaning set forth in Section 11.2.2.

“Acquirer Financial Statements” means the (i) the audited consolidated statements of financial condition (including related notes and schedules) of Acquirer as of December 31, 2006 and 2005 and the consolidated statements of income, changes in stockholders’ equity and cash flows (including related notes and schedules, if any) of Acquirer for each of the three years ended December 31, 2006, 2005 and 2004, as set forth in Acquirer’s Annual Report on Form 10-K for the year ended December 31, 2006, and (ii) the unaudited interim consolidated financial statements of Acquirer as of the end of each calendar quarter following December 31, 2006, and for the periods then ended, as filed by Acquirer in its Securities Documents.

“Acquirer Permitted Encumbrances” has the meaning set forth in Section 5.10.

“Acquirer Preferred Stock” has the meaning set forth in Section 5.3.

“Acquirer Ratio” has the meaning set forth in Section 11.1.9.

“Acquirer Regulatory Agreement” has the meaning set forth in Section 5.12.3.

“Acquirer Regulatory Reports” means the reports of Acquirer and Acquirer Bank and accompanying schedules, as filed with any Bank Regulator, for each calendar quarter beginning with the quarter ended December 31, 2004 through the Closing Date.

“Acquirer Series A Preferred Stock” has the meaning set forth in Section 5.3.1.

“Acquirer Series B Preferred Stock” has the meaning set forth in Section 5.3.1.

“Acquirer Series C Preferred Stock” has the meaning set forth in Section 5.3.1.

“Acquirer Series D Preferred Stock” has the meaning set forth in Section 5.3.1.

“Acquirer Series H Preferred Stock” has the meaning set forth in Section 5.3.1.

“Acquirer Series I Preferred Stock” has the meaning set forth in Section 5.3.1.

“Acquirer Stock Benefit Plans” means those stock benefit plans identified in the Exhibits to Acquirer’s Form 10-K for the year ended December 31, 2006.

“Acquisition Proposal” has the meaning set forth in Section 6.10.

“Affiliate” means any Person who directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and, without limiting the generality of the foregoing, includes any executive officer or director of such Person and any Affiliate of such executive officer or director.

“Agency” has the meaning set forth in Section 4.16.6.

“Agreement” has the meaning set forth in the preamble to this Agreement.

 

A-2


Table of Contents

“Average Index Value” has the meaning set forth in Section 11.1.9.

“Bank Merger” has the meaning set forth in Section 2.6.1.

“Bank Regulator” means any Federal or state banking regulator, including but not limited to the Federal Reserve, the FDIC and the OCC, which regulates the banking subsidiaries of Acquirer or Yardville, or any of their respective holding companies or subsidiaries, as the case may be.

“BHCA” means the Bank Holding Company Act of 1956, as amended.

“Cash Component” shall mean $156,455,236.

“Cash Consideration” has the meaning set forth in Section 3.1.3.

“Cash Conversion Number” has the meaning set forth in Section 3.1.6(a).

“Cash Election” has the meaning set forth in Section 3.1.3.

“Cash Election Number” has the meaning set forth in Section 3.1.6(b)(i).

“Cash Election Shares” has the meaning set forth in Section 3.1.3.

“Certificate” means each certificate evidencing shares of Yardville Common Stock.

“Claim” has the meaning set forth in Section 7.9.2.

“Closing Date” has the meaning set forth in Section 2.2.

“Closing” has the meaning set forth in Section 2.2.

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

“Code” has the meaning set forth in the Recitals to this Agreement.

“Confidentiality Agreement” means the confidentiality agreement referred to in Section 12.1.

“Continuing Employees” has the meaning set forth in Section 7.8.2.

“CRA” has the meaning set forth in Section 4.12.3.

“DPC Common Shares” has the meaning set forth in Section 3.1.2.

“Defined Benefit Plan” means a defined benefit plan within the meaning of Section 3(35) of ERISA.

