===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
PNC Financial Services Group Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
JAMES E. ROHR
President and Chief Executive Officer
[LOGO OF PNC FINANCIAL SERVICES GROUP]
March 16, 2001
Dear Shareholder:
You will find enclosed the notice of meeting, proxy statement and
proxy card for the annual meeting of shareholders of The PNC
Financial Services Group, Inc., which will be held on Tuesday, April
24, 2001, at PNC Firstside Center, 500 First Avenue, in Pittsburgh,
Pennsylvania, beginning at 11:00 a.m. Our 2000 Annual Report to
Shareholders accompanies these enclosures.
Please review the enclosed material and complete, sign, date and
return the proxy card regardless of whether you plan to attend the
annual meeting, so that the matters coming before the meeting can be
acted upon.
We're looking forward to hosting the 2001 annual meeting at PNC
Firstside Center, our new, state-of-the-art operations center. PNC
Firstside Center is both a strategic investment and a commitment to
building shareholder and customer value through technology. We're
particularly proud that PNC Firstside Center is the nation's largest
building to receive the U.S. Green Building Council's "LEED"
certification (Leadership in Energy and Environmental Design).
Also a first this year, if you're not able to attend the annual
meeting in person you can choose to listen to the meeting by webcast
or telephone conference options, which are explained on the opposite
side of this letter. We've also included a map showing the location
of PNC Firstside Center.
We look forward to discussing the business of your company with you
at the annual meeting.
Cordially,
/s/ James E. Rohr
James E. Rohr
THE PNC FINANCIAL SERVICES GROUP
One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222-2707
LOCATION OF PNC FIRSTSIDE CENTER:
[MAP APPEARS HERE]
WEBCAST DIRECTIONS:
[TEXT TO COME]
TELEPHONE CONFERENCE DIRECTIONS:
[TEXT TO COME]
[LOGO OF PNC FINANCIAL SERVICES GROUP]
March 16, 2001
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 2001
To The Shareholders:
The annual meeting of the shareholders of The PNC Financial
Services Group, Inc. ("Corporation") will be held at PNC Firstside
Center, 500 First Avenue, Pittsburgh, Pennsylvania on Tuesday, April
24, 2001, beginning at 11:00 a.m., local time, for the purpose of
considering and acting upon the following matters:
(1) The election of 15 directors to serve until the next annual
meeting and until their successors are elected and qualified;
(2) A proposal to approve the amendment of the Corporation's
Articles of Incorporation to increase the number of authorized
shares of $5.00 par value common stock from 450,000,000 shares
to 800,000,000 shares;
(3) A proposal to reapprove certain elements of and approve
amendments to the Corporation's 1997 Long-Term Incentive Award
Plan;
(4) A proposal to reapprove certain elements of and approve
amendments to the Corporation's 1996 Executive Incentive Award
Plan; and
(5) Such other business as may properly come before the meeting or
any adjournment thereof.
Shareholders of record at the close of business on February 28,
2001 (except for holders of the Corporation's Fixed/Adjustable Rate
Noncumulative Preferred Stock, Series F) are entitled to receive
notice of, and to vote at, the meeting and any adjournment thereof.
A proxy statement, form of proxy and self-addressed envelope are
enclosed. Please complete, date and sign the proxy card. Return it
promptly in the envelope provided, which requires no postage if
mailed in the United States. If you attend the meeting, you may
withdraw your proxy and vote in person if you so choose.
By Order of the Board of Directors,
/s/ Thomas R. Moore
Thomas R. Moore
Corporate Secretary
THE PNC FINANCIAL SERVICES GROUP
One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222-2707
[LOGO OF PNC FINANCIAL SERVICES GROUP]
March 16, 2001
Proxy Statement
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
APRIL 24, 2001
The enclosed proxy is being solicited by the Board of Directors ("Board of
Directors" or "Board") of The PNC Financial Services Group, Inc.
("Corporation" or "PNC") for use at the Corporation's annual meeting of
shareholders to be held on April 24, 2001, or at any adjournment thereof
("meeting" or "annual meeting"). Solicitation of proxies may be made by mail,
personal interviews, telephone and facsimile by officers and employees of the
Corporation and its subsidiaries. The Corporation has retained D. F. King &
Co., Inc. to assist in the solicitation of proxies for a fee of $12,500 plus
out-of-pocket expenses. Brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward soliciting material to the beneficial
owners of the stock held of record by such persons. Expenses for such
solicitation will be borne by the Corporation. The proxy statement and form of
proxy are first being mailed to shareholders on or about March 16, 2001.
The enclosed proxy is revocable at any time prior to the time voting is
declared closed by the filing of an instrument revoking it, or of a duly
executed proxy bearing a later date, with the Corporate Secretary of the
Corporation or by attending the meeting and voting in person. All properly
executed proxies received by the Corporate Secretary prior to the time voting
is declared closed, and not revoked prior to that time, will be voted at the
meeting in accordance with instructions, if any. Unless otherwise directed,
proxies will be voted FOR the election as director of each of the persons
named on page 3; FOR the proposed amendment to the Corporation's Articles of
Incorporation; FOR the proposed reapproval of certain elements of and the
approval of proposed amendments to the Corporation's 1997 Long-Term Incentive
Award Plan; and FOR the proposed reapproval of certain elements of and the
approval of proposed amendments to the Corporation's 1996 Executive Incentive
Award Plan.
The Board of Directors has fixed the close of business on February 28, 2001
as the record date for determining shareholders entitled to receive notice of
and to vote at the meeting ("Record Date"). On the Record Date, there were
issued and outstanding 289,606,244 shares of the Corporation's common stock,
par value $5.00 per share ("Common Stock"), and the following shares of the
Corporation's preferred stock entitled to vote at the meeting: 10,814 shares
of $1.80 Cumulative Convertible Preferred Stock-Series A ("Preferred Stock-
A"); 3,024 shares of $1.80 Cumulative Convertible Preferred Stock-Series B
("Preferred Stock-B"); 222,748 shares of $1.60 Cumulative Convertible
Preferred Stock-Series C ("Preferred Stock-C"); and 314,477 shares of $1.80
Cumulative Convertible Preferred Stock-Series D ("Preferred Stock-D")
(collectively, "Voting Preferred Stock"). As of the Record Date, there were
6,000,000 shares of Fixed/Adjustable Rate Noncumulative Preferred Stock,
Series F ("Preferred Stock-F") issued and outstanding. Holders of Preferred
Stock-F have no voting rights except in limited circumstances which are not
anticipated to come before the annual meeting for a vote, and therefore are
not entitled to receive notice of the meeting.
The holders of Common Stock are entitled to one vote per share. Holders of
each share of Voting Preferred Stock are entitled to a number of votes equal
to the number of full shares of Common Stock which can be acquired upon
conversion of such preferred stock, with holders of Preferred Stock-A and
Preferred Stock-B being entitled to 8 votes per share and holders of Preferred
Stock-C and Preferred Stock-D being entitled to 4 votes per 2.4 shares.
Holders of record of the Common Stock and Voting Preferred Stock will vote
together as a single
1
class at the meeting, except as otherwise described in the section
captioned "Voting Procedures" beginning on page 37. The presence in person or
by proxy of shareholders entitled to cast at least a majority of the votes
that all holders of the Common Stock and the Voting Preferred Stock are
entitled to cast at the meeting will constitute a quorum for the transaction
of business at the meeting.
THE CORPORATION WILL PROVIDE, WITHOUT CHARGE TO EACH SHAREHOLDER UPON
WRITTEN REQUEST, A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2000, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC"). REQUESTS FOR COPIES SHOULD BE ADDRESSED TO DIRECTOR OF
FINANCIAL REPORTING, THE PNC FINANCIAL SERVICES GROUP, INC., ONE PNC PLAZA,
249 FIFTH AVENUE, PITTSBURGH, PENNSYLVANIA 15222-2707. REQUESTS MAY ALSO BE
DIRECTED TO (412) 762-1553 OR VIA E-MAIL TO FINANCIAL.REPORTING@PNC.COM.
COPIES MAY ALSO BE ACCESSED ELECTRONICALLY BY MEANS OF THE SEC'S HOME PAGE ON
THE INTERNET AT WWW.SEC.GOV. NEITHER THE ANNUAL REPORT ON FORM 10-K NOR THE
2000 ANNUAL REPORT TO SHAREHOLDERS IS PART OF THE PROXY SOLICITATION
MATERIALS.
ITEM 1
ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
The By-Laws of the Corporation provide that the number of directors shall
not be fewer than five nor more than 36 as from time to time determined by the
Board of Directors. Pursuant to the recommendation of its Committee on
Corporate Governance, the Board has acted to fix at 15 the number of directors
to be elected at the annual meeting and to nominate the persons named on page
3 for election as directors, to hold office until the next annual meeting of
shareholders and the election and qualification of their successors. Mr.
Jackson H. Randolph and Mr. Roderic H. Ross are both retiring from the Board
at the annual meeting due to their attainment of the Board-mandated retirement
age of 70.
The proxies solicited hereby, unless directed to the contrary therein,
will be voted FOR all nominees named on page 3. All such nominees are now
directors of the Corporation. All nominees have consented to being named in
this proxy statement and to serve if elected. The Board of Directors has no
reason to believe that any nominee will be unavailable or unable to serve as a
director, but if for any reason any nominee should not be available or able to
serve, the accompanying proxy will be voted by the persons acting under said
proxy in accordance with the recommendations of the Board of Directors.
The table on page 3 sets forth the names of the nominees for election as
directors of the Corporation; their principal occupations as of January 31,
2001; the years the nominees first became directors of the Corporation; and
their directorships of certain other companies. Except for Ms. Steffes, all
nominees have held the position indicated or another senior executive position
with the same entity or one of its affiliates or a predecessor corporation for
at least the past five years. Ms. Steffes was appointed a director of the
Corporation by the Board of Directors effective as of July 6, 2000, upon the
recommendation of the Committee on Corporate Governance. Ms. Steffes is vice
president software services and software group Pittsburgh site executive, IBM
Corporation. Ms. Steffes is responsible for managing all Pittsburgh site
operations and has worldwide responsibility for Application & Integration
Middleware Services. She served as president and chief executive officer of
Transarc Corporation, the predecessor of the Pittsburgh site software services
and software group, from 1997 to 1999. Ms. Steffes previously worked for two
years at Ameritech Corporation, where she most recently served as vice
president, technology planning and platform evolution. She also worked for
AT&T Corp. for 13 years, where she managed various product development, new
business opportunities and services functions.
2
Directorships in Companies
Other than the Corporation
Director Filing Reports with the
Name Age Principal Occupation Since SEC
---- --- -------------------- -------- --------------------------
Paul W. Chellgren 58 Chairman and Chief Executive 1995 Ashland Inc.; and Medtronic, Inc.
Officer of Ashland Inc. (energy
company)
Robert N. Clay 54 President and Chief Executive 1987 None
Officer of Clay Holding Company
(investments)
George A. Davidson, Jr. 62 Retired Chairman of Dominion 1988 B.F. Goodrich Company; and
Resources, Inc. (public utility Dominion Resources, Inc.
holding company)
David F. Girard-diCarlo 58 Co-Chairman and Managing Partner 1995 None
of Blank Rome Comisky & McCauley
LLP (law firm)
Walter E. Gregg, Jr. 59 Vice Chairman of the Corporation 1998 BlackRock, Inc.
William R. Johnson 51 Chairman, President and Chief 1997 Amerada Hess Corporation;
Executive Officer of H.J. Heinz Clorox Company; and
Company (food products company) H.J. Heinz Company
Bruce C. Lindsay 59 Chairman and Managing Director of 1995 None
Brind-Lindsay & Co., Inc.
(consulting company)
W. Craig McClelland 66 Retired Chairman and Chief 1985 Allegheny Technologies
Executive Officer of Union Camp Incorporated;
Corporation (paper manufacturing International Paper Co.; and
and land resources) Water Pik Technologies Inc
Thomas H. O'Brien 64 Chairman of the Corporation 1983 BlackRock, Inc.; Hilb, Rogal and
Hamilton Company; US Airways
Group, Inc.; Verizon
Communications, Inc.; and
Viasystems
Group, Inc.
Jane G. Pepper 55 President of Pennsylvania 1997 None
Horticultural Society
(nonprofit horticultural
membership organization)
James E. Rohr 52 President and Chief Executive 1989 Allegheny Technologies
Officer of the Corporation Incorporated;
BlackRock, Inc.; Equitable
Resources, Inc.; and
Water Pik Technologies Inc
Lorene K. Steffes 55 Vice President Software Services 2000 None
and Software Group Pittsburgh
Site Executive, IBM Corporation
(consulting and education and
training software services,
worldwide)
Thomas J. Usher 58 Chairman and Chief Executive 1992 H.J. Heinz Company; PPG
Officer of USX Corporation Industries, Inc.; and
(energy, steel and diversified USX Corporation
business)
Milton A. Washington 65 President and Chief Executive 1994 None
Officer of Allegheny Housing
Rehabilitation Corporation
(housing rehabilitation and
construction)
Helge H. Wehmeier 58 President and Chief Executive 1992 None
Officer of Bayer Corporation
(healthcare, life sciences and
chemicals)
3
BOARD AND COMMITTEES
The Board of Directors has six standing committees: an Audit Committee; a
Committee on Corporate Governance; a Credit Committee; an Executive Committee;
a Finance Committee; and a Personnel and Compensation Committee. The Chairman
of each standing committee is authorized to appoint one or more subcommittees,
as he or she may deem necessary or advisable in connection with the proper
functioning of the standing committee. A subcommittee consists of one or more
committee members selected by the committee chairman; under certain
circumstances, a subcommittee member's attendance at a subcommittee meeting
will excuse him or her from attending the next regularly scheduled committee
meeting.
The Audit Committee's purpose and responsibilities are set forth in the
Committee's Charter, which was adopted by the Board of Directors and is
included as an Exhibit to this proxy statement. The Committee is presently
composed of Ms. Pepper and Messrs. Wehmeier (Chairman), Girard-diCarlo,
Lindsay and Randolph. Each Audit Committee member is independent, as defined
in the New York Stock Exchange listing standards.
The Committee on Corporate Governance is responsible for recommending to the
Board of Directors persons to be nominated for election or appointment as
directors of the Corporation and assisting the Board in promoting the best
interests of the Corporation and its shareholders through the implementation
of sound corporate governance principles and practices. In performing its
nominating function, the Committee may consider director nominees recommended
by shareholders. Such recommendations with respect to the 2002 annual meeting
of shareholders must be submitted in writing no later than November 16, 2001
to the Corporate Secretary, The PNC Financial Services Group, Inc., One PNC
Plaza--21st Floor, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707, and
include the name, age, citizenship, business and residence addresses,
qualifications, including principal occupation or employment, and
directorships and other positions held by the proposed nominee in business,
charitable, and community organizations. For information on the requirements
governing shareholder nominations for the election of directors to be made at
an annual meeting of shareholders, please see the section captioned
"Shareholder Proposals and Nominations" beginning on page 39. The Committee is
presently composed of Ms. Pepper and Messrs. Davidson (Chairman), Randolph,
Ross, Usher and Wehmeier.
The Credit Committee provides oversight for the credit-related activities
of the Corporation and its subsidiaries. The Committee is presently composed
of Messrs. McClelland (Chairman), Davidson, Girard-diCarlo, Rohr, Ross and
Washington.
The Executive Committee has all the powers of the Board of Directors to the
extent permitted by law and can exercise such powers between meetings of the
Board of Directors. The Committee is presently composed of Messrs. O'Brien
(Chairman), Chellgren, Davidson, Gregg, McClelland, Rohr, Usher and Wehmeier.
The Finance Committee provides oversight for the Corporation's interest
rate and liquidity risks. The Committee also provides oversight for the
Corporation's capital management activities and trading activities, including
related market risk management policies and risk limits. The Committee also
provides oversight for the fiduciary activities of the Corporation's
subsidiaries and the activities of the Corporation's Pension Plan Committee,
Retirement Savings Plan Committee and the Incentive Savings Plan Committee.
The Committee is presently composed of Messrs. Chellgren (Chairman), Clay,
Gregg, Lindsay, and O'Brien.
The Personnel and Compensation Committee is responsible for recommending
to the Board of Directors the persons to be elected as Chairman, Chief
Executive Officer, President, and Vice Chairman of the Corporation and
providing oversight for the Corporation's executive compensation program as
described in the Committee's report beginning on page 11. The Committee also
makes recommendations to the Board of Directors or otherwise takes action
regarding the adoption or amendment of employee benefit, bonus, incentive
compensation or similar plans. The Committee is presently composed of Messrs.
Usher (Chairman), Chellgren, Clay, Johnson, McClelland and Washington.
The Board of Directors met eight times during 2000. During 2000, the Board's
committees held the following number of meetings: Audit Committee--five
meetings; Committee on Corporate Governance--three meetings;
4
Credit Committee--four meetings; Executive Committee--two meetings; Finance
Committee--four meetings; and Personnel and Compensation Committee--five
meetings. In 2000, each director then serving attended at least 75% of the
total meetings of the Board of Directors. In addition, each director attended
at least 75% of the total meetings of each committee of the Board on which
such director served and at least 75% of the combined total of Board and such
committee meetings, except for Mr. Johnson. Mr. Johnson attended three
meetings of the Personnel and Compensation Committee and one meeting of a
subcommittee of that committee. He missed one committee meeting at which his
attendance was required.
Compensation of Directors
Executive officers of the Corporation who are employees and directors or
members of committees of the Board of Directors of the Corporation or its
subsidiaries receive no compensation for serving in such positions. All non-
employee directors of the Corporation are compensated for their Board services
by a per diem fee of $1,200 for any day's participation in a Board or
committee meeting, or any combination thereof, an annual retainer fee of
$37,000 for Board membership and, in accordance with the terms of the
Corporation's 1992 Director Share Incentive Plan ("Director Share Plan"), an
annual grant equal to a number of shares of Common Stock having a fair market
value on the date of the award equal to $5,000, rounded up to the nearest
whole share. In addition, the chairman of each standing committee receives a
$5,000 annual retainer fee.
