EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and between
THE PNC FINANCIAL SERVICES GROUP, INC.
and
MERCANTILE BANKSHARES CORPORATION
---------------------
DATED AS OF OCTOBER 8, 2006
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger...................................................1
1.2 Effective Time...............................................2
1.3 Effects of the Merger........................................2
1.4 Conversion of Mercantile Bankshares Common Stock.............2
1.5 Stock Options and Other Stock-Based Awards...................3
1.6 Articles of Incorporation of PNC.............................5
1.7 Bylaws of PNC................................................5
1.8 Tax Consequences.............................................5
ARTICLE II
DELIVERY OF MERGER CONSIDERATION
2.1 Exchange Agent...............................................5
2.2 Deposit of Merger Consideration..............................5
2.3 Delivery of Merger Consideration.............................5
2.4 Withholding Rights...........................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERCANTILE BANKSHARES
3.1 Corporate Organization.......................................8
3.2 Capitalization...............................................9
3.3 Authority; No Violation.....................................10
3.4 Consents and Approvals......................................11
3.5 Reports; Regulatory Matters.................................12
3.6 Financial Statements........................................13
3.7 Broker's Fees...............................................15
3.8 Absence of Certain Changes or Events........................15
3.9 Legal Proceedings...........................................16
3.10 Taxes and Tax Returns.......................................16
3.11 Employee Matters............................................17
3.12 Compliance with Applicable Law..............................19
3.13 Certain Contracts...........................................20
3.14 Risk Management Instruments.................................21
3.15 Investment Securities.......................................21
3.16 Loan Portfolio..............................................21
3.17 Property....................................................23
3.18 Intellectual Property.......................................23
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3.19 Environmental Liability.....................................24
3.20 Investment Adviser Subsidiaries; Funds; Clients.............24
3.21 Broker-Dealer Subsidiaries..................................25
3.22 State Takeover Laws; Rights Agreement.......................26
3.23 Reorganization; Approvals...................................27
3.24 Opinion.....................................................27
3.25 Mercantile Bankshares Information...........................27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PNC
4.1 Corporate Organization......................................28
4.2 Capitalization..............................................28
4.3 Authority; No Violation.....................................29
4.4 Consents and Approvals......................................30
4.5 Reports; Regulatory Matters.................................30
4.6 Financial Statements........................................32
4.7 Broker's Fees...............................................33
4.8 Absence of Certain Changes or Events........................33
4.9 Legal Proceedings...........................................33
4.10 Taxes and Tax Returns.......................................34
4.11 Compliance with Applicable Law..............................34
4.12 Risk Management Instruments.................................34
4.13 Property....................................................34
4.14 Environmental Liability.....................................35
4.15 Reorganization; Approvals...................................35
4.16 Aggregate Cash Consideration................................35
4.17 PNC Information.............................................35
4.18 Investment Securities.......................................36
4.19 Loan Portfolio..............................................36
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time...........36
5.2 Mercantile Bankshares Forbearances..........................37
5.3 PNC Forbearances............................................39
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters..........................................40
6.2 Access to Information.......................................41
6.3 Stockholder Approval........................................42
6.4 Affiliates..................................................42
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6.5 NYSE Listing................................................43
6.6 Employee Matters............................................43
6.7 Indemnification; Directors' and Officers' Insurance.........44
6.8 Additional Agreements.......................................45
6.9 Advice of Changes...........................................45
6.10 Exemption from Liability Under Section 16(b)................45
6.11 No Solicitation.............................................46
6.12 Directorship................................................48
6.13 Dividends...................................................48
6.14 Donation to Charitable Foundation...........................48
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger..48
7.2 Conditions to Obligations of PNC............................49
7.3 Conditions to Obligations of Mercantile Bankshares..........49
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination.................................................50
8.2 Effect of Termination.......................................51
8.3 Fees and Expenses...........................................51
8.4 Termination Fee.............................................52
8.5 Amendment...................................................52
8.6 Extension; Waiver...........................................53
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing.....................................................53
9.2 Standard....................................................53
9.3 Nonsurvival of Representations, Warranties and Agreements...54
9.4 Notices.....................................................54
9.5 Interpretation..............................................55
9.6 Counterparts................................................55
9.7 Entire Agreement............................................55
9.8 Governing Law; Jurisdiction.................................55
9.9 Publicity...................................................56
9.10 Assignment; Third Party Beneficiaries.......................56
9.11 Specific Performance........................................56
Exhibit A - Form of Affiliate Letter
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INDEX OF DEFINED TERMS
SECTION
Acquisition Agreement............................................ 8.4(a)
Agency(cies) .................................................... 3.16(d)
Agreement........................................................ Preamble
All Cash Consideration........................................... 1.5(a)
Alternative Proposal............................................. 6.11(a)
Alternative Transaction.......................................... 6.11(a)
Articles of Merger............................................... 1.2
BHC Act.......................................................... 3.1(b)
Broker-Dealer Subsidiary......................................... 3.21(b)
Certificate...................................................... 1.4(d)
Certificate of Merger............................................ 1.2
Claim............................................................ 6.7(a)
Closing.......................................................... 9.1
Closing Date..................................................... 9.1
Code............................................................. Recitals
Confidentiality Agreement........................................ 6.2(b)
Convertible Preferred Stock...................................... 4.2(a)
Covered Employees................................................ 6.6(a)
Criticized Assets................................................ 3.16(a)
Derivative Transactions.......................................... 3.14(a)
DPC Common Shares................................................ 1.4(b)
Effective Time................................................... 1.2
ERISA............................................................ 3.11(a)
Exchange Act..................................................... 3.5(c)
Exchange Agent................................................... 2.1
Exchange Agent Agreement......................................... 2.1
Exchange Fund.................................................... 2.2
FDIC............................................................. 3.1(d)
Federal Reserve Board............................................ 3.4
Form ADV......................................................... 3.20(f)
Form B-D......................................................... 3.21(a)
Form S-4......................................................... 3.4
GAAP............................................................. 3.1(c)
Governmental Entity.............................................. 3.4
HSR Act.......................................................... 3.4
Indemnified Parties.............................................. 6.7(a)
Injunction....................................................... 7.1(d)
Insurance Amount................................................. 6.7(c)
Intellectual Property............................................ 3.18
Investment Advisers Agreement.................................... 3.20(a)
Investment Company Act........................................... 3.20(a)
IRS.............................................................. 3.10(a)
Leased Properties................................................ 3.17
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Letter of Transmittal............................................ 2.3(a)
Liens............................................................ 3.2(b)
Loans............................................................ 3.16(a)
Material Adverse Effect.......................................... 3.8(a)
Materially Burdensome Regulatory Condition....................... 6.1(b)
Mercantile Bank Subsidiaries..................................... 3.1(d)
Mercantile Bankshares............................................ Preamble
Mercantile Bankshares Advisory Entity............................ 3.20(a)
Mercantile Bankshares Advisory Contract.......................... 3.20(a)
Mercantile Bankshares Advisory Client............................ 3.20(a)
Mercantile Bankshares Benefit Plans.............................. 3.11(a)
Mercantile Bankshares By-laws.................................... 3.1(b)
Mercantile Bankshares Capitalization Date........................ 3.2(a)
Mercantile Bankshares Charter.................................... 3.1(b)
Mercantile Bankshares Common Stock............................... 1.4(b)
Mercantile Bankshares Contract................................... 3.13(a)
Mercantile Bankshares Disclosure Schedule........................ Art. III
Mercantile Bankshares Fund Client................................ 3.20(a)
Mercantile Bankshares Options.................................... 1.5(a)
Mercantile Bankshares Preferred Stock............................ 3.2(a)
Mercantile Bankshares PSU........................................ 1.5(c)
Mercantile Bankshares Regulatory Agreement....................... 3.5(b)
Mercantile Bankshares Restricted Shares.......................... 1.5(b)
Mercantile Bankshares Rights Agreement........................... 1,4(b)
Mercantile Bankshares SEC Reports................................ 3.5(c)
Mercantile Bankshares Stock Plans................................ 1.5(a)
Mercantile Bankshares Subsidiary................................. 3.1(c)
Merger........................................................... Recitals
Merger Consideration............................................. 1.4(c)
MGCL............................................................. 1.1(a)
NYSE............................................................. 1.5(a)
Other Regulatory Approvals....................................... 3.4
Owned Properties................................................. 3.17
PBCL............................................................. 1.1(a)
Permitted Encumbrances........................................... 3.17
PNC.............................................................. Preamble
PNC Articles..................................................... 4.1(a)
PNC Bank Subsidiaries............................................ 4.01(d)
PNC Bylaws....................................................... 4.1(a)
PNC Capitalization Date.......................................... 4.2(a)
PNC Closing Price................................................ 1.5(a)
PNC Common Stock................................................. 1.4(a)
PNC Disclosure Schedule.......................................... Art. IV
PNC Leased Properties............................................ 4.13
PNC Owned Properties............................................. 4.13
PNC Preferred Stock.............................................. 4.2(a)
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PNC Real Property................................................ 4.13
PNC Regulatory Agreement......................................... 4.5(b)
PNC Requisite Regulatory Approvals............................... 7.2(d)
PNC Restricted Share Right....................................... 1.5(b)
PNC Rights Agreement............................................. 1.4(a)
PNC SEC Reports.................................................. 4.5(c)
PNC Stock Plans.................................................. 4.2(a)
PNC Subsidiary................................................... 3.1(c)
Policies, Practices and Procedures............................... 3.15(b)
Proxy Statement.................................................. 3.4
Pre-Termination Takeover Proposal Event.......................... 8.4(c)
Real Property.................................................... 3.17
Regulatory Agencies.............................................. 3.5(a)
Sarbanes-Oxley Act............................................... 3.6(c)
SEC.............................................................. 3.4
Securities Act................................................... 3.2(a)
Sponsored........................................................ 3.20(a)
SRO.............................................................. 3.4
Stock Consideration.............................................. 1.4(c)
Stock Election .................................................. 1.4(c)(ii)
Stock Election Shares............................................ 1.4(c)(ii)
Subsidiary....................................................... 3.1(c)
Surviving Corporation............................................ Recitals
Takeover Statutes................................................ 3.22
Tax(es).......................................................... 3.10(b)
Tax Return....................................................... 3.10(c)
Trust Account Common Shares...................................... 1.4(b)
Voting Debt...................................................... 3.2(a)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 8, 2006 (this
"AGREEMENT"), by and between Mercantile Bankshares Corporation, a Maryland
corporation ("MERCANTILE BANKSHARES"), and The PNC Financial Services Group,
Inc., a Pennsylvania corporation ("PNC").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Mercantile Bankshares and PNC have
determined that it is in the best interests of their respective companies and
their stockholders to consummate the strategic business combination transaction
provided for in this Agreement in which Mercantile Bankshares will, on the terms
and subject to the conditions set forth in this Agreement, merge with and into
PNC (the "MERGER"), so that PNC is the surviving corporation in the Merger
(sometimes referred to in such capacity as the "SURVIVING CORPORATION");
WHEREAS, for federal income Tax purposes, it is intended that the
Merger shall qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "CODE"), and this
Agreement is intended to be and is adopted as a "plan of reorganization" for
purposes of Sections 354 and 361 of the Code;
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. (a) Subject to the terms and conditions of this
Agreement, in accordance with the Business Corporation Law of the Commonwealth
of Pennsylvania (the "PBCL") and the Maryland General Corporation Law (the
"MGCL"), at the Effective Time Mercantile Bankshares shall merge with and into
PNC. PNC shall be the Surviving Corporation in the Merger and shall continue its
corporate existence under the laws of the Commonwealth of Pennsylvania. As of
the Effective Time, the separate corporate existence of Mercantile Bankshares
shall cease.
(b) PNC may at any time change the method of effecting the combination
(including by providing for the merger of Mercantile Bankshares and a wholly
owned subsidiary of PNC) if and to the extent requested by PNC and consented to
by Mercantile Bankshares (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
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Agreement, (ii) adversely affect the Tax treatment of Mercantile Bankshares'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.
1.2 EFFECTIVE TIME. The Merger shall become effective as set forth in
the articles of merger (the "CERTIFICATE OF MERGER") that shall be filed with
the Department of State of the Commonwealth of Pennsylvania and the articles of
merger (the "ARTICLES OF MERGER") that shall be filed with the Maryland State
Department of Assessments and Taxation on the Closing Date. The term "EFFECTIVE
TIME" shall be the date and time when the Merger becomes effective as set forth
in the Certificate of Merger and the Articles of Merger.
1.3 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in Section 1929 of the PBCL and in Section
3-114 of the MGCL.
1.4 CONVERSION OF MERCANTILE BANKSHARES COMMON STOCK. At the Effective
Time, by virtue of the Merger and without any action on the part of PNC,
Mercantile Bankshares or the holder of any of the following securities:
(a) Each share of common stock, par value $5.00 per share, of PNC
(together with the rights issued pursuant to the Rights Agreement, dated as of
May 15, 2000, as amended, between PNC and Computershare Investor Services, LLC,
as Rights Agent ("PNC RIGHTS AGREEMENT"), the "PNC COMMON STOCK") and each share
of PNC Preferred Stock (as defined in Section 4.2(a)) issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding and
shall not be affected by the Merger.
(b) All shares of common stock, par value $2.00 per share, of
Mercantile Bankshares (together with the rights issued pursuant to the
Stockholder Protection Rights Agreement, dated as of June 8, 1999, between
Mercantile Bankshares and Mercantile-Safe Deposit and Trust Company as Rights
Agent (the "MERCANTILE BANKSHARES RIGHTS AGREEMENT"), the "MERCANTILE BANKSHARES
COMMON STOCK") issued and outstanding immediately prior to the Effective Time
that are owned by Mercantile Bankshares or PNC (other than shares of Mercantile
Bankshares 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 Mercantile Bankshares Common Stock held, directly or indirectly, by
Mercantile Bankshares or PNC 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 PNC or other consideration shall be delivered in exchange
therefor.
(c) Subject to Section 1.4(e), each share of the Mercantile Bankshares
Common Stock, except for shares of Mercantile Bankshares Common Stock owned by
Mercantile Bankshares or PNC (other than Trust Account Common Shares and DPC
Common Shares), shall be converted, in accordance with the procedures set forth
in Article II, into the right to receive, (i) 0.4184 of a share of PNC Common
Stock (the "STOCK CONSIDERATION") and (ii) an amount in cash equal to $16.45,
without interest (the "CASH CONSIDERATION"). The Cash
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Consideration and the Stock Consideration together are sometimes referred to
herein collectively as the "MERGER CONSIDERATION."
(d) All of the shares of Mercantile Bankshares Common Stock converted
into the right to receive the Merger Consideration pursuant to this ARTICLE I
shall no longer be outstanding and shall automatically be cancelled and shall
cease to exist as of the Effective Time, and each certificate previously
representing any such shares of Mercantile Bankshares Common Stock (each, a
"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
Mercantile Bankshares Common Stock represented by such Certificate have been
converted pursuant to this Section 1.4 and Section 2.3(f), as well as any
dividends to which holders of Mercantile Bankshares Common Stock become entitled
in accordance with Section 2.3(c).
(e) If, between the date of this Agreement and the Effective Time, the
outstanding shares of PNC Common Stock shall have been increased, decreased,
changed into or exchanged for a different number 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
Stock Consideration.
1.5 STOCK OPTIONS AND OTHER STOCK-BASED AWARDS. (a) As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holders thereof, each option to purchase shares of Mercantile Bankshares
Common Stock granted to employees or directors of Mercantile Bankshares or any
of its Subsidiaries under the Mercantile Bankshares 1989 Omnibus Stock Plan, the
Mercantile Bankshares 1999 Omnibus Stock Plan or the other stock plans set forth
on Section 1.5 of the Mercantile Bankshares Disclosure Schedule (collectively,
the "MERCANTILE BANKSHARES STOCK PLANS"), regardless of whether or not vested,
that is outstanding immediately prior to the Effective Time (collectively, the
"MERCANTILE BANKSHARES OPTIONS") shall be cancelled and shall only entitle the
holder thereof the right to receive, as soon as reasonably practicable following
the Effective Time, a lump sum cash payment, without interest, equal to the
product of (x) the number of shares subject to such Mercantile Bankshares Option
and (y) the excess, if any, of (i) the All Cash Consideration over (ii) the
exercise price per share of such Mercantile Bankshares Option; PROVIDED,
HOWEVER, that PNC shall be entitled to deduct and withhold such amounts as may
be required to be deducted and withheld under the Code and any applicable state
or local Tax law.
"ALL CASH CONSIDERATION" shall mean the sum of (x) $16.45 and (y) the
product of 0.4184 multiplied by the PNC Closing Price, rounded to the nearest
cent.
"PNC CLOSING PRICE" shall mean the average, rounded to the nearest one
ten thousandth, of the closing sale prices of PNC Common Stock on the New York
Stock Exchange (the "NYSE") as reported by The Wall Street Journal for the five
trading days immediately preceding the date of the Effective Time.
(b) As of the Effective Time, each restricted share of Mercantile
Bankshares Common Stock granted to any employee or director of Mercantile
Bankshares or any of its Subsidiaries under a Mercantile Bankshares Stock Plan,
regardless of whether or not vested, that
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is outstanding immediately prior to the Effective Time (collectively, the
"MERCANTILE BANKSHARES RESTRICTED SHARES") shall, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and converted
into the right to receive, free of any restrictions under the respective
restricted stock award agreement, on the same terms as other shareholders as set
forth in Article II, the Merger Consideration; PROVIDED, HOWEVER, that, PNC
shall be entitled to deduct and withhold such amounts as may be required to be
deducted and withheld under the Code and any applicable state or local Tax law.
(c) As of the Effective Time, each restricted stock unit of Mercantile
Bankshares Common Stock granted to any employee or director of Mercantile
Bankshares or any of its Subsidiaries under a Mercantile Bankshares Stock Plan,
regardless of whether or not vested, that is outstanding immediately prior to
the Effective Time (collectively, the "MERCANTILE BANKSHARES RSUS") shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be cancelled and converted into the right to receive, free of any restrictions
under the respective restricted stock unit award agreement, as soon as
reasonably practicable following the Effective Time, the Merger Consideration;
PROVIDED, HOWEVER, that PNC shall be entitled to deduct and withhold such
amounts as may be required to be deducted and withheld under the Code and any
applicable state or local Tax law.
(d) As of the Effective Time, each phantom stock unit ("Mercantile
Bankshares PSU") with respect to shares of Mercantile Bankshares Common Stock
held by any non-employee director of Mercantile Bankshares pursuant to the
deferred compensation plans listed in Section 1.5(d) of the Mercantile
Bankshares Disclosure Schedule (the "MERCANTILE BANKSHARES NON-EMPLOYEE
DIRECTORS DEFERRED COMPENSATION PLAN") shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to represent rights
with respect to shares of Mercantile Bankshares Common Stock and shall be
converted into either an amount in cash, without interest, equal to the All Cash
Consideration or the Merger Consideration or phantom stock units with respect to
a number of shares of PNC Common Stock equal to the product of (x) the number of
shares subject to such Mercantile Bankshares PSU and (y) the All Stock
Consideration Ratio, on the same terms and conditions as were in effect
immediately prior to the Effective Time pursuant to such deferred plan with any
cash payment with respect to such to be paid as soon as reasonably practicable
following the Effective Time, in the case of any of the above, at the option of
Mercantile Bankshares. "All Stock Consideration Ratio" shall mean the sum of (x)
$16.45 divided by the PNC Closing Price and (y) 0.4184.
(e) Mercantile Bankshares and PNC agree that prior to the Effective
Time, Mercantile Bankshares shall take all actions reasonably necessary, (i) if
and to the extent necessary and practicable, to reflect the transactions
contemplated by this Section 1.5, (ii) to preclude any automatic or formulaic
grant of options, restricted shares or other awards thereunder on or after the
date hereof (iii) to suspend the Mercantile Bankshares Dividend Reinvestment and
Stock Purchase Plan and the Mercantile Bankshares Employee Stock Purchase
Dividend Reinvestment Plan effective on the earlier of (x) the end of the
current purchase period under the Plan and (y) immediately prior to the
Effective Time (with such plans being effective for any dividends with a record
date prior to the Effective Time that are paid after the Effective Time) and to
terminate such plans at the Effective Time and (iv) to provide that any grants
of equity compensation to be made after the Effective Time pursuant to Annex A
of Section 1.5 of the Mercantile Bankshares Disclosure Schedule shall be in
shares of PNC Common Stock based
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on a number of shares of PNC Common Stock equal to the product of (x) the number
of shares of Mercantile Bankshares Common Stock that would have been subject to
the award and (y) the All Stock Consideration Ratio, with a per share exercise
price equal to the fair market value of a share of PNC Common Stock on the date
of grant.