“Determination Date” has the meaning set forth in Section 11.1.9.

“Determination Date Value” has the meaning set forth in Section 11.1.9.

“Effective Time” has the meaning set forth in Section 2.2.

“Election Deadline” has the meaning set forth in Section 3.2.1(d).

 

A-3


Table of Contents

“Environmental Laws” means any applicable Federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity relating to (1) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (2) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Materials of Environmental Concern. The term Environmental Law includes without limitation (a) the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §9601, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §6901, et seq.; the Clean Air Act, as amended, 42 U.S.C. §7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. §1251, et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. §2601, et seq.; the Emergency Planning and Community Right to Know Act, 42 U.S.C. §11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. §300f, et seq.; and all comparable state and local laws, and (b) any common law (including without limitation common law that may impose strict liability) that may impose liability or obligations for injuries or damages due to the presence of or exposure to any Materials of Environmental Concern.

“ERISA Affiliate Plan” means any bonus, incentive, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock, stock option, stock appreciation, phantom stock, severance, welfare benefit plans, fringe benefit plans, employment, severance and change in control agreements and all other material benefit practices, policies and arrangements maintained by an ERISA Affiliate in which any employee or former employee, consultant or former consultant or director or former director of any ERISA Affiliate participates or to which any such employee, consultant or director is a party or is otherwise entitled to receive benefits.

“ERISA Affiliate” means, with respect to any Person, (i) a member of any “controlled group” (as defined in Section 414(b) of the Code) of which such Person is a member, (ii) a trade or business, whether or not incorporated, under common control (within the meaning of Section 414(c) of the Code) with such Person, or (iii) a member of any affiliated service group (within the meaning of Section 414(m) of the Code) of which such Person is a member.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Agent” means such bank or trust company or other agent designated by Acquirer, and reasonably acceptable to Yardville, which shall act as agent for Acquirer in connection with the exchange procedures for converting shares of Yardville Common Stock evidenced by Certificates into the Merger Consideration.

“Exchange Agent Agreement” has the meaning set forth in Section 3.2.1.

“Exchange Fund” has the meaning set forth in Section 3.2.2.

“Exchange Ratio” shall mean the quotient, rounded to the nearest one ten thousandth, of (A) the Per Share Amount divided by (B) the Acquirer Closing Price.

“FDIC” means the Federal Deposit Insurance Corporation.

“Federal Reserve” means the Board of Governors of the Federal Reserve System.

“FHLB” means the Federal Home Loan Bank.

“Final Price” has the meaning set forth in Section 11.1.9.

 

A-4


Table of Contents

“Form of Election” has the meaning set forth in Section 3.2.1(b).

“GAAP” means accounting principles generally accepted in the United States of America.

“Governmental Entity” means any Federal or state court, administrative agency or commission or self-regulatory authority or other governmental authority or instrumentality.

“Holder” has the meaning set forth in Section 3.2.1.

“Indemnified Liabilities” has the meaning set forth in Section 7.9.2.

“Indemnified Party” has the meaning set forth in Section 7.9.2.

“Index Group” has the meaning set forth in Section 11.1.9.

“Index Ratio” has the meaning set forth in Section 11.1.9.

“Initial Index Price” has the meaning set forth in Section 11.1.9.

“Initial Value” has the meaning set forth in Section 11.1.9.

“Intellectual Property” means trademarks, service marks, brand names, certification marks, trade dress and other indications of origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patentable or not, in any jurisdiction; patents, applications for patents (including divisions, continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic information, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any Person; writings and other works, whether copyrightable or not, in any jurisdiction; and registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; and any similar intellectual property or proprietary rights.

“IRS” means the United States Internal Revenue Service.

“Knowledge” means (i) with respect to Yardville, with respect to the matter in question, that any of Yardville’s Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer, and Chief Legal Officer has actual knowledge of such matter and (ii) with respect to Acquirer, with respect to the matter in question, that any of Acquirer’s Chief Executive Officer, Chief Financial Officer and General Counsel has actual knowledge of such matter.