Under the terms of the Directors Deferred Compensation Plan, non-employee
directors may elect to defer the receipt of all or a portion of the cash
compensation otherwise payable to them as a result of their service as a
director. The minimum deferral amount is $10,000 per year. A director may
elect one of two investment options with respect to amounts deferred: an
interest rate alternative or an investment in phantom shares of Common Stock.
Investment elections may be changed quarterly. A director may also elect the
event or date when amounts credited to his or her account are paid out and
whether the payout will be in a lump sum or a designated number of annual
installments not to exceed ten. The director may designate a beneficiary to
receive any amounts that may not yet have been paid at the time of the
director's death.
Under the PNC Outside Directors Deferred Stock Unit Plan, each non-employee
director may receive a grant of deferred stock units in an amount determined
by the Committee on Corporate Governance, which is generally responsible for
administration of the plan. A deferred stock unit is a phantom share of Common
Stock. Prior to a director's retirement, the value of deferred stock units
credited to a director's account will track the performance of the Common
Stock and will be valued on a quarterly basis. The plan provides for the
deemed reinvestment of dividends in additional deferred stock units. Each
director has the right to elect an event or date when the deferred stock units
credited to his or her account will be redeemed and paid out in cash. That
event or date generally cannot precede the earlier of the director's
retirement from the Board or the date on which the director attains age 70. A
director may elect to receive payment in a lump sum or a designated number of
annual installments not to exceed ten. A director may also designate one or
more beneficiaries to receive distributions from his or her account in the
event of death.
In November 1999, the Committee on Corporate Governance approved an annual
grant of deferred stock units having a value of $35,000 to each non-employee
director's plan account; the first such grants were made on January 3, 2000.
On January 4, 2001, a $35,000 grant of deferred stock units was made only to
Messrs. Randolph and Ross, both of whom are retiring from the Board as of
April 24, 2001. The Committee on Corporate Governance had previously cancelled
the scheduled 2001 annual grants to the other non-employee directors pending
shareholder consideration at the annual meeting of proposed amendments to the
Corporation's 1997 Long-Term Incentive Award Plan. Those amendments, which are
discussed beginning on page 26, would, among other things, add non-employee
directors as eligible participants in the plan. Assuming shareholder approval
of the proposed plan amendments, the Committee on Corporate Governance
currently intends to make grants of nonstatutory stock options and other
stock-based awards to non-employee directors during 2001 as part of their
total compensation package. The size of such grants will be determined by the
Committee after receiving guidance from an independent compensation
consultant. If shareholders do not approve the proposed amendments to the 1997
Long-Term Incentive Award Plan, the Committee on Corporate Governance will
consider all available compensation alternatives in order to maintain the
competitiveness of the total
5
compensation package of non-employee directors. Such alternatives would
include additional grants under the PNC Outside Directors Deferred Stock Unit
Plan.
The Committee on Corporate Governance currently intends that grants and
awards made under the amended 1997 Long-Term Incentive Award Plan to non-
employee directors will be made in lieu of future grants of deferred stock
units under the PNC Outside Directors Deferred Stock Unit Plan. Nevertheless,
regardless of whether the proposed amendments to the 1997 Long-Term Incentive
Award Plan are approved, the PNC Outside Directors Deferred Stock Unit Plan
will remain in existence, deferred stock units previously credited to a non-
employee director's account will remain vested, and deemed dividends will
continue to be credited to those accounts in the form of additional deferred
stock units. In addition, the Committee on Corporate Governance will continue
to have the authority to make grants of deferred stock units to current and
future non-employee directors.
Each non-employee director is also eligible to participate in a
charitable matching gift program, under which his or her personal gifts to
qualifying charitable organizations are matched up to an annual aggregate
dollar amount of $5,000.
Mr. O'Brien, who serves as the Chairman of the Corporation's Board of
Directors, retired as an employee of the Corporation on April 30, 2000 and
relinquished the position of Chief Executive Officer. Following his
retirement, he entered into a consulting agreement with the Corporation,
subject to approval by the Board's Personnel and Compensation Committee. The
Personnel and Compensation Committee granted such approval at the Committee's
meeting held on July 6, 2000. The term of this consulting arrangement began on
May 1, 2000 and ends on April 30, 2001. Either Mr. O'Brien or the Corporation
may terminate the consulting arrangement at any time by providing at least
thirty days written notice. Under the arrangement, Mr. O'Brien has agreed to
provide consultation with the Corporation's Chief Executive Officer from time
to time, assistance and support in acquisition and divestiture planning, and
assistance in establishing and maintaining customer relationships and PNC's
corporate presence in the communities served by the Corporation. Mr. O'Brien's
services may also be requested for other projects from time to time. The
Corporation provides Mr. O'Brien with office space and secretarial services in
the principal executive offices of the Corporation for his use in performing
these consulting services and reimburses his expenses incurred under the
arrangement. As compensation for Mr. O'Brien's availability and for all
services he provides in a given month, the Corporation has agreed to pay Mr.
O'Brien a flat fee of $45,000 per month. During 2000, PNC paid Mr. O'Brien
$360,000 pursuant to the consulting agreement.
For services provided on or after May 1, 2000 as a member of the
Corporation's Board of Directors, Mr. O'Brien is compensated on the same basis
as other non-employee directors. On May 1, 2000 an account was established for
Mr. O'Brien under the PNC Outside Directors Deferred Stock Unit Plan and
deferred stock units having an aggregate dollar value of $23,493 were credited
to his account, pursuant to an award approved in advance by the Committee on
Corporate Governance. In addition, during 2000 Mr. O'Brien received
compensation as a director of BlackRock, Inc. ("BlackRock"), a majority-owned
investment management subsidiary of the Corporation that is listed on the New
York Stock Exchange under the symbol "BLK." Mr. O'Brien elected to receive
shares of BlackRock, Inc.'s class A common stock and cash in lieu of
fractional shares having an aggregate value of $25,000 in lieu of the cash
retainer otherwise payable to him. The value of the BlackRock, Inc. stock
received by Mr. O'Brien reflects a pro-rata reduction of the current $50,000
full-year retainer paid by BlackRock, Inc. to its outside directors. Finally,
during 2000 Mr. O'Brien received $30,000 for his services as a director of PNC
Equity Management Corp., an indirect, wholly-owned subsidiary of the
Corporation.
COMMON STOCK PURCHASE GUIDELINE
In 1995, upon the recommendation of the Committee on Corporate
Governance, the Board of Directors adopted a Common Stock purchase guideline,
which provides that each non-employee director annually purchase Common Stock
in an amount equal to twenty-five percent of the annual retainer fee then in
effect. This guideline may be satisfied through open market purchases,
participation in the Corporation's Dividend Reinvestment and Stock Purchase
Plan, or investments in phantom shares of Common Stock in the Directors
Deferred Compensation Plan. During 2000, each non-employee director complied
with this guideline.
6
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The table below captioned "Security Ownership of Directors, Nominees and
Executive Officers" sets forth information concerning beneficial ownership of
the Corporation's Common Stock as of January 31, 2001 by each director and
nominee for election as a director, each of the executive officers named in
the Summary Compensation Table on page 18, and all directors, nominees and
executive officers of the Corporation as a group. Except as otherwise noted,
each individual exercises sole voting and investment power over the shares of
Common Stock shown. The separate table captioned "Common Stock Unit Ownership"
shows phantom or deferred Common Stock units owned by the individual or group
through the compensation or benefit plan identified in the corresponding
footnote. The Common Stock units can be settled only in cash. The number of
shares of Common Stock shown in the Security Ownership Table as beneficially
owned by each director and executive officer is determined under the rules of
the SEC and the information is not necessarily indicative of beneficial
ownership for any other purpose. For purposes of the Security Ownership Table,
beneficial ownership includes any shares of Common Stock as to which the
individual has sole or shared voting power or investment power and also any
shares of Common Stock that the individual has the right to acquire within 60
days of January 31, 2001 through the exercise of any option, warrant or right.
Security Ownership of Directors, Nominees and Executive
Officers
Amount and Nature
of Beneficial Ownership
-----------------------------------------------------------------------------------------------------------------------------
Common Stock Unit
Name Common Stock* Ownership
-----------------------------------------------------------------------------------------------------------------------------
Paul W. Chellgren 6,125(/1/) 9,219(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
Robert N. Clay 4,216(/1/) 7,660(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
George A. Davidson, Jr. 9,894 5,526(a)
-----------------------------------------------------------------------------------------------------------------------------
David F. Girard-diCarlo 3,688(/2/) 2,982(a)
-----------------------------------------------------------------------------------------------------------------------------
Walter E. Gregg, Jr. 283,749(/3/)(/4/) 20,702(c)
-----------------------------------------------------------------------------------------------------------------------------
Joseph C. Guyaux 135,184(/3/)(/4/)(/5/) 209(c)
-----------------------------------------------------------------------------------------------------------------------------
William R. Johnson 375(/2/) 4,350(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
Bruce C. Lindsay 5,444 4,025(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
W. Craig McClelland 5,218(/2/) 7,711(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
Ralph S. Michael III 174,979(/6/)(/7/) 2,744
-----------------------------------------------------------------------------------------------------------------------------
Jane G. Pepper 1,375 2,960(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
Thomas H. O'Brien 777,833(/3/)(/4/)(/8/) 34,268(c)
-----------------------------------------------------------------------------------------------------------------------------
Jackson H. Randolph 12,337 7,575(a)
-----------------------------------------------------------------------------------------------------------------------------
James E. Rohr 557,454(/3/)(/4/)(/9/) 27,760(c)
-----------------------------------------------------------------------------------------------------------------------------
Roderic H. Ross 7,642 7,575(a)
-----------------------------------------------------------------------------------------------------------------------------
Lorene K. Steffes 171 467
-----------------------------------------------------------------------------------------------------------------------------
Thomas J. Usher 5,667 4,693(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
Milton A. Washington 20,155 7,575(a)
-----------------------------------------------------------------------------------------------------------------------------
Helge H. Wehmeier 4,891 4,937(a)(b)
-----------------------------------------------------------------------------------------------------------------------------
Thomas K. Whitford 112,392(/2/)(/3/)(/4/) 8,887(c)(d)
-----------------------------------------------------------------------------------------------------------------------------
Directors, nominees and executive officers
as a group (24 persons)*/** 2,427,654(/1/)(/2/)(/3/)(/4/)(/5/)(/6/)(/7/)(/8/)(/9/) 175,500(a)(b)(c)(d)
* As of January 31, 2001, there were 290,010,358 shares of the Corporation's
Common Stock issued and outstanding. The number of shares of Common Stock
held by each individual is less than 1% of the outstanding shares of
Common Stock; the total number of shares of Common Stock held by the group
is also less than 1% of the class. No director, nominee or executive
officer owns shares of preferred stock of the Corporation. These
percentages were calculated by adding shares subject to employee stock
options to the foregoing number if the options were either exercisable as
of January 31, 2001 or exercisable within 60 days of that date.
** Certain of the directors and executive officers also own shares of
BlackRock's class A common stock. The number of such shares beneficially
owned by individuals listed in the Security Ownership Table are as
follows: Ms. Pepper (1,000) and Messrs. Clay (10,000); Davidson (10,000);
Girard-diCarlo (5,000); Gregg (10,000); Lindsay (7,500); O'Brien (11,118);
Randolph (6,500); Rohr (10,000); Ross (1,000); Usher (5,376); Washington
(10,000); and Wehmeier (8,571). The total number of such shares owned by
directors and executive officers as a group (15 persons) is 111,065. The
number of shares of BlackRock class A common stock held by each individual
is less than 1% of the outstanding shares as of January 31, 2001; the
total number of such shares held by the group is approximately 1.09% of
the class.
(1) Includes shares held in the PNC Bank Kentucky, Inc. Directors Deferred
Compensation Plan.
(2) Includes shares held jointly with spouse.
(3) Includes shares held in the Corporation's Incentive Savings Plan, a
qualified employee defined benefit contribution plan.
(4) Includes shares subject to employee stock options held by Mr. O'Brien and
the executive officers and either exercisable as of January 31, 2001 or
exercisable within 60 days of that date. The shares subject to such
options are as follows: Messrs. O'Brien (285,250 shares); Rohr (358,279
shares); Gregg (227,565 shares); Guyaux (87,619 shares); Michael (69,383);
and Whitford (67,538 shares). The aggregate number of shares subject to
such options for the remaining four executive officers is 201,987.
(5) Includes 14 shares held indirectly as custodian for grandchild.
(6) Includes 9,407 shares owned by spouse, as to which the individual
disclaims beneficial ownership.
(7) Includes 158 shares beneficially owned by son, as to which the individual
disclaims beneficial ownership.
(8) Includes 1,000 shares owned by spouse, as to which the individual
disclaims beneficial ownership.
(9) Includes 379 shares held indirectly as custodian for daughter.
COMMON STOCK UNIT OWNERSHIP TABLE FOOTNOTES
(a) Includes deferred Common Stock units credited to an account established
under the Corporation's Outside Directors Deferred Stock Unit Plan.
(b) Includes phantom Common Stock units credited to an account established
under the Corporation's Directors Deferred Compensation Plan.
(c) Includes phantom Common Stock units held in the Corporation's Supplemental
Incentive Savings Plan, a non-qualified excess defined contribution plan.
(d) Includes phantom Common Stock units credited to an account established
under the Corporation's Deferred Compensation Plan.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of February 28, 2001, based solely on Schedules 13G filed with the SEC
under the Securities Exchange Act of 1934 ("Exchange Act"), the following
persons are known by the Corporation to be the beneficial holders of more than
five percent of the Corporation's Common Stock. The numbers shown in the table
represent holdings as of December 31, 2000 and should be interpreted in light
of the related footnotes.
Amount and Nature Percent of
Name and Address of Beneficial Owner of Beneficial Ownership Class
------------------------------------ ----------------------- -----------
FMR Corp.(/1/) 19,084,504(/2/) 6.603%(/2/)
Fidelity Management & Research Company
Fidelity Management Trust Company
Strategic Advisers, Inc.
82 Devonshire Street
Boston, Massachusetts 02109
Fidelity International Limited(/1/) (/2/) (/2/)
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda
--------
(1) The shares reported by FMR Corp. relate to those attributable to the
following wholly-owned subsidiaries of FMR Corp.: (i) Fidelity Management
& Research Company ("Fidelity Research"), an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940; (ii) Fidelity
Management Trust Company ("Fidelity Trust"), a bank as defined in Section
3(a)(6) of the Exchange Act; and (iii) Strategic Advisers, Inc.
("Strategic Advisers"), an investment adviser registered under Section 203
of the Investment Advisers Act of 1940.
Fidelity International Limited ("FIL"), a Bermudan joint stock company and
an investment adviser to various investment companies and certain
institutional investors, is an entity which FMR Corp. asserts currently
operates independently of FMR Corp. and Fidelity Research. FMR Corp. and
FIL disclaim that they act as a "group" for purposes of Section 13(d) of
the Exchange Act or that the shares of the Common Stock held by the other
company need be aggregated for purposes of Section 13(d). FMR Corp.,
however, made its filing on a voluntary basis as if all of the shares of
Common Stock held by FIL are beneficially owned by FMR Corp. and FIL on a
joint basis.
(2) FMR Corp. reports sole voting power as to 2,065,694 shares of Common Stock
and sole dispositive power as to 19,804,504 shares. These shares do not
include shares owned directly by the Fidelity Funds and which Fidelity
Research votes under written guidelines established by the Funds' Boards
of Trustees, but do include 16,717,610 shares as to which Fidelity
Research reports sole dispositive power. Fidelity Trust has sole
dispositive power over 2,024,794 shares and sole voting power over
1,723,594 shares and these shares are included in the shares reported by
FMR Corp. FMR Corp.'s beneficial ownership may include shares beneficially
owned through Strategic Advisers. FIL is the beneficial owner of 342,100
shares of Common Stock.
TRANSACTIONS INVOLVING DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Certain directors, nominees and/or their associates were customers of and
had transactions with the Corporation or its subsidiaries ("Company") during
2000. Transactions that involved loans or commitments by subsidiary banks were
made in the ordinary course of business and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
9
Since the beginning of 2000, the Corporation has advanced expenses in the
net amount of approximately $128,200 on behalf of Thomas H. O'Brien, Chairman
of the Corporation, in connection with legal proceedings and claims against him
on account of his service as a former trustee of Allegheny Health Education and
Research Foundation, a non-profit entity which with certain affiliates was a
customer of the Company. The Corporation expects to advance additional amounts
in the future.
Blank Rome Comisky & McCauley LLP, the law firm for which Mr. Girard-
diCarlo serves as Co-Chairman and Managing Partner, provided legal services to
the Company during 2000 and is providing similar services during 2001.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's directors,
its executive officers, and persons who own more than ten percent of a
registered class of the Corporation's equity securities (currently there are no
such shareholders) to file with the Corporation, the SEC and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of
any equity securities of the Corporation. With respect to 2000, to the best of
the Corporation's knowledge, all required report forms were filed on a timely
basis. In making this statement, the Corporation has relied in part on the
written representations of its directors and certain of its current and former
executive officers, and copies of the reports provided to the Corporation.
10
COMPENSATION OF EXECUTIVE OFFICERS
PERSONNEL AND COMPENSATION COMMITTEE REPORT
The following is the Personnel and Compensation Committee's report to
shareholders on the Corporation's executive compensation policies with respect
to compensation reported for fiscal year 2000. In accordance with the rules of
the SEC, this report shall not be incorporated by reference into any of the
Corporation's future filings made under the Securities Exchange Act of 1934 or
under the Securities Act of 1933, and shall not be deemed to be soliciting
material or to be filed with the SEC under the Securities Exchange Act of 1934
or the Securities Act of 1933.
