<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
FIRSTMERIT CORPORATION
(Exact name of registrant as specified in its charter)
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OHIO 6711 34-1339938
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code No.)
</TABLE>
III CASCADE PLAZA, AKRON OHIO 44308 (330) 996-6300
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
TERRY E. PATTON
SENIOR VICE PRESIDENT AND SECRETARY
FIRSTMERIT CORPORATION
III CASCADE PLAZA, AKRON, OHIO 44308 (330) 996-6300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
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Kevin C. O'Neil Jeffrey M. Werthan, P.C.
Brouse & McDowell, L.P.A. Christopher R. Kelly, P.C.
500 First National Tower Craig M. Scheer
Akron, Ohio 44308 Silver, Freedman & Taff, L.L.P.
(330) 434-5207 1100 New York Avenue, N.W., Suite 700
Washington, D.C. 20005
(202) 414-6100
</TABLE>
Approximate date of commencement of proposed sale of securities to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
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Common Stock, without par value(1) 17,470,000 shares(2) $27.75(3) $278,153,160(3) $82,055(3)
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6 1/2% Cumulative Convertible
Preferred Stock, Series B 428,342 shares(4) $56.00(5) $ 23,987,152(5) 7,076(5)
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Total $302,140,312 $89,131
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(1) Includes associated rights under the FirstMerit Shareholder Rights Agreement
(the "Rights"). Until the occurrence of certain prescribed events, the
Rights are not exercisable, are evidenced by the certificates representing
the FirstMerit Corporation common stock, without par value ("FirstMerit
Common Stock"), and trade with the FirstMerit Common Stock.
(2) Based upon the maximum number of shares of FirstMerit that may be issued
upon consummation of the merger described herein, and upon exercise of
options for shares of FirstMerit Common Stock and conversion of the
FirstMerit 6 1/2 Cumulative Convertible Preferred Stock, Series B, no par
value stock ("FirstMerit Preferred Stock").
(3) Calculated in accordance with Rule 457(f), and solely for the purpose of
calculating the registration fee, based on the aggregate market value on
September 14, 1998 of the shares of Signal Corp common stock, par value
$1.00 per share ("Signal Common Stock"), expected to be canceled in
connection with the merger and computed by dividing (i) the product of (a)
the average of the high and low prices of Signal Common Stock as reported by
The Nasdaq Stock Market National Market System on September 14, 1998
($27.75), and (b) 13,232,959, representing the maximum number of shares of
Signal Common Stock expected to be canceled and exchanged in connection with
the merger (including shares issuable pursuant to the exercise of
outstanding options (983,766) and conversion of the 6 1/2% Cumulative
Convertible Preferred Stock, Series B, of Signal Corp ("Signal Preferred")
(471,819)), by (ii) 17,470,000, representing the maximum number of shares of
FirstMerit Common Stock, to be issued in connection with the merger.
(4) Based upon the maximum number of shares of FirstMerit Preferred Stock that
may be issued upon consummation of the merger described herein.
(5) Calculated in accordance with Rule 457(f), and solely for the purpose of
calculating the registration fee, the proposed maximum offering price is
based upon the average of the high and low prices of the 6 1/2% Cumulative
Convertible Preferred Stock, Series B, of Signal Corp as of September 19,
1998 (the last date that trading occurred), times the number of shares of
FirstMerit Preferred Stock being registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
SIGNAL CORP
135 EAST LIBERTY STREET
WOOSTER, OHIO 44691
(330) 264-8001
, 1998
Dear Fellow Shareholder:
On behalf of the Board of Directors and management of Signal Corp
("Signal"), I cordially invite you to attend the Special Meeting of Shareholders
of Signal (the "Signal Meeting") to be held at 9:00 a.m., local time, on
, 1998 at the Black Tie Affair Conference Center, located at 50
Riffel Road, Wooster, Ohio.