“Letter of Transmittal” has the meaning set forth in Section 3.2.3(a).

“Loan Property” has the meaning set forth in Section 4.15.2.

“Loans” has the meaning set forth in Section 4.16.4.

“Material Adverse Effect” means, with respect to Acquirer, Yardville or the Surviving Corporation, respectively, any effect that is material and adverse to (i) the financial condition, results of operations or business of such party and its Subsidiaries taken as a whole; provided that, with respect to this clause (i), “Material Adverse Effect” shall not be deemed to include the impact of any of the following: (a) changes, after the date hereof, in laws, rules or regulations or interpretations thereof by courts or Governmental Entities of general applicability to banking or bank holding company businesses, but not uniquely relating to such party,

 

A-5


Table of Contents

(b) changes, after the date hereof, in general economic conditions, including changes in prevailing interest rates, affecting banking or bank holding company businesses generally except to the extent that such changes have a disproportionate adverse effect on such party (c) changes in GAAP or regulatory accounting principles after the date hereof generally applicable to banks or savings institutions and their holding companies, but not uniquely relating to such party, (d) actions and omissions of a party hereto (or any of its Subsidiaries) taken with the prior written consent of the other party or to the extent expressly permitted or required by the specific terms of this Agreement, (e) the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence, after the date hereof, of any military or terrorist attack upon or within the United States, or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, except to the extent that such engagement or occurrence has a disproportionate adverse effect on such party, and (f) the announcement of this Agreement and of the transactions contemplated by this Agreement, or (ii) the ability of such party to timely consummate the transactions contemplated by this Agreement.

“Materially Burdensome Regulatory Condition” has the meaning set forth in Section 8.3.

“Materials of Environmental Concern” means pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products, and any other materials regulated under Environmental Laws.

“Maximum Amount” has the meaning set forth in Section 7.9.1.

“Merger Consideration” has the meaning set forth in Section 3.1.3.

“Merger Registration Statement” means the registration statement, together with all amendments, filed with the SEC under the Securities Act for the purpose of registering shares of Acquirer Common Stock to be offered to holders of Yardville Common Stock in connection with the Merger.

“Merger” has the meaning set forth in the Recitals to this Agreement.

“NASDAQ” means The NASDAQ Stock Market, LLC.

“NJBCA” means the New Jersey Business Corporation Act, as amended.

“Non-Election Shares” has the meaning set forth in Section 3.1.3.

“OCC” means the Office of the Comptroller of the Currency.

“Operative Documents” has the meaning set forth in Section 8.5.2.

“Participation Facility” has the meaning set forth in Section 4.15.2.

“PBCL” means the Business Corporation Law of the Commonwealth of Pennsylvania, as amended.

“Pension Plan” has the meaning set forth in Section 4.13.2.

“Per Share Amount” shall mean the sum, rounded to the nearest one-tenth of a cent, of (A) $14.00 plus (B) the product, rounded to the nearest one tenth of a cent, of 0.2923 (the “Share Ratio”) times the Acquirer Closing Price.

“Person” means any individual, corporation, partnership, joint venture, organization, association, trust, other entity or “group” (as that term is defined under the Exchange Act).

“Pre-Closing” has the meaning set forth in Section 10.1.

 

A-6


Table of Contents

“Proxy Statement-Prospectus” has the meaning set forth in Section 8.2.1.

“Regulatory Approvals” means the approvals of all Bank Regulators that are necessary in connection with the consummation of the Merger, the Bank Merger and the related transactions contemplated by this Agreement and the Bank Merger.

“Rights” means warrants, options, calls, rights, subscriptions, convertible securities, stock appreciation rights and other arrangements or commitments which obligate an entity to issue or dispose of, or make any payment based on, any of its capital stock, preferred stock, Voting Debt or other ownership interests or which provide for compensation based on the equity appreciation of its capital stock.