PERSONNEL AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION FOR
FISCAL YEAR 2000
INTRODUCTION
The Personnel and Compensation Committee of The PNC Financial Services
Group, Inc. Board of Directors is composed solely of non-employee directors. No
Committee member can be a current or former officer of the Corporation.
One of the Committee's key responsibilities is to provide oversight for
the Corporation's executive compensation program. The Committee conducts
regular, comprehensive reviews of the Corporation's executive compensation
program and establishes the annual compensation of the Corporation's executive
officers. The Committee also takes action, or recommends that the Board take
action, regarding the adoption, amendment, or administration of executive
compensation or benefit plans.
The Corporation's executive compensation program is designed to: attract,
motivate and retain executive officers who can make significant contributions
to the Corporation's long-term success; align the interests of executive
officers with those of shareholders; and place a significant proportion of our
executive officers' total compensation at risk by tying it to the Corporation's
financial and common stock price performance.
The Committee is assisted by both an independent compensation consultant
retained by the Committee and the Corporation's internal support staffs. The
Committee also uses comparative compensation data for the financial services
industry and key management positions obtained from nationally recognized
compensation consulting firms.
This compensation data covers a Peer Group of selected financial services
organizations that compete with the Corporation. The Committee considers the
organizations included in the Peer Group to be indicative of the Corporation's
financial services competitors in terms of size and mix of businesses. The
appropriateness of the Peer Group's composition is reviewed and approved by the
Committee at least annually.
The Committee uses the Peer Group as its primary tool to compare
performance and compensation when making key compensation-related decisions.
The institutions included in the Peer Group do not necessarily include the same
institutions included in the S&P Major Regional Banks Index used for the Common
Stock Performance Graph on page 25. The Common Stock Performance Graph,
however, also shows the median total shareholder return for the Peer Group
members listed in the footnote to the graph.
The three primary components of the Corporation's executive compensation
program are: base salary; annual incentive awards; and long-term incentive
awards. The following three sections of this report discuss each of these
components in turn.
11
BASE SALARY
The base salaries of executive officers are generally targeted at the
middle of the competitive marketplace. The Corporation's human resources staff
determines the market rate for an executive position annually. In making this
determination, the human resources staff considers a number of factors,
including: relevant industry salary practices; the position's complexity and
level of responsibility; the position's importance to the Corporation in
relation to other executive positions; and the competitiveness of an
executive's total compensation.
Specific compensation data obtained from Peer Group proxy statements is
used in establishing the salaries of the Corporation's Chief Executive Officer
and Vice Chairman.
Subject to the Committee's approval, the level of an executive officer's
base salary is determined on the basis of relevant comparative compensation
data and the Chief Executive Officer's assessment of the executive's
performance, experience, demonstrated leadership, job knowledge and management
skills.
ANNUAL INCENTIVE AWARDS
Annual incentive awards are cash bonuses designed to provide a linkage
among executive performance, annual objective performance measures and long-
term increases in shareholder value.
For the 2000 award period, annual incentive awards were made to Mr. Rohr
and the other four executive officers listed in the compensation tables
beginning on page 18 under the Corporation's 1996 Executive Incentive Award
Plan. The shareholders are being asked to reapprove certain elements of and
approve amendments to this plan at the annual meeting as discussed beginning on
page 33 of this proxy statement. The Committee has reviewed the proposal and
recommended that the Board submit it to shareholders with a recommendation
for approval.
The Executive Incentive Award Plan is designed to give the Committee the
flexibility to make annual incentive awards that are comparable to those found
in the marketplace in which the Corporation competes for executive talent. This
plan is also designed to permit the payment of annual incentive awards that are
intended to qualify as deductible, performance-based compensation under Section
162(m) of the Internal Revenue Code.
For 2000, the five participants in this plan share in a compensation pool
equal to one-half of one percent of the Corporation's 2000 consolidated pre-tax
net income. This amount is determined in accordance with generally accepted
accounting principles, after adjustment to exclude or include for unusual,
infrequently occurring or extraordinary items or cumulative effects of changes
in accounting principles, as defined under generally accepted accounting
principles.
During the first quarter of 2000, the Committee assigned incentive award
amounts. An incentive award amount is the maximum percentage of the
compensation pool a participant could receive for the 2000 award period. As the
plan is now written, no participant can be assigned a percentage of the
compensation pool greater than 35% and the sum of all percentages assigned
cannot exceed 100% of the compensation pool.
During the first quarter of 2001, the Committee took the actions necessary
to arrive at the amount of the annual incentive award for each of the five Plan
participants. Among other things, the Committee: confirmed the identity of the
executive officers eligible to participate in the plan; certified in writing
the size of the compensation pool for the 2000 award period, in reliance upon
financial information supplied by the Corporation's officers; and certified in
writing the amount of the authorized incentive award to be paid to each
participant. The final amount of an incentive award is determined by the
maximum percentage of the compensation pool which could be paid to the
participant and such qualitative and quantitative performance factors as the
Committee deemed relevant in adjusting the incentive award payable to the level
shown in the Summary Compensable Table on page 18 in the column captioned
"Bonus ($)" for the year 2000, for Messrs. Rohr, Gregg, Guyaux, Whitford and
Michael.
12
For those executive officers who do not participate in the Executive
Incentive Award Plan, the target amount payable as an annual incentive award is
based on an analysis of competitive Peer Group pay practices and is expressed
as a percentage of base salary.
When the Committee established the 2000 target annual incentive awards,
the Committee assumed that the 2000 target performance goal would be achieved.
Achievement of that goal would result in approximately median total cash
compensation.
There are a number of factors that can affect the amount of an executive
officer's incentive award payment, including:
. "EPS Goal"--This goal is based on the Corporation's earnings per share
in relation to the Corporation's budget. Management established, subject
to Committee approval, the target EPS Goal for 2000;
. "Relative Goals"--These goals are based primarily on the Corporation's
return on average common shareholders' equity relative to the Peer Group,
with additional consideration given to the Corporation's relative return
on average assets. Assuming that the EPS Goal for the year is met or
exceeded, which was the case for 2000, the Committee believes that the
Corporation's relative return on average common shareholders' equity
should be the primary measure used in determining the size of the annual
incentive award granted to the Corporation's Chief Executive Officer and
other executive officers;
. Business financial performance relative to that business's budget is also
considered;
. The Chief Executive Officer's assessment of an executive officer's
performance is also a factor; and
. The Committee may exercise its discretion to increase, reduce or
eliminate an executive officer's award, based on its assessment of the
officer's performance.
LONG-TERM INCENTIVE AWARDS
Stock option grants, incentive share awards and other stock-based grants
and awards are made under the Corporation's 1997 Long-Term Incentive Award
Plan. Shareholders are being asked to reapprove certain elements of and approve
amendments to the Long-Term Incentive Award Plan at the 2001 annual meeting, as
discussed beginning on page 26 of this proxy statement. The Committee has
reviewed the proposal and recommended to the Board that it be submitted to
shareholders with a recommendation for approval. The purposes of the Long-Term
Incentive Award Plan are to attract, retain and motivate executives of
outstanding ability and to promote the linkage of their interests with those of
the Corporation's shareholders.
The number of stock options granted by the Committee to executive officers
is determined as follows. A number of stock options is established that would
position the executive officer competitively relative to the Peer Group in
terms of long-term compensation. This number is called the base-line amount and
is used as a reference point for upward and downward adjustments to the stock
option grant level. The base-line amount is adjusted periodically in order to
maintain the Corporation's competitiveness in long-term compensation.
Each year, the Committee may adjust the stock option grant level upward or
downward from the base-line amount. This adjustment is based on the
Corporation's total shareholder return in comparison with the Peer Group. If
the Corporation's total shareholder return is significantly higher or lower
than the Peer Group's median return, the number of options granted will be
adjusted above or below the base-line amount.
The Corporation's total shareholder return is based on its common stock
appreciation and dividend payments for the three most recent years. For
example, the 2000 option grants were based on common stock appreciation and
dividend payments for the period 1997 through 1999. The base-line amount for
the 2000 grants was increased by 5% from the target level established for the
1999 grants.
13
The Committee has consistently attempted to maintain the long-term
compensation of executive officers at a level which is competitive in terms of
the mix of awards and its potential value. The Committee reviews data on
competitive trends in long-term compensation at regular intervals. In January
2000, the Committee asked the Corporation's senior management to prepare for
the Committee's consideration recommendations for compensation programs
designed to further promote the retention of key executive officers. At its
February 2000 meeting, the Committee considered management's recommendation for
an Executive Recognition Program. Among other things, the proposed program
provided for stock option grants and performance-based incentive share awards
to a select group of key executive officers.
Following a discussion of the proposed Executive Recognition Program and
its consistency with Peer Group compensation data, and the input of the
Committee's independent compensation consultant, the Committee approved the
program as presented. The Committee believes that the Executive Recognition
Program is appropriately designed to promote the retention of key executive
officers while incorporating strong performance-based elements.
In November 2000, the Committee reviewed and discussed with its
independent compensation consultant the results of a total compensation review
conducted of the Corporation's executive officer group. The review used proxy
statement data and survey information provided by independent compensation
consultants. The Committee then made incentive share awards pursuant to which
restricted shares of the Corporation's common stock were issued to a select
group of key executive officers to position their long-term compensation
appropriately relative to their peers.
Additional information about the grants and awards made by the Committee
is included in the Summary Compensation Table, Individual Option Grant Table,
and 1997 Long-Term Incentive Award Plan-Awards in 2000 Table which follow this
report.
CHIEF EXECUTIVE OFFICER COMPENSATION
During 2000, Thomas H. O'Brien served as the Corporation's Chairman and
Chief Executive Officer until his retirement as Chief Executive Officer on
April 30, 2000. Mr. O'Brien continues to serve as the Board's Chairman. James
E. Rohr became the Corporation's Chief Executive Officer as of May 1, 2000 and
continues to serve as the Corporation's President and Chief Executive Officer.
Accordingly, under the rules of the Securities and Exchange Commission this
report will discuss the Committee's decisions with respect to the compensation
paid to both Messrs. Rohr and O'Brien for 2000.
When deciding the compensation to be paid to the Corporation's Chief
Executive Officer, the Committee acts privately, without the Chief Executive
Officer or other officers present. As appropriate, the Committee will confer
with its independent compensation consultant to determine whether the
Corporation's executive compensation program is consistent with marketplace
practices linking pay for performance. In general, the Committee considers the
Corporation's financial performance and Peer Group financial performance and
compensation data when making decisions regarding the Chief Executive Officer's
compensation. The Committee also considers the Chief Executive Officer's
leadership, decision-making skills, experience, knowledge, communication with
the Board and strategic recommendations, as well as the Corporation's
positioning for future performance. The Committee does not place more relative
weight on one of these factors, but the Corporation's financial performance is
generally given the most weight.
The Committee's significant decisions regarding the Chief Executive
Officer's compensation are reported to and discussed with the full Board. These
discussions are held privately, without the Chief Executive Officer or any of
the Corporation's other officers present.
14
The following portions of the report will discuss the Committee's
decisions regarding Mr. Rohr's and Mr. O'Brien's compensation for 2000.
Because of Mr. Rohr's assumption of additional responsibilities as Chief
Executive Officer and his continued high level of job performance, the
Committee approved an increase in his base salary to $850,000.
In deciding upon the size of Mr. Rohr's 2000 incentive award payment, the
Committee considered these significant accomplishments, in addition to the
Corporation's EPS Goal and Relative Goals achievements, for 2000:
. Earnings for 2000 were a record $1.279 billion or $4.31 per diluted
share, a 10 percent increase compared with core earnings per diluted
share of $3.93 in 1999. Earnings from continuing operations for 2000 were
$1.214 billion or $4.09 per diluted share, also up 10 percent compared
with core earnings per diluted share from continuing operations in 1999.
Cash earnings per diluted share from continuing operations were $4.48 for
2000, up 12 percent compared with core cash earnings per diluted share
from continuing operations in 1999.
. Noninterest income of $2.891 billion from continuing operations for 2000
increased 28 percent compared with 1999, excluding non-core items from
the previous year, and represented 57 percent of total revenue.
. The loan to deposit ratio was 106 percent at December 31, 2000, down from
121 percent at September 30, 1998 prior to the implementation of balance
sheet downsizing initiatives. PNC's reliance on wholesale funding
declined more than $8 billion over the same time frame.
. Assets under management increased $40 billion or 19 percent compared with
the prior year to $253 billion at December 31, 2000.
. Asset management businesses grew earnings 22 percent compared with 1999
and increased to 24 percent of total business earnings in 2000.
. Based on net income, return on average common shareholders' equity for
2000 was 21.63 percent and return on average assets was 1.68 percent.
. On October 2, 2000, PNC announced that it reached a definitive agreement
to sell its residential mortgage banking business. The transaction closed
on January 31, 2001.
. The integration of Investor Services Group continues as planned and the
acquisition was accretive to earnings per diluted share in the fourth
quarter of 2000.
After considering all of these factors carefully, the Committee authorized
the payment to Mr. Rohr of $2,601,000 as an incentive award for 2000.
As for Mr. Rohr's long-term incentive compensation, the Committee made a
supplemental stock option grant to him in addition to his regular grant to
recognize his anticipated election as Chief Executive Officer and to position
his long-term compensation appropriately relative to his peers. As part of the
Executive Recognition Program, Mr. Rohr also received an incentive share award
and an additional stock option grant. In November 2000, Mr. Rohr and other key
executive officers were issued restricted shares of common stock pursuant to
incentive share awards made as part of the Committee's continuing effort to
keep pace with marketplace compensation trends and to tie a larger part of an
executive officer's compensation package to the value of PNC's common stock. In
order to allow the Committee increased flexibility in making long-term
incentive compensation awards under the plan, the Committee adopted, subject to
shareholder approval, an amendment to the Corporation's 1997 Long-Term
Incentive Award Plan which increased the annual limit on grants to one
individual from 250,000 shares to one million shares. The incentive share award
made in February 2000 and the restricted stock issued to Mr. Rohr pursuant to a
separate incentive share award made in November 2000 are subject to shareholder
approval of this plan amendment.
15
The Committee also authorized the payment to Mr. O'Brien of $1,133,300 as
an incentive award for his period of service as Chief Executive Officer during
2000. In deciding upon the amount of Mr. O'Brien's award, the factors
considered by the Committee included the following, in addition to
Corporation's EPS Goal and Relative Goals achievements for 2000: Mr. O'Brien's
crucial role in strengthening the Corporation's business mix and risk profile;
his implementation of a sound strategic plan for the Corporation, which
produced five consecutive years of record earnings; his outstanding leadership
and vision during his tenure as Chief Executive Officer in advancing the
Corporation's transition from a traditional regional bank to a diversified
financial services company; and his development of a strong executive
management team and a management succession plan that worked extremely well in
transferring the role of Chief Executive Officer to Mr. Rohr.
In addition, the Committee granted to Mr. O'Brien 100,000 nonstatutory
stock options with an exercise price equal to the fair market value of a share
of common stock on the date of grant, January 31, 2000.
TAX POLICY
Section 162(m) of the Internal Revenue Code disallows a federal income tax
deduction for compensation over $1 million paid to the Chief Executive Officer
and any of the executive officers included in the compensation tables following
this report, provided that they are serving in that capacity as of the last day
of the Corporation's fiscal year.
One exception to Section 162(m)'s disallowance of a federal income tax
deduction for compensation over $1 million applies to performance-based
compensation paid pursuant to shareholder-approved plans. Awards made under the
1996 Executive Incentive Award Plan and the 1997 Long-Term Incentive Award Plan
can be made eligible for the performance-based exception and therefore eligible
as a federal income tax deduction for the Corporation.
Although the Committee keeps in mind the desirability of controlling the
Corporation's nondeductible compensation expense, the Committee also believes
that it is equally important to maintain the flexibility and competitive
effectiveness of the Corporation's executive compensation program. Therefore,
the Committee may from time to time decide to make grants and awards which may
not be deductible for federal income tax purposes due to the provisions of
Section 162(m). This was true in the case of the restricted stock issued to Mr.
Rohr and certain other executive officers in November 2000.
CONCLUSION
Based upon its review of the Corporation's executive compensation program,
the Committee believes that the program's basic structure is appropriate,
competitive and effective to serve the purposes for which it was established.
MEMBERS OF THE COMMITTEE:
Thomas J. Usher, Chairman
Paul W. Chellgren
Robert N. Clay
William R. Johnson
W. Craig McClelland
Milton A. Washington
16
Compensation Committee Interlocks and Insider Participation
Messrs. Usher, Chellgren, Clay, Johnson, McClelland, and Washington, none of
whom are officers or former officers of the Corporation or any of its
subsidiaries, served as members of the Personnel and Compensation Committee
during 2000.
Certain members of the Personnel and Compensation Committee and their
associates were customers of and had transactions with the Corporation or its
subsidiaries during 2000. Transactions that involved loans or commitments by
subsidiary banks were made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
Change in Control and Other Arrangements
The Corporation has entered into change in control severance agreements with
each of the executive officers named in the Summary Compensation Table and
certain other selected officers. If the executive officer's employment is
terminated by the Corporation without cause, or by the executive officer for
good reason, during a period of three years (two years in the case of the other
selected officers) following a change in control of the Corporation, the
executive officer will receive severance benefits, including (i) a lump sum
payment of three times (two times in the case of the other selected officers)
the executive officer's annual base salary and bonus; (ii) the payment of at
least the target bonus for the executive officer for the fiscal year during
which the executive officer's employment is terminated; (iii) three years (two
years in the case of the other selected officers) of additional benefits under
certain of the Corporation's retirement and benefit plans; and (iv) a payment
to reimburse the executive officer for any excise taxes on severance benefits
that are considered excess parachute payments under the Internal Revenue Code
of 1986, as amended ("Code"). The pension benefits payable to an executive
officer may be increased depending upon the officer's age on the date of
termination. Each agreement requires the executive officer not to use or
disclose any of the Corporation's confidential business information and, if the
executive officer receives the above severance benefits, not to employ or
solicit any officer of the Corporation during the year following the executive
officer's termination. Each agreement terminates when the executive officer
reaches age 65, and the Corporation may, upon one year's advance notice,
simultaneously terminate all of the change in control severance agreements.