At this important Signal Meeting, shareholders will be asked to adopt an
Agreement of Affiliation and Plan of Merger, dated as of August 10, 1998 (the
"Merger Agreement"), by and between Signal and FirstMerit Corporation
("FirstMerit"), pursuant to which Signal will merge with and into FirstMerit,
with FirstMerit as the surviving corporation (the "Merger"), and each
outstanding share of Signal Common Stock will be canceled and exchanged for 1.32
shares of FirstMerit Common Stock and each share of Signal 6 1/2% Cumulative
Convertible Preferred Stock, Series B, no par value ("Signal Preferred Stock")
will be exchanged for one share of FirstMerit 6 1/2% Cumulative Convertible
Preferred Stock, Series B, no par value ("FirstMerit Series B Preferred Stock").
The terms of the Merger, including the method for determining the amount of
FirstMerit common and preferred stock to be issued as well as other important
information relating to Signal, FirstMerit and the combined company, are
contained in the accompanying Joint Proxy Statement/Prospectus. Please give this
document your careful attention.
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), Signal's financial
advisor in connection with the Merger, has delivered its opinion to the Board of
Directors of Signal that the exchange ratio is fair to the holders of Signal
Common and Preferred Stock from a financial point of view. A copy of the opinion
of Sandler O'Neill dated , 1998 is attached to the accompanying
Joint Proxy Statement/Prospectus as Appendix B.
The Board of Directors of Signal has carefully reviewed and considered the
terms and conditions of the Merger Agreement. THE BOARD OF DIRECTORS OF SIGNAL
HAS CONCLUDED THAT THE MERGER AGREEMENT AND THE PROPOSED MERGER ARE IN THE BEST
INTEREST OF THE SHAREHOLDERS OF SIGNAL, AND RECOMMENDS THAT SIGNAL SHAREHOLDERS
VOTE "FOR" THE MERGER AGREEMENT.
This Joint Proxy Statement/Prospectus is also being furnished for
informational purposes to the holders of the Signal Preferred Stock. The holders
of the Signal Preferred Stock are entitled to notice of these matters, but are
not entitled to vote at the Signal Meeting.
I encourage you to attend the Signal Meeting in person. Whether or not you
do, please read the Joint Proxy Statement/Prospectus and then complete, sign and
date the proxy card and return it in the enclosed postage-paid envelope. This
will save Signal additional expense in soliciting proxies and will ensure that
your shares are represented. Please note that you may vote in person at the
Signal Meeting even if you have previously returned the proxy.
Thank you for your prompt attention to this important matter.
Very truly yours,
Gary G. Clark
Chairman and Chief Executive Officer
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE> 3
SIGNAL CORP
135 EAST LIBERTY STREET
WOOSTER, OHIO 44691
(330) 264-8001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
Notice is hereby given that the Special Meeting of Shareholders (the
"Signal Meeting") of Signal Corp ("Signal") will be held at 9:00 a.m., local
time, on , 1998, at the Black Tie Affair Conference
Center, located at 50 Riffel Road, Wooster, Ohio.
A proxy card and a Joint Proxy Statement/Prospectus for the Signal Meeting
are enclosed. The Signal Meeting is for the purpose of considering and acting
upon:
1. the adoption of the Agreement of Affiliation and Plan of Merger
dated as of August 10, 1998 (the "Merger Agreement"), by and between
FirstMerit Corporation and Signal Corp, pursuant to Sections 1701.78 and
1701.831 of the Ohio Revised Code, and authorization of the merger of
Signal with and into FirstMerit, as more fully described in the
accompanying Joint Proxy Statement/Prospectus; and
2. to transact such other matters as may properly come before the
Meeting or any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come before
the Signal Meeting. Action may be taken on the foregoing proposals at the Signal
Meeting on the date specified above, or on any date or dates to which the Signal
Meeting may be adjourned or postponed. Holders of record of Signal Common Stock
at the close of business on , 1998 are the shareholders entitled to
vote at the Signal Meeting, and any adjournments or postponements thereof.