1.6 ARTICLES OF INCORPORATION OF PNC. At the Effective Time, the PNC
Articles shall be the articles of incorporation of the Surviving Corporation
until thereafter amended in accordance with applicable law.
1.7 BYLAWS OF PNC. At the Effective Time, the PNC Bylaws shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.8 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" for purposes of
Sections 354 and 361 of the Code.
ARTICLE II
DELIVERY OF MERGER CONSIDERATION
2.1 EXCHANGE AGENT. Prior to the Effective Time PNC shall appoint a
bank or trust company selected by PNC and reasonably acceptable to Mercantile
Bankshares, or PNC's transfer agent, pursuant to an agreement (the "EXCHANGE
AGENT AGREEMENT") to act as exchange agent (the "EXCHANGE AGENT") hereunder.
2.2 DEPOSIT OF MERGER CONSIDERATION. At or prior to the Effective
Time, PNC shall deposit, or shall cause to be deposited, with the Exchange Agent
(i) certificates representing the number of shares of PNC Common Stock
sufficient to deliver, and PNC 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
2.3(f)) (collectively, the "EXCHANGE FUND") and PNC shall instruct the Exchange
Agent to timely pay the Cash Consideration, and such cash in lieu of fractional
shares, in accordance with this Agreement.
2.3 DELIVERY OF MERGER CONSIDERATION. (a) As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of Certificate(s) which immediately prior to the Effective Time
represented outstanding shares of Mercantile Bankshares Common Stock whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 1.4 and any cash in lieu of fractional shares of PNC Common
Stock to be issued or paid in consideration therefor (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to Certificate(s) shall pass, only upon delivery of Certificate(s) (or
affidavits of loss in lieu of such Certificates) to the Exchange Agent and shall
be substantially in such form and have such other provisions as shall be
prescribed by the Exchange Agent Agreement (the "LETTER OF TRANSMITTAL") and
(ii) instructions for use in surrendering Certificate(s) in exchange for the
Merger Consideration and any cash in lieu of fractional shares of PNC Common
Stock to be issued or paid in consideration therefor in
5
accordance with Section 2.3(f) upon surrender of such Certificate and any
dividends or distributions to which such holder is entitled pursuant to Section
2.3(c).
(b) Upon surrender to the Exchange Agent of its Certificate or
Certificates, accompanied by a properly completed Letter of Transmittal, a
holder of Mercantile Bankshares Common Stock will be entitled to receive
promptly after the Effective Time the Merger Consideration (with the aggregate
Cash Consideration paid to each such holder rounded to the nearest whole cent)
and any cash in lieu of fractional shares of PNC Common Stock to be issued or
paid in consideration therefor in respect of the shares of Mercantile Bankshares
Common Stock represented by its Certificate or Certificates. Until so
surrendered, each such Certificate shall represent after the Effective Time, for
all purposes, only the right to receive the Merger Consideration and any cash in
lieu of fractional shares of PNC Common Stock to be issued or paid in
consideration therefor upon surrender of such Certificate in accordance with,
and any dividends or distributions to which such holder is entitled pursuant to,
this Article II.
(c) No dividends or other distributions with respect to PNC Common
Stock shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of PNC Common Stock represented thereby, in each case until the
surrender of such Certificate in accordance with this Article II. Subject to the
effect of applicable abandoned property, escheat or similar laws, following
surrender of any such Certificate in accordance with this Article II, the record
holder thereof shall be entitled to receive, without interest, (i) the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to the whole shares of PNC Common Stock
represented by such Certificate and not paid and/or (ii) at the appropriate
payment date, the amount of dividends or other distributions payable with
respect to shares of PNC Common Stock represented by such Certificate with a
record date after the Effective Time (but before such surrender date) and with a
payment date subsequent to the issuance of the PNC Common Stock issuable with
respect to such Certificate.
(d) In the event of a transfer of ownership of a Certificate
representing Mercantile Bankshares Common Stock that is not registered in the
stock transfer records of Mercantile Bankshares, the proper amount of cash
and/or shares of PNC Common Stock shall be paid or issued in exchange therefor
to a person other than the person in whose name the Certificate so surrendered
is registered if the Certificate formerly representing such Mercantile
Bankshares Common Stock shall be properly endorsed or otherwise be in proper
form for transfer and the person requesting such payment or issuance shall pay
any transfer or other similar Taxes required by reason of the payment or
issuance to a person other than the registered holder of the Certificate or
establish to the satisfaction of PNC that the Tax has been paid or is not
applicable.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of Mercantile Bankshares of the shares of Mercantile Bankshares
Common Stock that were issued and outstanding immediately prior to the Effective
Time other than to settle transfers of Mercantile Bankshares Common Stock that
occurred prior to the Effective Time. If, after the Effective Time, Certificates
representing such shares are presented for transfer to the Exchange Agent, they
shall be cancelled and exchanged for the Merger Consideration and any cash in
lieu of fractional shares of PNC Common Stock to be issued or paid in
consideration therefor in accordance with the procedures set forth in this
Article II.
6
(f) Notwithstanding anything to the contrary contained in this
Agreement, no certificates or scrip representing fractional shares of PNC Common
Stock shall be issued upon the surrender of Certificates for exchange, no
dividend or distribution with respect to PNC Common Stock shall be payable on or
with respect to any fractional share, and such fractional share interests shall
not entitle the owner thereof to vote or to any other rights of a stockholder of
PNC. In lieu of the issuance of any such fractional share, PNC shall pay to each
former stockholder of Mercantile Bankshares who otherwise would be entitled to
receive such fractional share an amount in cash (rounded to the nearest cent)
determined by multiplying (i) the PNC Closing Price by (ii) the fraction of a
share (after taking into account all shares of Mercantile Bankshares Common
Stock held by such holder at the Effective Time and rounded to the nearest
thousandth when expressed in decimal form) of PNC Common Stock to which such
holder would otherwise be entitled to receive pursuant to Section 1.4.
(g) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Mercantile Bankshares as of the first anniversary of the
Effective Time may, to the extent permitted by applicable law, be paid to PNC.
In such event, any former stockholders of Mercantile Bankshares who have not
theretofore complied with this Article II shall thereafter look only to PNC with
respect to the Merger Consideration, any cash in lieu of any fractional shares
and any unpaid dividends and distributions on the PNC Common Stock deliverable
in respect of each share of Mercantile Bankshares Common Stock such stockholder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of PNC, Mercantile
Bankshares, the Exchange Agent or any other person shall be liable to any former
holder of shares of Mercantile Bankshares Common Stock for any amount delivered
in good faith to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if reasonably required by
PNC or the Exchange Agent, the posting by such person of a bond in such amount
as PNC may determine is reasonably necessary as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
2.4 WITHHOLDING RIGHTS. The Exchange Agent (or, subsequent to the
first anniversary of the Effective Time, PNC) shall be entitled to deduct and
withhold from the cash portion of the Merger Consideration and any cash in lieu
of fractional shares of PNC Common Stock otherwise payable pursuant to this
Agreement to any holder of Mercantile Bankshares Common Stock or Mercantile
Bankshares RSUs such amounts as the Exchange Agent or PNC, as the case may be,
is required to deduct and withhold under the Code, or any provision of state,
local or foreign Tax law, with respect to the making of such payment. To the
extent the amounts are so withheld by the Exchange Agent or PNC, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of shares of Mercantile Bankshares Common Stock
in respect of whom such deduction and withholding was made by the Exchange Agent
or PNC, as the case may be.
7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERCANTILE BANKSHARES
Except as disclosed in (i) the Mercantile Bankshares SEC Reports filed
prior to the date hereof and reasonably apparent that such disclosure is
relevant to one or more representations or warranties contained in Article III,
or (ii) the disclosure schedule (the "MERCANTILE BANKSHARES DISCLOSURE
SCHEDULE") delivered by Mercantile Bankshares to PNC prior to the execution of
this Agreement (which schedule sets forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in this Article III, or to one
or more of Mercantile Bankshares's covenants contained herein, PROVIDED,
HOWEVER, that disclosure in any Section of such Mercantile Bankshares Disclosure
Schedule shall apply only to the indicated Section of this Agreement except to
the extent that it is reasonably apparent that such disclosure is relevant to
another section of this Agreement, and PROVIDED FURTHER that, notwithstanding
anything in this Agreement to the contrary, (A) no such item is required to be
set forth in such schedule as an exception to a representation or warranty if
its absence would not result in the related representation or warranty being
deemed untrue or incorrect under the standard established by Section 9.2, and
(B) the mere inclusion of an item in such schedule as an exception to a
representation or warranty shall not be deemed an admission that such item
represents a material exception or material fact, event or circumstance or that
such item has had or would be reasonably likely to have a Material Adverse
Effect (as defined in Section 3.8) on Mercantile Bankshares), Mercantile
Bankshares hereby represents and warrants to PNC as follows:
3.1 CORPORATE ORGANIZATION. (a) Mercantile Bankshares is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Maryland. Mercantile Bankshares has the corporate power and authority
to own or lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary.
(b) Mercantile Bankshares is duly registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHC ACT") and is a
financial holding company pursuant to Section 4(l) of the BHC Act and meets the
applicable requirements for qualification as such. True, complete and correct
copies of the Charter of Mercantile Bankshares, as amended (the "MERCANTILE
BANKSHARES CHARTER"), and the By-laws of Mercantile Bankshares (the "MERCANTILE
BANKSHARES BY-LAWS"), as in effect as of the date of this Agreement, have
previously been made available to PNC.
(c) Each of Mercantile Bankshares's Subsidiaries (i) is duly
incorporated or duly formed, as applicable to each such Subsidiary, and validly
existing under the laws of its jurisdiction of organization, (ii) is duly
licensed or qualified to do business and in good standing in all jurisdictions
(whether federal, state, local or foreign) where its ownership or leasing of
property or the conduct of its business requires it to be so licensed or
qualified and (iii) has all requisite corporate power or other power and
authority to own or lease its properties and assets
8
and to carry on its business as now conducted. The articles of incorporation,
by-laws and similar governing documents of each Mercantile Bankshares
Subsidiary, copies of which have previously been made available to PNC, are
true, complete and correct copies of such documents as of the date of this
Agreement. As used in this Agreement, the word "SUBSIDIARY", when used with
respect to either party, means any bank, corporation, partnership, limited
liability company or other organization, whether incorporated or unincorporated,
that is consolidated with such party for financial reporting purposes under U.S.
generally accepted accounting principles ("GAAP"), and the terms "MERCANTILE
BANKSHARES SUBSIDIARY" and "PNC SUBSIDIARY" shall mean any direct or indirect
Subsidiary of Mercantile Bankshares or PNC, respectively.
(d) The deposit accounts of each of Mercantile-Safe Deposit and Trust
Company, The Annapolis Banking and Trust Company, The Citizens National Bank,
Farmers & Mechanics Bank, Marshall National Bank and Trust Company, Mercantile
County Bank, Mercantile Eastern Shore Bank, Mercantile Peninsula Bank,
Mercantile Southern Maryland Bank, The National Bank of Fredericksburg,
Westminster Union Bank ("MERCANTILE BANK SUBSIDIARIES") are insured by the
Federal Deposit Insurance Corporation (the "FDIC") through the Bank Insurance
Fund to the fullest extent permitted by law, and all premiums and assessments
required to be paid in connection therewith have been paid when due.
(e) The minute books of Mercantile Bankshares and Mercantile-Safe
Deposit and Trust Company were previously made available to PNC and contain
true, complete and correct records of all meetings and other corporate actions
held or taken since January 1, 2003 of their respective stockholders and Boards
of Directors (including committees of their respective Boards of Directors).
3.2 CAPITALIZATION. (a) The authorized capital stock of Mercantile
Bankshares consists of 200,000,000 shares of Mercantile Bankshares Common Stock,
of which, as of September 30, 2006 (the "MERCANTILE BANKSHARES CAPITALIZATION
DATE"), 125,474,855 shares were issued and outstanding, which includes all of
the Mercantile Bankshares Restricted Shares outstanding as of the Mercantile
Bankshares Capitalization Date, and 2,000,000 shares of preferred stock, without
par value ("MERCANTILE BANKSHARES PREFERRED STOCK"), of which, as of the
Mercantile Bankshares Capitalization Date, no shares were issued and
outstanding. As of the Mercantile Bankshares Capitalization Date, no shares of
Mercantile Bankshares Common Stock or Mercantile Bankshares Preferred Stock were
reserved for issuance except for (x) shares of Mercantile Bankshares Common
Stock reserved for issuance in connection with stock options under the
Mercantile Bankshares Stock Plans to purchase 3,259,612 shares of Mercantile
Bankshares Common Stock outstanding as of the Mercantile Bankshares
Capitalization Date, (y) in connection with 732,547 shares of Mercantile
Bankshares Common Stock issuable upon settlement of the Mercantile Bankshares
PSUs and RSUs outstanding as of the Mercantile Bankshares Capitalization Date
and (z) shares of Mercantile Bankshares Preferred Stock reserved for issuance
pursuant to the Mercantile Bankshares Rights Agreement. All of the issued and
outstanding shares of Mercantile Bankshares Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which stockholders may
vote ("VOTING DEBT") of Mercantile Bankshares are issued or outstanding. As of
the date of this Agreement, except pursuant to this Agreement and the Mercantile
Bankshares
9
Rights Agreement, including with respect to the Mercantile Bankshares Stock
Plans as set forth herein, Mercantile Bankshares does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, rights, commitments
or agreements of any character calling for the purchase or issuance of, or the
payment of any amount based on, any shares of Mercantile Bankshares Common
Stock, Mercantile Bankshares Preferred Stock, Voting Debt or any other equity
securities of Mercantile Bankshares or any securities representing the right to
purchase or otherwise receive any shares of Mercantile Bankshares Common Stock,
Mercantile Bankshares Preferred Stock, Voting Debt or other equity securities of
Mercantile Bankshares. As of the date of this Agreement, there are no
contractual obligations of Mercantile Bankshares or any of its Subsidiaries (i)
to repurchase, redeem or otherwise acquire any shares of capital stock of
Mercantile Bankshares or any equity security of Mercantile Bankshares or its
Subsidiaries or any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security of Mercantile
Bankshares or its Subsidiaries or (ii) pursuant to which Mercantile Bankshares
or any of its Subsidiaries is or could be required to register shares of
Mercantile Bankshares capital stock or other securities under the Securities Act
of 1933, as amended (the "SECURITIES ACT"). Mercantile Bankshares has provided
PNC with a true, complete and correct list of the aggregate number of shares of
Mercantile Bankshares Common Stock issuable upon the exercise of each stock
option and settlement of each Mercantile Bankshares PSU granted under the
Mercantile Bankshares Stock Plans that was outstanding as of the Mercantile
Bankshares Capitalization Date and the aggregate weighted average exercise price
for each such Mercantile Bankshares stock option. Other than the Mercantile
Bankshares Options, Mercantile Bankshares Restricted Shares and Mercantile
Bankshares PSUs, no other equity-based awards are outstanding as of the
Mercantile Bankshares Capitalization Date. Since the Mercantile Bankshares
Capitalization Date through the date hereof, Mercantile Bankshares has not (A)
issued or repurchased any shares of Mercantile Bankshares Common Stock,
Mercantile Bankshares Preferred Stock, Voting Debt or other equity securities of
Mercantile Bankshares other than the issuance of shares of Mercantile Bankshares
Common Stock in connection with the exercise of stock options to purchase
Mercantile Bankshares Common Stock granted under the Mercantile Bankshares Stock
Plans that were outstanding on the Mercantile Bankshares Capitalization Date or
(B) issued or awarded any options, restricted shares or any other equity-based
awards under any of the Mercantile Bankshares Stock Plans.
(b) Except for any director qualifying shares, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
Subsidiary of Mercantile Bankshares are owned by Mercantile Bankshares, directly
or indirectly, free and clear of any material liens, pledges, charges and
security interests and similar encumbrances ("LIENS"), and all of such shares or
equity ownership interests are duly authorized and validly issued and are fully
paid, nonassessable (subject to 12 U.S.C. ss. 55) and free of preemptive rights.
No such Mercantile Bankshares Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock or
any other equity security of such Subsidiary or any securities representing the
right to purchase or otherwise receive any shares of capital stock or any other
equity security of such Subsidiary.
3.3 AUTHORITY; NO VIOLATION. (a) Mercantile Bankshares has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of
10
the transactions contemplated hereby have been duly, validly and unanimously
approved by the Board of Directors of Mercantile Bankshares. On or prior to the
date hereof, and subject to Section 6.3, the Board of Directors of Mercantile
Bankshares has determined that the Merger, on the terms and conditions set forth
in this Agreement, is advisable and in the best interests of Mercantile
Bankshares and its stockholders and has directed that the Merger, on the terms
and conditions set forth in this Agreement, be submitted to Mercantile
Bankshares's stockholders for consideration at a duly held meeting of such
stockholders and, except for the approval of this Agreement by the affirmative
vote of the holders of two-thirds of the outstanding shares of Mercantile
Bankshares Common Stock entitled to vote at such meeting, no other corporate
proceedings on the part of Mercantile Bankshares are necessary to approve this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Mercantile Bankshares and
(assuming due authorization, execution and delivery by PNC) constitutes the
valid and binding obligation of Mercantile Bankshares, enforceable against
Mercantile Bankshares in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of equity).
(b) Neither the execution and delivery of this Agreement nor the
consummation by Mercantile Bankshares of the transactions contemplated, nor
compliance by Mercantile Bankshares with any of the terms or provisions of this
Agreement, will (i) violate any provision of the Mercantile Bankshares Charter
or the Mercantile Bankshares By-laws or (ii) assuming that the consents,
approvals and filings referred to in Section 3.4 are duly obtained and/or made,
(A) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or Injunction applicable to Mercantile Bankshares, any of its
Subsidiaries or any of their respective properties or assets or (B) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Mercantile Bankshares or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Mercantile Bankshares or any of its Subsidiaries is a party or by which any of
them or any of their respective properties or assets is bound.
3.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications
and notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "FEDERAL RESERVE BOARD") under the BHC Act and approval of such
applications and notices, (ii) the filing of any required applications, filings
or notices with any other federal or state banking, insurance or other
regulatory or self-regulatory authorities or any courts, administrative agencies
or commissions or other governmental authorities or instrumentalities (each a
"GOVERNMENTAL ENTITY") and approval of such applications, filings and notices
(the "OTHER REGULATORY APPROVALS"), (iii) the filing with the Securities and
Exchange Commission (the "SEC") of a Proxy Statement in definitive form relating
to the meeting of Mercantile Bankshares's stockholders to be held in connection
with this Agreement and the transactions contemplated by this Agreement (the
"PROXY STATEMENT") and of a registration statement on Form S-4 (the "FORM S-4")
in which the Proxy Statement will be included as a prospectus, and declaration
of effectiveness of the Form S-4, (iv) the filing of the Articles of Merger with
the Department of State of
11
the Commonwealth of Pennsylvania pursuant to the PBCL and the filing of the
Articles of Merger with the Maryland State Department of Assessments and
Taxation pursuant to the MGCL, (v) any consents, authorizations, approvals,
filings or exemptions in connection with compliance with the rules and
regulations of any applicable industry self-regulatory organization ("SRO"), and
the rules of the Nasdaq, or that are required under consumer finance, mortgage
banking and other similar laws, (vi) any notices or filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and (vii) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the issuance of the shares of PNC Common Stock pursuant to this Agreement
and approval of listing of such PNC Common Stock on the NYSE, no consents or
approvals of or filings or registrations with any Governmental Entity are
necessary in connection with the consummation by Mercantile Bankshares of the
Merger and the other transactions contemplated by this Agreement. No consents or
approvals of or filings or registrations with any Governmental Entity are
necessary in connection with the execution and delivery by Mercantile Bankshares
of this Agreement.