“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Securities Documents” means all reports, offering circulars, proxy statements, registration statements and all similar documents filed, required to be filed or furnished, pursuant to the Securities Laws.

“Securities Laws” means the Securities Act; the Exchange Act; the Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940, as amended; the Trust Indenture Act of 1939, as amended; and, with respect to each of the foregoing, the rules and regulations of the SEC promulgated thereunder.

“Shortfall Number” has the meaning set forth in Section 3.1.6(b)(ii).

“Stock Consideration” shall have the meaning set forth in Section 3.1.3.

“Stock Election” has the meaning set forth in Section 3.1.3.

“Stock Election Shares” has the meaning set forth in Section 3.1.3.

“Stock Exchange” means New York Stock Exchange.

“Subsidiary” means any entity, of which 50% or more of its economic ownership interests are owned either directly or indirectly by Acquirer or Yardville, as applicable.

“Superior Proposal” has the meaning set forth in Section 6.10.

“Surviving Corporation” has the meaning set forth in Section 2.1.1.

“Takeover Laws” shall have the meaning set forth in Section 4.20.1.

“Tax” means (i) all federal, state, local, and foreign income, excise, gross receipts, ad valorem, profits, gains, property, capital, sales, transfer, use, license, payroll, employment, social security, severance, unemployment, withholding, duties, excise, windfall profits, intangibles, franchise, backup withholding, value added, alternative or add-on minimum, estimated and other taxes, charges, levies or like assessments together with all penalties and additions to tax and interest thereon and (ii) any liability for Taxes described in clause (i) above under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law).

“Tax Return” means any return, report or declaration, including information returns, filed or required to be filed with respect to Taxes (including any amended return).

 

A-7


Table of Contents

“Termination Date” means March 31, 2008.

“Treasury Stock” has the meaning set forth in Section 4.3.1.

“Trust Account Common Shares” has the meaning set forth in Section 3.1.2.

“USA Patriot Act” has the meaning set forth in Section 4.12.1.

“Voting Agreement” has the meaning set forth in the Recitals to this Agreement.

“Voting Debt” means any bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders may vote.

“Yardville” has the meaning set forth in the preamble to this Agreement, with its principal executive offices located at 2465 Kuser Road, Hamilton, New Jersey 08690.

“Yardville Bank” means The Yardville National Bank, a wholly owned national bank subsidiary of Yardville that is chartered under the laws of the United States of America, with its principal executive offices at 2465 Kuser Road, Hamilton, New Jersey 08690.

“Yardville Common Stock” means the common stock, no par value, of Yardville.

“Yardville Compensation and Benefit Plans” has the meaning set forth in Section 4.13.1.

“YARDVILLE DISCLOSURE SCHEDULE” means a written disclosure schedule delivered by Yardville to Acquirer prior to the execution and delivery hereof specifically referring to the appropriate section of this Agreement.

“Yardville Financial Statements” means (i) the audited consolidated statements of financial condition (including related notes and schedules, if any) of Yardville as of December 31, 2006 and 2005 and the consolidated statements of income, changes in stockholders’ equity and cash flows (including related notes and schedules, if any) of Yardville for each of the three years ended December 31, 2006, 2005 and 2004, as set forth in Yardville’s Annual Report on Form 10-K for the year ended December 31, 2006, and (ii) the unaudited interim consolidated financial statements of Yardville as of the end of each calendar quarter following December 31, 2006, and for the periods then ended, as filed by Yardville in its Securities Documents.

“Yardville Insiders” has the meaning set forth in Section 7.12.

“Yardville Option” means an option to purchase shares of Yardville Common Stock granted pursuant to a Yardville Option Plan and as set forth in YARDVILLE DISCLOSURE SCHEDULE 4.3.1.