TO APPROVE THE PROPOSED MERGER, IT WILL BE NECESSARY TO OBTAIN THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
SIGNAL COMMON STOCK, THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES ENTITLED
TO VOTE IN THE ELECTION OF DIRECTORS, AS WELL AS A MAJORITY VOTE OF SUCH SHARES
EXCLUDING ANY SHARES HELD BY CERTAIN INTERESTED SHAREHOLDERS. AN ABSTENTION OR
FAILURE TO VOTE HAS THE SAME EFFECT AS A VOTE AGAINST THE PROPOSED MERGER. IT
IS, THEREFORE, IMPORTANT THAT YOU VOTE ON THE MERGER.
You are requested to complete and sign the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
By Order of the Board of Directors
L. Dwight Douce
Secretary
Wooster, Ohio
, 1998
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE SIGNAL THE EXPENSE OF FURTHER
REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
<PAGE> 4
LOGO
III CASCADE PLAZA
AKRON, OHIO 44308
, 1998
To Our Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders to
be held on , , 1998 at 10:00 A.M. at the
, Akron, Ohio 44308. At the special meeting, holders of
FirstMerit Corporation ("FirstMerit") Common Stock will be asked to (i) adopt
the Agreement of Affiliation and Plan of Merger dated as of August 10, 1998, by
and between FirstMerit and Signal Corp ("Signal"), including the issuance of
shares of FirstMerit Common Stock and FirstMerit 6 1/2% Cumulative Convertible
Preferred Stock, Series B, no par value ("FirstMerit Series B Preferred Stock")
contemplated thereby, and (ii) set the number of directors of FirstMerit at 21,
increasing such number by three (collectively, "Proposals"). On the date upon
which the merger of Signal with and into FirstMerit (the "Merger") becomes
effective, each outstanding share of Signal Common Stock will be canceled and
exchanged for 1.32 shares of FirstMerit Common Stock and each share of Signal
6 1/2% Cumulative Convertible Preferred Stock, Series B, no par value ("Signal
Preferred Stock") will be exchanged for one share of FirstMerit Series B
Preferred Stock.
Your Board of Directors believes that the Merger is in the best interests
of FirstMerit's shareholders. Additional information is contained in the
accompanying Joint Proxy Statement/Prospectus, which I urge you to read
carefully.
The Board of Directors has received an opinion from Goldman, Sachs & Co.,
FirstMerit's financial advisor, to the effect that as of the date of the
accompanying Joint Proxy Statement/Prospectus, the exchange ratio pursuant to
the Merger Agreement is fair from a financial point of view to FirstMerit. The
opinion is attached as Appendix C. You are urged to read the opinion completely
to understand the assumptions made, matters considered and limitations of the
review undertaken by Goldman, Sachs & Co.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND INCREASE IN THE NUMBER
OF DIRECTORS AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSALS. TO APPROVE THE
PROPOSALS, IT WILL BE NECESSARY TO OBTAIN THE AFFIRMATIVE VOTE OF THE HOLDERS OF
TWO-THIRDS AND A MAJORITY, RESPECTIVELY, OF THE OUTSTANDING FIRSTMERIT COMMON
STOCK. AN ABSTENTION OR FAILURE TO VOTE HAS THE SAME EFFECT AS A VOTE AGAINST
THE PROPOSALS.
A Proxy is enclosed for your use. Please indicate your voting instructions
and sign, date and mail this Proxy promptly in the return envelope provided.
Whether or not you plan to attend the special meeting in person, it is important
that you return the enclosed Proxy so that your shares of FirstMerit Common
Stock will be voted.
Sincerely,
John R. Cochran
Chairman and Chief Executive Officer
IMPORTANT: IF YOUR FIRSTMERIT SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM OR
NOMINEE, ONLY THEY CAN EXECUTE A PROXY ON YOUR BEHALF. TO ASSURE THAT YOUR
SHARES ARE VOTED, WE URGE YOU TO TELEPHONE TODAY THE INDIVIDUAL RESPONSIBLE FOR
YOUR ACCOUNT AT YOUR BROKERAGE FIRM AND OBTAIN INSTRUCTIONS ON HOW TO DIRECT HIM
OR HER TO EXECUTE A PROXY.