3.5 REPORTS; REGULATORY MATTERS. (a) Mercantile Bankshares and each of
its Subsidiaries have timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that they
were required to file since January 1, 2005 with (i) the Federal Reserve Board,
(ii) the FDIC, (iii) the Office of the Comptroller of the Currency, (iv) any
state banking, insurance commission or other state regulatory authority,
including the Commissioner of Financial Regulation of Maryland and the Delaware
State Bank Commissioner, (v) the SEC, (vi) any foreign regulatory authority and
(vii) any SRO (collectively, "REGULATORY AGENCIES") and with each other
applicable Governmental Entity, and all other reports and statements required to
be filed by them since January 1, 2005, including any report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States, any state, any foreign entity, or any Regulatory Agency or Governmental
Entity, and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency or
Governmental Entity in the ordinary course of the business of Mercantile
Bankshares and its Subsidiaries, no Regulatory Agency or Governmental Entity has
initiated since January 1, 2005 or has pending any proceeding, enforcement
action or, to the knowledge of Mercantile Bankshares, investigation into the
business, disclosures or operations of Mercantile Bankshares or any of its
Subsidiaries. Since January 1, 2005, no Regulatory Agency or Governmental Entity
has resolved any proceeding, enforcement action or, to the knowledge of
Mercantile Bankshares, investigation into the business, disclosures or
operations of Mercantile Bankshares or any of its Subsidiaries. There is no
unresolved violation, criticism, comment or exception by any Regulatory Agency
or Governmental Entity with respect to any report or statement relating to any
examinations or inspections of Mercantile Bankshares or any of its Subsidiaries.
Since January 1, 2005, there has been no formal or, with respect to the Federal
Reserve Board, FDIC, the OCC, the SEC, the NASD and state banking regulators
only, informal inquiries by, or disagreements or disputes with, any Regulatory
Agency or Governmental Entity with respect to the business, operations, policies
or procedures of Mercantile Bankshares or any of its Subsidiaries (other than
normal examinations conducted by a Regulatory Agency or Governmental Entity in
Mercantile Bankshares's ordinary course of business).
12
(b) Neither Mercantile Bankshares nor any of its Subsidiaries is
subject to any cease-and-desist or other order or enforcement action issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been ordered
to pay any civil money penalty by, or has been since January 1, 2005 a recipient
of any supervisory letter from, or since January 1, 2005 has adopted any
policies, procedures or board resolutions at the request or suggestion of, any
Regulatory Agency or other Governmental Entity that currently restricts in any
material respect the conduct of its business or that in any material manner
relates to its capital adequacy, its ability to pay dividends, its credit, risk
management or compliance policies, its internal controls, its management or its
business (or, as applicable, its operations as a financial subsidiary of a
national bank under the Gramm-Leach-Bliley Act of 1999), other than those of
general application that apply to similarly situated bank holding companies or
their Subsidiaries (each item in this sentence, a "MERCANTILE BANKSHARES
REGULATORY AGREEMENT"), nor has Mercantile Bankshares or any of its Subsidiaries
been advised since January 1, 2005 by any Regulatory Agency or other
Governmental Entity that it is considering issuing, initiating, ordering, or
requesting any such Mercantile Bankshares Regulatory Agreement. Each of the
Mercantile Bank Subsidiaries is and, to the knowledge of Mercantile Bankshares
there has not been any event or occurrence since January 1, 2005 that could
reasonably be expected to result in a determination that any Mercantile Bank
Subsidiary is not, "well capitalized" and "well managed" as a matter of U.S.
federal banking law. Each of the Mercantile Bank Subsidiaries has at least a
"satisfactory" rating under the U.S. Community Reinvestment Act.
(c) Mercantile Bankshares has previously made available to PNC an
accurate and complete copy of each (i) final registration statement, prospectus,
report, schedule and definitive proxy statement filed with or furnished to the
SEC by Mercantile Bankshares since January 1, 2005 pursuant to the Securities
Act or the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
prior to the date of this Agreement (the "MERCANTILE BANKSHARES SEC REPORTS")
and (ii) communication mailed by Mercantile Bankshares to its stockholders since
January 1, 2005 and prior to the date of this Agreement. No such Mercantile
Bankshares SEC Report or communication, at the time filed, furnished or
communicated (and, in the case of registration statements and proxy statements,
on the dates of effectiveness and the dates of the relevant meetings,
respectively), contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. As of their respective dates, all Mercantile
Bankshares SEC Reports complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto.
3.6 FINANCIAL STATEMENTS. (a) The financial statements of Mercantile
Bankshares and its Subsidiaries included (or incorporated by reference) in the
Mercantile Bankshares SEC Reports (including the related notes, where
applicable) (i) have been prepared from, and are in accordance with, the books
and records of Mercantile Bankshares and its Subsidiaries, (ii) fairly present
in all material respects the consolidated results of operations, cash flows,
changes in shareholders' equity and consolidated financial position of
Mercantile Bankshares and its Subsidiaries for the respective fiscal periods or
as of the respective dates therein set forth (subject in the case of unaudited
statements to recurring year-end audit adjustments normal in nature and amount),
(iii) complied as to form, as of their respective dates
13
of filing with the SEC, in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, and (iv) have been prepared in accordance with GAAP
consistently applied during the periods involved, except, in each case, as
indicated in such statements or in the notes thereto. The books and records of
Mercantile Bankshares and its Subsidiaries have been, and are being, maintained
in all material respects in accordance with GAAP and any other applicable legal
and accounting requirements and reflect only actual transactions. Ernst & Young
LLP has not resigned or been dismissed as independent public accountants of
Mercantile Bankshares as a result of or in connection with any disagreements
with Mercantile Bankshares on a matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
(b) Neither Mercantile Bankshares nor any of its Subsidiaries has any
material liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due), except for those
liabilities that are reflected or reserved against on the consolidated balance
sheet of Mercantile Bankshares included in its Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2006 (including any notes thereto) and for
liabilities incurred in the ordinary course of business consistent with past
practice since June 30, 2006 or in connection with this Agreement and the
transactions contemplated hereby.
(c) The records, systems, controls, data and information of Mercantile
Bankshares and its Subsidiaries are recorded, stored, maintained and operated
under means (including any electronic, mechanical or photographic process,
whether computerized or not) that are under the exclusive ownership and direct
control of Mercantile Bankshares or its Subsidiaries or accountants (including
all means of access thereto and therefrom), except for any non-exclusive
ownership and non-direct control that would not reasonably be expected to have a
material adverse effect on Mercantile Bankshares. Mercantile Bankshares (x) has
implemented and maintains disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) to ensure that material information relating to
Mercantile Bankshares, including its consolidated Subsidiaries, is made known to
the chief executive officer and the chief financial officer of Mercantile
Bankshares by others within those entities, and (y) has disclosed, based on its
most recent evaluation prior to the date hereof, to Mercantile Bankshares's
outside auditors and the audit committee of Mercantile Bankshares's Board of
Directors (i) any significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect
Mercantile Bankshares's ability to record, process, summarize and report
financial information, and (ii) any fraud, whether or not material, that
involves management or other employees who have a significant role in Mercantile
Bankshares's internal controls over financial reporting. These disclosures were
made in writing by management to Mercantile Bankshares's auditors and audit
committee and a copy has previously been made available to PNC. As of the date
hereof, there is no reason to believe that its outside auditors and its chief
executive officer and chief financial officer will not be able to give the
certifications and attestations required pursuant to the rules and regulations
adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the
"SARBANES-OXLEY ACT"), without qualification, when next due.
(d) Since December 31, 2005, (i) through the date hereof, neither
Mercantile Bankshares nor any of its Subsidiaries has received or otherwise had
or obtained knowledge of any material complaint, allegation, assertion or claim,
whether written or oral, regarding the
14
accounting or auditing practices, procedures, methodologies or methods of
Mercantile Bankshares or any of its Subsidiaries or their respective internal
accounting controls, including any material complaint, allegation, assertion or
claim that Mercantile Bankshares or any of its Subsidiaries has engaged in
questionable accounting or auditing practices, and (ii) no attorney representing
Mercantile Bankshares or any of its Subsidiaries, whether or not employed by
Mercantile Bankshares or any of its Subsidiaries, has reported evidence of a
material violation of securities laws, breach of fiduciary duty or similar
violation by Mercantile Bankshares or any of its officers, directors, employees
or agents to the Board of Directors of Mercantile Bankshares or any committee
thereof or to any director or officer of Mercantile Bankshares.
3.7 BROKER'S FEES. Neither Mercantile Bankshares nor any Mercantile
Bankshares Subsidiary nor any of their respective officers or directors has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with the Merger or related
transactions contemplated by this Agreement, other than as set forth on Section
3.7 of the Mercantile Bankshares Disclosure Schedule and pursuant to letter
agreements, true, complete and correct copies of which have been previously
delivered to PNC.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since December 31, 2005,
no event or events have occurred that have had or are reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect on Mercantile
Bankshares. As used in this Agreement, the term "MATERIAL ADVERSE EFFECT" means,
with respect to PNC, Mercantile Bankshares or the Surviving Corporation, as the
case may be, a material adverse effect on (i) the business, results of
operations or financial condition of such party and its Subsidiaries taken as a
whole (PROVIDED, HOWEVER, that, with respect to this clause (i), Material
Adverse Effect shall not be deemed to include effects to the extent resulting
from (A) changes, after the date hereof, in generally accepted accounting
principles or regulatory accounting requirements applicable to banks or savings
associations and their holding companies generally, (B) changes, after the date
hereof, in laws, rules or regulations of general applicability to banks or
savings associations and their holding companies generally, or interpretations
thereof by courts or Governmental Entities, (C) changes, after the date hereof,
in global or national or regional political conditions (including the outbreak
of war or acts of terrorism) or in general or regional economic or market
conditions affecting banks, savings associations or their holding companies
generally except to the extent that such changes in general or regional economic
or market conditions have a materially disproportionate adverse effect on such
party or (D) public disclosure of this Agreement or the transactions
contemplated hereby), including the impact thereof on customers and employees,
or (ii) the ability of such party to timely consummate the transactions
contemplated by this Agreement.
(b) Since December 31, 2005 through and including the date of this
Agreement, Mercantile Bankshares and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary course of
business consistent with their past practice.
(c) Since June 30, 2006 through and including the date of this
Agreement, neither Mercantile Bankshares nor any of its Subsidiaries has (i)
except for (A) normal increases for employees (other than officers subject to
the reporting requirements of Section 16(a) of the
15
Exchange Act) made in the ordinary course of business consistent with past
practice or (B) as required by applicable law or pre-existing contractual
obligations, increased the wages, salaries, compensation, pension, or other
fringe benefits or perquisites payable to any executive officer, employee, or
director from the amount thereof in effect as of June 30, 2006, granted any
severance or termination pay, entered into any contract to make or grant any
severance or termination pay (in each case, except as required under the terms
of agreements or severance plans listed on Section 3.11 of the Mercantile
Bankshares Disclosure Schedule, as in effect as of the date hereof ), or paid
any bonus other than the customary year-end bonuses in amounts consistent with
past practice, (ii) granted any options to purchase shares of Mercantile
Bankshares Common Stock, any restricted shares of Mercantile Bankshares Common
Stock or any right to acquire any shares of its capital stock to any executive
officer, director or employee other than grants to employees (other than
officers subject to the reporting requirements of Section 16(a) of the Exchange
Act) made in the ordinary course of business consistent with past practice under
the Mercantile Bankshares Stock Plans (e.g., annual grants and new-hire grants),
and other than as publicly disclosed, (iii) except as required by applicable law
or GAAP (e.g., SFAS 123(R)), changed any accounting methods, principles or
practices of Mercantile Bankshares or its Subsidiaries affecting its assets,
liabilities or businesses, including any reserving, renewal or residual method,
practice or policy or (iv) suffered any strike, work stoppage, slow-down, or
other labor disturbance.
3.9 LEGAL PROCEEDINGS. (a) Neither Mercantile Bankshares nor any of
its Subsidiaries is a party to any, and there are no pending or, to the best of
Mercantile Bankshares's knowledge, threatened, material legal, administrative,
arbitral or other material proceedings, claims, actions or governmental or
regulatory investigations of any nature against Mercantile Bankshares or any of
its Subsidiaries.
(b) There is no Injunction, judgment, or regulatory restriction (other
than those of general application that apply to similarly situated bank holding
companies or their Subsidiaries) imposed upon Mercantile Bankshares, any of its
Subsidiaries or the assets of Mercantile Bankshares or any of its Subsidiaries.
3.10 TAXES AND TAX RETURNS. (a) Each of Mercantile Bankshares and its
Subsidiaries has duly and timely filed (including all applicable extensions) all
material Tax Returns required to be filed by it on or prior to the date of this
Agreement (all such Tax Returns being accurate and complete in all material
respects), has timely paid all Taxes shown thereon as arising and has duly and
timely paid all material Taxes that are due and payable or claimed to be due
from it by federal, state, foreign or local taxing authorities other than Taxes
that are being contested in good faith, which have not been finally determined,
and have been adequately reserved against in accordance with GAAP on Mercantile
Bankshares's most recent consolidated financial statements. Neither Mercantile
Bankshares nor any of its Subsidiaries has granted any extension or waiver of
the limitation period applicable to any Tax that remains in effect. The federal
income Tax returns of Mercantile Bankshares and its Subsidiaries have been
examined by the Internal Revenue Service (the "IRS") for all years to and
including 2002. There are no material disputes, audits, examinations or
proceedings pending, or claims asserted, for Taxes or assessments upon
Mercantile Bankshares or any of its Subsidiaries for which Mercantile Bankshares
does not have reserves that are adequate under GAAP on Mercantile Bankshares's
most recent consolidated financial statements. Neither Mercantile Bankshares nor
any of its
16
Subsidiaries is a party to or is bound by any Tax sharing, allocation or
indemnification agreement or arrangement (other than such an agreement or
arrangement exclusively between or among Mercantile Bankshares and its
Subsidiaries). Neither Mercantile Bankshares nor any of its Subsidiaries (A) has
been a member of an affiliated group filing a consolidated federal income Tax
Return (other than a group the common parent of which was the Mercantile
Bankshares) or (B) has any liability for the Taxes of any person (other than
Mercantile Bankshares or any of its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a
transferee or successor, by contract or otherwise. Neither Mercantile Bankshares
nor any of its Subsidiaries has been, within the past two years or otherwise as
part of a "plan (or series of related transaction)" within the meaning of
Section 355(e) of the Code of which the Merger is also a part, a "distributing
corporation" or a "controlled corporation" (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution of stock intending to qualify for
tax-free treatment under Section 355 of the Code. Neither Mercantile Bankshares
nor any of its Subsidiaries has participated in a "reportable transaction"
within the meaning of Treasury Regulation section 1.6011-4(b)(1).
(b) As used in this Agreement, the term "TAX" or "TAXES" 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).
(c) As used in this Agreement, the term "TAX RETURN" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof, supplied to a governmental entity.
3.11 EMPLOYEE MATTERS. (a) Section 3.11 of the Mercantile Bankshares
Disclosure Schedule sets forth a true, complete and correct list of each
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not subject to
ERISA, and each employment, consulting, bonus, incentive or deferred
compensation, vacation, stock option or other equity-based, severance,
termination, retention, change of control, profit-sharing, fringe benefit or
other similar plan, program, agreement or commitment for the benefit of any
employee, former employee, director or former director of Mercantile Bankshares
or any of its Subsidiaries entered into, maintained or contributed to by
Mercantile Bankshares or any of its Subsidiaries or to which Mercantile
Bankshares or any of its Subsidiaries is obligated to contribute (such plans,
programs, agreements and commitments, herein referred to as the "MERCANTILE
BANKSHARES BENEFIT PLANS"); PROVIDED, HOWEVER, that Mercantile Bankshares
Benefit Plan shall exclude any plan, program, agreement or commitment that has
been terminated and for which neither Mercantile Bankshares nor any of its
Subsidiaries has any liability.
(b) With respect to each Mercantile Bankshares Benefit Plan,
Mercantile Bankshares has made available to PNC true, complete and correct
copies of the following (as
17
applicable): (i) the written document evidencing such Mercantile Bankshares
Benefit Plan or, with respect to any such plan that is not in writing, a written
description thereof; (ii) the most recent summary plan description, if any;
(iii) the most recent annual report, financial statement and/or actuarial
report; (iv) the most recent determination letter from the IRS; (v) the most
recent Form 5500 required to have been filed with the IRS, including all
schedules thereto; (vi) any related trust agreements, insurance contracts or
documents of any other funding arrangements; and (vii) all material amendments,
modifications or supplements to any such document described in clauses (ii)
through (v) and all amendments, modifications or supplements to any such
documents described in clauses (i) and (vi).
(c) Mercantile Bankshares and each of its Subsidiaries have operated
and administered each Mercantile Bankshares Benefit Plan in compliance with all
applicable laws and the terms of each such plan. The terms of each Mercantile
Bankshares Benefit Plan are in compliance with all applicable laws. Except as
provided in Section 3.11(c) of the Mercantile Bankshares Disclosure Schedule,
each Mercantile Bankshares Benefit Plan that is intended to be "qualified" under
Section 401 and/or 409 of the Code has received a favorable determination letter
from the IRS to such effect and, to the knowledge of Mercantile Bankshares, no
fact, circumstance or event has occurred or exists since the date of such
determination letter that would reasonably be expected to adversely affect the
qualified status of any such Mercantile Bankshares Benefit Plan. There are no
pending or, to the knowledge of Mercantile Bankshares, threatened or anticipated
claims by, on behalf of or against any of the Mercantile Bankshares Benefit
Plans or any assets thereof (other than routine claims for benefits). All
contributions, premiums and other payments required to be made with respect to
any Mercantile Bankshares Benefit Plan have been made on or before their due
dates under applicable law and the terms of such Mercantile Bankshares Benefit
Plan, and with respect to any such contributions, premiums or other payments
required to be made with respect to any Mercantile Bankshares Benefit Plan that
are not yet due, to the extent required by GAAP, adequate reserves are reflected
on the consolidated balance sheet of Mercantile Bankshares included in the
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2006
(including any notes thereto) or liability therefor was incurred in the ordinary
course of business consistent with past practice since June 30, 2006.
(d) With respect to each Mercantile Bankshares Benefit Plan that is
subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code:
(i) there does not exist any accumulated funding deficiency within the meaning
of Section 412 of the Code or Section 302 of ERISA, whether or not waived; (ii)
the fair market value of the assets of such Plan equaled or exceeded the
actuarial present value of all accrued benefits under such Mercantile Bankshares
Benefit Plan (whether or not vested) as of the date of the most recent actuarial
valuation prior to the date hereof; (iii) no reportable event within the meaning
of Section 4043(c) of ERISA for which the 30-day notice requirement has not been
waived has occurred; (iv) all premiums to the Pension Benefit Guaranty
Corporation have been timely paid in full; (v) no liability (other than for
premiums to the PBGC) under Title IV of ERISA has been or is expected to be
incurred by Mercantile Bankshares or any of its subsidiaries; and (vi) the PBGC
has not instituted proceedings to terminate any such Plan and, to Mercantile
Bankshares's knowledge, no condition exists that presents a risk that such
proceedings will be instituted or which would constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any such Plan. No Mercantile Bankshares Benefit Plan is a
multiemployer plan or multiple employer plan within the meaning of Sections
4001(a)(3) or 4063/4064 of
18
ERISA, respectively. Neither Mercantile Bankshares nor any of its Subsidiaries
has incurred, to the knowledge of Mercantile Bankshares, either directly or
indirectly (including as a result of any indemnification or joint and several
liability obligation), any liability pursuant to Title I or IV of ERISA or the
penalty Tax, excise Tax or joint and several liability provisions of the Code
relating to employee benefit plans, in each case, with respect to the Mercantile
Bankshares Benefit Plans and no event, transaction or condition has occurred or
exists that could reasonably be expected to result in any such liability to
Mercantile Bankshares or any of its Subsidiaries. There does not now exist, nor
do any circumstances exist that could reasonably result in, any Controlled Group
Liability that would be a liability of Mercantile Bankshares or any of its
Subsidiaries following the Closing. "Controlled Group Liability" means any and
all liabilities (i) under Title IV of ERISA, (ii) under Section 302 of ERISA,
(iii) under Sections 412 and 4971 of the Code, (iv) as a result of a failure to
comply with the continuation coverage requirements of Section 601 et seq. of
ERISA and Section 4980B of the Code, and (v) under corresponding or similar
provisions of foreign laws or regulations, other than such liabilities that
arise solely out of, or relate solely to, the Mercantile Bankshares Benefit
Plans listed in Section 3.11(a) of the Disclosure Schedule.
(e) Except as set forth in Section 3.11(e) of the Mercantile
Bankshares Disclosure Schedule, neither the execution or delivery of this
Agreement nor the consummation of the transactions contemplated by this
Agreement will, either alone or in conjunction with any other event, (i) result
in any payment or benefit becoming due or payable, or required to be provided,
to any director, employee or independent contractor of Mercantile Bankshares or
any of its Subsidiaries, (ii) increase the amount or value of any benefit or
compensation otherwise payable or required to be provided to any such director,
employee or independent contractor, or (iii) result in the acceleration of the
time of payment, vesting or funding of any such benefit or compensation.