The Corporation's displaced employee assistance plans for employees generally
provide an increase in severance benefits following a change in control under
certain circumstances. If an employee's employment is terminated by the
Corporation within two years following consummation of a change in control, the
employee will receive a lump sum payment equal to twice the benefits to which
such employee otherwise would be entitled under the applicable plan. In
addition, certain other officers and employees are eligible for a severance
benefit based on their variable compensation.
17
SUMMARY COMPENSATION TABLE*
The Summary Compensation Table shows, for the years 1998 through 2000, the
compensation paid or awarded to Mr. Rohr, the Corporation's President and
Chief Executive Officer since May 1, 2000, Mr. O'Brien, the Corporation's
Chairman and retired Chief Executive Officer, and the Corporation's next four
most highly compensated, policy-making executive officers; the inclusion of
those four executive officers in this group is based on salary and bonus
earned during 2000. The amounts shown in the "Salary" column include the
dollar amounts attributable to holidays, vacation time, and paid time off.
Messrs. Rohr and O'Brien and the four executive officers are referred to
collectively for purposes of the compensation tables as the Corporation's
"named executive officers." For a detailed discussion of the Corporation's
executive compensation program, please refer to the Personnel and Compensation
Committee Report on Executive Compensation beginning on page 11.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ------------------------------
AWARDS
---------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL
NAME AND PRINCIPAL COMP STOCK OPTIONS/ OTHER
POSITION YEAR SALARY ($) BONUS ($) ($) AWARD ($) SARS (#) COMP ($)
------------------ ---- ---------- --------- ------ ---------- ---------- --------
(A) (B) (C) (D)
James E. Rohr** 2000 836,120 2,601,000 3,690 3,862,500 277,261 226,931
President and Chief 1999 754,615 1,808,800 3,338 0 95,000 197,807
Executive Officer
The PNC Financial 1998 717,308 1,174,500 3,928 0 135,114 154,137
Services Group, Inc.
Thomas H. O'Brien** 2000 411,662 1,133,300 1,366 0 100,000 369,784
Chairman 1999 992,308 3,400,000 2,149 0 238,750 282,674
The PNC Financial 1998 950,000 2,565,000 3,594 0 364,868 205,362
Services Group, Inc.
Walter E. Gregg, Jr. 2000 667,738 1,579,900 0 2,575,000 150,000 208,917
Vice Chairman 1999 593,846 1,326,000 0 0 63,650 143,577
The PNC Financial 1998 552,308 831,600 1,260 0 53,400 112,476
Services Group, Inc.
Joseph C. Guyaux 2000 375,422 486,400 0 1,931,250 104,644 50,187
Group Executive, PNC 1999 342,307 511,000 0 0 64,461 41,874
Regional Community Bank
The PNC Financial 1998 296,923 341,000 1,602 0 32,135 25,277
Services Group, Inc.
Thomas K. Whitford 2000 339,615 469,200 0 1,609,375 85,802 45,731
Group Executive, 1999 302,308 427,800 0 0 48,771 37,213
Strategic Planning
The PNC Financial 1998 260,000 320,000 0 0 26,986 21,050
Services Group, Inc.
Ralph S. Michael, III 2000 347,738 409,500 1,525 1,609,375 89,674 44,169
Group Executive, PNC 1999 331,154 395,000 1,414 0 75,167 35,853
Advisors
and PNC Capital Markets 1998 310,000 180,000 3,686 0 55,082 28,328
The PNC Financial
Services Group, Inc.
----
* Footnotes to the Summary Compensation Table are set forth on page 19.
** Mr. Rohr became the Corporation's President and Chief Executive Officer as
of May 1, 2000, following Mr. O'Brien's retirement as Chief Executive
Officer on April 30, 2000.
18
FOOTNOTES TO SUMMARY COMPENSATION TABLE
(a) The amounts shown represent reimbursement for certain tax liabilities.
None of the named executive officers received perquisites or other
personal benefits, securities or property during 2000 that, in the
aggregate, cost the Corporation the lesser of $50,000 or 10% of the named
executive officer's salary and bonus earned during that year. Perquisites
and other personal benefits that were received by the named executive
officers were valued on the basis of their incremental cost to the
Corporation and its subsidiaries, as prescribed by the rules of the SEC.
(b) The values in this column were calculated by multiplying the number of
shares of restricted Common Stock awarded to the named executive officer
on November 15, 2000 by the closing market price of a share of Common
Stock on the New York Stock Exchange on that date ($64.3750). The named
executive officers are entitled to dividends on the restricted stock
awarded, as declared by the Board on Common Stock.
As of December 31, 2000, the named executive officers held restricted
shares of Common Stock as follows, with the aggregate dollar value shown as
of that date: Messrs. Rohr (60,000 shares; $4,383,750); O'Brien (0 shares);
Gregg (40,000 shares; $2,922,500); Guyaux (30,000 shares; $2,191,875);
Whitford (25,000 shares; $1,826,563); and Michael (25,000 shares;
$1,826,563). The per share dollar amount used to calculate these values was
$73.0625, the closing market price of a share of Common Stock on the New
York Stock Exchange on December 29, 2000, the final trading day of the
year. The shares of restricted stock shown were issued pursuant to an
incentive share award made to each of the named executive officers by the
Personnel and Compensation Committee as of November 15, 2000. The
restricted shares issued to Mr. Rohr will be cancelled, and any dividends
declared on those shares will be forfeited, if shareholders do not approve
the amendments to the Corporation's 1997 Long-Term Incentive Award Plan at
the annual meeting, as described more fully beginning on page 26.
(c) With respect to Messrs. Rohr, Guyaux, Whitford and Michael, the number
shown in this column includes shares of Common Stock underlying both
nonstatutory stock options granted by the Personnel and Compensation
Committee in its discretion during 2000 and reload nonstatutory stock
options automatically granted upon the named executive officer's exercise
during 2000 of options granted by the Personnel and Compensation Committee
prior to 2000. The number of shares of Common Stock underlying reload
options are shown in parenthesis for Messrs. Rohr (29,761); Guyaux
(14,644); Whitford (10,802); and Michael (14,674). For more information
about reload options, please see the "Individual Option Grants--2000"
table on page 20 and the relevant footnotes.
(d) The amount shown includes the dollar value of matching contributions made
pursuant to the Corporation's Incentive Savings Plan, a qualified employee
benefit defined contribution plan, for Messrs. Rohr ($10,200); O'Brien
($10,200); Gregg ($4,266); Guyaux ($10,200); Whitford ($5,013); and
Michael ($10,200). The amount also includes 2000 contributions made to the
Corporation's Supplemental Incentive Savings Plan, a non-qualified excess
defined contribution plan for Messrs. Rohr ($94,236); O'Brien ($116,500);
Gregg ($75,578); Guyaux ($27,656); Whitford ($28,197); and Michael
($22,514). The amount shown also includes the 2000 net premiums paid by
the Corporation in connection with its Key Executive Equity Plan, a split-
dollar insurance arrangement, on behalf of Messrs. Rohr ($122,495);
O'Brien ($189,005); Gregg ($129,073); Guyaux ($12,331); Whitford
($12,521); and Michael ($11,455). The net premiums disclosed in the
preceding sentence represent the full dollar amounts paid by the
Corporation for both the term and non-term portions of the Key Executive
Equity Plan. The remaining amount shown for Mr. O'Brien represents the
imputed income due to certain personal benefits made available to him as
the retired Chief Executive Officer of the Corporation. These benefits
include: automobile and aircraft use; financial planning services; and
club memberships.
19
OPTION GRANTS IN 2000
This table provides information on stock options granted to the named
executive officers in 2000. Only nonstatutory stock options were granted in
2000 under the Corporation's 1997 Long-Term Incentive Award Plan.
The table provides information about two categories of options granted
during 2000: (i) options granted to each of the named executive officers at
the discretion of the Personnel and Compensation Committee; and (ii) reload
options automatically granted to Messrs. Rohr, Guyaux, Whitford and Michael
upon their exercise, in the required manner, of options previously granted to
them by the Personnel and Compensation Committee. Reload options included in
the following table are marked with the symbol "(R)." Information about the
nature and purpose of reload options is included in footnote (b); where
appropriate, other footnotes provide additional information which is specific
to the reload options shown in the table.
INDIVIDUAL OPTION GRANTS--2000
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE OR BASE EXPIRATION PRESENT
NAME GRANTED (#) IN 2000 PRICE ($/SH) DATE VALUE ($)
---- ----------- ---------- ---------------- ---------- ----------
(A)(B) (C) (D) (E)
James E. Rohr 100,000 2.40 42.1875 01/06/2010 937,039
65,000 1.56 46.8750 01/31/2010 685,153
82,500 1.98 42.5313 02/16/2010 792,910
29,761(R) 0.71 55.4688 02/17/2009 354,436
Thomas H. O'Brien 100,000 2.40 46.8750 01/31/2010 1,054,082
Walter E. Gregg, Jr. 85,000 2.04 42.1875 01/06/2010 796,483
15,000 0.36 46.8750 01/31/2010 158,112
50,000 1.20 42.5313 02/16/2010 480,552
Joseph C. Guyaux 60,000 1.45 42.1875 01/06/2010 562,223
30,000 0.72 42.5313 02/16/2010 288,331
14,644(R) 0.35 61.7500 02/17/2009 213,499
Thomas K. Whitford 50,000 1.20 42.1875 01/06/2010 468,519
25,000 0.60 42.5313 02/16/2010 240,276
5,546(R) 0.13 58.0000 02/17/2009 66,767
5,256(R) 0.13 63.3438 02/17/2009 79,662
Ralph S. Michael III 50,000 1.20 42.1875 01/06/2010 468,519
25,000 0.60 42.5313 02/16/2010 240,276
14,674(R) 0.35 56.6875 02/17/2009 178,598
--------
(a) The options granted by the Personnel and Compensation Committee have the
following grant dates. The first tranche of options shown for Messrs.
Rohr, Gregg, Guyaux, Whitford and Michael have a grant date of January 6,
2000. Mr. O'Brien's options were granted on January 31, 2000. Also on
January 31, 2000, Messrs. Rohr and Gregg each received their second option
grant. On February 16, 2000, Messrs. Guyaux, Whitford and Michael each
received their second option grant and Messrs. Rohr and Gregg received
their final option grant from the Personnel and Compensation Committee.
The reload options shown were automatically granted on the exercise date(s)
of the named executive officer's original options. The grant dates for the
reload options are as follows: (i) Mr. Rohr's reload options were granted
on June 5, 2000; (ii) Mr. Guyaux's reload options were granted on October
24, 2000; (iii) Mr. Whitford's 5,546 reload options were granted on August
9, 2000 and his 5,256 reload options were granted on October 10, 2000; and
(iv) Mr. Michael's reload options were granted on June 2, 2000.
The options granted by the Personnel and Compensation in January 2000 vest
in three equal annual installments, beginning one year after the grant
date. One-half of the options granted in February 2000 vest after four
years and one-half vest after five years. All reload options become
exercisable one year after their grant date.
20
(b) Nonstatutory stock options with a "reload" feature were first granted to a
select group of senior officers by the Personnel and Compensation
Committee on February 19, 1997. Except for the 100,000 options granted to
Mr. O'Brien on January 31, 2000, all options granted to the named
executive officers and selected other senior officers by the Committee
during 2000 also have a reload feature. If options with a reload feature
are exercised using Common Stock which has been held for at least six
months, the options exercised are automatically replaced or "reloaded"
with a new, at-the-market option for each share of Common Stock used to
satisfy the exercise price and meet any associated tax withholding
obligation. Options can be reloaded only once, so that the reload options
shown in the table cannot be replaced when they are exercised. The reload
option will have the same remaining term as the option that was exercised.
The reload option feature advances the Corporation's goal of increased
Common Stock ownership by senior executives because it encourages the
early exercise of stock options and the retention of the shares received
upon exercise.
(c) The exercise price shown equals the average of the high and low sale
prices of the Corporation's Common Stock on the New York Stock Exchange on
the date of the grant.
(d) The date shown in this column is the applicable ten-year expiration date,
but an option may expire prior to that date under certain circumstances
specified in the governing nonstatutory stock option agreement, such as
death, retirement, disability or termination of employment. The options
granted to Mr. O'Brien on January 31, 2000 continue to vest in their
normal course following his retirement as Chief Executive Officer of the
Corporation. The exercisability of those options and options previously
granted to Mr. O'Brien in 1999 and 1998 are not affected by his
retirement.
The expiration date shown for reload options coincides with the expiration
date of the option exercised, regardless of the reload option's grant
date. In other words, a reload option received upon the exercise of an
option granted on February 17, 1999 would have the same ten-year
expiration date of February 17, 2009 applicable to the original option,
regardless of the date on which the reload option was granted.
(e) The dollar values listed in this column are based upon the Black-Scholes
option pricing model.
Except for the 100,000 options granted to Mr. O'Brien, the options granted
in 2000 to the named executive officers at the discretion of the Personnel
and Compensation Committee [i.e., the options shown in the table that are
not marked by the symbol "(R)"] and to certain other executive officers
include a reload feature. Those options were valued without regard to the
reload feature. The grant of a reload option is treated for purposes of
this table as the automatic grant of a new option, the value of which is
determined on its own terms as of its grant date. Additional information
about reload options is contained in footnote (b).
The chart below shows, by option grant date, the assumptions used to
determine the grant date present value per option. The dollar values shown
in the Individual Option Grants table in the column captioned "Grant Date
Present Value ($)" were calculated by carrying out the dollar value of
each option to four decimal places and rounding the result to the nearest
dollar. The Corporation in no way intends to provide any predictions or
assurances with respect to option or Common Stock values, as some of the
underlying assumptions are highly subjective. The grant dates for specific
options listed in the Individual Option Grants table are disclosed in
footnote (a).
Annualized Estimated
Grant Market Exercise Risk Free Estimated Dividend Value of
Date Price Price Volatility Rate of Return Life Yield Option
----- ------ -------- ---------- -------------- --------- -------- ---------
01/06/00 $42.19 $42.19 0.21467 6.60% 5 Years 3.10% $ 9.37
01/31/00 46.88 46.88 0.21467 6.75 5 Years 3.10 10.54
02/16/00 42.53 42.53 0.21467 6.81 5 Years 3.10 9.61
06/02/00 56.69 56.69 0.20893 6.40 5 Years 3.10 12.17
06/05/00 55.47 55.47 0.20893 6.40 5 Years 3.10 11.91
08/09/00 58.00 58.00 0.20790 6.05 5 Years 3.10 12.04
10/10/00 63.34 63.34 0.25852 5.93 5 Years 3.10 15.16
10/24/00 61.75 61.75 0.25852 5.75 5 Years 3.10 14.58
21
Aggregated Option Exercises in 2000 and 2000 Year-End Option Values
This table provides information concerning exercises of nonstatutory stock
options during 2000 by certain of the named executive officers. The table also
shows the number and value of unexercised options, including any reload
options held by the named executive officer, at the end of 2000.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at 2000 In-the-Money Options
Year End (#) at 2000 Year End (a)($)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
(b) (b)
James E. Rohr 96,666 2,758,330 271,614 340,595 8,595,660 9,529,166
Thomas H. O'Brien 299,118 3,661,907 200,000 204,500 925,563 5,139,563
Walter E. Gregg, Jr. 0 0 173,016 192,434 5,046,546 5,652,832
Joseph C. Guyaux 32,677 736,372 61,319 142,644 1,575,801 3,904,101
Thomas K. Whitford 23,353 545,382 36,622 116,284 829,314 3,202,122
Ralph S. Michael III 84,033 2,184,843 53,549 121,341 919,220 3,357,592
--------
(a) An option is in-the-money if the fair market value of the underlying
security exceeds the exercise price of the option.
(b) The dollar values shown were calculated by determining the difference
between: (i) the average of the high and low sale prices of the
Corporation's Common Stock on the New York Stock Exchange on December 29,
2000 (i.e., $73.8437); and (ii) the exercise prices of the various options
held by the named executive officer as of December 31, 2000.
1997 Long-Term Incentive Award Plan--Awards in 2000
This table provides information on incentive share awards made to certain of
the named executive officers in 2000 under the Corporation's 1997 Long-Term
Incentive Award Plan.
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation
Name Rights(#) or Payout Threshold (#) Target (#) Maximum (#)
---- ------------- ------------ ------------- ---------- -----------
(a) (c) (c) (c)
James E. Rohr 70,000 (b) 35,000 70,000 105,000
Thomas H. O'Brien 0 N/A 0 0 0
Walter E. Gregg, Jr. 50,000 (b) 25,000 50,000 75,000
Joseph C. Guyaux 30,000 (b) 15,000 30,000 45,000
Thomas K. Whitford 25,000 (b) 12,500 25,000 37,500
Ralph S. Michael III 25,000 (b) 12,500 25,000 37,500
--------
(a) The number shown represents the number of shares of the Corporation's
Common Stock with respect to which an incentive share award was made as of
February 16, 2000. No shares of Common Stock have yet been issued pursuant
to this award. The actual number of shares of Common Stock, if any, which
a named executive officer may receive depends on the attainment of certain
performance goals and other factors, which are generally explained in
footnote (c). In addition, Mr. Rohr's award will be cancelled if the
amendments to the Corporation's 1997 Long-Term Incentive Award Plan are
not approved by shareholders at the annual meeting, as discussed more
fully beginning on page 26.