<PAGE> 5
FIRSTMERIT CORPORATION
III CASCADE PLAZA
AKRON, OHIO 44308
, 1998
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1998
A Special Meeting of Shareholders of FirstMerit Corporation, an Ohio
corporation ("FirstMerit"), will be held at , Akron, Ohio 44308,
on , , 1998, at 10:00 A.M. (local time), for the
following purposes:
1. to adopt the Agreement of Affiliation and Plan of Merger dated as
of August 10, 1998 (the "Merger Agreement"), by and between FirstMerit and
Signal Corp ("Signal") including the issuance of shares of FirstMerit
Common Stock and FirstMerit 6 1/2% Cumulative Convertible Preferred Stock,
Series B, no par value, contemplated thereby;
2. to set the number of directors at 21, increasing such number by
three; and
3. to transact such other business as may properly come before the
meeting or any adjournments thereof.
Pursuant to the Amended and Restated Code of Regulations of FirstMerit,
only FirstMerit shareholders of record as of the close of business on
, 1998, have the right to receive notice of, and to vote at, the
special meeting and any adjournment(s) thereof.
The Merger Agreement provides for the merger of Signal with and into
FirstMerit, as described in the accompanying Joint Proxy Statement/Prospectus.
The accompanying document constitutes the Proxy Statement of FirstMerit for the
special meeting. A copy of the Merger Agreement is attached to the Joint Proxy
Statement/ Prospectus as Appendix A.
By Order of the Board of Directors
Terry E. Patton
Secretary
Akron, Ohio
, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE COMPLETE, SIGN, DATE
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
ANY PROXY GIVEN BY A SHAREHOLDER MAY BE REVOKED BY SUBMITTING A DULY
EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE SPECIAL
MEETING MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT
BEFORE THE SPECIAL MEETING.
<PAGE> 6
JOINT PROXY STATEMENT
OF
SIGNAL CORP
AND
FIRSTMERIT CORPORATION
FOR THE SPECIAL MEETINGS OF THEIR SHAREHOLDERS TO BE HELD ON
, 1998 AND , 1998, RESPECTIVELY
PROSPECTUS
OF
FIRSTMERIT CORPORATION
Common Stock, No Par Value
6 1/2% Cumulative Convertible Preferred Stock, Series B, No Par Value
------------------------
(Not to Exceed 17,470,000 Shares of Common Stock and
428,342 Shares of 6 1/2% Cumulative Convertible Preferred Stock, Series B, No
Par Value)
This Joint Proxy Statement/Prospectus relates to the proposed merger of
Signal Corp, an Ohio corporation ("Signal") with and into FirstMerit
Corporation, an Ohio Corporation ("FirstMerit"), as contemplated by the
Agreement of Affiliation and Plan of Merger dated August 10, 1998 (the "Merger
Agreement"), by and between FirstMerit and Signal. The Merger Agreement is
included at Appendix A and incorporated herein by reference.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
shares of common stock, par value $1.00 per share, of Signal ("Signal Common
Stock") in connection with the solicitation of proxies from the holders of the
Signal Common Stock by the Board of Directors of Signal for use at the Special
Meeting of Shareholders of Signal (the "Signal Meeting") to be held at 9:00
a.m., local time, on , 1998 at the Black Tie Affair
Conference Center, located at 50 Riffel Road, Wooster, Ohio, and at any and all
adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished for
informational purposes to the holders of the 6 1/2% Cumulative Convertible
Preferred Stock, Series B, no par value, of Signal ("Signal Preferred Stock").