(f) Neither Mercantile Bankshares nor any of its Subsidiaries is a
party to or bound by any labor or collective bargaining agreement and, to the
knowledge of Mercantile Bankshares, there are no organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining unit with respect to, or otherwise attempting to represent, any of
the employees of Mercantile Bankshares or any of its Subsidiaries. There are no
labor related controversies, strikes, slowdowns, walkouts or other work
stoppages pending or, to the knowledge of Mercantile Bankshares, threatened and
neither Mercantile Bankshares nor any of its Subsidiaries has experienced any
such labor related controversy, strike, slowdown, walkout or other work stoppage
within the past three years. Neither Mercantile Bankshares nor any of its
Subsidiaries is a party to, or otherwise bound by, any consent decree with, or
citation by, any Governmental Entity relating to employees or employment
practices. Each of Mercantile Bankshares and its Subsidiaries are in compliance
with all applicable laws, statutes, orders, rules, regulations, policies or
guidelines of any Governmental Entity relating to labor, employment, termination
of employment or similar matters and have not engaged in any unfair labor
practices or similar prohibited practices.
3.12 COMPLIANCE WITH APPLICABLE LAW. (a) Mercantile Bankshares and
each of its Subsidiaries hold all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to each, and are in compliance in all respects with and are
not in default in any material respect under any, applicable law,
19
statute, order, rule, regulation, policy or guideline of any Governmental Entity
relating to Mercantile Bankshares or any of its Subsidiaries.
(b) Since the enactment of the Sarbanes-Oxley Act, Mercantile
Bankshares has been and is in compliance in all material respects with (i) the
applicable provisions of the Sarbanes-Oxley Act and (ii) the applicable listing
and corporate governance rules and regulations of the Nasdaq.
3.13 CERTAIN CONTRACTS. (a) Neither Mercantile Bankshares nor any of
its Subsidiaries is a party to or bound by any contract, arrangement, commitment
or understanding (whether written or oral) (i) with respect to the employment of
any directors, officers, employees or consultants, other than in the ordinary
course of business consistent with past practice, (ii) which, upon execution of
this Agreement or consummation or stockholder approval of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of any
additional acts or events) result in any payment or benefits (whether of
severance pay or otherwise) becoming due from PNC, Mercantile Bankshares, the
Surviving Corporation, or any of their respective Subsidiaries to any officer or
employee of Mercantile Bankshares or any Subsidiary thereof, (iii) that is a
"material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC) to be performed after the date of this Agreement that has not
been filed or incorporated by reference in the Mercantile Bankshares SEC Reports
filed prior to the date hereof, (iv) that contains (A) any non-competition or
exclusive dealing agreement, or any other agreement or obligation which purports
to limit or restrict in any respect the ability of Mercantile Bankshares or its
Subsidiaries or their businesses or, following consummation of the Merger, PNC
or its Subsidiaries, to solicit customers or the manner in which, or the
localities in which, all or any portion of the business of Mercantile Bankshares
or its Subsidiaries or, following consummation of the transactions contemplated
by this Agreement, PNC or its Subsidiaries, is or would be conducted or (B) any
agreement that grants any right of first refusal or right of first offer or
similar right or that limits or purports to limit the ability of Mercantile
Bankshares or any of its Subsidiaries or, following consummation of the Merger,
PNC or its Subsidiaries, to own, operate, sell, transfer, pledge or otherwise
dispose of any assets or business, (v) with or to a labor union or guild
(including any collective bargaining agreement), or (vi) containing a "most
favored nation" clause or other similar term providing preferential pricing or
treatment to a party (other than Mercantile Bankshares or its Subsidiaries) that
is material to Mercantile Bankshares or its Subsidiaries. Each contract,
arrangement, commitment or understanding of the type described in this Section
3.13(a), whether or not set forth in the Mercantile Bankshares Disclosure
Schedule, is referred to as an "MERCANTILE BANKSHARES CONTRACT," and neither
Mercantile Bankshares nor any of its Subsidiaries knows of, or has received
notice of, any violation of any Mercantile Bankshares Contract by any of the
other parties thereto.
(b) (i) Each Mercantile Bankshares Contract is valid and binding on
Mercantile Bankshares or its applicable Subsidiary and is in full force and
effect, (ii) Mercantile Bankshares and each of its Subsidiaries has in all
material respects performed all obligations required to be performed by it to
date under each Mercantile Bankshares Contract, and (iii) no event or condition
exists that constitutes or, after notice or lapse of time or both, will
constitute, a material default on the part of Mercantile Bankshares or any of
its Subsidiaries under any such Mercantile Bankshares Contract.
20
3.14 RISK MANAGEMENT INSTRUMENTS. (a) "DERIVATIVE TRANSACTIONS" means
any swap transaction, option, warrant, forward purchase or sale transaction,
futures transaction, cap transaction, floor transaction or collar transaction
relating to one or more currencies, commodities, bonds, equity securities,
loans, interest rates, prices, values, or other financial or non-financial
assets, credit-related events or conditions or any indexes, or any other similar
transaction or combination of any of these transactions, including
collateralized mortgage obligations or other similar instruments or any debt or
equity instruments evidencing or embedding any such types of transactions, and
any related credit support, collateral or other similar arrangements related to
such transactions; PROVIDED that, for the avoidance of doubt, the term
"DERIVATIVE TRANSACTIONS" shall not include any Mercantile Bankshares Stock
Option.
(b) All Derivative Transactions outstanding on the date hereof,
whether entered into for the account of Mercantile Bankshares or any of its
Subsidiaries or for the account of a customer of Mercantile Bankshares or any of
its Subsidiaries, were entered into in the ordinary course of business
consistent with past practice and in accordance with prudent banking practice
and applicable laws, rules, regulations and policies of any Regulatory Authority
and in accordance with the investment, securities, commodities, risk management
and other policies, practices and procedures employed by Mercantile Bankshares
and its Subsidiaries, and with counterparties believed at the time to be
financially responsible and able to understand (either alone or in consultation
with their advisers) and to bear the risks of such Derivative Transactions. All
of such Derivative Transactions are legal, valid and binding obligations of
Mercantile Bankshares or one of its Subsidiaries enforceable against it in
accordance with their terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity), and are in full force
and effect. Mercantile Bankshares and its Subsidiaries have duly performed their
obligations under the Derivative Transactions to the extent that such
obligations to perform have accrued and, to Mercantile Bankshares's knowledge,
there are no breaches, violations or defaults or allegations or assertions of
such by any party thereunder.
3.15 INVESTMENT SECURITIES. (a) Each of Mercantile Bankshares and its
Subsidiaries has good title to all securities owned by it (except those sold
under repurchase agreements or held in any fiduciary or agency capacity), free
and clear of any Liens, except to the extent such securities are pledged in the
ordinary course of business to secure obligations of Mercantile Bankshares or
its Subsidiaries. Such securities are valued on the books of Mercantile
Bankshares in accordance with GAAP in all material respects.
(b) Mercantile Bankshares and its Subsidiaries and their respective
businesses employ investment, securities, commodities, risk management and other
policies, practices and procedures (the "POLICIES, PRACTICES AND PROCEDURES")
which Mercantile Bankshares believes are prudent and reasonable in the context
of such businesses.
3.16 LOAN PORTFOLIO. (a) Section 3.16(a) of the Mercantile Bankshares
Disclosure Schedule sets forth (i) the aggregate outstanding principal amount,
as of September 30, 2006, of all loan agreements, notes or borrowing
arrangements (including leases and credit enhancements) payable to Mercantile
Bankshares or its Subsidiaries (collectively, "LOANS"), other than "non-accrual"
Loans, and (ii) the aggregate outstanding principal amount, as of September 30,
2006, of all "non-accrual" Loans. As of September 30, 2006, Mercantile
21
Bankshares and its Subsidiaries, taken as a whole, did not have outstanding
Loans and assets classified as "Other Real Estate Owned" with an aggregate then
outstanding, fully committed principal amount in excess of that amount set forth
on Section 3.16(a) of the Mercantile Bankshares Disclosure Schedule.
(b) Each Loan (i) is evidenced by notes, agreements or other evidences
of indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles of
equity). All Loans originated by Mercantile Bankshares or its Subsidiaries, and
all such Loans purchased, administered or serviced by Mercantile Bankshares or
its Subsidiaries, were made or purchased and are administered or serviced, as
applicable, in accordance with customary lending standards of Mercantile
Bankshares or its Subsidiaries, as applicable. All such Loans (and any related
guarantees) and payments due thereunder are, and on the Closing Date will be,
free and clear of any Lien, and Mercantile Bankshares or its Subsidiaries has
complied in all material respects, and on the Closing Date will have complied in
all material respects, with all laws and regulations relating to such Loans.
(c) None of the agreements pursuant to which Mercantile Bankshares or
any of its Subsidiaries has sold Loans or pools of Loans or participations in
Loans or pools of Loans contains any obligation to repurchase such Loans or
interests therein solely on account of a payment default by the obligor on any
such Loan.
(d) Each of Mercantile Bankshares and each Mercantile Bankshares
Subsidiary, as applicable, is approved by and is in good standing (i) as a
supervised mortgagee by the Department of Housing and Urban Development to
originate and service Title I FHA mortgage loans; (ii) as a GNMA I and II Issuer
by the Government National Mortgage Association; (iii) by the Department of
Veteran's Affairs to originate and service VA loans; and (iv) as a
seller/servicer by the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation to originate and service conventional residential
mortgage Loans (each such entity being referred to herein as an "AGENCY" and,
collectively, the "AGENCIES").
(e) None of Mercantile Bankshares or any of its Subsidiaries is now
nor has it ever been since January 1, 2005 subject to any fine, suspension,
settlement or other agreement or other administrative agreement or sanction by,
or any reduction in any loan purchase commitment from any Agency or any federal
or state agency relating to the origination, sale or servicing of mortgage or
consumer Loans. Neither Mercantile Bankshares nor any of its Subsidiaries has
received any notice that any Agency proposes to limit or terminate the
underwriting authority of Mercantile Bankshares or any of its Subsidiaries or to
increase the guarantee fees payable to any such Agency.
(f) Each of Mercantile Bankshares and its Subsidiaries is in
compliance in all material respects with all applicable federal, state and local
laws, rules and regulations, including the Truth-In-Lending Act and Regulation
Z, the Equal Credit Opportunity Act and Regulation B, the Real Estate Settlement
Procedures Act and Regulation X, the Fair Credit Reporting Act, the
22
Fair Debt Collection Practices Act and all Agency and other investor and
mortgage insurance company requirements relating to the origination, sale and
servicing of mortgage and consumer Loans.
3.17 PROPERTY. Mercantile Bankshares or one of its Subsidiaries (a)
has good and marketable title to all the properties and assets reflected in the
latest audited balance sheet included in such Mercantile Bankshares SEC Reports
as being owned by Mercantile Bankshares or one of its Subsidiaries or acquired
after the date thereof (except properties sold or otherwise disposed of since
the date thereof in the ordinary course of business) (the "OWNED PROPERTIES"),
free and clear of all Liens of any nature whatsoever, except (i) statutory Liens
securing payments not yet due, (ii) Liens for real property Taxes not yet due
and payable, (iii) easements, rights of way, and other similar encumbrances that
do not materially affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at such
properties and (iv) such imperfections or irregularities of title or Liens as do
not materially affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at such
properties (collectively, "PERMITTED ENCUMBRANCES"), and (b) is the lessee of
all leasehold estates reflected in the latest audited financial statements
included in such Mercantile Bankshares SEC Reports or acquired after the date
thereof (except for leases that have expired by their terms since the date
thereof) (the "LEASED PROPERTIES" and, collectively with the Owned Properties,
the "REAL PROPERTY"), free and clear of all Liens of any nature whatsoever,
except for Permitted Encumbrances, and is in possession of the properties
purported to be leased thereunder, and each such lease is valid without default
thereunder by the lessee or, to Mercantile Bankshares's knowledge, the lessor.
There are no pending or, to the knowledge of Mercantile Bankshares, threatened
condemnation proceedings against the Real Property. Mercantile Bankshares and
its Subsidiaries are in compliance with all applicable health and safety related
requirements for the Real Property, including those under the Americans with
Disabilities Act of 1990 and the Occupational Health and Safety Act of 1970.
3.18 INTELLECTUAL PROPERTY. Mercantile Bankshares and each of its
Subsidiaries owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of its
business as currently conducted. The use of any Intellectual Property by
Mercantile Bankshares and its Subsidiaries does not, to the knowledge of
Mercantile Bankshares, infringe on or otherwise violate the rights of any person
and is in accordance with any applicable license pursuant to which Mercantile
Bankshares or any Subsidiary acquired the right to use any Intellectual
Property. No person is challenging, infringing on or otherwise violating any
right of Mercantile Bankshares or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Mercantile Bankshares or its
Subsidiaries. Neither Mercantile Bankshares nor any of its Subsidiaries has
received any written notice of any pending claim with respect to any
Intellectual Property used by Mercantile Bankshares and its Subsidiaries and no
Intellectual Property owned and/or licensed by Mercantile Bankshares or its
Subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property. For
purposes of this Agreement, "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
23
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.
3.19 ENVIRONMENTAL LIABILITY. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action or notices with
respect to any environmental, health or safety matters or any private or
governmental environmental, health or safety investigations or remediation
activities of any nature seeking to impose, or that are reasonably likely to
result in, any liability or obligation of Mercantile Bankshares or any of its
Subsidiaries arising under common law or under any local, state or federal
environmental, health or safety statute, regulation or ordinance, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, pending or threatened against Mercantile Bankshares or any of its
Subsidiaries. To the knowledge of Mercantile Bankshares, there is no reasonable
basis for, or circumstances that are reasonably likely to give rise to, any such
proceeding, claim, action, investigation or remediation by any Governmental
Entity or any third party that would give rise to any liability or obligation on
the part of Mercantile Bankshares or any of its Subsidiaries. Neither Mercantile
Bankshares nor any of its Subsidiaries is subject to any agreement, order,
judgment, decree, letter or memorandum by or with any Governmental Entity or
third party imposing any liability or obligation with respect to any of the
foregoing.
3.20 INVESTMENT ADVISER SUBSIDIARIES; FUNDS; CLIENTS. (a) For purposes
of this Agreement, a "MERCANTILE BANKSHARES ADVISORY ENTITY" means, if
applicable, Mercantile Bankshares and any of its Subsidiaries that provides
investment management, investment advisory or sub-advisory services to any
person (including management and advice provided to separate accounts and
participation in wrap fee programs); "MERCANTILE BANKSHARES ADVISORY Contract"
means each contract for such services provided by a Mercantile Bankshares
Advisory Entity; "MERCANTILE BANKSHARES ADVISORY CLIENT" means each party to a
Mercantile Bankshares Advisory Contract other than the applicable Mercantile
Bankshares Advisory Entity or any other advisory client of Mercantile Bankshares
for purposes of the Investment Advisers Act of 1940, as amended, and the rules
and regulations promulgated thereunder (the "INVESTMENT ADVISERS ACT");
"MERCANTILE BANKSHARES FUND CLIENT" means each Mercantile Bankshares Advisory
Client that is required to be registered as an investment company under the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder (the "INVESTMENT COMPANY ACT"); and "SPONSORED" means,
when used with respect to any Mercantile Bankshares Fund Client, any such
Mercantile Bankshares Fund Client a majority of the officers of which are
employees of Mercantile Bankshares or any Mercantile Bankshares Subsidiary or of
which Mercantile Bankshares or any Mercantile Bankshares Subsidiary holds itself
out as the sponsor.
(b) Each Sponsored Mercantile Bankshares Fund Client and Mercantile
Bankshares Advisory Entity (i) has since January 1, 2005 operated and is
currently operating in compliance with all laws, regulations, rules, judgments,
orders or rulings of any Governmental Entity applicable to it or its business
and (ii) has all registrations, permits, licenses, exemptions,
24
orders and approvals required for the operation of its business or ownership of
its properties and assets as presently conducted. There is no action, suit,
proceeding or investigation pending or, to the knowledge of Mercantile
Bankshares, threatened that would reasonably be expected to lead to the
revocation, amendment, failure to renew, limitation, suspension or restriction
of any such registrations, permits, licenses, exemptions, orders and approvals.
(c) Each Mercantile Bankshares Advisory Entity is in compliance with
each Mercantile Bankshares Advisory Contract to which it is a party.
(d) The accounts of each Mercantile Bankshares Advisory Client subject
to ERISA have been managed by the applicable Mercantile Bankshares Advisory
Entity in compliance with the applicable requirements of ERISA.
(e) Neither Mercantile Bankshares nor any Mercantile Bankshares
Advisory Entity nor any "affiliated person" (as defined in the Investment
Company Act) of any of them is ineligible pursuant to Section 9(a) or (b) of the
Investment Company Act to serve as an investment adviser (or in any other
capacity contemplated by the Investment Company Act) to a registered investment
company; none of Mercantile Bankshares, any Mercantile Bankshares Advisory
Entity or any "person associated with an investment adviser" (as defined in the
Investment Advisers Act) of any of them is ineligible pursuant to Section 203(e)
or (f) of the Investment Advisers Act to serve as an investment adviser or as a
person associated with a registered investment adviser; and none of Mercantile
Bankshares, any Mercantile Bankshares Advisory Entity or any "associated person"
(as defined in the Exchange Act) of any of them is ineligible pursuant to
Section 15(b) of the Exchange Act to serve as a broker-dealer or as an
associated person to a registered broker-dealer.
(f) Mercantile Bankshares has made available to PNC true, correct and
complete copies of each Uniform Application for Investment Adviser Registration
on Form ADV filed since January 1, 2005 by each Mercantile Bankshares Advisory
Entity that is required to be registered as an investment adviser under the
Investment Advisers Act, reflecting all amendments thereto to the date hereof
(each, a "FORM ADV"). The Forms ADV are in material compliance with the
applicable requirements of the Investment Advisers Act and do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since January 1, 2005,
each Mercantile Bankshares Advisory Entity has made available to each Mercantile
Bankshares Advisory Client its Form ADV to the extent required by the Investment
Advisers Act.
(g) Mercantile Bankshares has made available to PNC true, correct and
complete copies of all deficiency letters and inspection reports or similar
documents furnished to Mercantile Bankshares by the SEC since January 1, 2005
and Mercantile Bankshares's responses thereto, if any.
3.21 BROKER-DEALER SUBSIDIARIES. (a) Each Mercantile Bankshares
Subsidiary that is a broker-dealer (a "BROKER-DEALER SUBSIDIARY") is duly
registered under the Exchange Act as a broker-dealer with the SEC, and is in
compliance in all material respects with the applicable provisions of the
Exchange Act, including the net capital requirements and customer protection
25
requirements thereof. Each Broker-Dealer Subsidiary is a member in good standing
with all required SROs and in compliance in all material respects with all
applicable rules and regulations of such SROs. Each Broker-Dealer Subsidiary and
registered representative is duly registered, licensed or qualified as a
broker-dealer or registered representative under, and in compliance in all
material respects with, the applicable laws and regulations of all jurisdictions
in which it is required to be so registered and each such registration, license
or qualification is in full force and effect and in good standing. There is no
action, suit, proceeding or investigation pending or, to the knowledge of
Mercantile Bankshares, threatened that would reasonably be expected to lead to
the revocation, amendment, failure to renew, limitation, suspension or
restriction of any such registrations, licenses and qualifications.
(b) Mercantile Bankshares has made available to PNC true, correct and
complete copies of each Broker-Dealer Subsidiary's Uniform Application for
Broker-Dealer Registration on Form BD filed since January 1, 2005, reflecting
all amendments thereto to the date hereof (each, a "FORM BD"). The Forms BD of
the Broker-Dealer Subsidiaries are in compliance in all material respects with
the applicable requirements of the Exchange Act and do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) None of the Broker-Dealer Subsidiaries nor any "associated person"
thereof (i) is subject to a "statutory disqualification" as such terms are
defined in the Exchange Act, or (ii) is subject to a disqualification that would
be a basis for censure, limitations on the activities, functions or operations
of, or suspension or revocation of the registration of any Broker-Dealer
Subsidiary as broker-dealer, municipal securities dealer, government securities
broker or government securities dealer under Section 15, Section 15B or Section
15C of the Exchange Act.
(d) Subject to the foregoing, neither Mercantile Bankshares nor its
Subsidiaries is required to be registered as a commodity trading advisor,
commodity pool operator, futures commission merchant or introducing broker under
any laws or regulations.