“Yardville Option Plans” means the 1988 Stock Option Plan, the 1997 Stock Option Plan, the Yardville National Bancorp 2003 Stock Option Plan for Non-Employee Directors and the 2005 Equity Incentive Plan, and any amendments thereto.

“Yardville Permitted Encumbrances” has the meaning set forth in Section 4.10.1.

“Yardville Preferred Stock” has the meaning set forth in Section 4.3.1.

“Yardville Regulatory Agreement” has the meaning set forth in Section 4.12.3.

“Yardville Regulatory Reports” means the reports of Yardville and Yardville Bank and accompanying schedules, as filed with any Bank Regulator, for each calendar quarter beginning with the quarter ended December 31, 2004 through the Closing Date.

 

A-8


Table of Contents

“Yardville Section 16 Information” has the meaning set forth in Section 7.12.

“Yardville Stockholders Meeting” has the meaning set forth in Section 8.1.1.

“Yardville Trust” means each of the following statutory business trust subsidiaries of Yardville: Yardville Capital Trust, Yardville Capital Trust II, Yardville Capital Trust III, Yardville Capital Trust IV, Yardville Capital Trust V, and Yardville Capital Trust VI, collectively the “Yardville Trusts.”

“Yardville Trust Preferred Securities” means the trust preferred securities issued by the Yardville Trusts and the related subordinated debentures issued by Yardville.

“Yardville Warrants” has the meaning set forth in Section 4.3.1.

Other capitalized terms used herein are defined elsewhere in this Agreement.

ARTICLE 2

THE MERGER

Section 2.1. Merger.

2.1.1. Subject to the terms and conditions of this Agreement, in accordance with the PBCL and NJBCA, at the Effective Time: (a) Yardville shall merge with and into Acquirer, with Acquirer as the resulting or surviving corporation (the “Surviving Corporation”), and (b) the separate corporate existence of Yardville shall cease and all of the rights, privileges, powers, franchises, properties, assets, liabilities and obligations of Yardville shall be vested in and assumed by Acquirer in accordance with Section 10-6 of the NJBCA.

2.1.2. Acquirer may at any time change the method of effecting the combination (including by providing for the merger of Yardville and a wholly owned subsidiary of Acquirer) if and to the extent requested by Acquirer and consented to by Yardville (such consent not to be unreasonably withheld or delayed); provided, however, that no such change shall (i) alter or change the amount or kind of the Merger Consideration provided for in this Agreement, (ii) adversely affect the Tax treatment of Yardville’s stockholders as a result of receiving the Merger Consideration or the Tax treatment of either party pursuant to this Agreement or (iii) materially impede or delay consummation of the transactions contemplated by this Agreement.

Section 2.2. Effective Time.

The Closing shall occur no later than five (5) business days following the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions set forth in Article IX (other than those conditions that by their nature are to be satisfied or waived at the Closing but subject to satisfaction thereof); or at such other date or time upon which Acquirer and Yardville mutually agree (the “Closing”). If the conditions set forth in Article IX are first satisfied or waived during the two weeks immediately prior to the end of a fiscal quarter of Acquirer, then Acquirer may postpone the Closing until the first full week after the end of that fiscal quarter. The Merger shall be effected by the filing of a Certificate of Merger with the Department of State of the Commonwealth of Pennsylvania and by the filing of a Certificate of Merger with the New Jersey Office of the State Treasurer, on the day of the Closing (the “Closing Date”). The “Effective Time” means the later of the date and time specified in the Certificate of Merger to be filed with the Department of State of the Commonwealth of Pennsylvania and in the Certificate of Merger to be filed with the New Jersey Office of the State Treasurer.

Section 2.3. Certificate of Incorporation and Bylaws.

The Certificate of Incorporation and Bylaws of Acquirer as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation, until thereafter amended as provided therein and by applicable law.

 

A-9


Table of Contents

Section 2.4. Directors and Officers of Surviving Corporation.