(b) The performance period began on January 1, 2000 and will end on December
31, 2002.
(c) The applicable performance goals are based on the Corporation's Return on
Common Equity ("ROCE") and Total Shareholder Return ("TSR") during the
performance period in relation to the Peer Group of financial services
organizations approved by the Board's Personnel and Compensation
Committee.
22
If the Corporation's ROCE is at or above median for the Peer Group, the
named executive officer will receive 50 percent of the incentive shares
awarded. If the Corporation's TSR is at or above median for the Peer Group,
50 percent of the incentive shares are awarded. Additional incentive shares
will be awarded as a premium if the Corporation's ROCE and/or TSR are within
the top quartile of the Peer Group. The named executive officer will receive
a number of additional incentive shares equal to 25 percent of the incentive
shares originally awarded for each financial measure (ROCE or TSR) which
places within the top quartile of the Peer Group.
One-half of the shares of Common Stock awarded, if any, will be delivered
following the end of the performance period. The other one-half of the
shares of Common Stock awarded will be issued as restricted stock and will
not be delivered to the named executive officer until one year after the end
of the performance period.
Under certain circumstances, the number of incentive shares which would
otherwise be awarded to a named executive officer may be reduced or
forfeited entirely. Incentive shares which would otherwise be awarded to an
executive officer will be offset, on a share for share basis, for any
incentive shares earned by the executive officer pursuant to an award made
by the Personnel and Compensation Committee in 1998. Also, the award and
delivery of the incentive shares may be accelerated if the named executive
officer is affected by certain change-in-control events.
The foregoing summary of the terms and conditions of the incentive share
awards is not intended to be complete. Certain of the Corporation's
executive officers other than the named executive officers also received
incentive share awards during 2000.
PENSION BENEFITS
The Corporation maintains a non-contributory pension plan ("Pension Plan"
or "Plan") for qualifying employees. The Plan is a defined benefit pension plan
under the Employee Retirement Income Security Act of 1974, as amended and is
qualified under Section 401(a) of the Code. The Corporation and certain of its
subsidiaries contribute an actuarially determined amount necessary to fund the
total benefits payable to participants employed by them. The amount of the
Corporation's annual contribution with respect to a specific participant cannot
be readily calculated by the actuaries for the Pension Plan.
Benefits under the Plan are determined as follows: Effective January 1,
1999, a recordkeeping "account" was established for each participant. The
initial account balance was determined as the present value of each
participant's accrued benefit as of December 31, 1998, using the Plan
provisions in effect on December 31, 1998. For each calendar quarter after
January 1, 1999, eligible participants receive contribution credits, expressed
as a percentage of Covered Earnings, in accordance with a schedule based on the
participant's age plus years of credited service. In addition, employees who
were at least age 40 and had at least 10 years of credited service as of
January 1, 1999 will receive additional quarterly "Transitional Credits" for up
to 10 years.
"Covered Earnings" is defined as an employee's regular earnings plus
eligible paid bonuses; deferred bonus payments are applied to the Corporation's
ERISA Excess Pension Plan, discussed below. Eligible bonuses for employees are
limited to the greater of $25,000 or 50% of the employee's total eligible
bonuses for the calendar year. Eligible bonuses are limited to $250,000 for
purposes of the 50% calculation.
Participants also receive quarterly interest credits at the prevailing 30-
year U.S. Treasury Bond rate. The benefit provided to participants in the
Pension Plan as of December 31, 1998 was no less than the benefit they had
accrued as of December 31, 1998, under the Plan rules in effect as of that
date.
The Corporation also maintains two supplemental non-qualified pension
plans. The ERISA Excess Pension Plan provides retirement benefits equal to the
difference, if any, between the maximum benefit allowed under the Code and the
amount that would be provided by the Pension Plan if no limits were applied.
The ERISA Excess Pension Plan also recognizes deferred bonuses that were not
included in the Pension Plan as Covered Earnings.
23
The Corporation also maintains a separate supplemental retirement benefit
plan applicable to certain officers of the Corporation and its subsidiaries.
Officers who were age 50 and had five years of vesting service as of January 1,
1999 receive benefits based on the formula in effect prior to January 1, 1999.
All other officers participating in this plan will receive a benefit based upon
the cash balance formula described above, applied to the bonuses that are
recognized for contribution purposes.
The estimated total annual benefits (including those payable by both
supplemental non-qualified pension plans) payable upon retirement at the normal
retirement age of 65 for each of the named executive officers are as follows:
Messrs. Rohr ($2,170,648); O'Brien ($1,948,104); Gregg ($1,199,292); Guyaux
($759,073); Whitford ($698,240); and Michael ($708,285). The benefits have been
projected assuming that: (a) each named executive officer's salary remains
constant until retirement; (b) future annual bonuses are assumed to be the same
as those paid in 2000; and (c) the 30-year U.S. Treasury Bond rate until
retirement is 7.0%. The amounts shown are based on the payment method which
would result in the highest annual benefit, if selected by the named executive
officer. Participants may elect to receive their benefits in the form of lump
sum payments instead of periodic payments. Mr. O'Brien elected to receive his
benefits in the form of lump sum payments made following his retirement as an
employee of the Corporation on April 30, 2000.
24
COMMON STOCK PERFORMANCE GRAPH
The graph set forth below shows the cumulative total shareholder return
(i.e., price change plus reinvestment of dividends) on the Corporation's Common
Stock during the five-year period ended December 31, 2000, as compared with:
(i) an overall stock market index, the S&P 500 Index; (ii) a published industry
index, the S&P Major Regional Banks Index ("S&P Banks"); and (iii) a selected
peer group of the Corporation's competitors ("Peer Group"+). The yearly points
marked on the horizontal axis of the graph correspond to December 31 of that
year. The stock performance graph assumes that $100 was invested on January 1,
1996, for the five-year period and that any dividends were reinvested. The
table below the graph shows the resultant compound annual growth rate ("CGR")
for the performance period.
[LINE GRAPH]
5 Year
1995 1996 1997 1998 1999 2000 CGR
PNC $100 $122.06 $191.19 $186.72 $158.62 $269.83 22.0%
Peer Group $100 137.74 208.48 235.02 163.40 203.18 15.6%
S&P 500 Index $100 122.96 163.98 210.85 255.21 231.98 18.3%
S&P Banks $100 136.64 205.46 227.00 194.77 249.37 20.1%
+ The Peer Group represented comprises the following companies: Bank of America
Corporation; The Bank of New York Company, Inc.; Bank One Corporation; First
Union Corporation; Fleet Boston Corporation; KeyCorp; Mellon Financial
Corporation; National City Corporation; PNC; SunTrust Banks, Inc.; U.S.
Bancorp; Wachovia Corporation; and Wells Fargo & Company. Each yearly point
for the Peer Group is determined by calculating the cumulative total
shareholder return for each company in the Peer Group from January 1, 1996 to
December 31 of that year and then using the median of these returns as the
yearly plot point. The Peer Group shown is the Peer Group approved by the
Personnel and Compensation Committee in 1999 and shown in the Common Stock
Performance Graph included in the Corporation's 2000 annual meeting proxy
statement. The Peer Group approved by the Committee for 2000 and 2001
includes Firstar Corp.
In accordance with the rules of the SEC, this section, captioned "Common
Stock Performance Graph", shall not be incorporated by reference into any of
the Corporation's future filings under the Securities Exchange Act of 1934 or
the Securities Act of 1933 and shall not be deemed to be soliciting material or
to be filed under the Securities Exchange Act of 1934 or the Securities Act of
1933.
25
ITEM 2
PROPOSAL TO AMEND THE CORPORATION'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors believes that it would be in the best interest of the
Corporation and its shareholders to amend the Articles of Incorporation to
increase the number of shares of Common Stock that the Corporation
may issue from the 450,000,000 shares presently authorized to 800,000,000
shares. On February 28, 2001, there were 289,606,244 shares of Common Stock
issued and outstanding. Shares of Common Stock have been reserved for issuance
upon the conversion of convertible debentures and convertible preferred stock
and various other purposes, including, but not limited to, issuance under the
Corporation's Incentive Savings Plan, Retirement Savings Plan, the 1997 Long-
Term Incentive Award Plan, the Dividend Reinvestment and Stock Purchase Plan,
the Employee Stock Purchase Plan and the 1992 Director Share Incentive Plan.
No change is being proposed with respect to the number of authorized shares of
Preferred Stock.
The purpose of increasing the number of authorized shares of Common Stock is
to provide additional shares that could be used for proper corporate purposes,
including and without limitation: the facilitation of future stock dividends
and stock splits; acquisitions; compensation plans; and raising additional
capital. If the proposed amendment to the Articles of Incorporation is
approved, the Board of Directors will have the authority to issue the
additional authorized shares or any part thereof to such persons and for such
consideration as it may determine without further action by the shareholders
except as shareholder action may be required by law, contractual arrangements
or the rules of the New York Stock Exchange. Any such issuances (or an
issuance of authorized but unissued Preferred Stock) could have the effect of
discouraging an attempt to acquire control of the Corporation. For example,
stock could be issued to persons, firms or entities known to be friendly to
management.
In addition, the Board of Directors has adopted a Shareholder Rights Plan
providing for the issuance of share purchase rights (the "Rights"). The Rights
provide that if a person or group becomes an "Acquiring Person" by obtaining
beneficial ownership of ten percent or more of the outstanding Common Stock,
all holders of Rights except the Acquiring Person may, for $180 per Right,
purchase shares of Common Stock (or equivalent preferred stock) with a market
value of $360, based on the market price of the Common Stock prior to
the acquisition.
The officers of the Corporation are, from time to time, engaged in
discussions and negotiations with the principals of other financial services
organizations and other companies with a view toward possible acquisitions by
the Corporation. Under Pennsylvania law, a plan of merger may not require
shareholder approval, if certain conditions specified in the Business
Corporation Law are satisfied. The Corporation is required by the rules of the
New York Stock Exchange, however, to submit certain transactions to a vote of
its shareholders, including,
without limitation, mergers involving subsidiaries (which otherwise are not
subject to required approval of the Corporation's shareholders), where the
issuance of shares of Common Stock could result in an increase in the number
of outstanding shares by 20% or more.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
ITEM 3
PROPOSAL TO REAPPROVE CERTAIN ELEMENTS OF AND APPROVE
AMENDMENTS TO THE PNC FINANCIAL SERVICES GROUP, INC.
1997 LONG-TERM INCENTIVE AWARD PLAN
Introduction
The Corporation is seeking shareholder approval of certain amendments to The
PNC Financial Services Group, Inc. 1997 Long-Term Incentive Award Plan (the
"Incentive Plan"), under which the Personnel and
26
Compensation Committee (the "Committee") of the Board of Directors (the
"Board"), or such other committee as may be designated by the Board, is
authorized to grant Incentive Stock Options, Nonstatutory Stock Options, Stock
Appreciation Rights, Performance Units and Incentive Share awards. As more
fully described below, the amendments:
. increase the amount of the annual limitation on the maximum number of
shares of Common Stock ("Shares") with respect to which grants may be
made by the Committee to one Senior Executive to 1,000,000 Shares, in
order to better allow the Corporation to be competitive with the
compensation practices of its peers;
. allow directors who are not employees of the Corporation or a Subsidiary
("Non-Employee Directors") to receive grants of stock options (other than
Incentive Stock Options) and other awards, in order to encourage stock
ownership by Non-Employee Directors, to further align the interests of
Non-Employee Directors and shareholders and to enhance the Corporation's
ability to attract and retain qualified Non-Employee Directors;
. limit the number of Shares that may be covered under Incentive Share
awards granted during any calendar year to 20% of the aggregate Shares
available for awards in that year; and
. limit the number of Shares with respect to which Incentive Stock Options
may be granted under the Incentive Plan during any calendar year to
1,000,000 Shares.
Except as described below, the Board approved these amendments on February
15, 2001, upon the Committee's recommendation. The Incentive Plan was last
approved by shareholders at the 1997 annual meeting.
In addition to approving the amendments to the Incentive Plan described
herein, the Corporation is also asking shareholders to reapprove the business
criteria upon which the Committee may, in its discretion, establish
performance standards that must be achieved in order for a Performance Unit or
Incentive Share award to vest or become payable. Shareholder approval is
needed to allow the Committee to continue, for a five-year period after
shareholder approval, to grant, in its discretion, Performance Unit and
Incentive Share awards under the Incentive Plan that qualify as "performance-
based compensation" under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). In general, Section 162(m) disallows federal income
tax deductions for compensation paid to certain executives to the extent that
it exceeds $1 million in a calendar year (the "$1 million limit"). However,
compensation that qualifies as "performance-based compensation" is not subject
to the $1 million limit.
Other than as described above, the Incentive Plan will remain unchanged.
If the amendments to the Incentive Plan are not approved by the
Corporation's shareholders, the Incentive Plan will continue as currently in
effect and the Committee may continue to grant long-term incentive awards
under the existing Incentive Plan. However, Performance Unit and Incentive
Share awards granted under the Incentive Plan after the 2002 shareholders
meeting would not be eligible for the performance-based exception to the $1
million limit and therefore may not be deductible by the Corporation for
federal income tax purposes. Since shareholders approved the business criteria
the Committee may use to establish performance standards for these awards at
the 1997 annual meeting, and therefore reapproval of the business criteria is
not required until the 2002 annual meeting, the Corporation can continue to
grant Incentive Share and Performance Unit awards that qualify as performance-
based compensation until that time. Grants and awards made by the Committee
under the Incentive Plan would be subject to the 250,000 shares annual
limitation previously in place.
Description of Amendments to the Incentive Plan
The Corporation is seeking shareholder approval of certain amendments to the
Incentive Plan. The following is a summary of the material terms of the
amendments to the Incentive Plan for which the Corporation is seeking
shareholder approval. A description of the Incentive Plan as amended begins on
page 29. Unless otherwise specified, the capitalized terms used in this
discussion have the meanings assigned to them in the Incentive Plan.
27
. Increase Section 162(m) limit to 1,000,000 shares. In order to allow the
Committee, in its discretion, to make grants under the Incentive Plan
that satisfy the requirements of the performance-based compensation
exception to the $1 million limit, the Incentive Plan, in accordance with
applicable tax regulations, imposes an annual limitation on the maximum
number of shares of Common Stock as to which grants may be made to any
one Senior Executive. The original limitation, subject to adjustments in
the case of stock dividends, stock splits or other corporate events, was
250,000 Shares. Under an amendment approved by the Committee during 2000,
this limit was increased to 1,000,000 Shares, subject to shareholder
approval. The 1,000,000 Shares limit is more fully described below.
. Add Non-Employee Directors as Eligible Persons for all awards other than
Incentive Stock Options. Under the current Incentive Plan, the Committee
may grant awards to Senior Executives, a term which is generally defined
to include any officer or key employee of the Corporation or a Subsidiary
who is designated as a "Senior Executive" by the Committee. The amendment
to the Incentive Plan will allow the Committee on Corporate Governance to
grant to Non-Employee Directors of the Corporation any of the types of
awards available under the Incentive Plan, except Incentive Stock
Options.
. Limit Incentive Share awards granted during any calendar year to 20% of
the aggregate Shares available for awards in that year. Under the current
Incentive Plan, there is no limit on the number of Shares that can be
granted pursuant to Incentive Share awards other than the overall plan
limits. Under the amended Incentive Plan, Incentive Share awards may not
be granted in any calendar year with respect to more than 20% of the
maximum number of Shares available for grants and awards under the
Incentive Plan in that year.
. Limit grants with respect to Incentive Stock Options under the Incentive
Plan during any year to 1,000,000 Shares. Under the current Incentive
Plan, there is no limit other than the overall plan limits on the number
of Shares that can be granted pursuant to Incentive Stock Options. Under
the amended Incentive Plan, grants of Incentive Stock Options in any
calendar year may not be made with respect to more than 1,000,000 Shares
during any calendar year.
Reapproval of Business Criteria Used for Establishing Performance Standards
The Incentive Plan is still in effect and will not expire until February 20,
2007, unless sooner terminated by the Board. The reason for seeking
shareholder approval of business criteria, as described above, is to allow the
Committee to continue for a five-year period after shareholder approval to
grant, in its discretion, Performance Unit and Incentive Share awards under
the Incentive Plan that qualify as "performance-based compensation" under
Section 162(m) of the Code. Since "performance-based compensation" is not
subject to the $1 million limit, this will allow the Corporation to deduct
compensation expense that might otherwise be nondeductible under Section
162(m) without such shareholder approval.
One of the requirements that must be satisfied in order for Performance Unit
and Incentive Share awards under the Incentive Plan to qualify as
"performance-based compensation" is that the business criteria upon which the
Committee may establish performance standards that must be satisfied as a
condition to the vesting or payment of such awards must be approved by
shareholders at least once every five years. The business criteria upon which
such performance standards may be established under the Incentive Plan are:
earnings or earnings growth; return on assets, equity or investment;
regulatory compliance; satisfactory internal or external audits; improvement
of financial ratings; reduction of nonperforming loans; achievement of balance
sheet or income statement objectives; or any other objective goals established
by the Committee and may be absolute in their terms or measured against or in
relation to other companies comparably, similarly, or otherwise situated.
Description of the Incentive Plan as Amended
The following summary of the material terms of the Incentive Plan as amended
is qualified in its entirety by reference to the full text of the Incentive
Plan. A complete copy of the Incentive Plan, as amended and restated, is
available by writing to The PNC Financial Services Group, Inc., One PNC Plaza,
249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707, ATTN: Corporate
Secretary.