3.22 STATE TAKEOVER LAWS; RIGHTS AGREEMENT. (a) The Board of Directors
of Mercantile Bankshares has unanimously approved this Agreement and the
transactions contemplated hereby as required to render inapplicable to such
agreements and transactions Sections 3-601 to 3-604 and 3-701 to 3-709 of the
MGCL and, to the knowledge of Mercantile Bankshares, any similar "moratorium,"
"control share," "fair price," "takeover" or "interested stockholder" law (any
such laws, "TAKEOVER STATUTES").
(b) Mercantile Bankshares has taken all action necessary or
appropriate so that the entering into of this Agreement, and the consummation of
the transactions contemplated hereby (individually or in conjunction with any
other event) do not and will not result in the ability of any Person to exercise
any rights under the Mercantile Bankshares Rights Agreement or enable or require
such rights to separate from the shares of Mercantile Bankshares Common Stock to
which they are attached or to be triggered or become exercisable or
unredeemable. No "Separation Time" or "Stock Acquisition Date" (as such terms
are defined in the Mercantile Bankshares Rights Agreement) has occurred.
Mercantile Bankshares has duly adopted an
26
amendment to the Mercantile Bankshares Rights Agreement in the form previously
provided to PNC.
3.23 REORGANIZATION; APPROVALS. As of the date of this Agreement,
Mercantile Bankshares (a) is not aware of any fact or circumstance that could
reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code, and (b) knows
of no reason why all regulatory approvals from any Governmental Entity required
for the consummation of the transactions contemplated by this Agreement should
not be obtained on a timely basis.
3.24 OPINION. Prior to the execution of this Agreement, the Mercantile
Bankshares Board of Directors has received an opinion from Sandler O'Neill &
Partners, L.P. to the effect that as of the date thereof and based upon and
subject to the matters set forth therein, the Merger Consideration is fair to
the stockholders of Mercantile Bankshares from a financial point of view. Such
opinion has not been amended or rescinded as of the date of this Agreement.
3.25 MERCANTILE BANKSHARES INFORMATION. The information relating to
Mercantile Bankshares and its Subsidiaries that is provided by Mercantile
Bankshares or its representatives for inclusion in the Proxy Statement and the
Form S-4, or in any application, notification or other document filed with any
other Regulatory Agency or other Governmental Entity in connection with the
transactions contemplated by this Agreement, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading. The portions of the Proxy Statement relating to Mercantile
Bankshares and other portions within the reasonable control of Mercantile
Bankshares (but excluding any information relating to PNC and its Subsidiaries)
will comply in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PNC
Except as disclosed in (i) the PNC SEC Reports filed prior to the date
hereof and reasonably apparent that such disclosure is relevant to one or more
representations or warranties contained in Article IV, or (ii) the disclosure
schedule (the "PNC DISCLOSURE SCHEDULE") delivered by PNC to Mercantile
Bankshares prior to the execution of this Agreement (which schedule sets forth,
among other things, items the disclosure of which is necessary or appropriate
either in response to an express disclosure requirement contained in a provision
hereof or as an exception to one or more representations or warranties contained
in this Article IV, or to one or more of PNC's covenants contained herein,
PROVIDED, HOWEVER, that disclosure in any Section of such PNC Disclosure
Schedule shall apply only to the indicated Section of this Agreement except to
the extent that it is reasonably apparent that such disclosure is relevant to
another section of this Agreement, and PROVIDED FURTHER that, notwithstanding
anything in this Agreement to the contrary, (A) no such item is required to be
set forth in such schedule as an exception to a representation or warranty if
its absence would not result in the related representation or warranty being
deemed untrue or incorrect under the standard established by Section 9.2, and
27
(B) the mere inclusion of an item in such schedule as an exception to a
representation or warranty shall not be deemed an admission that such item
represents a material exception or material fact, event or circumstance or that
such item has had or would be reasonably likely to have a Material Adverse
Effect on PNC), PNC hereby represents and warrants to Mercantile Bankshares as
follows:
4.1 CORPORATE ORGANIZATION. (a) PNC is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. PNC has the corporate power and authority to own
or lease all of its properties and assets and to carry on its business as it is
now being conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary. PNC is duly registered as a bank
holding company under the BHC Act and is a financial holding company pursuant to
Section 4(1) of the BHC Act and meets the applicable requirements for
qualification as such. True, complete and correct copies of the Articles of
Incorporation of PNC (the "PNC ARTICLES") and the By-laws of PNC (the "PNC
BYLAWS"), as in effect as of the date of this Agreement, have previously been
made available to Mercantile Bankshares.
(b) Each PNC Subsidiary (i) is duly incorporated or duly formed, as
applicable to each such Subsidiary, and validly existing under the laws of its
jurisdiction of organization, (ii) is duly licensed or qualified to do business
and in good standing in all jurisdictions (whether federal, state, local or
foreign) where its ownership or leasing of property or the conduct of its
business requires it to be so licensed or qualified, and (iii) has all requisite
corporate power or other power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
(c) The deposit accounts of each of PNC Bank, N.A. and PNC Bank,
Delaware ("PNC BANK SUBSIDIARIES") are insured by the Federal Deposit Insurance
Corporation (the "FDIC") through the Bank Insurance Fund to the fullest extent
permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid when due.
4.2 CAPITALIZATION. (a) The authorized capital stock of PNC consists
of (i) 800,000,000 authorized shares of PNC Common Stock, of which, as of
October 2, 2006 (the "PNC CAPITALIZATION DATE"), 293,716,916 were issued and
outstanding, and (ii) 20,000,000 authorized shares of preferred stock, par value
$1.00 per share ("PNC PREFERRED STOCK"), of which 98,583 shares have been
designated as $1.80 Cumulative Convertible Preferred Stock - Series A ("PNC
SERIES A PREFERRED STOCK"), of which 6,947 shares are outstanding, 38,542 shares
have been designated as $1.80 Cumulative Convertible Preferred Stock - Series B
("PNC SERIES B PREFERRED STOCK"), of which 1,449 shares are outstanding,
1,433,935 shares have been designated as $1.60 Cumulative Convertible Preferred
Stock-Series C ("PNC SERIES C PREFERRED STOCK"), of which 147,408 shares are
outstanding, 1,766,140 shares have been designated as $1.80 Cumulative
Convertible Preferred Stock-Series D ("PNC SERIES D PREFERRED STOCK"), of which
199,794 shares are outstanding, 338,100 shares have been designated as $2.60
Cumulative Nonvoting Preferred Stock, Series E ("PNC SERIES E PREFERRED STOCK"),
of which no shares are outstanding, 6,000 shares have been designated as
Fixed/Adjustable Rate Noncumulative Preferred Stock, Series F ("PNC SERIES F
PREFERRED STOCK"), of which no shares are outstanding,
28
and 450,000 shares have been designated as Series G Junior Participating
Preferred Share Purchase Rights ("PNC SERIES G PREFERRED STOCK"). As of the PNC
Capitalization Date, no shares of PNC Common Stock were held in PNC's treasury.
As of the PNC Capitalization Date, no shares of PNC Common Stock or PNC
Preferred Stock were reserved for issuance, except for (i) 16,703,000 shares of
PNC Common Stock reserved for issuance upon exercise of options issued pursuant
to employee and director stock plans of PNC or a Subsidiary of PNC in effect as
of the date of this Agreement (the "PNC STOCK PLANS"), (ii) 2,129,294 shares of
PNC Common Stock available for issuance pursuant to PNC's dividend reinvestment
plan and (iii) 645,838 shares of PNC Common Stock reserved for issuance pursuant
to the PNC Series A Preferred Stock, PNC Series B Preferred Stock, the PNC
Series C Preferred Stock and the PNC Series D Preferred Stock (the "CONVERTIBLE
PREFERRED STOCK"). All of the issued and outstanding shares of PNC Common Stock
have been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. As of the date of this Agreement, no Voting Debt of PNC is
issued or outstanding. As of the PNC Capitalization Date, except pursuant to
this Agreement, the PNC Stock Plans, the Convertible Preferred Stock, PNC's
dividend reinvestment plan and stock repurchase plans entered into by PNC from
time to time, and the PNC Rights Agreement, PNC does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, rights, commitments
or agreements of any character calling for the purchase or issuance of any
shares of PNC Common Stock, PNC Preferred Stock, Voting Debt of PNC or any other
equity securities of PNC or any securities representing the right to purchase or
otherwise receive any shares of PNC Common Stock, PNC Preferred Stock, Voting
Debt of PNC or other equity securities of PNC. The shares of PNC Common Stock to
be issued pursuant to the Merger will be duly authorized and validly issued and,
at the Effective Time, all such shares will be fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof.
(b) Except for director qualifying shares, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
Subsidiary of PNC are owned by PNC, directly or indirectly, free and clear of
any Liens, and all of such shares or equity ownership interests are duly
authorized and validly issued and are fully paid, nonassessable (subject to 12
U.S.C. ss. 55) and free of preemptive rights. No such PNC Subsidiary has or is
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
4.3 AUTHORITY; NO VIOLATION. (a) PNC has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of PNC (by the unanimous vote of all
directors present) and no other corporate proceedings on the part of PNC are
necessary to approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by PNC and (assuming due authorization, execution and delivery by
Mercantile Bankshares) constitutes the valid and binding obligation of PNC,
enforceable against PNC in accordance with its terms (except as may be limited
by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles of equity).
29
(b) Neither the execution and delivery of this Agreement nor the
consummation by PNC of the transactions contemplated hereby, nor compliance by
PNC with any of the terms or provisions of this Agreement, will (i) violate any
provision of the PNC Articles or the PNC Bylaws, or (ii) assuming that the
consents, approvals and filings referred to in Section 4.4 are duly obtained
and/or made, (A) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or Injunction applicable to PNC, any of its
Subsidiaries or any of their respective properties or assets or (B) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of PNC or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which PNC or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets is bound. Based on the representations of Mercantile
Bankshares contained in Section 3.2, approval of the PNC shareholders is not
necessary for the consummation by PNC of the Merger and the issuance of the
Stock Consideration thereunder. Neither PNC nor any of its Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) that, to the knowledge of PNC, upon consummation of
the Merger will materially restrict the ability of the Surviving Corporation to
engage in any line of business currently conducted by Mercantile Bankshares or
its Subsidiaries.
4.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications
and notices, as applicable, with the Federal Reserve Board under the BHC Act and
approval of such applications and notices, (ii) the Other Regulatory Approvals,
(iii) the filing with the SEC of the Proxy Statement and the filing and
declaration of effectiveness of the Form S-4, (iv) the filing of the Articles of
Merger with the Department of State of the Commonwealth of Pennsylvania pursuant
to the PBCL and the filing of the Articles of Merger with the Maryland State
Department of Assessments and Taxation pursuant to the MGCL, (v) any consents,
authorizations, approvals, filings or exemptions in connection with compliance
with the rules and regulations of any applicable SRO, and the rules of the NYSE,
or that are required under consumer finance, mortgage banking and other similar
laws, (vi) any notices or filings under the HSR Act, and (vii) such filings and
approvals as are required to be made or obtained under the securities or "Blue
Sky" laws of various states in connection with the issuance of the shares of PNC
Common Stock pursuant to this Agreement and approval of listing of such PNC
Common Stock on the NYSE, no consents or approvals of or filings or
registrations with any Governmental Entity are necessary in connection with the
consummation by PNC of the Merger and the other transactions contemplated by
this Agreement. No consents or approvals of or filings or registrations with any
Governmental Entity are necessary in connection with the execution and delivery
by PNC of this Agreement.
4.5 REPORTS; REGULATORY MATTERS. (a) PNC and each of its Subsidiaries
have timely filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 2005 with the Regulatory Agencies and each other
applicable Governmental Entity, and all other reports and statements required to
be filed by them since January 1, 2005, including any report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States, any state, any
30
foreign entity, or any Regulatory Agency, and have paid all fees and assessments
due and payable in connection therewith. Except for normal examinations
conducted by a Regulatory Agency or Governmental Entity in the ordinary course
of the business of PNC and its Subsidiaries, no Regulatory Agency or
Governmental Entity has initiated since January 1, 2005 or has pending any
proceeding, enforcement action or, to the knowledge of PNC, investigation into
the business, disclosures or operations of PNC or any of its Subsidiaries. Since
January 1, 2005, no Regulatory Agency or Governmental Entity has resolved any
proceeding, enforcement action or, to the knowledge of PNC, investigation into
the business, disclosures or operations of PNC or any of its Subsidiaries. There
is no unresolved violation, criticism, or exception by any Regulatory Agency or
Governmental Entity with respect to any report or statement relating to any
examinations or inspections of PNC or any of its Subsidiaries. Since January 1,
2005, there has been no formal or, with respect to the Federal Reserve Board,
FDIC, the OCC, the SEC, the NASD and state banking regulators only, informal
inquiries by, or disagreements or disputes with, any Regulatory Agency or
Governmental Entity with respect to the business, operations, policies or
procedures of PNC or any of its Subsidiaries (other than normal examinations
conducted by a Regulatory Agency or Governmental Entity in PNC's ordinary course
of business).
(b) Neither PNC nor any of its Subsidiaries is subject to any
cease-and-desist or other order or enforcement action issued by, or is a party
to any written agreement, consent agreement or memorandum of understanding with,
or is a party to any commitment letter or similar undertaking to, or is subject
to any order or directive by, or has been since January 1, 2005 a recipient of
any supervisory letter from, or has been ordered to pay any civil money penalty
by, or since January 1, 2005 has adopted any policies, procedures or board
resolutions at the request or suggestion of, any Regulatory Agency or other
Governmental Entity that currently restricts in any material respect the conduct
of its business or that in any material manner relates to its capital adequacy,
its ability to pay dividends, its credit, risk management or compliance
policies, its internal controls, its management or its business, other than
those of general application that apply to bank holding companies or their
Subsidiaries (each, a "PNC REGULATORY AGREEMENT"), nor has PNC or any of its
Subsidiaries been advised since January 1, 2005 by any Regulatory Agency or
other Governmental Entity that it is considering issuing, initiating, ordering
or requesting any such PNC Regulatory Agreement. Each of the PNC Bank
Subsidiaries is and, to the knowledge of PNC there has not been any event or
occurrence since January 1, 2005 that could reasonably be expected to result in
a determination that any PNC Bank Subsidiary is not, "well capitalized" and
"well managed" as a matter of U.S. federal banking law. Each of the PNC Bank
Subsidiaries has at least a "satisfactory" rating under the U.S. Community
Reinvestment Act.
(c) PNC has previously made available to Mercantile Bankshares an
accurate and complete copy of each (i) final registration statement, prospectus,
report, schedule and definitive proxy statement filed with or furnished to the
SEC by PNC since January 1, 2005 pursuant to the Securities Act or the Exchange
Act and prior to the date of this Agreement (the "PNC SEC REPORTS") and (ii)
communication mailed by PNC to its stockholders since January 1, 2005 and prior
to the date of this Agreement. No such PNC SEC Report or communication, at the
time filed, furnished or communicated (and, in the case of registration
statements and proxy statements, on the dates of effectiveness and the dates of
the relevant meetings, respectively), contained any untrue statement of a
material fact or omitted to state any material fact required to
31
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances in which they were made, not misleading. As of their
respective dates, all PNC SEC Reports complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto.
4.6 FINANCIAL STATEMENTS. (a) The financial statements of PNC and its
Subsidiaries included (or incorporated by reference) in the PNC SEC Reports
(including the related notes, where applicable) (i) have been prepared from, and
are in accordance with, the books and records of PNC and its Subsidiaries; (ii)
fairly present in all material respects the consolidated results of operations,
cash flows, changes in stockholders' equity and consolidated financial position
of PNC and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth (subject in the case of unaudited statements
to recurring year-end audit adjustments normal in nature and amount); (iii)
complied as to form, as of their respective dates of filing with the SEC, in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; and (iv) have been
prepared in accordance with GAAP consistently applied during the periods
involved, except, in each case, as indicated in such statements or in the notes
thereto. The books and records of PNC and its Subsidiaries have been, and are
being, maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions. Deloitte & Touche LLP has not resigned or been dismissed as
independent public accountants of PNC as a result of or in connection with any
disagreements with PNC on a matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
(b) Neither PNC nor any of its Subsidiaries has any material liability
of any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due), except for those liabilities that are reflected
or reserved against on the consolidated balance sheet of PNC included in its
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006
(including any notes thereto) and for liabilities incurred in the ordinary
course of business consistent with past practice since June 30, 2006 or in
connection with this Agreement and the transactions contemplated hereby.
(c) The records, systems, controls, data and information of PNC and
its Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of PNC or its Subsidiaries or accountants (including all means of access thereto
and therefrom), except for any non-exclusive ownership and non-direct control
that would not reasonably be expected to have a material adverse effect on PNC.
PNC (x) has implemented and maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) to ensure that material
information relating to PNC, including its consolidated Subsidiaries, is made
known to the chief executive officer and the chief financial officer of PNC by
others within those entities, and (y) has disclosed, based on its most recent
evaluation prior to the date hereof, to PNC's outside auditors and the audit
committee of PNC's Board of Directors (i) any significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are
reasonably likely to adversely affect PNC's ability to record, process,
summarize and report financial information and (ii) any fraud, whether or not
material, that
32
involves management or other employees who have a significant role in PNC's
internal controls over financial reporting. These disclosures were made in
writing by management to PNC's auditors and audit committee and a copy has
previously been made available to Mercantile Bankshares. As of the date hereof,
there is no reason to believe that its outside auditors and its chief executive
officer and chief financial officer will not be able to give the certifications
and attestations required pursuant to the rules and regulations adopted pursuant
to Section 404 of the Sarbanes-Oxley Act, without qualification, when next due.
(d) Since December 31, 2005, (x) through the date hereof, neither PNC
nor any of its Subsidiaries has received or otherwise had or obtained knowledge
of any material complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices, procedures, methodologies
or methods of PNC or any of its Subsidiaries or their respective internal
accounting controls, including any material complaint, allegation, assertion or
claim that PNC or any of its Subsidiaries has engaged in questionable accounting
or auditing practices, and (y) no attorney representing PNC or any of its
Subsidiaries, whether or not employed by PNC or any of its Subsidiaries, has
reported evidence of a material violation of securities laws, breach of
fiduciary duty or similar violation by PNC or any of its officers, directors,
employees or agents to the Board of Directors of PNC or any committee thereof or
to any director or officer of PNC.
4.7 BROKER'S FEES. Neither PNC nor any PNC Subsidiary nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with the Merger or related transactions contemplated by this Agreement, other
than as set forth on Section 4.7 of the PNC Disclosure Schedule.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since December 31, 2005,
no event or events have occurred that have had or are reasonably likely to have,
individually, or in the aggregate, a Material Adverse Effect on PNC.
(b) Since December 31, 2005 through and including the date of this
Agreement, PNC and its Subsidiaries have carried on their respective businesses
in all material respects in the ordinary course of business consistent with
their past practice.
(c) Since June 30, 2006 through and including the date of this
Agreement, neither PNC nor any of its Subsidiaries has changed any accounting
methods, principles or practices of PNC or its Subsidiaries affecting its
assets, liabilities or businesses, including any reserving, renewal or residual
method, practice or policy, except as required by applicable law or GAAP.
4.9 LEGAL PROCEEDINGS. (a) None of PNC or any of its Subsidiaries is a
party to any, and there are no pending or, to the best of PNC's knowledge,
threatened, material legal, administrative, arbitral or other material
proceedings, claims, actions or governmental or regulatory investigations of any
nature against PNC or any of its Subsidiaries.
(b) There is no Injunction, judgment, or regulatory restriction (other
than those of general application that apply to similarly situated bank holding
companies or their
33
Subsidiaries) imposed upon PNC, any of its Subsidiaries or the assets of PNC or
any of its Subsidiaries.
4.10 TAXES AND TAX RETURNS. Each of PNC and its Subsidiaries has duly
and timely filed (including all applicable extensions) all material Tax Returns
required to be filed by it on or prior to the date of this Agreement (all such
Tax Returns being accurate and complete in all material respects), has timely
paid all Taxes shown thereon as arising and has duly and timely paid all
material Taxes that are due and payable or claimed to be due from it by federal,
state, foreign or local taxing authorities other than Taxes that are being
contested in good faith, which have not been finally determined, and have been
adequately reserved against in accordance with GAAP on PNC's most recent
consolidated financial statements. There are no material disputes, audits,
examinations or proceedings pending, or claims asserted, for Taxes or
assessments upon PNC or any of its Subsidiaries for which PNC does not have
reserves that are adequate under GAAP.