The directors of Acquirer immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation. The officers of Acquirer immediately prior to the Effective Time shall be the officers of Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified.

Section 2.5. Effects of the Merger.

At and after the Effective Time, the Merger shall have the effects as set forth in the PBCL and the NJBCA.

Section 2.6. Bank Merger.

2.6.1. Concurrently with or as soon as practicable after the execution and delivery of this Agreement, Yardville Bank and Acquirer Bank shall enter into an agreement, pursuant to which Yardville Bank will merge with and into Acquirer Bank (the “Bank Merger”). The parties intend that the Bank Merger will become effective simultaneously with or immediately following the Effective Time.

2.6.2. Notwithstanding Section 2.6.1, if Acquirer requests in writing that the Bank Merger be delayed so that it would not become effective simultaneously with or immediately following the Effective Time, Yardville shall agree to such delay and cooperate to permit a merger of Yardville Bank and Acquirer Bank at such later time, and any provisions of this Agreement inconsistent with such timing shall be deemed amended as appropriate to reflect such timing.

Section 2.7. Tax Consequences.

It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a “plan of reorganization” as that term is used in Sections 354 and 361 of the Code. From and after the date of this Agreement and until the Closing, each party hereto shall use its reasonable best efforts to cause the Merger to qualify, and will not knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken, which action or failure to act could prevent the Merger from qualifying as a reorganization under Section 368(a) of the Code.

Section 2.8. Additional Actions.

If, at any time after the Effective Time, Acquirer shall consider or be advised that any further deeds, assignments or assurances in law or any other acts are necessary or desirable to: (i) vest, perfect or confirm, of record or otherwise, in Acquirer its right, title or interest in, to or under any of the rights, properties or assets of Yardville or its Subsidiaries; or (ii) otherwise carry out the purposes of or the transactions contemplated by this Agreement (including any merger between a Subsidiary of Acquirer, on the one hand, and a Subsidiary of Yardville, on the other), Yardville and its officers and directors shall be deemed to have granted to Acquirer an irrevocable power of attorney to execute and deliver, in such official corporate capacities, all such deeds, assignments or assurances in law or any other acts as are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in Acquirer its right, title or interest in, to or under any of the rights, properties or assets of Yardville, or (b) otherwise carry out the purposes of or the transactions contemplated by this Agreement, and the officers and directors of Acquirer are authorized in the name of Yardville or otherwise to take any and all such action.

 

A-10


Table of Contents

ARTICLE 3

CONVERSION OF SHARES; DELIVERY OF MERGER CONSIDERATION

Section 3.1. Conversion of Yardville Common Stock; Merger Consideration. At the Effective Time, by virtue of the Merger and without any action on the part of Acquirer, Yardville or the holder of any of the following securities:

3.1.1. Each share of Acquirer Common Stock and each share of Acquirer Preferred Stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and shall not be affected by the Merger.

3.1.2. All shares of Yardville Common Stock issued and outstanding immediately prior to the Effective Time that are owned by Yardville or Acquirer (other than shares of Yardville Common Stock held in trust accounts, managed accounts and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties (any such shares, “Trust Account Common Shares”) and other than shares of Yardville Common Stock held, directly or indirectly, by Yardville or Acquirer in respect of a debt previously contracted (any such shares, “DPC Common Shares”)) shall be cancelled and shall cease to exist and no stock of Acquirer or other consideration shall be delivered in exchange therefor.