28
Administration
The Incentive Plan is generally administered by the Committee, unless
otherwise determined by the Board. All of the members of the Committee that
administers the Incentive Plan must be "non-employee directors" as defined in
SEC Rule 16b-3(b)(3)(i) and "outside directors" as defined in Treasury
Regulation Section 1.162-27(e)(3). However, unless otherwise determined by the
Board, the Committee on Corporate Governance will administer the plan with
respect to grants to Non-Employee Directors. In addition, except with respect
to grants to Non-Employee Directors, the Committee may delegate its authority
to the Committee Chair or may delegate authority to perform administrative
functions under the plan to officers or managers of the Corporation or any
Subsidiary, provided that Section 162(m)(4)(C) of the Code (relating to the
performance-based compensation exception to the $1 million limit) does not
require action by the Committee as a whole with respect to such function.
Shares Available for Awards
The maximum number of Shares that may be issued or as to which grants or
awards may be made under the Incentive Plan (excluding Shares issued pursuant
to grants or awards made prior to February 20, 1997) is (i) 10,141,853 Shares
plus (ii) as of January 1 of each calendar year an additional number of Shares
equal to 1.5% of the total issued shares of Common Stock (including reacquired
Shares) at the end of the immediately preceding calendar year. However, no
more than 3% of the total issued Shares (including reacquired Shares) at the
end of the immediately preceding calendar year is cumulatively available for
grants made in any calendar year. In addition, Incentive Share awards granted
during any calendar year may not exceed 20% of the maximum number of Shares
available for grants and awards made during such calendar year.
If an Option, Right or Performance Unit expires or terminates without having
been fully exercised, or the Shares subject to an Incentive Share award are
not issued or are forfeited, the Shares subject to the unexercised portion of
the Option, Right or Performance Unit, or the Shares unissued or forfeited
will become available for other grants under the Incentive Plan.
The number and class of Shares subject to or available for awards, option
exercise prices, and Share limits are subject to adjustment by the Committee
in its discretion to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations of or by the
Corporation.
As of February 14, 2001, 16,327,784 shares of Common Stock were available
for issuance under the Incentive Plan.
Limits on Awards
The Incentive Plan imposes an annual limitation on the maximum number of
shares of Common Stock as to which grants may be made to any one Senior
Executive. Under an amendment approved by the Committee during 2000, this
limit was increased from 250,000 Shares (in effect for calendar years from
1997 through 1999) to 1,000,000 Shares (for calendar years beginning on or
after January 1, 2000), subject to the shareholder approval solicited by this
proxy statement. For the purposes of this 1,000,000 Shares limit, to the
extent consistent with the requirements of the performance-based compensation
exception under Section 162(m) of the Code, a Reload Option is deemed to have
been granted at the same time as, and as part of, the original Option grant.
Accordingly, the shares covered by a Reload Option will not count towards the
1,000,000 Shares limit.
In addition, Incentive Stock Options granted during any calendar year under
the Incentive Plan may not exceed 1,000,000 Shares.
Eligibility
Options, Rights, Performance Units and Incentive Shares may be granted only
to Senior Executives and Non-Employee Directors ("Eligible Persons"), except
that Incentive Stock Options may not be granted to Non-Employee Directors.
29
Currently, there are approximately 2,000 Senior Executives and thirteen Non-
Employee Directors of the Corporation and its Subsidiaries eligible to
participate in the Incentive Plan. "Senior Executives" are those officers and
key employees of the Corporation and its Subsidiaries designated by the
Committee as "Senior Executives" eligible to participate in the Incentive
Plan.
Types of Awards
Stock Options. Pursuant to the Incentive Plan, the Committee may grant
Incentive Stock Options and Nonstatutory Stock Options to purchase shares of
Common Stock at an exercise price per Share not less than the Fair Market
Value of such Shares on the Date of Grant. The Committee may provide for the
payment of the exercise price in cash, by delivery or attestation of Common
Stock valued at its Fair Market Value on the Date of Exercise, or by a
combination of both cash and the delivery of Common Stock, or by irrevocable
instructions to a broker to deliver to the Corporation the amount of sale or
loan proceeds to pay the exercise price.
Reload Option rights may be awarded in conjunction with any grant of options
(other than Reload Options themselves) under the Incentive Plan after January
1, 1997 and entitle the participant upon exercise of that option through the
delivery of Shares to automatically be granted on the date of such exercise a
new "reload" option for a number of shares not greater than the number of
shares delivered or withheld, including shares delivered or withheld in
payment of the exercise price and withholding taxes. Reload Options become
exercisable one year after the grant date, have an exercise price not less
than the fair market value of the Common Stock on the date of grant, an
expiration date not later than the expiration date of the original option and
other terms that are permissible for the grant of any other option under the
Incentive Plan.
The Incentive Plan prohibits the substitution or repricing of stock options
to reduce their exercise prices.
Stock Appreciation Rights. The Committee may also grant stock appreciation
rights ("Rights") independently or in tandem with Option grants. Subject to
the terms of the grant, stock appreciation rights entitle the holder upon
exercise to elect to receive in cash, Common Stock or a combination thereof,
an amount not to exceed the excess of the Fair Market Value of a specified
number of Shares of Common Stock over the Fair Market Value of such Shares on
the Date of Grant. In the case of a Related Option (which must be surrendered
upon exercise of the Related Right), the exercise price is provided in the
Related Option.
Performance Units. The Committee may also grant Performance Units
independently or in connection with the grant of Nonstatutory Stock Options. A
Performance Unit may be exercised in whole or in part as provided in the
agreement implementing the grant, and, subject to the provisions of the
agreement, entitles its Optionee to receive, without any payment to the
Corporation (other than required tax withholding amounts), cash, shares of
Common Stock or a combination of cash and shares of Common Stock, based upon
the degree to which performance standards established by the Committee and
specified in the agreement have been achieved during the specified period. The
performance standards for the specified period may be particular to the
Eligible Person receiving the award, or to the department, branch, Subsidiary
or other unit in which the Eligible Person works, or may be based on the
performance of the Corporation generally. The Committee establishes
performance standards based on the business criteria discussed above under
"Reapproval of Business Criteria Used for Establishing Performance Standards."
The value of a Performance Unit may not exceed the Fair Market Value of a
share of Common Stock. The amount realized upon exercise of Performance Units
by the Eligible Person will depend upon the extent to which the performance
standards for the specified period have been met.
The Committee may provide in the Agreement for the deferral of receipt of
amounts that otherwise would be distributed upon the exercise of a Performance
Unit. If the Participant so elects in accordance with the terms of the
Agreement, the Participant may defer any or all of the amount otherwise
payable in accordance with the provisions of a deferred compensation plan
maintained by the Corporation or a Subsidiary. The other terms and conditions
of any such deferral, including any interest or dividend equivalent or other
payment that will accrue with respect to deferred distributions, will be set
out in the applicable Agreement.
30
Incentive Shares. The Committee may also grant Incentive Share awards.
Incentive Share awards consist of shares of Common Stock issued or to be
issued at such times, subject to the achievement of such performance
standards or other goals, and on such other terms and conditions as the
Committee deems appropriate and specifies in an agreement, which may include
provisions providing for forfeiture of the Shares if an employee does not
continue to be employed by the Corporation or a Subsidiary for a specified
period of time. The performance standards for Incentive Share awards may be
based on earnings or earnings growth; return on assets, equity or investment;
regulatory compliance; satisfactory internal or external audits; improvement
of financial ratings; reduction of nonperforming loans; achievement of balance
sheet or income statement objectives; or any other objective goals established
by the Committee, and may be absolute in their terms or measured against or in
relation to other companies comparably, similarly or otherwise situated.
Although permitted under the Incentive Plan, to date the Committee has not
granted Incentive Stock Options or Performance Units pursuant to the Incentive
Plan.
Termination and Amendment
The Board and the Committee each has the power to terminate the Incentive
Plan in whole or in part and to amend, the Incentive Plan or, in the case of
the Committee, outstanding awards in any respect at any time, subject to
certain limitations. Shareholder approval of Incentive Plan amendments is
required to the extent specified by applicable law or regulations or New York
Stock Exchange requirements. No termination or amendment of the Incentive Plan
or of outstanding awards can (i) adversely affect grants or awards previously
made without the consent of the participant, or (ii) reduce the exercise price
or base price of an Option, Right or Performance Unit.
Unless sooner terminated by the Board or the Committee, the Incentive Plan
will terminate on February 20, 2007.
Summary of Certain Federal Income Tax Consequences
The following discussion briefly summarizes certain federal income tax
consequences of Incentive Stock Options, Nonstatutory Stock Options, Rights,
Performance Units and Incentive Shares granted under the Incentive Plan. State
and local tax consequences may differ.
Incentive Stock Options. In general, an optionee is not required to
recognize income on the grant or exercise of an Incentive Stock Option.
However, the difference between the exercise price and the Fair Market Value
of the stock on the Date of Exercise is an adjustment item for purposes of the
alternative minimum tax. Further, if an Optionee does not exercise an
Incentive Stock Option within certain specified periods of time after
termination of employment, the option is treated for federal income tax
purposes in the same manner as a Nonstatutory Stock Option, as described
below.
Nonstatutory Stock Options, Rights and Performance Units. A grantee
generally is not required to recognize income on the grant of a Nonstatutory
Stock Option, Right or Performance Unit. Instead, ordinary income generally is
required to be recognized on the date the Nonstatutory Stock Option, Right or
Performance Unit is exercised. In general, the amount of ordinary income
required to be recognized, (a) in the case of a Nonstatutory Stock Option, is
an amount equal to the excess, if any, of the Fair Market Value of the Shares
on the Date of Exercise over the exercise price, and (b) in the case of a
Right or Performance Unit, the amount of cash and the Fair Market Value of any
Shares received on the Exercise Date.
Incentive Shares. In general, a grantee will not recognize any income in
connection with an Incentive Share award until the issuance of Shares to the
grantee (which may occur at the time of grant of the award). If the Shares
issued are not subject to a substantial risk of forfeiture under the Code, the
grantee will recognize ordinary income on the date the Shares are issued in an
amount equal to the Fair Market Value of such Shares on such date. If the
Shares are subject to a substantial risk of forfeiture, the grantee generally
will recognize ordinary income on the date the substantial risk of forfeiture
lapses, in an amount equal to the Fair Market Value
31
of the Shares on such date, unless the grantee makes an election under Section
83(b) of the Code. If a grantee makes a Section 83(b) election to recognize
ordinary income on the date the Shares are issued, the grantee will recognize
ordinary income equal to the Fair Market Value of the Shares on the date of
issuance. In general, the Corporation will be entitled to a deduction equal to
the amount of ordinary income recognized by a grantee.
Gain or Loss on Sale or Exchange of Incentive Plan Shares. In general, gain
or loss from the sale or exchange of Shares granted under the Incentive Plan
will be treated as capital gain or loss, provided that the Shares are held as
capital assets at the time of the sale or exchange. However, if certain
holding period requirements are not satisfied at the time of a sale or
exchange of Shares acquired upon exercise of an Incentive Stock Option (a
"disqualifying disposition"), an optionee may be required to recognize
ordinary income upon such disposition.
Deductibility by Corporation. The Corporation generally is not allowed a
deduction in connection with the grant or exercise of an Incentive Stock
Option. However, if an optionee is required to recognize income as a result of
a disqualifying disposition, the Corporation will be entitled to a deduction
equal to the amount of ordinary income so recognized. In the case of a
Nonstatutory Stock Option (including an Incentive Stock Option that is treated
as a Nonstatutory Stock Option, as described above), a Right, a Performance
Unit or an award of Incentive Shares, at the same time the grantee is required
to recognize ordinary income, the Corporation generally will be allowed a
deduction in an amount equal to the amount of ordinary income so recognized,
provided that certain income tax reporting requirements are satisfied.
Parachute Payments. Where payments to certain persons that are contingent on
a change in control exceed limits specified by the Code, the person generally
is liable for a 20 percent excise tax on, and the corporation or other entity
making the payment generally is not entitled to a deduction for, a specified
portion of such payments. If the Committee, in its discretion, grants Options,
Rights and Performance Units the vesting of which is accelerated on a change
in control of the Corporation, or grants Incentive Shares with respect to
which transfer or forfeiture restrictions are waived upon a change in control
of the Corporation, such accelerated vesting or waiver of restrictions would
be relevant in determining whether the excise tax and deduction disallowance
rules would be triggered.
Performance-Based Compensation. Subject to certain exceptions, Section
162(m) of the Code disallows federal income tax deductions for compensation
paid by a publicly-held corporation to certain executives to the extent it
exceeds $1 million for the taxable year. The Incentive Plan has been designed
to allow the Committee, in its discretion, to make grants under the Incentive
Plan that qualify under an exception to the deduction limit for "performance-
based compensation." The Committee may nevertheless choose to make grants
under the Incentive Plan which do not qualify as "performance-based
compensation."
Benefits Under the Amended Incentive Plan
The selection of Eligible Persons who receive awards under the Incentive
Plan and the size and type of awards are generally determined by the Committee
in its discretion. Such future grants are not presently determinable, and it
is not possible to predict the benefits or amounts that will be received by or
allocated to particular individuals or groups in 2001.
Subject to shareholder approval of the increase in the maximum number of
shares of Common Stock with respect to which awards may be granted to a Senior
Executive during any year, the Board granted Incentive Share awards covering
up to 165,000 shares of Common Stock to James E. Rohr, the Corporation's
President and Chief Executive Officer, as of February 16, 2000 and November
15, 2000. These 165,000 shares of Common Stock include: (i) the maximum number
of Common Shares (105,000) which may be issued pursuant to the February 16,
2000 Incentive Share award described in the relevant table appearing on page
22; and (ii) the 60,000 shares of restricted Common Stock issued pursuant to
the November 15, 2000 Incentive Share award. If the amendments to the
Incentive Plan are not approved, these grants to Mr. Rohr would be cancelled
and any dividends declared on the restricted shares of Common Stock would be
forfeited.
32
As described under "Election of Directors--Compensation of Directors,"
beginning with an initial grant in January 2000, the Committee on Corporate
Governance approved an annual grant of deferred stock units ("phantom stock")
having a value of $35,000 to each Non-Employee Director's plan account under
the PNC Outside Directors Deferred Stock Unit Plan. In January 2001, a grant
of deferred stock units was made only to Messrs. Randolph and Ross, both of
whom are retiring from the Board in April 2001. The Committee on Corporate
Governance had previously cancelled the scheduled grants to the other Non-
Employee Directors pending shareholder consideration of the amendments to the
Incentive Plan. Assuming shareholder approval of the amendments, the Committee
on Corporate Governance currently intends to make grants of stock-based awards
to Non-Employee Directors pursuant to the Incentive Plan. The exact size of
any such grants, however, has not yet been determined. If the amendments to
the Incentive Plan are not approved, the Corporation expects that the
Committee on Corporate Governance will consider what other awards or
compensation may be appropriate for Non-Employee Directors during 2001 and
thereafter.
Accounting Treatment
In October 1995, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("FAS No. 123").
This statement defines a fair value based method of measuring and recording
compensation cost associated with employee stock compensation plans. Under the
fair value based method, compensation cost is measured at the grant date based
on the value of the award and is recognized in income over the service period.
FAS No. 123 also allows an entity to continue to measure compensation cost
using the method of accounting prescribed by APB Opinion No. 25 "Accounting
for Stock Issued to Employees" ("APB No. 25"). Entities electing to continue
using the accounting method in APB No. 25 must make pro forma disclosures of
net income and earnings per share as if the fair value based method prescribed
under FAS No. 123 had been applied. The Corporation has elected to use this
approach. Under APB No. 25, the grant or exercise of stock options does not
result in a charge against the Corporation's earnings as long as the exercise
price is not less than 100% of the fair market value of the Common Stock as of
the date of grant. Therefore, under the Corporation's existing accounting
policies neither the grant nor the exercise of an Incentive Stock Option or a
Nonstatutory Stock Option with an exercise price not less than the Fair Market
Value of the Common Stock on the Date of Grant will require a charge against
the Corporation's earnings.
Stock appreciation rights will require a charge to the Corporation's
earnings in each period there is appreciation in the value of those rights
anticipated to be exercised. The amount of such charge in the period of grant
is based upon the difference between the Fair Market Value of the Common Stock
at the end of the period and the exercise price of the Right (non-tandem stock
appreciation right) or the exercise price of the Related Option (tandem stock
appreciation right). In subsequent periods, the charge to earnings is based
upon the difference between the Fair Market Value of the Common Stock at the
end of each period and the Fair Market Value of the Common Stock in the
previous period. In the event of a decline in the market value of the Common
Stock, prior charges may be reversed in the current period in the amount of
such decline, but such reversals on a cumulative basis cannot exceed the
aggregate charges to earnings.
Performance Units will require a charge to the Corporation's earnings in
each period there is an increase in the estimated value of the Performance
Units anticipated to be exercised. Such charge is based on the satisfaction of
specified performance goals for a particular period. In the event of a decline
in the estimated value, reversal of prior charges may be made in the amount of
such decline, but such reversals on a cumulative basis cannot exceed the
aggregate charges to earnings.
Incentive Share awards will require charges to earnings, measured by the
Fair Market Value of the Common Stock on either the Date of Grant or a
subsequent date, to be allocated to the period or periods in which the
employee performs related services.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR REAPPROVAL OF THE
BUSINESS CRITERIA USED FOR ESTABLISHING PERFORMANCE STANDARDS AND
APPROVAL OF THE AMENDMENTS TO THE INCENTIVE PLAN
33
ITEM 4
PROPOSAL TO REAPPROVE CERTAIN ELEMENTS OF AND APPROVE AMENDMENTS TO THE PNC
FINANCIAL SERVICES GROUP, INC. 1996 EXECUTIVE INCENTIVE AWARD PLAN
INTRODUCTION
The Corporation is seeking shareholder approval of amendments to The PNC
Financial Services Group, Inc. 1996 Executive Incentive Award Plan (the
"EIP"). The Board approved these amendments on February 15, 2001, upon the
Committee's recommendation. The EIP was last approved by shareholders at the
1996 annual meeting.