4.11 COMPLIANCE WITH APPLICABLE LAW. (a) PNC and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and are in compliance in all respects with and are not in
default in any material respect under any, applicable law, statute, order, rule,
regulation, policy or guideline of any Governmental Entity relating to PNC or
any of its Subsidiaries.
(b) Since the enactment of the Sarbanes-Oxley Act, PNC has been and is
in compliance in all material respects with (i) the applicable provisions of the
Sarbanes-Oxley Act and (ii) the applicable listing and corporate governance
rules and regulations of the NYSE.
4.12 RISK MANAGEMENT INSTRUMENTS. All Derivative Transactions
outstanding as of the date hereof (which for the avoidance of doubt shall not
include any PNC stock option), whether entered into for the account of PNC or
any PNC Subsidiary or for the account of a customer of PNC or any PNC
Subsidiary, were duly authorized and entered into in the ordinary course of
business consistent with past practice and in accordance with prudent banking
practice and applicable laws, rules, regulations and policies of any Regulatory
Authority and in accordance with the investment, securities, commodities, risk
management and other policies, practices and procedures employed by PNC or any
PNC Subsidiary, and with counterparties believed at the time to be financially
responsible and able to understand (either alone or in consultation with their
advisers) and to bear the risks of such Derivative Transactions. All of such
Derivative Transactions are legal, valid and binding obligations of PNC or a PNC
Subsidiary enforceable against it in accordance with their terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles of
equity), and are in full force and effect. PNC and each applicable PNC
Subsidiary have duly performed their obligations under the Derivative
Transactions to the extent that such obligations to perform have accrued and, to
PNC's knowledge, there are no breaches, violations or defaults or allegations or
assertions of such by any party thereunder.
4.13 PROPERTY. PNC or a PNC Subsidiary (a) has good and marketable
title to all the properties and assets reflected in the latest audited balance
sheet included in the PNC SEC
34
Reports as being owned by PNC or a PNC Subsidiary or acquired after the date
thereof (except properties sold or otherwise disposed of since the date thereof
in the ordinary course of business) (the "PNC OWNED PROPERTIES"), free and clear
of all Liens of any nature whatsoever, except Permitted Encumbrances, and (b) is
the lessee of all leasehold estates reflected in the latest audited financial
statements included in such PNC SEC Reports or acquired after the date thereof
(except for leases that have expired by their terms since the date thereof) (the
"PNC LEASED PROPERTIES" and, collectively with the PNC Owned Properties, the
"PNC REAL PROPERTY"), free and clear of all Liens of any nature whatsoever,
except for Permitted Encumbrances, and is in possession of the properties
purported to be leased thereunder, and each such lease is valid without default
thereunder by the lessee or, to the PNC knowledge, the lessor. There are no
pending or, to the knowledge of PNC, threatened condemnation proceedings against
the PNC Real Property. PNC and its Subsidiaries are in compliance with all
applicable health and safety related requirements for the PNC Real Property,
including those under the Americans with Disabilities Act of 1990 and the
Occupational Health and Safety Act of 1970.
4.14 ENVIRONMENTAL LIABILITY. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action or notices with
respect to any environmental, health or safety matters or any private or
governmental environmental, health or safety investigations or remediation
activities of any nature seeking to impose, or that are reasonably likely to
result in, any liability or obligation of PNC or any of its Subsidiaries arising
under common law or under any local, state or federal environmental, health or
safety statute, regulation or ordinance, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
pending or threatened against PNC or any of its Subsidiaries. To the knowledge
of PNC, there is no reasonable basis for, or circumstances that are reasonably
likely to give rise to, any such proceeding, claim, action, investigation or
remediation by any Governmental Entity or any third party that would give rise
to any liability or obligation on the part of PNC or any of its Subsidiaries.
Neither PNC nor any of its Subsidiaries is subject to any agreement, order,
judgment, decree, letter or memorandum by or with any Governmental Entity or
third party imposing any liability or obligation with respect to any of the
foregoing.
4.15 REORGANIZATION; APPROVALS. As of the date of this Agreement, PNC
(a) is not aware of any fact or circumstance that could reasonably be expected
to prevent the Merger from qualifying as a "reorganization" within the meaning
of Section 368(a) of the Code, and (b) knows of no reason why all regulatory
approvals from any Governmental Entity required for the consummation of the
transactions contemplated by this Agreement should not be obtained on a timely
basis.
4.16 AGGREGATE CASH CONSIDERATION. PNC has or will prior to the
Closing have available to it sufficient funds to deliver the aggregate Cash
Consideration.
4.17 PNC INFORMATION. The information relating to PNC and its
Subsidiaries that is provided by PNC or its representatives for inclusion in the
Proxy Statement and the Form S-4, or in any application, notification or other
document filed with any other Regulatory Agency or other Governmental Entity in
connection with the transactions contemplated by this Agreement, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they are
35
made, not misleading. The portions of the Proxy Statement relating to PNC and
other portions within the reasonable control of PNC will comply in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder. The Form S-4 will comply in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder.
4.18 INVESTMENT SECURITIES. (a) Each of PNC and its Subsidiaries has
good title to all securities owned by it (except those sold under repurchase
agreements or held in any fiduciary or agency capacity), free and clear of any
Liens, except to the extent such securities are pledged in the ordinary course
of business to secure obligations of PNC or its Subsidiaries. Such securities
are valued on the books of PNC in accordance with GAAP in all material respects.
(b) PNC and its Subsidiaries and their respective businesses employ
investment, securities, commodities, risk management and other policies,
practices and procedures (the "POLICIES, PRACTICES AND PROCEDURES") which PNC
believes are prudent and reasonable in the context of such businesses.
4.19 LOAN PORTFOLIO. (a) Section 4.19(a) of the PNC Disclosure
Schedule sets forth (i) the aggregate outstanding principal amount, as of
September 30, 2006, of all Loans payable to PNC or its Subsidiaries, other than
"non-accrual" Loans, and (ii) the aggregate outstanding principal amount, as of
September 30, 2006, of all "non-accrual" Loans. As of September 30, 2006, PNC
and its Subsidiaries, taken as a whole, did not have outstanding Loans and
assets classified as "Other Real Estate Owned" with an aggregate then
outstanding, fully committed principal amount in excess of that amount set forth
on Section 4.19(a) of the PNC Disclosure Schedule.
(b) Each Loan (i) is evidenced by notes, agreements or other evidences
of indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles of
equity). All Loans originated by PNC or its Subsidiaries, and all such Loans
purchased, administered or serviced by PNC or its Subsidiaries, were made or
purchased and are administered or serviced, as applicable, in accordance with
customary lending standards of PNC or its Subsidiaries, as applicable. All such
Loans (and any related guarantees) and payments due thereunder are, and on the
Closing Date will be, free and clear of any Lien, and PNC or its Subsidiaries
has complied in all material respects, and on the Closing Date will have
complied in all material respects, with all laws and regulations relating to
such Loans.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. Except as
expressly contemplated by or permitted by this Agreement or with the prior
written consent of the other party, during the period from the date of this
Agreement to the Effective Time, each of
36
Mercantile Bankshares and PNC shall, and shall cause each of its respective
Subsidiaries to, (a) conduct its business in the ordinary course in all material
respects, (b) use commercially reasonable efforts to maintain and preserve
intact its business organization and advantageous business relationships and
retain the services of its key officers and key employees and (c) take no action
that is intended to or would reasonably be expected to adversely affect or
materially delay the ability of either Mercantile Bankshares or PNC to obtain
any necessary approvals of any Regulatory Agency or other Governmental Entity
required for the transactions contemplated hereby or to perform its covenants
and agreements under this Agreement or to consummate the transactions
contemplated hereby or thereby.
5.2 MERCANTILE BANKSHARES FORBEARANCES. During the period from the
date of this Agreement to the Effective Time, except as set forth in the
Mercantile Bankshares Disclosure Schedule and except as expressly contemplated
or permitted by this Agreement, Mercantile Bankshares shall not, and shall not
permit any of its Subsidiaries to, without the prior written consent of PNC:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee, endorse
or otherwise as an accommodation become responsible for the obligations of any
other individual, corporation or other entity, or make any loan or advance or
capital contribution to, or investment in, any person (it being understood and
agreed that incurrence of indebtedness in the ordinary course of business
consistent with past practice shall include the creation of deposit liabilities,
purchases of Federal funds and FHLB advances, sales of certificates of deposit,
issuances of commercial paper and entering into repurchase agreements);
(b) (i) adjust, split, combine or reclassify any of its capital stock;
(ii) make, declare or pay any dividend, or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible (whether currently
convertible or convertible only after the passage of time or the occurrence of
certain events) into or exchangeable for any shares of its capital stock (except
(A) for regular quarterly cash dividends at a rate not in excess of $0.28 per
share of Mercantile Bankshares Common Stock with record dates and payment dates
consistent with the prior year, (B) dividends paid by any of the Subsidiaries of
Mercantile Bankshares to Mercantile Bankshares or to any of its wholly-owned
Subsidiaries, (C) the acceptance of shares of Mercantile Bankshares Common Stock
in payment of the exercise price or withholding Taxes incurred by any employee
or director in connection with the exercise of stock options or the vesting of
restricted shares of (or settlement of other equity-based awards in respect of)
Mercantile Bankshares Common Stock granted under a Mercantile Bankshares Stock
Plan, in each case in accordance with past practice and the terms of the
applicable Mercantile Bankshares Stock Plan and related award agreements), and
(D) dividends on the capital securities and common securities issued by each of
James Monroe Statutory Trust I, James Monroe Statutory Trust II and James Monroe
Statutory Trust III, in each case in accordance with the terms thereof;
(iii) grant any stock options, restricted shares or other equity-based award
with respect to shares of Mercantile Bankshares Common Stock under any of the
Mercantile Bankshares Stock
37
Plans or otherwise, or grant any individual, corporation or other entity any
right to acquire any shares of its capital stock; or
(iv) issue any additional shares of capital stock or other securities
except pursuant to the exercise of stock options or the settlement of other
equity-based awards granted under a Mercantile Bankshares Stock Plan that are
outstanding as of the date of this Agreement or are subsequently granted in
accordance with terms hereof;
(c) except as required by applicable law or the terms of any
Mercantile Bankshares Benefit Plan as in effect on the date of this Agreement,
(i) increase the wages, salaries, or incentive compensation or incentive
compensation opportunities of any employee of Mercantile Bankshares or any of
its Subsidiaries other than normal increases in the ordinary course of business
consistent with past practice for employees who are not (x) executive officers
(y) directors, or (z) employees of Mercantile Bankshares or its Subsidiaries who
are party to change of control or severance agreements, increase or accelerate
the accrual rate, vesting or timing of payment or funding of, any compensation,
benefits or other rights of any employee of Mercantile Bankshares or any of its
Subsidiaries or otherwise pay any amount to which any employee of Mercantile
Bankshares or any of its Subsidiaries is not entitled, or (ii) establish, adopt,
or become a party to any new employee benefit or compensation plan, program,
commitment or agreement or amend, suspend or terminate any Mercantile Bankshares
Benefit Plan other than as disclosed in Section 5.2(c) of the Mercantile
Bankshares Disclosure Schedule and amendments made to comply with Section 409A
of the Code or administrative amendments that do not increase the cost of
operating the plan by more than an inconsequential amount;
(d) sell, transfer, mortgage, encumber or otherwise dispose of any
material amount of its properties or assets to any individual, corporation or
other entity other than a Subsidiary or cancel, release or assign any material
amount of indebtedness to any such person or any claims held by any such person,
in each case other than in the ordinary course of business consistent with past
practice or pursuant to contracts in force at the date of this Agreement or
entered into in accordance with the terms hereof;
(e) 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, regulation or policies imposed by any Governmental
Entity;
(f) make any material investment for its own account either by
purchase of stock or securities, contributions to capital, property transfers,
or purchase of any property or assets of any other individual, corporation or
other entity;
(g) take any action, or knowingly fail to take any action, which
action or failure to act is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code;
(h) amend its charter or bylaws;
(i) restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or otherwise, except in
consultation (in advance of any
38
restructuring or material change except to the extent not commercially
practicable) with PNC, or the manner in which the portfolio is classified or
reported;
(j) commence or settle any material claim, action or proceeding except
settlements involving only monetary remedies in the ordinary course of business
consistent with past practice not in excess of $500,000 individually or
$2,000,000 in the aggregate for all such settlements effected after the date
hereof;
(k) take any action that is intended or may reasonably be expected to
result in any of the conditions to the Merger set forth in Article VII not being
satisfied;
(l) implement or adopt any material change in its financial accounting
principles, practices or methods, other than as may be required by applicable
law, GAAP or regulatory guidelines;
(m) enter into, renew or terminate, or make any payment not then
required under, any Mercantile Bankshares Contract, other than entering into,
renewing or terminating any Mercantile Bankshares Contracts in the ordinary
course of business, consistent with past practice (other than any Mercantile
Bankshares Contract (i) that contains (A) any non-competition or exclusive
dealing agreement, or any other agreement or obligation which purports to limit
or restrict in any respect the ability of Mercantile Bankshares or its
Subsidiaries or their businesses to solicit customers or the manner in which, or
the localities in which, all or any portion of the business of Mercantile
Bankshares or its Subsidiaries or, following consummation of the transactions
contemplated by this Agreement, Parent or its Subsidiaries, is or would be
conducted or (B) any agreement that grants any right of first refusal or right
of first offer or similar right or that limits or purports to limit the ability
of Mercantile Bankshares or any of its Subsidiaries to own, operate, sell,
transfer, pledge or otherwise dispose of any assets or business, (ii) that calls
for aggregate annual payments of $500,000 or more and which is not terminable on
60 days or less notice without payment of any termination fee or penalty or
(iii) that involves the lease of real property (other than lease renewals in the
ordinary course of business);
(n) make, change or revoke any material Tax election, change an annual
Tax accounting period, adopt or change any Tax accounting method, file any
material amended Tax Return, enter into any closing agreement with respect to a
material amount of Taxes, settle any material Tax claim or assessment or
surrender any right to claim a refund of a material amount of Taxes;
(o) file any application to establish, or to relocate or terminate the
operations of, any banking office of Mercantile Bankshares or any Mercantile
Bankshares Subsidiary; or
(p) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 5.2.
5.3 PNC FORBEARANCES. Except as expressly permitted by this Agreement
or with the prior written consent of Mercantile Bankshares, during the period
from the date of this Agreement to the Effective Time, PNC shall not, and shall
not permit any of its Subsidiaries to, (a) amend, repeal or otherwise modify any
provision of the PNC Articles or the PNC Bylaws in a manner that would adversely
effect Mercantile Bankshares, the stockholders of Mercantile
39
Bankshares or the transactions contemplated by this Agreement; (b) take any
action, or knowingly fail to take any action, which action or failure to act is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code; (c) take any action that is
intended or may reasonably be expected to result in any of the conditions to the
Merger set forth in Article VII not being satisfied; (d) take any action that
would be reasonably expected to prevent, materially impede or materially delay
the consummation of the transactions contemplated by this Agreement; (e) make or
pay any extraordinary one-time dividend or distribution on shares of PNC Common
Stock (other than any dividend or distribution of PNC Common Stock, e.g., a
stock split); or (f) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 5.3.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 REGULATORY MATTERS. (a) PNC and Mercantile Bankshares shall
promptly prepare and file with the SEC the Form S-4, in which the Proxy
Statement will be included as a prospectus. Each of PNC and Mercantile
Bankshares shall use its reasonable best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing,
and Mercantile Bankshares shall thereafter mail or deliver the Proxy Statement
to its stockholders. PNC shall also use its reasonable best efforts to obtain
all necessary state securities law or "Blue Sky" permits and approvals required
to carry out the transactions contemplated by this Agreement, and Mercantile
Bankshares shall furnish all information concerning Mercantile Bankshares and
the holders of Mercantile Bankshares Common Stock as may be reasonably requested
in connection with any such action.
(b) Subject to the terms and conditions of this Agreement, the parties
shall use their reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable law to consummate the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, the parties
shall cooperate with each other and use their respective reasonable best efforts
to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities that are necessary or advisable to consummate
the transactions contemplated by this Agreement (including the Merger), and to
comply with the terms and conditions of all such permits, consents, approvals
and authorizations of all such third parties or Governmental Entities
(including, subject to the penultimate sentence of this Section 6.1(b), agreeing
to and complying with any actions, conditions or restrictions required or
imposed in connection with obtaining the foregoing permits, consents, approvals
and authorizations of third parties and Governmental Entities). Mercantile
Bankshares and PNC shall have the right to review in advance, and, to the extent
practicable, each will consult the other on, in each case subject to applicable
laws relating to the confidentiality of information, all the information
relating to Mercantile Bankshares or PNC, as the case may be, and any of their
respective Subsidiaries, which appear in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by
40
this Agreement. In exercising the foregoing right, each of the parties shall act
reasonably and as promptly as practicable. The parties shall consult with each
other with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated by this Agreement. Notwithstanding
the foregoing, nothing contained herein shall be deemed to require PNC to take
any action, or commit to take any action, or agree to any condition or
restriction, in connection with obtaining the foregoing permits, consents,
approvals and authorizations of third parties or Governmental Entities, that
would reasonably be expected to have a material adverse effect (measured on a
scale relative to Mercantile Bankshares and its Subsidiaries, taken as a whole)
on either PNC or Mercantile Bankshares (a "MATERIALLY BURDENSOME REGULATORY
CONDITION"). In addition, Mercantile Bankshares agrees to cooperate and use its
reasonable best efforts to assist PNC in preparing and filing such petitions and
filings, and in obtaining such permits, consents, approvals and authorizations
of third parties and Governmental Entities, that may be necessary or advisable
to effect any mergers and/or consolidations of Subsidiaries of Mercantile
Bankshares and PNC following consummation of the Merger.
(c) Each of PNC and Mercantile Bankshares shall, upon request, furnish
to the other all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the Form S-4 or any other
statement, filing, notice or application made by or on behalf of PNC, Mercantile
Bankshares or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Each of PNC and Mercantile Bankshares shall promptly advise the
other upon receiving any communication from any Governmental Entity the consent
or approval of which is required for consummation of the transactions
contemplated by this Agreement that causes such party to believe that there is a
reasonable likelihood that any PNC Requisite Regulatory Approval will not be
obtained or that the receipt of any such approval may be materially delayed.
6.2 ACCESS TO INFORMATION. (a) Upon reasonable notice and subject to
applicable laws relating to the confidentiality of information, each of
Mercantile Bankshares and PNC shall, and shall cause each of its Subsidiaries
to, afford to the officers, employees, accountants, counsel, advisors, agents
and other representatives of the other party, reasonable access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records, and, during such period,
such party shall, and shall cause its Subsidiaries to, make available to the
other party (i) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of federal securities laws or federal or state banking or insurance
laws (other than reports or documents that such party is not permitted to
disclose under applicable law) and (ii) all other information concerning its
business, properties and personnel as the other party may reasonably request.
Neither Mercantile Bankshares nor PNC, nor any of their Subsidiaries, shall be
required to provide access to or to disclose information where such access or
disclosure would jeopardize the attorney-client privilege of such party or its
41
Subsidiaries or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties shall make appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
(b) All information and materials provided pursuant to this Agreement
shall be subject to the provisions of the Confidentiality Agreement entered into
between the parties as of September 29, 2006 (the "CONFIDENTIALITY AGREEMENT").
(c) No investigation by a party hereto or its representatives shall
affect the representations and warranties of the other party set forth in this
Agreement.
6.3 STOCKHOLDER APPROVAL. Mercantile Bankshares shall call a special
meeting of its stockholders to be held as soon as reasonably practicable for the
purpose of obtaining the requisite stockholder approval required in connection
with the Merger, and shall use its reasonable best efforts to cause such meeting
to occur as soon as reasonably practicable. The board of directors of Mercantile
Bankshares has adopted resolutions recommending to the stockholders of
Mercantile Bankshares the adoption of this Agreement, and the board of directors
of Mercantile Bankshares shall recommend to the stockholders of Mercantile
Bankshares the approval and adoption of this Agreement. Notwithstanding the
foregoing, the board of directors of Mercantile Bankshares may withdraw, modify,
condition or refuse to recommend the adoption of this Agreement if the board of
directors of Mercantile Bankshares determines, in good faith 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. Notwithstanding any such withdrawal, modification, condition or refusal to
recommend, this Agreement and such other matters shall be submitted to the
stockholders for the purpose of approving the Agreement and such other matters,
and nothing contained herein shall be deemed to relieve Mercantile Bankshares of
such obligation, PROVIDED, HOWEVER, that if the Board of Directors of Mercantile
Bankshares shall have withdrawn, modified, conditioned or refused to recommend
the adoption of this Agreement and such other matters in accordance with the
terms of this Agreement, then in submitting this Agreement to the stockholders
of the Mercantile Bankshares, the board of directors of Mercantile Bankshares
may submit this Agreement to the stockholders of Mercantile Bankshares without
recommendation (although the resolutions approving and adopting this Agreement
as of the date hereof may not be rescinded or amended), in which event the board
of directors of Mercantile Bankshares may communicate the basis for its lack of
a recommendation to the stockholders of Mercantile Bankshares in the Proxy
Statement or an appropriate amendment or supplement thereto to the extent
required by law.