3.1.3. Subject to Sections 3.1.5 and 3.1.6, each share of Yardville Common Stock, except for shares of Yardville Common Stock owned by Yardville or Acquirer (other than Trust Account Common Shares and DPC Common Shares), shall be converted, at the election of the holder thereof, in accordance with the procedures set forth in Section 3.2, into the right to receive the following, without interest:

(a) for each share of Yardville Common Stock with respect to which an election to receive cash has been effectively made and not revoked or deemed revoked pursuant to Section 3.2 (a “Cash Election”), the right to receive in cash from Acquirer an amount (the “Cash Consideration”) equal to the Per Share Amount (collectively, the “Cash Election Shares”);

(b) for each share of Yardville Common Stock with respect to which an election to receive Acquirer Common Stock has been effectively made and not revoked or deemed revoked pursuant to Section 3.2 (a “Stock Election”), the right to receive from Acquirer the fraction of a share of Acquirer Common Stock (the “Stock Consideration”) as is equal to the Exchange Ratio (collectively, the “Stock Election Shares”); and

(c) for each share of Yardville Common Stock other than shares as to which a Cash Election or a Stock Election has been effectively made and not revoked or deemed revoked pursuant to Section 3.2 (collectively, the “Non-Election Shares”), the right to receive from Acquirer such Stock Consideration and/or Cash Consideration as is determined in accordance with Section 3.1.6(b).

The Cash Consideration and the Stock Consideration are sometimes referred to herein collectively as the “Merger Consideration.”

3.1.4. All of the shares of Yardville Common Stock converted into the right to receive the Merger Consideration pursuant to this Article 3 shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each Certificate shall thereafter represent only the right to receive the Merger Consideration and/or cash in lieu of fractional shares, into which the shares of Yardville Common Stock represented by such Certificate have been converted pursuant to this Section 3.1 and Section 3.2.3(f), as well as any dividends to which holders of Yardville Common Stock become entitled in accordance with Section 3.2.3(c).

3.1.5. If, between the date of this Agreement and the Effective Time, the outstanding shares of Acquirer Common Stock shall have been increased, decreased, changed into or exchanged for a different number

 

A-11


Table of Contents

or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, an appropriate and proportionate adjustment shall be made to the Share Ratio.

3.1.6. Proration.

(a) Notwithstanding any other provision contained in this Agreement, the total number of shares of Yardville Common Stock to be converted into Cash Consideration pursuant to Section 3.1.3 (the “Cash Conversion Number”) shall be equal to the quotient obtained by dividing (x) the Cash Component by (y) the Per Share Amount. All other shares of Yardville Common Stock shall be converted into Stock Consideration (other than shares of Yardville Common Stock to be cancelled as provided in Section 3.1.2).

(b) Within five business days after the Effective Time, Acquirer shall cause the Exchange Agent to effect the allocation among holders of Yardville Common Stock of rights to receive the Cash Consideration and the Stock Consideration as follows:

(i) If the aggregate number of shares of Yardville Common Stock with respect to which Cash Elections shall have been made (the “Cash Election Number”) exceeds the Cash Conversion Number, then all Stock Election Shares and all Non-Election Shares shall be converted into the right to receive the Stock Consideration, and Cash Election Shares of each holder thereof will be converted into the right to receive the Cash 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 Cash Conversion Number and the denominator of which is the Cash Election Number (with the Exchange Agent to determine, consistent with Section 3.1.6(a), whether fractions of Cash Election Shares shall be rounded up or down), with the remaining number of such holder’s Cash Election Shares being converted into the right to receive the Stock Consideration; and

(ii) If the Cash Election Number is less than the Cash Conversion Number (the amount by which the Cash Conversion Number exceeds the Cash Election Number being referred to herein as the “Shortfall Number”), then all Cash Election Shares shall be converted into the right to receive the Cash Consideration and the Non-Election Shares and Stock 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 Stock Election Shares shall be converted into the right to receive the Stock Consideration, and the Non-Election Shares of each holder thereof shall convert into the right to receive the Cash 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 Exchange Agent to determine, consistent with Section 3.1.6(a), whether fractions of Non-Election Shares shall be rounded up or down), with the remaining number of such holder’s Non-Election Shares being converted into the right to receive the Stock 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 Cash Consideration, and Stock Election Shares of each holder thereof shall convert into the right to receive the Cash 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 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 Stock Election Shares (with the Exchange Agent to determine, consistent with Section 3.1.6 (a), whether fractions of Stock Election Shares shall be rounded up or down), with the remaining number of such holder’s Stock Election Shares being converted into the right to receive the Stock Consideration.