The purposes of the EIP are to (i) assist the Corporation and its
Subsidiaries in attracting, motivating, and retaining the senior executive
officers most critical to the long-term success of the Corporation and its
Subsidiaries, (ii) promote the identification of their interests with those of
the Corporation's shareholders and (iii) enable the Corporation to pay annual
bonuses ("Incentive Awards") which are based upon the achievement of specified
levels of performance.
The amendments to the EIP:
. increase the maximum portion of the Compensation Pool that can be awarded
to any executive from 35% to 40%, to better allow the Corporation to
remain competitive with the compensation practices of its peers;
. permit annual bonuses to be paid in cash, shares of Common Stock
("Shares") or a combination of cash and Shares, rather than only in cash,
in order to further align the interests of executives and shareholders;
and
. permit the grant of Incentive Awards that provide for the issuance of
additional Shares ("Additional Stock") if and to the extent that an
executive's share of the Compensation Pool is paid in the form of Shares.
The maximum number of shares of Additional Stock that could be issued
would be 25% of the number of Shares issued in payment of the executive's
share of the Compensation Pool.
The Corporation is also asking shareholders to reapprove the business
criteria upon which the Committee may establish Performance Conditions that
must be achieved in order for certain payments under the EIP to be made.
Shareholder approval is needed to allow certain payments under the EIP to
qualify under the "performance-based compensation" exception to the $1 million
limit.
Other than as described above, the EIP will remain unchanged.
If shareholders do not approve the amendments, the EIP will continue to
be in effect in its current form and the Committee would continue to make
Incentive Awards under the EIP in the same manner it does presently. To the
extent that the Committee desires to make awards of Shares to the executives
eligible to participate in the EIP, such awards would be made pursuant to the
Incentive Plan rather than the EIP. In addition, certain payments that might
be made under the EIP may not qualify for the performance-based compensation
exception to the $1 million limit and may not be deductible by the Corporation
for federal income tax purposes.
DESCRIPTION OF AMENDMENTS TO THE EIP
The Corporation is seeking shareholder approval of amendments to the EIP.
The following is a summary of the material terms of the amendments to the EIP
for which the Corporation is seeking shareholder approval. Unless otherwise
specified, capitalized terms used in this discussion have the meanings
assigned to them in the EIP.
. Increase the maximum portion of the Compensation Pool that can be awarded
to any employee to 40%. Under the current terms of the EIP, no
Participant may be granted an Incentive Award pursuant to which the
Participant may receive a percentage of the Compensation Pool (one-half
of one percent of
34
Net Income plus any "carryover" amount not to exceed $3 million) greater
than 35%. The amendment to the EIP would increase this percentage to 40%.
. Permit annual bonuses to be paid in cash, Shares or a combination of cash
and Shares. Currently, Incentive Awards under the EIP are paid out of the
Compensation Pool in the form of cash. As amended, the Committee would be
authorized to grant Incentive Awards that are payable in cash, Shares, or
any combination thereof, including stock that is subject to such
forfeiture or other provisions as may determined by the Committee.
. Permit the grant of Incentive Awards that provide for the issuance of
Additional Stock to the extent that an executive's share of the
Compensation Pool is paid in the form of Shares. If and to the extent
that the terms of an Incentive Award provide that all or a portion of a
Participant's Compensation Pool payout will be paid in the form of
Shares, the terms of the Incentive Award may also provide for the
issuance to the Participant of Additional Stock, up to and including 25%
of the number of Shares issued. Thus, as a result of the amendment, the
maximum annual award that a Participant could receive under the EIP would
be 40% of the Compensation Pool plus a number of Shares not to exceed 25%
of the number of Shares issued to the Participant in full or partial
payment of such Participant's share of the Compensation Pool.
DESCRIPTION OF THE AMENDED AND RESTATED EIP
The following summary of the material terms of the EIP, as amended and
restated, is qualified in its entirety by reference to the full text of the
EIP. A complete copy of the EIP, as amended and restated, is available by
writing to The PNC Financial Services Group, Inc., One PNC Plaza, 249 Fifth
Avenue, Pittsburgh, Pennsylvania 15222-2707, ATTN: Corporate Secretary.
Administration
The EIP is administered by the Committee or such other committee of
directors as may be designated by the Board in the future (the "Committee").
Each member of the Committee, which must have at least two members, must meet
the standards of independence necessary to be classified as an "outside
director" for purposes of Section 162(m) of the Code. As a result, no
Participants or other employees of the Corporation or its Subsidiaries are
permitted to serve on the Committee. The Committee may, in its discretion,
authorize the Corporation's Chief Executive Officer to act on its behalf,
except with respect to matters relating to such Chief Executive Officer, or
which are required to be acted upon by the Committee under the EIP or in order
to satisfy the requirements of the performance-based compensation exception to
the $1 million limit.
Eligibility
The EIP provides that Incentive Awards may be made to the person serving
as the Corporation's Chief Executive Officer as of the last day of an award
period, which generally will be the Corporation's fiscal year ("Award
Period"), and the next four most highly compensated executive officers of the
Corporation or its Subsidiaries who are employed as of the last day of an
Award Period ("Participants"). Non-Employee Directors are not eligible to
participate in the EIP.
Incentive Awards
An Incentive Award is an award granted under the EIP that, subject to the
terms of the EIP and such terms as may be specified by the Committee in
accordance with the EIP, provides for the payment to a Participant of a
specified percentage of the Compensation Pool and, in the discretion of the
Committee, the issuance of Additional Stock.
The "Compensation Pool" for each Award Period is an amount equal to the
sum of: (a) one-half of one percent of Net Income for the Award Period plus
(b) any amounts not paid out of a Compensation Pool for the immediately
preceding Award Period and added to the existing Compensation Pool, as
determined in the
35
Committee's sole discretion; provided, however, that the preceding component
(b) of the Compensation Pool may not exceed an aggregate amount of $3 million
during any given Award Period and will be available for the payment of
Incentive Awards only upon the achievement of one or more Performance
Conditions. "Net Income" means the consolidated pre-tax net income of the
Corporation as determined in accordance with generally accepted accounting
principles, after adjustment to exclude or include unusual, infrequently
occurring or extraordinary items or cumulative effects of changes in accounting
principles, as defined under generally accepted accounting principles.
Under the EIP, "Performance Conditions" are any objective performance
factors the Committee may deem relevant, including, but not limited to, the
Corporation's return on average assets, return on average equity, earnings per
share, or other financial measure or ratio, whether on an absolute basis or in
comparison to a predetermined peer group.
Under the EIP, as amended, an Incentive Award can be paid entirely in
cash, entirely in Shares or in a combination of cash and Shares. Shares issued
pursuant to the terms of an Incentive Award may be subject to such terms and
conditions as the Committee may specify in its discretion, including, but not
limited to, terms and conditions that provide for the lapse of transfer
restrictions or forfeiture provisions to be contingent on continued employment.
If and to the extent that the terms of an Incentive Award provide for a portion
of a Participant's share of the Compensation Pool payout to be paid in the form
of Shares, the terms of the Incentive Award may also provide for the issuance
to the Participant of Additional Stock not to exceed 25% of the number of
Shares issued to the Participant in full or partial payment of the
Participant's share of the Compensation Pool.
Within 90 days after the beginning of an Award Period, the Committee must
establish in writing: (a) the percentage of the Compensation Pool (the
"Incentive Award Percentage") for each Participant for that Award Period; (b)
the extent, if any, to which the Award Amount, if and to the extent payable to
a Participant, will be paid in the form of Shares; (c) whether any Additional
Stock will be issued to the Participant in respect of any Shares issued in full
or partial payment of an Award Amount; and (d) any other terms and conditions
applicable to the Incentive Award and any Shares (including Additional Stock)
that may be issued pursuant to the terms of the Incentive Award. Under the
amended EIP, no Participant may be assigned an Incentive Award Percentage
greater than 40%, and the sum of all Incentive Award Percentages for an Award
Period cannot exceed 100% under any circumstances. Thus, the maximum annual
award that a Participant could receive under the amended and restated EIP would
be 40% of the Compensation Pool plus a number of shares of Additional Stock not
to exceed 25% of the number of Shares issued to the Participant in full or
partial payment of such Participant's share of the Compensation Pool.
Following the end of an Award Period, the Committee will certify the size
of the Compensation Pool and determine whether any Performance Conditions
established for that Award Period were met. Once the Committee has determined
the amount of any Incentive Awards to be made for an Award Period and the
amount to be paid in Shares (including any Additional Stock), it must certify
the amounts in writing and authorize the Corporation to pay the Incentive
Awards to the Participants in accordance with the terms and conditions of the
EIP. Unless the Committee determines otherwise, no Incentive Award will be paid
to a Participant unless the Participant is employed by the Corporation or a
Subsidiary on the date of payment.
The Committee may, in its sole discretion, determine not to pay an Award
Amount or not to issue Shares or Additional Stock or reduce an Award Amount or
the number of Shares below the amount or number of Shares payable or issuable
under the terms of the Incentive Award without the consent of a Participant.
Except to the extent that the pre-established terms of an Incentive Award
require payment of all or a portion of the Award Amount in Shares, the
Committee may, in its discretion, at the time an Award Amount is paid, pay such
amount in the form of cash, Shares (in an amount based on Fair Market Value),
or a combination thereof.
The Committee may permit deferral of the payment of any Incentive Award on
such terms as the Committee deems appropriate. In addition, a Participant may
defer the payment of any Incentive Award and issuance of
36
Additional Stock pursuant to any applicable deferred compensation plan of
the Corporation. In either case, any additional amounts accrued on account of
such deferred payment will be based either on a reasonable rate of interest or
the actual rate of return of one or more predetermined investments specified by
the Committee or pursuant to the terms of such deferred compensation plan.
Amendment and Termination
The Board may amend, modify or terminate the EIP in any respect at any
time without the consent of the Participants. The EIP will remain in effect
until terminated by the Board. No Incentive Awards may be granted under the EIP
after its termination. Termination of the EIP will not affect any Incentive
Awards or Shares or Additional Stock granted or issued prior to termination and
any such Incentive Awards and Shares or Additional Stock will continue to be
subject to the terms of the EIP notwithstanding its termination.
SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An employee will not recognize any income at the time of grant of an
Incentive Award. In general, at the time of payment of an Award Amount, an
employee will recognize ordinary income equal to the sum of the amount of cash
paid to the employee and any amounts withheld from amounts otherwise payable to
the employee under the Incentive Award. In addition, if Shares (including
Additional Stock) are issued to an employee pursuant to the terms of an
Incentive Award and the Shares are not subject to a substantial risk of
forfeiture under the Code, the employee will recognize ordinary income on the
date the Shares are issued in an amount equal to the Fair Market Value of such
Shares on such date. If the Shares are subject to a substantial risk of
forfeiture, the employee generally will recognize ordinary income on the date
the substantial risk of forfeiture lapses in an amount equal to the Fair Market
Value of the Shares on such date, unless the employee makes an election under
Section 83(b) of the Code. If an employee makes a Section 83(b) election to
recognize ordinary income on the date the Shares are issued, the employee will
recognize ordinary income equal to the Fair Market Value of the Shares on the
date of issuance. In general, the Corporation will be entitled to a deduction
in the amount of ordinary income recognized by an employee.
BENEFITS UNDER THE AMENDED EIP
The Award Amounts, if any, that may be paid to Participants for the 2001
Award Period are not currently determinable.
The Committee has the authority to reduce the Award Amounts payable in any
given year, and the Committee did so reduce the Award Amounts payable for the
2000 Award Period. Therefore, if the EIP had been in effect as amended during
fiscal 2000, the executive officers eligible to receive Incentive Awards under
the EIP would have received the same Award Amounts as they received under the
current EIP. Please refer to the Summary Compensation Table for more
information.
ACCOUNTING TREATMENT
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation," the Corporation has elected to continue to measure compensation
cost for stock-based awards under the method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Under this method,
any Incentive Awards granted under the EIP in the form of Common Stock will
require a charge to earnings measured by the Fair Market Value of the Common
Stock on the Date of Grant. The charge to earnings for any such awards will be
allocated over the vesting period on a straight-line basis.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR REAPPROVAL OF THE BUSINESS
CRITERIA USED FOR ESTABLISHING PERFORMANCE STANDARDS AND
APPROVAL OF THE AMENDMENTS TO THE EIP
37
VOTING PROCEDURES
Pennsylvania law and the Corporation's By-Laws require the presence of a
quorum to transact business at the annual meeting. A quorum is constituted by
the presence, in person or by proxy, of shareholders entitled to cast at least
a majority of the votes which all shareholders are entitled to cast on the
particular matters to be voted on. Votes withheld from director nominees and
abstentions will be counted in determining whether a quorum has been reached.
Under Pennsylvania law, the act of "voting" does not include either
recording the fact of abstention or failing to vote for a candidate or for
approval or disapproval of a proposal, whether or not the person entitled to
vote characterizes the conduct as voting. In other words, only those who
indicate an affirmative or negative decision on a matter are treated as voting,
so that ordinarily abstention or a mere absence or failure to vote is not
equivalent to a negative decision. A broker-dealer non-vote occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power for that
particular item and has not received instructions from the beneficial owner.
With respect to Item 1, the 15 nominees for election as directors who
receive the greatest number of votes cast at the annual meeting, assuming that
a quorum is present, will be elected as directors at the conclusion of the vote
tabulation. A withheld vote on any nominee will not affect the voting results.
Item 2, the proposal to approve an amendment to the Corporation's Articles
of Incorporation to increase the number of authorized shares of Common Stock,
must be approved by the affirmative vote of a majority of the votes cast by the
holders of Common Stock and Voting Preferred Stock, voting together as a single
class.
Item 3, the proposal to reapprove certain elements of and approve
amendments to the Corporation's 1997 Long-Term Incentive Award Plan, and Item
4, the proposal to reapprove certain elements of and approve amendments to the
Corporation's 1996 Executive Incentive Award Plan, must each be approved by the
affirmative vote of a majority of the votes cast by the holders of Common Stock
and Voting Preferred Stock, voting together as a single class. Shares which are
present at the annual meeting but not voted and abstentions will not be counted
as votes cast and therefore will have no affect on the vote on Items 2, 3 or 4,
except as otherwise explained in the next paragraph.
The rules of the New York Stock Exchange require that the total vote cast
on each non-routine item represent over 50 percent in interest of the Common
Stock and the Voting Preferred Stock, voting together as a single class. As a
result, shares not voted, abstentions and broker non-votes will have a negative
effect on the satisfaction of that requirement.
Under the rules of the New York Stock Exchange, "routine" items are those
upon which broker-dealers holding shares in street name for their customers may
vote, in their discretion, on behalf of any customers who do not furnish voting
instructions within ten days of the annual meeting. With respect to non-routine
items that come before the annual meeting for a vote, such broker-dealers would
not be able to vote without first receiving voting instructions from their
customers. These broker "non-votes" would not be considered in the calculation
of the majority of the votes cast and therefore would have no effect on the
vote with respect to a non-routine item, except as otherwise explained in the
preceding paragraph.
The Corporation has adopted a policy that all proxies, ballots, voting
instructions from employee benefit plan participants and voting tabulations
that identify the particular vote of a shareholder or benefit plan participant
be kept permanently confidential and not be disclosed to the Corporation, its
directors, officers or employees except: (i) as necessary to meet legal
requirements or to pursue or defend legal actions; (ii) to allow the Judge of
Election to certify the results of the vote; (iii) when expressly requested by
a shareholder or benefit plan participant; or (iv) in the event of a contested
proxy solicitation. The Corporation has confirmed with its independent vote
tabulator and Judge of Election that its procedures will be consistent with the
foregoing policy.
38
INDEPENDENT AUDITORS
At its meeting on February 15, 2001, the Board of Directors approved the
recommendation of the Audit Committee for the appointment of Ernst & Young LLP
to audit the consolidated financial statements of the Corporation for 2001.
Ernst & Young LLP performed various audit and other services for the
Corporation during 2000. Such services included an audit of annual consolidated
financial statements, interim reviews of quarterly financial statements, review
and consultation connected with certain filings with the SEC, internal control
reviews required by regulatory authorities and certain contractual agreements
or requested by the Corporation's management or Internal Audit staff,
consultation on tax, financial accounting and reporting matters, and meetings
with the Audit Committee of the Board of Directors.
Representatives of Ernst & Young LLP are expected to be present at the annual
meeting with the opportunity to make a statement if they desire to do so and to
be available to respond to appropriate questions.
Audit Fees
The Corporation paid fees of approximately $2.9 million to Ernst & Young LLP
for the 2000 annual audit, including the audit of the consolidated financial
statements, timely quarterly reviews, and audits of consolidated subsidiaries.
Financial Information Systems Design and Implementation Fees
The Corporation did not pay any financial information systems design and
implementation fees to Ernst & Young LLP during 2000.
All Other Fees
The Corporation paid fees of approximately $16.2 million to Ernst & Young LLP
for all other services provided by it during 2000, including approximately
$13.1 million for various audit-related services and the balance for various
tax and nonattest and advisory services. The Audit Committee has considered the
compatibility of nonaudit services with the auditor's independence.
REPORT OF THE AUDIT COMMITTEE
The Board of Directors of the Corporation has appointed an Audit Committee
composed of five directors, each of whom is independent as defined in the New
York Stock Exchange listing standards.
The Board of Directors has adopted a written charter for the Audit Committee.
A copy of that Charter is included as Exhibit A to this Proxy Statement. The
Audit Committee's job is one of oversight as set forth in its Charter. It is
not the duty of the Audit Committee to prepare the Corporation's financial
statements, to plan or conduct audits, or to determine that the Corporation's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. The Corporation's management is
responsible for preparing the Corporation's financial statements and for
maintaining internal control. The independent auditors are responsible for
auditing the financial statements and for expressing an opinion as to whether
those audited financial statements fairly present the financial position,
results of operations, and cash flows of the Corporation in conformity with
generally accepted accounting principles.