6.4 AFFILIATES. Mercantile Bankshares shall use its reasonable best
efforts to cause each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act) of Mercantile
Bankshares to deliver to PNC, as soon as practicable after the date of this
Agreement, and prior to the date of the meeting of the Mercantile Bankshares
stockholders to be held pursuant to Section 6.3, a written agreement, in the
form of Exhibit A.
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6.5 NYSE LISTING. PNC shall cause the shares of PNC Common Stock to be
issued in the Merger to be approved for listing on the NYSE, subject to official
notice of issuance, prior to the Effective Time.
6.6 EMPLOYEE MATTERS. (a) PNC shall, or shall cause its applicable
Subsidiaries to, provide to those individuals actively employed by Mercantile
Bankshares or one of its Subsidiaries as of the Effective Time (collectively,
the "COVERED EMPLOYEES") with (i) employee benefits, rates of base salary or
hourly wage and annual bonus opportunities that are either (x) substantially
similar, in the aggregate, to the aggregate rates of base salary or hourly wage
provided to such Covered Employees and the aggregate employee benefits and
annual bonus opportunities provided to such Covered Employees under the
Mercantile Bankshares Benefit Plans as in effect immediately prior to the
Effective Time or (y) no less favorable, in the aggregate, than the compensation
and benefit arrangements that are provided to similarly situated employees of
PNC (provided that PNC will continue Mercantile Bankshares compensation and
benefits until Mercantile Bankshares employees are converted to PNC's payroll
system); and (ii) severance protection for any Covered Employee (other than for
those Covered Employees covered by change of control or severance plans or
agreements) who is terminated without cause during the one-year period following
the Effective Time in amounts set forth on Section 6.6(a) of the Mercantile
Bankshares Disclosure Schedule and otherwise on terms and conditions applicable
to similarly situated employees of PNC; PROVIDED that nothing herein shall limit
the right of PNC or any of its Subsidiaries to terminate the employment of any
Covered Employee at any time.
(b) To the extent that a Covered Employee becomes eligible to
participate in an employee benefit plan maintained by PNC or any of its
Subsidiaries, other than Mercantile Bankshares or its Subsidiaries, PNC shall
cause such employee benefit plan to (i) recognize the service of such Covered
Employee with Mercantile Bankshares or its Subsidiaries for purposes of
eligibility and vesting and, except under defined benefit pension plans, benefit
accrual under such employee benefit plan of PNC or any of its Subsidiaries to
the same extent such service was recognized immediately prior to the Effective
Time under a comparable Mercantile Bankshares Benefit Plan in which such Covered
Employee was a participant immediately prior to the Effective Time; PROVIDED
that for purposes of determining the level of credit based on service after the
Effective Time under any cash balance pension plan in which Covered Employees
participate after the Effective Time, PNC will provide credit for prior service
of Covered Employees with Mercantile Bankshares or its Subsidiaries; PROVIDED,
HOWEVER, that the recognition of service under this clause (i) shall not operate
to duplicate any benefits with respect to the Covered Employee, and (ii) with
respect to any health, dental or vision plan of PNC or any of its Subsidiaries
(other than Mercantile Bankshares and its Subsidiaries) in which any Covered
Employee is eligible to participate in the plan year that includes the year in
which such Covered Employee is eligible to participate, (x) cause any
pre-existing condition limitations under such PNC or Subsidiary plan to be
waived with respect to such Covered Employee to the extent such limitation would
have been waived or satisfied under the Mercantile Bankshares Benefit Plan in
which such Covered Employee participated immediately prior to the Effective
Time, and (y) recognize any medical or other health expenses incurred by such
Covered Employee in the year that includes the Closing Date for purposes of any
applicable deductible and annual out-of-pocket expense requirements under any
such health, dental or vision plan of PNC or any of its Subsidiaries.
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(c) From and after the Effective Time, PNC shall, or shall cause its
Subsidiaries to, honor, in accordance with the terms thereof as in effect as of
the date hereof or as may be amended after the date hereof but prior to the
Effective Time with the prior written consent of PNC, each employment agreement
and change in control agreement of Mercantile Bankshares and its Subsidiaries
and the obligations of Mercantile Bankshares and its Subsidiaries as of the
Effective Time under each deferred compensation plan or agreement.
(d) Without limiting the generality of the final sentence of Section
9.10, nothing in this Section 6.6, express or implied is intended to or shall
confer upon any other person including without limitation any Covered Employee,
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement and no provision of this Section 6.6 shall constitute an amendment of
any Mercantile Bankshares Benefit Plan.
6.7 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative (a "CLAIM"), including
any such Claim in which any individual who is now, or has been at any time prior
to the date of this Agreement, or who becomes prior to the Effective Time, a
director or officer of Mercantile Bankshares or any of its Subsidiaries or who
is or was serving at the request of Mercantile Bankshares or any of its
Subsidiaries as a director or officer of another person (the "INDEMNIFIED
PARTIES"), is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that he
is or was a director or officer of Mercantile Bankshares or any of its
Subsidiaries prior to the Effective Time or (ii) this Agreement or any of the
transactions contemplated by this Agreement, whether asserted or arising before
or after the Effective Time, the parties shall cooperate and use their best
efforts to defend against and respond thereto. All rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of any Indemnified Party as provided in the
respective certificates or articles of incorporation or by-laws (or comparable
organizational documents) of each party and/or its respective Subsidiaries, and
any existing indemnification agreements, including those set forth in Section
6.7 of the Mercantile Bankshares Disclosure Schedule, shall survive the Merger
and shall continue in full force and effect in accordance with their terms, and
shall not be amended, repealed or otherwise modified after the Effective Time,
except for those set forth in certificates or articles of incorporation or
bylaws (or comparable organizational documents), which shall not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time, it being understood that nothing in this sentence shall require any
amendment to the certificate of incorporation or by-laws of the Surviving
Corporation.
(b) From and after the Effective Time, the Surviving Corporation
shall, to the fullest extent permitted by applicable law, indemnify, defend and
hold harmless, and provide advancement of expenses to, each Indemnified Party
against all losses, claims, damages, costs, expenses (including fees and
expenses of counsel), fines, penalties, liabilities or judgments or amounts that
are paid in settlement of or in connection with any Claim based in whole or in
part on or arising in whole or in part out of the fact that such person is or
was a director or officer of Mercantile Bankshares or any Subsidiary of
Mercantile Bankshares, and pertaining to any matter existing or occurring, or
any acts or omissions occurring, at or prior to the Effective Time, whether
asserted or claimed prior to, or at or after, the Effective Time (including
matters, acts or omissions occurring in connection with the approval of this
Agreement and the consummation of
44
the transactions contemplated hereby) or taken at the request of PNC pursuant to
Section 6.8 hereof.
(c) PNC shall cause the individuals serving as officers and directors
of Mercantile Bankshares or any of its Subsidiaries immediately prior to the
Effective Time to be covered for a period of six years from the Effective Time
by the directors' and officers' liability insurance policy maintained by
Mercantile Bankshares (PROVIDED that PNC may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions that are not
less advantageous than such policy) with respect to acts or omissions occurring
prior to the Effective Time that were committed by such officers and directors
in their capacity as such; PROVIDED that in no event shall PNC be required to
expend annually in the aggregate an amount in excess of 250% of the annual
premiums currently paid by Mercantile Bankshares (which current amount is set
forth in Section 6.7 of the Mercantile Bankshares Disclosure Schedule) for such
insurance (the "INSURANCE AMOUNT"), and PROVIDED FURTHER that if PNC is unable
to maintain such policy (or such substitute policy) as a result of the preceding
proviso, PNC shall obtain as much comparable insurance as is available for the
Insurance Amount.
(d) The provisions of this Section 6.7 shall survive the Effective
Time and are intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party and his or her heirs and representatives.
6.8 ADDITIONAL AGREEMENTS. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement (including any merger between a Subsidiary of PNC, on the one
hand, and a Subsidiary of Mercantile Bankshares, on the other) or to vest the
Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either party to the Merger, the proper
officers and directors of each party and their respective Subsidiaries shall, at
PNC's sole expense, take all such necessary action as may be reasonably
requested by PNC.
6.9 ADVICE OF CHANGES. Each of PNC and Mercantile Bankshares shall
promptly advise the other of any change or event (i) having or reasonably likely
to have a Material Adverse Effect on it or (ii) that it believes would or would
be reasonably likely to cause or constitute a material breach of any of its
representations, warranties or covenants contained in this Agreement; PROVIDED,
HOWEVER, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto) or the
conditions to the obligations of the parties under this Agreement; and PROVIDED
FURTHER that a failure to comply with this Section 6.9 shall not constitute a
breach of this Agreement or the failure of any condition set forth in Article
VII to be satisfied unless the underlying Material Adverse Effect or material
breach would independently result in the failure of a condition set forth in
Article VII to be satisfied.
6.10 EXEMPTION FROM LIABILITY UNDER SECTION 16(B). Prior to the
Effective Time, PNC and Mercantile Bankshares shall each take all such steps as
may be necessary or appropriate to cause any disposition of shares of Mercantile
Bankshares Common Stock or conversion of any derivative securities in respect of
such shares of Mercantile Bankshares Common Stock in connection with the
consummation of the transactions contemplated by this Agreement to be exempt
under Rule 16b-3 promulgated under the Exchange Act, including any
45
such actions specified in the No-Action Letter dated January 12, 1999, issued by
the SEC to Skadden, Arps, Slate, Meagher & Flom, LLP.
6.11 NO SOLICITATION. (a) None of Mercantile Bankshares, its
Subsidiaries or any or its or their officers, directors or employees shall,
directly or indirectly, and they shall use their best efforts to cause any
investment banker, financial advisor, attorney, accountant or other retained
representative or agent not to, directly or indirectly, (i) solicit, initiate,
encourage, facilitate (including by way of furnishing information) or take any
other action designed to facilitate any inquiries or proposals regarding any
merger, share exchange, consolidation, sale of assets, sale of shares of capital
stock (including by way of a tender offer) or similar transactions involving
Mercantile Bankshares or any of its Subsidiaries that, if consummated, would
constitute an Alternative Transaction (any of the foregoing inquiries or
proposals being referred to herein as an "ALTERNATIVE PROPOSAL"), (ii)
participate in any discussions or negotiations regarding an Alternative
Transaction or (iii) enter into any agreement regarding any Alternative
Transaction. Notwithstanding the foregoing, the Board of Directors of Mercantile
Bankshares shall be permitted, prior to the meeting of Mercantile Bankshares
stockholders to be held pursuant to Section 6.3, and subject to compliance with
the other terms of this Section 6.11 and to first entering into a
confidentiality agreement with the person proposing such Alternative Proposal on
terms substantially similar to, and no less favorable to Mercantile Bankshares
than, those contained in the Confidentiality Agreement (it being understood that
the standstill provision contained therein may permit such person to convey
confidentially an Alternative Proposal to the Mercantile Bankshares board of
directors under circumstances in which Mercantile Bankshares is permitted to
discuss an Alternative Proposal hereunder), consider and participate in
discussions and negotiations with respect to a bona fide Alternative Proposal
received by Mercantile Bankshares, if and only to the extent that the Board of
Directors of Mercantile Bankshares reasonably determines in good faith (after
consultation with outside legal counsel) that failure to do so would be
inconsistent with its fiduciary duties.
As used in this Agreement, "ALTERNATIVE TRANSACTION" means any of (i)
a transaction 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% of the outstanding shares of Mercantile Bankshares Common Stock 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,
whether from Mercantile Bankshares or pursuant to a tender offer or exchange
offer or otherwise, (ii) a merger, share exchange, consolidation or other
business combination involving Mercantile Bankshares (other than the Merger),
(iii) any transaction pursuant to which any person (or group of persons) (other
than PNC or its affiliates) acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
Mercantile Bankshares and securities of the entity surviving any merger or
business combination including any of Mercantile Bankshares's Subsidiaries) of
Mercantile Bankshares, or any of its Subsidiaries representing more than 25% of
the fair market value of all the assets, net revenues or net income of
Mercantile Bankshares and its Subsidiaries, taken as a whole, immediately prior
to such transaction, or (iv) any other consolidation, business combination,
recapitalization or similar transaction involving Mercantile Bankshares or any
of its Subsidiaries, other than the transactions contemplated by this Agreement,
as a result of which the holders of shares of Mercantile Bankshares 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
46
surviving or resulting entity in such transaction immediately after the
consummation thereof in substantially the same proportion as such holders held
the shares of Mercantile Bankshares Common Stock immediately prior to the
consummation thereof.
(b) Mercantile Bankshares shall notify PNC promptly (but in no event
later than 24 hours) after receipt of any Alternative Proposal, or any material
modification of or material amendment to any Alternative Proposal, or any
request for nonpublic information relating to Mercantile Bankshares or any of
its Subsidiaries or for access to the properties, books or records of Mercantile
Bankshares or any Subsidiary by any Person or entity that informs the Board of
Directors of Mercantile Bankshares or any Subsidiary that it is considering
making, or has made, an Alternative Proposal. Such notice to PNC shall be made
orally and in writing, and shall indicate the identity of the Person making the
Alternative Proposal or intending to make or considering making an Alternative
Proposal or requesting non-public information or access to the books and records
of Mercantile Bankshares or any Subsidiary, and the material terms of any such
Alternative Proposal or modification or amendment to an Alternative Proposal.
Mercantile Bankshares shall keep PNC fully informed, on a current basis, of any
material changes in the status and any material changes or modifications in the
terms of any such Alternative Proposal, indication or request. Mercantile
Bankshares shall also promptly, and in any event within 24 hours, notify PNC,
orally and in writing, if it enters into discussions or negotiations concerning
any Alternative Proposal in accordance with Section 6.11(a).
(c) Mercantile Bankshares and its Subsidiaries shall immediately cease
and cause to be terminated any existing discussions or negotiations with any
Persons (other than PNC) conducted heretofore with respect to any of the
foregoing, and shall use reasonable best efforts to cause all Persons other than
PNC who have been furnished confidential information regarding Mercantile
Bankshares in connection with the solicitation of or discussions regarding an
Alternative Proposal within the 12 months prior to the date hereof promptly to
return or destroy such information. Mercantile Bankshares agrees not to, and to
cause its Subsidiaries not to, release any third party from the confidentiality
and standstill provisions of any agreement to which Mercantile Bankshares or its
Subsidiaries is or may become a party, and shall immediately take all steps
necessary to terminate any approval that may have been heretofore given under
any such provisions authorizing any person to make an Alternative Proposal.
Neither Mercantile Bankshares nor the Board of Directors of Mercantile
Bankshares shall approve or take any action to render inapplicable to any
Alternative Proposal or Alternative Transaction Sections 3-601 to 3-604 and
3-701 to 3-709 of the MGCL, any similar Takeover Statutes or the Mercantile
Bankshares Rights Agreement.
(d) Mercantile Bankshares shall ensure that the officers, directors
and all employees, agents and representatives (including any investment bankers,
financial advisors, attorneys, accountants or other retained representatives) of
Mercantile Bankshares or its Subsidiaries are aware of the restrictions
described in this Section 6.11 as reasonably necessary to avoid violations
thereof. It is understood that any violation of the restrictions set forth in
this Section 6.11 by any officer, director, employee, agent or representative
(including any investment banker, financial advisor, attorney, accountant or
other retained representative) of Mercantile Bankshares or its Subsidiaries, at
the direction or with the consent of Mercantile Bankshares or its Subsidiaries,
shall be deemed to be a breach of this Section 6.11 by Mercantile Bankshares.
47
(e) Nothing contained in this Section 6.11 shall prohibit Mercantile
Bankshares or its Subsidiaries from taking and disclosing to its stockholders a
position required by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange
Act.
6.12 DIRECTORSHIP. PNC shall, prior to the Effective Time, take such
actions as may be required to appoint two (2) individuals mutually agreed by
Mercantile Bankshares and PNC to the Board of Directors of the Surviving
Corporation as of the Effective Time, and, to the extent so required, shall
increase the size of the PNC Board of Directors to permit the foregoing.
6.13 DIVIDENDS. After the date of this Agreement, each of PNC and
Mercantile Bankshares shall coordinate with the other the declaration of any
dividends in respect of PNC Common Stock and Mercantile Bankshares Common Stock
and the record dates and payment dates relating thereto, it being the intention
of the parties that holders of Mercantile Bankshares Common Stock shall not
receive two dividends, or fail to receive one dividend, for any quarter with
respect to their shares of Mercantile Bankshares Common Stock and any shares of
PNC Common Stock any such holder receives in exchange therefor in the Merger.
6.14 DONATION TO CHARITABLE FOUNDATION. At or substantially
contemporaneously with the Effective Time, either PNC or the PNC Foundation
shall contribute to Mercantile Bankshares's charitable foundation an amount of
$25 million for charitable causes in the Baltimore, Maryland area.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of the parties to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. The Merger, on the terms and conditions set
forth in this Agreement, shall have been approved by the requisite affirmative
vote of the holders of Mercantile Bankshares Common Stock entitled to vote
thereon.
(b) NYSE LISTING. The shares of PNC Common Stock to be issued to the
holders of Mercantile Bankshares Common Stock upon consummation of the Merger
shall have been authorized for listing on the NYSE, subject to official notice
of issuance.
(c) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the Form S-4
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "INJUNCTION") preventing the consummation of the
Merger or any of the other transactions contemplated by this Agreement shall be
in effect. No statute, rule, regulation, order, Injunction
48
or decree shall have been enacted, entered, promulgated or enforced by any
Governmental Entity that prohibits or makes illegal consummation of the Merger.
7.2 CONDITIONS TO OBLIGATIONS OF PNC. The obligation of PNC to effect
the Merger is also subject to the satisfaction, or waiver by PNC, at or prior to
the Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Subject to the standard set forth
in Section 9.2, the representations and warranties of Mercantile Bankshares set
forth in this Agreement shall be true and correct as of the date of this
Agreement and as of the Effective Time as though made on and as of the Effective
Time (except that representations and warranties that by their terms speak
specifically as of the date of this Agreement or another date shall be true and
correct as of such date); and PNC shall have received a certificate signed on
behalf of Mercantile Bankshares by the Chief Executive Officer or the Chief
Financial Officer of Mercantile Bankshares to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF MERCANTILE BANKSHARES. Mercantile
Bankshares shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Effective
Time; and PNC shall have received a certificate signed on behalf of Mercantile
Bankshares by the Chief Executive Officer or the Chief Financial Officer of
Mercantile Bankshares to such effect.
(c) FEDERAL TAX OPINION. PNC shall have received the opinion of its
counsel, Wachtell, Lipton, Rosen & Katz, in form and substance reasonably
satisfactory to PNC, dated the Closing Date, substantially to the effect that,
on the basis of facts, representations and assumptions set forth in such opinion
that are consistent with the state of facts existing at the Effective Time, the
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code. In rendering such opinion, counsel may require and rely upon
customary representations contained in certificates of officers of Mercantile
Bankshares and PNC.
(d) REGULATORY APPROVALS. All PNC Requisite Regulatory Approvals shall
have been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired, and no such regulatory
approval shall have resulted in the imposition of any Materially Burdensome
Regulatory Condition. "PNC REQUISITE REGULATORY APPROVALS" shall mean the
approvals of (i) the Federal Reserve Board, (ii) the Bureau of Financial
Institutions of the Virginia State Corporation Commission, (iii) the
Commissioner of Financial Regulation of the Maryland Department of Labor,
Licensing and Regulation, and (iv) all Other Regulatory Approvals the failure of
which to obtain would result in a material adverse effect on the business,
results of operations or financial condition of PNC (measured on a scale
relative to Mercantile Bankshares and its Subsidiaries, taken as a whole).