 

A-12


Table of Contents

Section 3.2. Procedures for Exchange of Yardville Common Stock.

3.2.1. Election Procedures. Each holder of record of shares of Yardville Common Stock (“Holder”) shall have the right, subject to the limitations set forth in this Article 3, 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 3.2.1 (herein called an “Election”) (i) the number of shares of Yardville Common Stock owned by such Holder with respect to which such Holder desires to make a Stock Election and (ii) the number of shares of Yardville Common Stock owned by such Holder with respect to which such Holder desires to make a Cash Election.

(b) Acquirer shall prepare a form reasonably acceptable to Yardville (the “Form of Election”) which shall be mailed to each holder of record of Certificate(s) so as to permit such holders to exercise their right to make an Election prior to the Election Deadline.

(c) Acquirer shall make the Form of Election initially available not less than twenty (20) business days prior to the anticipated Election Deadline and shall use all reasonable efforts to make available as promptly as possible a Form of Election to any stockholder of Yardville who requests such Form of Election following the initial mailing of the Forms of Election and prior to the Election Deadline.

(d) Any Election shall have been made properly only if the person authorized to receive Elections and to act as Exchange Agent, pursuant to an agreement (the “Exchange Agent Agreement”) entered into prior to the mailing of the Form of Election to Yardville stockholders, shall have received, by the Election Deadline, a Form of Election properly completed and signed and accompanied by 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 Yardville 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 Acquirer, in its sole discretion. As used herein, unless otherwise agreed in advance by the parties, “Election Deadline” means 5:00 p.m. local time (in the city in which the principal office of the Exchange Agent is located) on the day prior to the Yardville Stockholders’ Meeting. Yardville and Acquirer 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 Yardville stockholder 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 Acquirer shall determine in its reasonable discretion that any Election is not properly made with respect to any shares of Yardville Common Stock (neither Acquirer nor Yardville nor the Exchange Agent being under any duty to notify any stockholder of any such defect), such Election shall be deemed to be not in effect, and the shares of Yardville 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 Yardville stockholder 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 Certificates, or of the guarantee of delivery of such Certificates, previously deposited with the Exchange Agent. All Elections shall be automatically deemed revoked upon receipt by the Exchange Agent of written notification from Acquirer or Yardville that this Agreement has been terminated in accordance with Article 11.

 

A-13


Table of Contents

(g) Subject to the terms of the Exchange Agent Agreement, Acquirer, in the exercise of its reasonable discretion, shall have the right to make all determinations, not inconsistent with the terms of this Agreement, governing (i) the validity of the Forms of Election and compliance by any Yardville stockholder with the Election procedures set forth herein, (ii) the manner and extent to which Elections are to be taken into account in making the determinations prescribed by Section 3.1.3, (iii) the issuance and delivery of certificates representing the whole number of shares of Acquirer Common Stock into which shares of Yardville Common Stock are converted in the Merger and (iv) the method of payment of cash for shares of Yardville Common Stock converted into the right to receive the Cash Consideration and cash in lieu of fractional shares of Acquirer Common Stock.

3.2.2. Deposit of Merger Consideration. At or prior to the Effective Time, Acquirer shall deposit, or shall cause to be deposited, with the Exchange Agent (i) certificates representing the number of shares of Acquirer Common Stock sufficient to deliver, and Acquirer shall instruct the Exchange Agent to timely deliver, the aggregate Stock Consideration, and (ii) immediately available funds equal to the aggregate Cash Consideration (together with, to the extent then determinable, any cash payable in lieu of fractional shares pursuant to Section 3.2.3(f)) (collectively, the “Exchange Fund