The Audit Committee has reviewed and discussed the Corporation's audited
consolidated financial statements with management and with Ernst & Young LLP,
the Corporation's independent auditors for 2000.
The Audit Committee has discussed with Ernst & Young LLP the matters required
to be discussed by Statement on Auditing Standards No. 61.
39
The Audit Committee has received from Ernst & Young LLP the written
statements required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has discussed Ernst &
Young's independence with Ernst & Young, and has considered the compatibility
of nonaudit services with the auditor's independence.
Based on the review and discussions referred to above, the Audit Committee
has recommended to the Board of Directors that the audited consolidated
financial statements be included in the Corporation's Annual Report on Form 10-
K for the year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
THE AUDIT COMMITTEE
Helge H. Wehmeier, Chairman
David F. Girard-diCarlo
Bruce C. Lindsay
Jane G. Pepper
Jackson H. Randolph
REPORT OF THE AUDIT COMMITTEE AND AUDIT COMMITTEE CHARTER
In accordance with and to the extent permitted by applicable law or
regulation, the information contained in the Report of the Audit Committee and
the Audit Committee Charter shall not be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, and shall not be deemed to be soliciting
material or to be filed with the SEC under the Securities Act of 1933 or the
Securities Exchange Act of 1934.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Eligible shareholders may submit proposals to be considered for inclusion
in the Corporation's 2002 proxy materials for the 2002 annual meeting of
shareholders if they do so in accordance with the applicable SEC rules. Any
such proposals must be in writing and received by the Corporate Secretary at
the principal executive offices of the Corporation no later than November 16,
2001, in order to be considered for inclusion in the Corporation's 2002 proxy
materials. For information on how to submit the name of a person to be
considered by the Committee on Corporate Governance for possible nomination as
a director, please see the paragraph discussing the Committee's
responsibilities on page 4.
Director nominations and proposals for action at an annual meeting of
shareholders may be made otherwise only: (i) pursuant to the Corporation's
notice of such meeting; (ii) by the presiding officer; (iii) by or at the
direction of a majority of the Board of Directors; or (iv) by one or more
shareholders in accordance with the applicable rules of the SEC and the
governing By-Law provisions.
A shareholder may make a nomination for the election of a director or a
proposal for action at an annual meeting only if written notice is received by
the Corporate Secretary not later than: (i) 90 days prior to the annual meeting
(which, for the 2002 annual meeting, would mean no later than January 23, 2002
if the annual meeting is held on April 23, 2002, unless a different date for
such notice has been stated in the Corporation's most recent proxy materials
distributed to shareholders); or (ii) if the annual meeting is to be held on a
date other than the fourth Tuesday in April, the close of business on the tenth
day following the first public disclosure of the meeting date. Public
disclosure of the date of any annual meeting may be made in a filing with the
SEC, in any notice given to the New York Stock Exchange or in a news release
reported by any national news service.
Each shareholder notice shall include: (i) as to the shareholder giving
the notice and the beneficial owner, if any, on whose behalf the notice is
given (A) the name and address of such shareholder and of such beneficial
40
owner, and (B) the class and number of shares of the stock of the
Corporation that are owned of record and beneficially by such shareholder and
such beneficial owner; and (ii) a representation that the shareholder is a
beneficial owner of stock of the Corporation entitled to vote at such meeting
and intends to be present at the meeting in person or by proxy to make such
nomination or proposal.
Each notice of nomination for the election of a director from a
shareholder also shall set forth: (i) the name and address of the person to be
nominated; (ii) a description of all arrangements or understandings between the
shareholder and the nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination is to be made by the shareholder;
(iii) such other information regarding the nominee as would be required to be
included in proxy materials filed under the applicable rules of the SEC had the
nominee been nominated by the Board of Directors; and (iv) the written consent
of the nominee to serve as a director of the Corporation, if so elected.
Each notice of a proposal for action at an annual meeting from a
shareholder also shall set forth a brief description of the proposal, the
reasons for making such proposal, and any direct or indirect interest of the
shareholder, or any person on whose behalf the shareholder is acting, in making
such proposal.
If the Corporate Secretary receives notice of a shareholder proposal that
complies with the governing By-Law provisions on or prior to the required date
and if such proposal is properly presented at the 2002 annual meeting of
shareholders, the proxies appointed by the Corporation may exercise
discretionary authority in voting on such proposal if, in the Corporation's
proxy statement for such meeting, the Corporation advises shareholders of the
nature of such proposal and how the proxies appointed by the Corporation intend
to vote on such proposal, unless the shareholder submitting the proposal
satisfies certain SEC requirements, including the mailing of a separate proxy
statement to the Corporation's shareholders.
The presiding officer of the meeting may refuse to permit any nomination
for the election of a director or proposal to be made at an annual meeting by a
shareholder who has not complied with all of the governing By-Law procedures,
including receipt of the required notice by the Corporate Secretary by the date
specified. If a shareholder proposal is received by the Corporation after the
required notice date but the presiding officer of the meeting nevertheless
permits such proposal to be made at the 2002 annual meeting of shareholders,
the proxies appointed by the Corporation may exercise discretionary authority
when voting on such proposal.
Questions about these requirements, or notices mandated by them, may be
directed to:
Corporate Secretary The PNC Financial Services Group One PNC Plaza-21st
Floor
249 Fifth Avenue Pittsburgh, PA 15222-2707
OTHER MATTERS
The Board of Directors knows of no other business to be presented at the
meeting. If, however, any other business should properly come before the
meeting, or any adjournment thereof, it is intended that the proxy will be
voted with respect thereto in accordance with the best judgment of the persons
named in the proxy.
By Order of the Board of Directors,
/s/ Thomas R. Moore
Thomas R. Moore
Corporate Secretary
41
CHARTER
OF THE
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS OF THE PNC FINANCIAL SERVICES GROUP, INC.
I. AUTHORITY AND MEMBERSHIP
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of The PNC Financial Services Group, Inc. (the "Company") is
established pursuant to Article V, Section 1.2 of the Company's By-Laws (the
"Bylaws"). The members of the Committee are appointed annually by the Board
and serve until their successors are duly elected and qualified. The Board
determines the number of members in the Committee from time to time, but the
number will not be less than the minimum number prescribed by applicable law,
the Bylaws or New York Stock Exchange ("NYSE") requirements. Committee members
must satisfy such independence and experience requirements as may be
prescribed by applicable law and by the NYSE.
The Board will appoint one of the members of the Committee to serve as
Committee Chair. The Committee Chair will have authority to act on behalf of
the Committee between meetings.
The Committee and the Board have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent auditors. The independent auditors are ultimately accountable to
the Committee and to the Board for such auditors' audit of the financial
statements of the Company.
II. PURPOSE OF THE COMMITTEE
The Committee's primary purpose is to provide assistance to the Board in
fulfilling the Board's oversight responsibilities relating to:
. Overseeing management's conduct of the Company's financial reporting
process, management's maintenance of internal control, and management's
maintenance of processes regarding compliance with applicable laws and
regulations and with the Company's Code of Ethics; and
. Overseeing the audit function, including private discussion, as
appropriate, with the independent and the internal auditors.
The Committee will also, under applicable regulation, perform the duties
required by law to be performed by an audit committee for any subsidiary bank
of the Company that does not have its own audit committee and by a fiduciary
audit committee for any subsidiary bank of the Company exercising fiduciary
powers that does not have its own audit committee, in each case to the extent
permitted, and in the manner required, by applicable laws and regulations.
III. RESPONSIBILITIES OF THE COMMITTEE
The following will be the common recurring activities of the Committee in
carrying out its oversight function. These activities are set forth as a guide
with the understanding that the Committee may diverge from this guide as it
considers appropriate given the circumstances.
Charter Review
. Review and reassess the adequacy of this charter annually and recommend
to the Board any proposed changes to this charter
Financial Reporting/Internal Control/Compliance
. Review with the internal auditors and the independent auditors their
respective annual audit plans and the results of their respective audits
A-1
. Review with management and the independent auditors the Company's
quarterly financial results
. Review with management and the independent auditors the Company's annual
financial statements
. Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61
. Discuss with the Company's independent auditors, internal auditors, and
management their assessments of the adequacy of the Company's internal
control
. Discuss with management and the internal auditors the Company's
processes regarding compliance with applicable laws and regulations and
with the Company's Code of Ethics
. Receive periodic reports from the independent auditors and appropriate
officers of the Company on significant accounting or reporting
developments proposed by the Financial Accounting Standards Board or the
Securities and Exchange Commission that may impact the Company
Independent Auditors
. Make recommendations to the Board regarding the reappointment or, where
appropriate, the replacement of the independent auditors
. Monitor the independence of the independent auditors by:
. Receiving from the independent auditors, on a periodic basis, a
formal written statement delineating all relationships between the
independent auditors and the Company consistent with Independence
Standards Board Standard Number 1; and
. Discussing with the independent auditors any relationships or
services disclosed in such statements that may impact the
objectivity and independence of the independent auditors, and, if so
determined by the Committee, recommending that the Board take action
in response to such statements to satisfy itself of the independence
of the independent auditors
Subsidiary Bank/Fiduciary Audit Committee
. Where the Committee is performing the duties required by law to be
performed by an audit committee for a subsidiary bank of the Company
that does not have its own audit committee, review with management and
the independent auditors the basis for the reports required to be filed
by management and by the independent auditors with the FDIC pursuant to
12 C.F.R. Sections 363.2(a) and (b) and Sections 363.3(a) and (b),
respectively
. Perform the duties required to be performed by the fiduciary audit
committee for any bank subsidiary of the Company exercising fiduciary
powers that does not have its own audit committee, in each case to the
extent permitted, and in the manner required, by applicable laws and
regulations
General
. Report to the Board on the Committee's activities, as appropriate
. Maintain minutes or other records of the Committee's meetings and
activities
. Prepare the audit committee report to be included in the Company's proxy
statement when and as required by the rules of the Securities and
Exchange Commission
The Committee's job is one of oversight as set forth in this charter. It
is not the duty of the Committee to prepare the Company's financial
statements, to plan or conduct audits, or to determine that the Company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. The Company's management is
responsible for preparing the Company's financial statements and for
A-2
maintaining internal control, and the independent auditors are responsible
for auditing the financial statements. Nor is it the duty of the Committee to
conduct investigations, to resolve disagreements, if any, between management
and the independent auditors or to assure compliance with laws and regulations
and the Company's Code of Ethics.
In performing their duties and responsibilities, Committee members are
entitled to rely in good faith on information, opinions, reports or statements
prepared or presented by:
. One or more officers or employees of the Company whom the Committee
member reasonably believes to be reliable and competent in the matters
presented;
. Counsel, independent auditors, or other persons as to matters which the
Committee member reasonably believes to be within the professional or
expert competence of such person; or
. Another committee of the Board as to matters within its designated
authority which committee the Committee member reasonably believes to
merit confidence.
A-3
The PNC Financial Services Group, Inc.
P.O. Box 1150
Pittsburgh, PA 15230-1150
\/ Please fold and detach card at perforation before mailing. \/
THE PNC FINANCIAL SERVICES GROUP, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON APRIL 24, 2001.
James E. Rohr, Walter E. Gregg, Jr. and Thomas R. Moore, and each of them with
full power to act alone and with full power of substitution, are hereby
authorized to represent the undersigned at The PNC Financial Services Group,
Inc. Annual Meeting of Shareholders to be held on April 24, 2001, or at any
adjournment thereof, and to vote, as indicated on the reverse side, the shares
of Common Stock and/or Preferred Stock which the undersigned would be entitled
to vote if personally present at said meeting. The above named individuals are
further authorized to vote such stock upon any other business as may properly
come before the meeting, or any adjournment thereof, in accordance with their
best judgement.
This proxy may be revoked at any time prior to the time voting is declared
closed by giving the Secretary of the Meeting written notice of revocation or a
subsequently dated proxy, or by casting a ballot at the meeting. This proxy
also serves as a voting instruction card and directs PNC Bank, National
Association, as Trustee of the non-ESOP portion of The PNC Financial Services
Group, Inc. Incentive Savings Plan and as Trustee of the ESOP portion of The PNC
Financial Services Group, Inc. Incentive Savings Plan and as Trustee of the PNC
Retirement Savings Plan to vote all the shares credited to my account as
indicated on the reverse side at the Annual Meeting of Shareholders to be held
on April 24, 2001 and at any adjournment(s) thereof.
Date: , 2001
---------------------------
--------------------------------------
Signature
--------------------------------------
Signature
Please sign exactly as your name
appears to the left. Joint owners
should each sign. When signing on
behalf of a corporation or partnership
or as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
ADMISSION TICKET
Please bring this ticket to the Annual Meeting.
It will expedite your admittance when presented upon your arrival.
THE PNC FINANCIAL SERVICES GROUP, INC.
2001 Annual Meeting of Shareholders
Tuesday, April 24, 2001
11:00 a.m.
PNC Firstside Center
500 First Avenue
Pittsburgh, Pennsylvania
PLEASE ADMIT Non-Transferable
/\ Please fold and detach here /\
For your comments:
-------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
\/ Please fold and detach here \/
The PNC Financial Services Group, Inc.
The Board of Directors recommends a vote FOR all nominees listed in Items 1 and
FOR Items 2, 3 and 4. All shares will be voted as instructed below. In the
absence of instructions, all shares will be voted with respect to registered
shareholders, FOR all Items and with respect to participants in The PNC
Financial Services Group, Inc. Incentive Savings Plan and the PNC Retirement
Savings Plan, in the manner required or permitted by the governing Plan
documents.
1. ELECTION OF DIRECTORS
(01) Chellgren (02) Clay (03) Davidson (04) Girard-diCarlo (05) Gregg
(06) Johnson (07) Lindsay (08) McClelland (09) O'Brien (10) Pepper
(11) Rohr (12) Steffes (13) Usher (14) Washington (15) Wehmeier
[ ] For all nominees listed above (except as marked to the contrary below).
[ ] WITHHOLD Authority to vote for all nominees listed above.
If you wish to withhold authority to vote for any individual nominee, write
that nominee's name or number in the space provided below.
------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Increase authorized shares of common stock from 450,000,000 shares to
800,000,000 shares.................................................................. [ ] [ ] [ ]
3. Reapprove elements of and approve amendments to the 1997 Long-Term Incentive
Award Plan.......................................................................... [ ] [ ] [ ]
4. Reapprove elements of and approve amendments to the 1996 Executive Incentive
Award Plan.......................................................................... [ ] [ ] [ ]
[ ] Will attend Meeting [ ] Will use Webcast [ ] Will use Teleconference
Please sign on the reverse side and return promptly
The PNC Financial Services Group, Inc.
P.O. Box 1150
Pittsburgh, PA 15230-1150
Give Voting Instructions by Give Voting Instructions by Give Voting Instructions by
Telephone Internet Mail
Call Toll-Free using a Access the Website and Return your instruction card
touch-tone telephone: cast your vote: in the postage-paid
1-800-250-9081 http://www.votefast.com envelope provided.
Give voting instructions 24 hours a day, 7 days a week!
Your telephone and internet voting instructions must be received by 11:59 p.m.
EDT on April 23, 2001
to be counted in the final tabulation.
Your Control Number is:
\/ Please fold and detach card at perforation before mailing. \/
THE PNC FINANCIAL SERVICES GROUP, INC. VOTING INSTRUCTION CARD
The undersigned hereby directs PNC Bank, National Association, as Trustee of the
non-ESOP portion of The PNC Financial Services Group, Inc. Incentive Savings
Plan and as Trustee of the ESOP portion of The PNC Financial Services Group,
Inc. Incentive Savings Plan and as Trustee of the PNC Retirement Savings Plan to
vote all the shares of The PNC Financial Services Group, Inc. stock credited to
my account as indicated on the reverse side of this card at the Annual Meeting
of Shareholders to be held on April 24, 2001 and at any adjournment(s) thereof.
Date: , 2001
--------------------------
-------------------------------------
Signature
Please sign exactly as your name
appears to the left.
ADMISSION TICKET
Please bring this ticket to the Annual Meeting.
It will expedite your admittance when presented upon your arrival.
THE PNC FINANCIAL SERVICES GROUP, INC.
2001 Annual Meeting of Shareholders
Tuesday, April 24, 2001
11:00 a.m.
PNC Firstside Center
500 First Avenue
Pittsburgh, Pennsylvania
PLEASE ADMIT Non-Transferable
/\ Please fold and detach here /\
For your comments:
-------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
\/ Please fold and detach here \/
The PNC Financial Services Group, Inc.
The Board of Directors recommends a vote FOR all nominees listed in Items 1 and
FOR Items 2, 3 and 4. All full and partial shares of stock credited to your
Plan account will be voted as directed below. In the absence of instructions,
all shares (including unallocated shares) will be voted in the manner required
or permitted by the governing Plan documents.
1. ELECTION OF DIRECTORS
(01) Chellgren (02) Clay (03) Davidson (04) Girard-diCarlo (05) Gregg
(06) Johnson (07) Lindsay (08) McClelland (09) O'Brien (10) Pepper
(11) Rohr (12) Steffes (13) Usher (14) Washington (15) Wehmeier
[ ] For all nominees listed above (except as marked to the contrary below).
[ ] WITHHOLD Authority to vote for all nominees listed above.
If you wish to withhold authority to vote for any individual nominee, write
that nominee's name or number in the space provided below.
------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Increase authorized shares of common stock from 450,000,000 shares to
800,000,000 shares.................................................................. [ ] [ ] [ ]
3. Reapprove elements of and approve amendments to the 1997 Long-Term Incentive
Award Plan.......................................................................... [ ] [ ] [ ]
4. Reapprove elements of and approve amendments to the 1996 Executive Incentive
Award Plan.......................................................................... [ ] [ ] [ ]
[ ] Will attend Meeting [ ] Will use Webcast [ ] Will use Teleconference
Please sign on the reverse side and return promptly