7.3 CONDITIONS TO OBLIGATIONS OF MERCANTILE BANKSHARES. The obligation
of Mercantile Bankshares to effect the Merger is also subject to the
satisfaction or waiver by Mercantile Bankshares at or prior to the Effective
Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Subject to the standard set forth
in Section 9.2, the representations and warranties of PNC set forth in this
Agreement shall be true
49
and correct as of the date of this Agreement and as of the Effective Time as
though made on and as of the Effective Time (except that representations and
warranties that by their terms speak specifically as of the date of this
Agreement or another date shall be true and correct as of such date); and
Mercantile Bankshares shall have received a certificate signed on behalf of PNC
by the Chief Executive Officer or the Chief Financial Officer of PNC to the
foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF PNC. PNC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Mercantile Bankshares shall
have received a certificate signed on behalf of PNC by the Chief Executive
Officer or the Chief Financial Officer of PNC to such effect.
(c) FEDERAL TAX OPINION. Mercantile Bankshares shall have received the
opinion of its counsel, Davis Polk & Wardwell, in form and substance reasonably
satisfactory to Mercantile Bankshares, dated the Closing Date, substantially to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion that are consistent with the state of facts existing at
the Effective Time, the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code. In rendering such opinion, counsel may
require and rely upon customary representations contained in certificates of
officers of Mercantile Bankshares and PNC.
(d) REGULATORY APPROVALS. All PNC Requisite Regulatory Approvals shall
have been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Mercantile Bankshares or PNC:
(a) by mutual consent of Mercantile Bankshares and PNC in a written
instrument authorized by the boards of directors of Mercantile Bankshares and
PNC;
(b) by either Mercantile Bankshares or PNC, if any Governmental Entity
that must grant a PNC Requisite Regulatory Approval has denied approval of the
Merger and such denial has become final and nonappealable or any Governmental
Entity of competent jurisdiction shall have issued a final and nonappealable
order permanently enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement;
(c) by either Mercantile Bankshares or PNC, if the Merger shall not
have been consummated on or before the first anniversary of the date of this
Agreement unless the failure of the Closing to occur by such date shall be due
to the failure of the party seeking to terminate this Agreement to perform or
observe the covenants and agreements of such party set forth in this Agreement;
50
(d) by either PNC or Mercantile Bankshares (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein), if there shall have
been a breach of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the part of
Mercantile Bankshares, in the case of a termination by PNC, or PNC, in the case
of a termination by Mercantile Bankshares, which breach, either individually or
in the aggregate, would result in, if occurring or continuing on the Closing
Date, the failure of the conditions set forth in Section 7.2 or 7.3, as the case
may be, and which is not cured within 45 days following written notice to the
party committing such breach or by its nature or timing cannot be cured within
such time period;
(e) by PNC, if the Board of Directors of Mercantile Bankshares shall
have (i) failed to recommend in the Proxy Statement the approval and adoption of
this Agreement, (ii) in a manner adverse to PNC, (x) withdrawn, modified or
qualified, or proposed to withdraw, modify or qualify, the recommendation by
such Board of Directors of this Agreement and/or the Merger to Mercantile
Bankshares's stockholders, or (y) recommended any Alternative Proposal (or, in
the case of clause (ii), resolved to take any such action), whether or not
permitted by the terms hereof or (iii) intentionally breached its obligations
under Section 6.3 or 6.11 in any material respect; or
(f) by either PNC or Mercantile Bankshares, if the stockholders of
Mercantile Bankshares fail to approve this Agreement at the special meeting of
Mercantile Bankshares stockholders called for the purpose of obtaining the
requisite stockholder approval required in connection with the Merger or at any
adjournment or postponement thereof.
The party desiring to terminate this Agreement pursuant to clause (b),
(c), (d), (e) or (f) of this Section 8.1 shall give written notice of such
termination to the other party in accordance with Section 9.4, specifying the
provision or provisions hereof pursuant to which such termination is effected.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Mercantile Bankshares or PNC as provided in Section 8.1,
this Agreement shall forthwith become void and have no effect, and none of
Mercantile Bankshares, PNC, any of their respective Subsidiaries or any of the
officers or directors of any of them shall have any liability of any nature
whatsoever under this Agreement, or in connection with the transactions
contemplated by this Agreement, except that (i) Sections 6.2(b), 8.2, 8.3, 8.4,
9.3, 9.4, 9.6, 9.7, 9.8, 9.9 and 9.10 shall survive any termination of this
Agreement, and (ii) neither Mercantile Bankshares nor PNC shall be relieved or
released from any liabilities or damages (which the parties acknowledge and
agree shall not be limited to reimbursement of expenses or out-of-pocket costs,
and may include to the extent proven the benefit of the bargain lost by a
party's shareholders (taking into consideration relevant matters, including
other combination opportunities and the time value of money), which shall be
deemed in such event to be damages of such party) arising out of its willful
breach of any provision of this Agreement.
8.3 FEES AND EXPENSES. Except with respect to costs and expenses of
printing and mailing the Proxy Statement and all filing and other fees paid to
the SEC in connection with the Merger, which shall be borne equally by
Mercantile Bankshares and PNC, all fees and expenses incurred in connection with
the Merger, this Agreement, and the transactions
51
contemplated by this Agreement shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
8.4 TERMINATION FEE. (a) In the event that (i) a Pre-Termination
Takeover Proposal Event (as hereinafter defined) shall have occurred after the
date of this Agreement and thereafter this Agreement is terminated by either PNC
or Mercantile Bankshares pursuant to Section 8.1(c) or 8.1(f), and (ii) either
(A) prior to the date that is twelve (12) months after the date of such
termination Mercantile Bankshares consummates an Alternative Transaction,
Mercantile Bankshares shall, on the date an Alternative Transaction is
consummated, pay PNC a fee equal to $225 million by wire transfer of same day
funds, or (B) (1) prior to the date that is twelve (12) months after the date of
such termination Mercantile Bankshares enters into a definitive acquisition
agreement related to any Alternative Transaction ("ACQUISITION AGREEMENT"),
Mercantile Bankshares shall, on the date of entry into such Acquisition
Agreement, pay PNC a fee equal to $75 million by wire transfer of same day
funds, and (2) Mercantile Bankshares consummates an Alternative Transaction
within eighteen months of the date of termination with the Person or any
Affiliate of the Person party to such Acquisition Agreement, Mercantile
Bankshares shall, on the date an Alternative Transaction is consummated, pay PNC
a fee equal to $225 million by wire transfer of same day funds, less any fee
paid pursuant to the preceding clause (B)(1).
(b) In the event that this Agreement is terminated by PNC pursuant to
Section 8.1(e), then Mercantile Bankshares shall pay PNC a fee equal to $225
million by wire transfer of same day funds on the date of termination.
(c) For purposes of this Section 8.4, a "PRE-TERMINATION TAKEOVER
PROPOSAL EVENT" shall be deemed to occur if, prior to the event giving rise to
the right to terminate this Agreement, a bona fide Alternative Proposal shall
have been made known to Mercantile Bankshares or any of its Subsidiaries or has
been made directly to its stockholders generally or any person shall have
publicly announced an intention (whether or not conditional) to make an
Alternative Proposal (the term Alternative Transaction, as used in the
definition of Alternative Proposal for purposes of this Section 8.4, and as used
in this Section 8.4, shall have the same meaning set forth in Section 6.11
except that the references to "more than 25%" and "at least 75%" shall be deemed
to be references to "50% or more" and "a majority," respectively);
(d) Notwithstanding anything to the contrary herein, the maximum
aggregate amount of fees payable under this Section 8.4 shall be $225 million.
(e) Mercantile Bankshares acknowledges that the agreements contained
in this Section 8.4 are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, PNC would not enter into
this Agreement; accordingly, if Mercantile Bankshares fails promptly to pay the
amount due pursuant to this Section 8.4, and, in order to obtain such payment,
PNC commences a suit which results in a judgment against Mercantile Bankshares
for the fee set forth in this Section 8.4, Mercantile Bankshares shall pay to
PNC its costs and expenses (including attorneys' fees and expenses) in
connection with such suit.
8.5 AMENDMENT. This Agreement may be amended by the parties, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval
52
of the matters presented in connection with Merger by the stockholders of
Mercantile Bankshares; PROVIDED, HOWEVER, that after any approval of the
transactions contemplated by this Agreement by the stockholders of Mercantile
Bankshares, there may not be, without further approval of such stockholders, any
amendment of this Agreement that (a) alters or changes the amount or the form of
the consideration to be delivered under this Agreement to the holders of
Mercantile Bankshares Common Stock, (b) alters or changes any term of the
certificate of incorporation of the Surviving Corporation or (c) alters or
changes any of the terms and conditions of this Agreement if such alteration or
change would adversely affect the holders of any securities of Mercantile
Bankshares, in each case other than as contemplated by this Agreement. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
8.6 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties contained in this Agreement
or (c) waive compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 CLOSING. On the terms and subject to conditions set forth in
this Agreement, the closing of the Merger (the "CLOSING") shall take place at
10:00 a.m. on a date and at a place to be specified by the parties, which date
shall be no later than five business days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article VII (other than those conditions that by their nature are to be
satisfied or waived at the Closing), unless extended by mutual agreement of the
parties (the "CLOSING DATE"). If the conditions set forth in Article VII 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 fiscal quarter.
9.2 STANDARD. No representation or warranty of Mercantile Bankshares
contained in Article III or of PNC contained in Article IV shall be deemed
untrue or incorrect for any purpose under this Agreement, and no party hereto
shall be deemed to have breached a representation or warranty for any purpose
under this Agreement, in any case as a consequence of the existence or absence
of any fact, circumstance or event unless such fact, circumstance or event,
individually or when taken together with all other facts, circumstances or
events inconsistent with any representations or warranties contained in Article
III, in the case of Mercantile Bankshares, or Article IV, in the case of PNC,
has had or would be reasonably likely to have a Material Adverse Effect with
respect to Mercantile Bankshares or PNC, respectively
53
(disregarding for purposes of this Section 9.2 any materiality or Material
Adverse Effect qualification contained in any representations or warranties).
Notwithstanding the immediately preceding sentence, the representations and
warranties contained in (x) Section 3.2(a) shall be deemed untrue and incorrect
if not true and correct except to a de minimis extent (relative to Section
3.2(a) taken as a whole), (y) Sections 3.2(b), 3.3(a), 3.3(b)(i), 3.7 and 3.24,
in the case of Mercantile Bankshares, and Sections 4.3(a), 4.3(b)(i) and 4.7, in
the case of PNC, shall be deemed untrue and incorrect if not true and correct in
all material respects and (z) Section 3.8(a), in the case of Mercantile
Bankshares, and Section 4.8(a), in the case of PNC, shall be deemed untrue and
incorrect if not true and correct in all respects.
9.3 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of
the representations, warranties, covenants and agreements set forth in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for Section 6.7 and for those other covenants
and agreements contained in this Agreement that by their terms apply or are to
be performed in whole or in part after the Effective Time.
9.4 NOTICES. All notices and other communications in connection with
this Agreement shall be in writing and shall be deemed given if delivered
personally, sent via facsimile (with confirmation), mailed by registered or
certified mail (return receipt requested) or delivered by an express courier
(with confirmation) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to PNC, to:
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mergers & Acquisition Department
Telecopy No.: (412) 762-6238
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 W. 52nd Street, New York, New York 10019
Attention: Edward D. Herlihy
Nicholas G. Demmo
Facsimile: (212) 403-2000
and
(b) if to Mercantile Bankshares, to:
Mercantile Bankshares Corporation
2 Hopkins Plaza, 20th Floor
Baltimore, MD 21201
Attention: Gordon M Cooley, Deputy General Counsel
Facsimile No.: (410) 230-9236
54
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr.
John H. Butler
Facsimile: (212) 450-3800
9.5 INTERPRETATION. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to a Article
or Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The Mercantile Bankshares Disclosure Schedule
and the PNC Disclosure Schedule, as well as all other schedules and all exhibits
hereto, shall be deemed part of this Agreement and included in any reference to
this Agreement. This Agreement shall not be interpreted or construed to require
any person to take any action, or fail to take any action, if to do so would
violate any applicable law.
9.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the parties
and delivered to the other party, it being understood that each party need not
sign the same counterpart.
9.7 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to in this Agreement), together with the Confidentiality
Agreement, constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter of this Agreement, other than the Confidentiality Agreement.
9.8 GOVERNING LAW; JURISDICTION. This Agreement shall be governed and
construed in accordance with the internal laws of the State of New York
applicable to contracts made and wholly performed within such state, without
regard to any applicable conflicts of law principles, except to the extent that
the PBCL or the MGCL applies. The parties hereto agree that any suit, action or
proceeding brought by either party to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal court located in New York,
New York (or, to the extent that subject matter or personal jurisdiction does
not exist in any such federal court, then in any New York state court located in
New York County). Each of the parties hereto submits to the jurisdiction of any
such court in any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of, or in connection with, this Agreement
or the transactions contemplated hereby and hereby irrevocably waives the
benefit of jurisdiction derived from present or future domicile or otherwise in
such action or proceeding. Each party hereto irrevocably waives, to the fullest
extent permitted by law, any objection that it may now
55
or hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum.
9.9 PUBLICITY. Neither Mercantile Bankshares nor PNC shall, and
neither Mercantile Bankshares nor PNC shall permit any of its Subsidiaries to,
issue or cause the publication of any press release or other public announcement
with respect to, or otherwise make any public statement concerning, the
transactions contemplated by this Agreement without the prior consent (which
consent shall not be unreasonably withheld) of PNC, in the case of a proposed
announcement or statement by Mercantile Bankshares, or Mercantile Bankshares, in
the case of a proposed announcement or statement by PNC; PROVIDED, HOWEVER, that
either party may, without the prior consent of the other party (but after prior
consultation with the other party to the extent practicable under the
circumstances) issue or cause the publication of any press release or other
public announcement to the extent required by law or by the rules and
regulations of the Nasdaq or the NYSE, as applicable.
9.10 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned by either of the parties (whether by operation of law or otherwise)
without the prior written consent of the other party. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by each of the parties and their respective successors and assigns.
Except as otherwise specifically provided in Section 6.7, this Agreement
(including the documents and instruments referred to in this Agreement) is not
intended to and does not confer upon any person other than the parties hereto
any rights or remedies under this Agreement.
9.11 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with the terms hereof (and, more specifically, that irreparable
damage would likewise occur if the Merger was not consummated and the Company's
stockholders and holders of Company Stock Options and other equity-based awards
did not receive the aggregate Merger Consideration in accordance with the terms
but subject to the conditions of this Agreement), and, accordingly, that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement or to enforce specifically the performance of the terms and
provisions hereof (including the parties' obligation to consummate the Merger
and Parent's obligation to pay, and the Company's stockholders' and holders of
Company Stock Options' right to receive, the aggregate Merger Consideration
pursuant to the Merger, subject in each case to the terms and conditions of this
Agreement) in any federal court located in the State of New York (or, to the
extent that subject matter or personal jurisdiction does not exist in any such
federal court, then in any New York state court located in New York County), in
addition to any other remedy to which they are entitled at law or in equity.
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56
IN WITNESS WHEREOF, The PNC Financial Services Group, Inc. and
Mercantile Bankshares Corporation have caused this Agreement to be executed by
their respective officers thereunto duly authorized as of the date first above
written.
THE PNC FINANCIAL SERVICES GROUP, INC.
By: ________________________________
Name:
Title:
MERCANTILE BANKSHARES CORPORATION
By: ________________________________
Name:
Title:
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
EXHIBIT A
Form of Affiliate Letter
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be
an "affiliate" of Mercantile Bankshares Corporation, a Maryland corporation
("MERCANTILE BANKSHARES"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION") under
the Securities Act of 1933, as amended (the "ACT"). I have been further advised
that pursuant to the terms of the Agreement and Plan of Merger dated as of
October 8, 2006 (the "MERGER AGREEMENT"), by and between The PNC Financial
Services Group, Inc., a Pennsylvania corporation ("PNC"), and Mercantile
Bankshares shall be merged with and into PNC (the "MERGER"). All terms used in
this letter but not defined herein shall have the meanings ascribed thereto in
the Merger Agreement.
I represent, warrant and covenant to PNC that in the event I receive
any PNC Common Stock as a result of the Merger:
(a) I shall not make any sale, transfer or other disposition of PNC
Common Stock in violation of the Act or the Rules and Regulations.
(b) I have carefully read this letter and the Merger Agreement and
discussed its requirements and other applicable limitations upon my ability to
sell, transfer or otherwise dispose of PNC Common Stock to the extent I believed
necessary with my counsel or counsel for Mercantile Bankshares.
(c) I have been advised that the issuance of PNC Common Stock to me
pursuant to the Merger will be registered with the Commission under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger will be submitted for a vote of the stockholders of
Mercantile Bankshares I may be deemed to have been an affiliate of Mercantile
Bankshares and the distribution by me of PNC Common Stock has not been
registered under the Act, I may not sell, transfer or otherwise dispose of PNC
Common Stock issued to me in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Act, (ii) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of Rule
145 promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to PNC, such sale, transfer or other disposition
is otherwise exempt from registration under the Act.
(d) I understand that PNC is under no obligation to register the sale,
transfer or other disposition of PNC Common Stock by me or on my behalf under
the Act or to take any other action necessary in order to make compliance with
an exemption from such registration available.
A-1
(e) I also understand that stop transfer instructions will be given to
PNC's transfer agents with respect to PNC Common Stock and that there will be
placed on the certificates for PNC Common Stock issued to me, or any
substitutions therefor, a legend stating in substance:
"The securities represented by this certificate have been issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies and may only be sold or otherwise transferred in
compliance with the requirements of Rule 145 or pursuant to a
registration statement under said act or an exemption from such
registration."
(f) I also understand that unless the transfer by me of my PNC Common
Stock has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, PNC reserves the right to put the following legend on
the certificates issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 promulgated
under the Securities Act of 1933 applies. The shares have been
acquired by the holder not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities
Act of 1933 and may not be sold, pledged or otherwise transferred
except in accordance with an exemption from the registration
requirements of the Securities Act of 1933."
It is understood and agreed that the legends set forth above shall be
removed by delivery of substitute certificates without such legend, and/or the
issuance of a letter to PNC's transfer agent removing such stop transfer
instructions, and the above restrictions on sale will cease to apply, if (A) one
year (or such other period as may be required by Rule 145(d)(2) under the
Securities Act or any successor thereto) shall have elapsed from the Closing
Date and the provisions of such Rule are then available to me; or (B) if two
years (or such other period as may be required by Rule 145(d)(3) under the
Securities Act or any successor thereto) shall have elapsed from the Effective
Date and the provisions of such Rule are then available to me; or (C) I shall
have delivered to PNC (i) a copy of a letter from the staff of the Commission,
or an opinion of counsel in form and substance reasonably satisfactory to PNC,
or other evidence reasonably satisfactory to PNC, to the effect that such legend
and/or stop transfer instructions are not required for purposes of the
Securities Act or (ii) reasonably satisfactory evidence or representations that
the securities represented by such certificates are being or have been
transferred in a transaction made in conformity with the provisions of Rule 145
under the Securities Act or pursuant to an effective registration under the
Securities Act.
I recognize and agree that the foregoing provisions also apply to
(i) my spouse, (ii) any relative of mine or my spouse occupying my home, (iii)
any trust or estate in which I, my spouse or any such relative owns at least 10%
beneficial interest or of which any of us serves as trustee, executor or in any
similar capacity and (iv) any corporate or other organization in which
A-2
I, my spouse or any such relative owns at least 10% of any class of equity
securities or of the equity interest.
By its acceptance hereof, PNC agrees, for a period of two years after
the Effective Time that it, as the Surviving Corporation, will file on a timely
basis all reports required to be filed by it pursuant to Section 13 of the
Exchange Act, so that the public information provisions of Rule 144(c) under the
Securities Act are satisfied and the resale provisions of Rules 145(d)(1) and
(2) under the Securities Act are therefore available to the undersigned in the
event the undersigned desires to transfer any PNC Common Stock issued to the
undersigned in the Merger.
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Merger Agreement is terminated in
accordance with its terms.
Execution of this letter should not be construed as an admission on
my part that I am an "affiliate" of Mercantile Bankshares as described in the
first paragraph of this letter or as a waiver of any rights I may have to object
to any claim that I am such an affiliate on or after the date of this letter.
Very truly yours,
By: _________________________
Name:
Accepted this [___] day of
[__________], 2006
The PNC Financial Services Group, Inc.
By:________________________
Name:
Title:
A-3
EXHIBIT 99.3
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