The holders of the Signal Preferred Stock are entitled to notice of these
matters, but are not entitled to vote at the Signal Meeting.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of shares of common stock, no par value, of FirstMerit, which includes the
associated Rights (as defined below) ("FirstMerit Common Stock") in connection
with the solicitation of proxies by the Board of Directors of FirstMerit for use
at the Special Meeting of Shareholders of FirstMerit (the "FirstMerit Meeting")
to be held at , Akron, Ohio 44308, on , 1998, at 10:00
A.M. (local time), and at any and all adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus also constitutes a Prospectus of
FirstMerit in respect of up to 17,470,000 shares of FirstMerit Common Stock and
up to 428,342 shares of 6 1/2% Cumulative Convertible Preferred Stock, Series B,
no par value, of FirstMerit ("FirstMerit Series B Preferred Stock," and together
with the FirstMerit Common Stock, the "FirstMerit Capital Stock") to be issued
in connection with the proposed merger (the "Merger") of Signal with and into
FirstMerit. Upon consummation of the Merger, each outstanding share of Signal
Common Stock will be exchanged for 1.32 shares of FirstMerit Common Stock and
each share of Signal Preferred Stock will be exchanged for one share of
FirstMerit Series B Preferred Stock. See "TERMS OF MERGER -- Conversion of
Signal Capital Stock."
The outstanding shares of FirstMerit Common Stock are, and the shares of
FirstMerit Common Stock and FirstMerit Series B Preferred Stock offered hereby
will be, quoted on The Nasdaq Stock Market National Market System
("Nasdaq/NMS"). The closing sales price of FirstMerit Common Stock reported on
Nasdaq/NMS on , 1998 was $ per share. The outstanding shares of
Signal Common Stock and Signal Preferred Stock are also quoted on the
Nasdaq/NMS. The closing sales prices of the Signal Common Stock and Signal
Preferred Stock reported on the Nasdaq/NMS on , 1998 were
$ and $ per share, respectively.
This Joint Proxy Statement/Prospectus, the accompanying notices and the
accompanying forms of proxy are first being mailed to shareholders of Signal on
or about , 1998, and to shareholders of FirstMerit on or about
, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OF FIRSTMERIT OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR BANK
DEPOSITS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NONBANKING
AFFILIATE OF FIRSTMERIT AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
This Joint Proxy Statement/Prospectus shall not constitute a prospectus for
public reoffering of the FirstMerit Common Stock or FirstMerit Series B
Preferred Stock issuable pursuant to the Merger.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1998.
<PAGE> 7
TABLE OF CONTENTS
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AVAILABLE INFORMATION....................................... -iii-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. -iii-
FORWARD LOOKING STATEMENTS.................................. -iv-
SUMMARY..................................................... 1
Introduction........................................... 1
Parties to the Merger.................................. 1
FirstMerit Meeting..................................... 3
Signal Meeting......................................... 3
Terms of Merger........................................ 6
Reasons for Merger..................................... 8
Opinion of FirstMerit's Financial Advisor.............. 9
Opinion of Signal's Financial Advisor.................. 9
Recommendation of Directors............................ 9
Interests of Certain Persons in Merger................. 9
Comparison of Rights of Holders of FirstMerit Common
Stock and Signal
Common Stock......................................... 10
Market Prices for FirstMerit and Signal Common Stock... 10
Selected Consolidated Financial Data................... 11
Comparative Per Share Data (Unaudited)................. 16
ACQUIRING PERSON STATEMENT.................................. 17
MEETING OF FIRSTMERIT SHAREHOLDERS.......................... 18
Place, Time and Date................................... 18
Matters to be Considered............................... 18
Record Date; Shares Outstanding and Entitled to Vote... 18
Vote Required.......................................... 18
Quorum; Broker Non-Votes............................... 18
Proxies................................................ 18
Proposal to Increase Number of Directors............... 19
Recommendation of FirstMerit's Board of Directors...... 19
MEETING OF SIGNAL SHAREHOLDERS.............................. 20
Place, Time and Date................................... 20
Matters to be Considered............................... 20
Record Date; Shares Outstanding and Entitled to Vote... 20
Vote Required.......................................... 20
Quorum; Broker Non-Votes............................... 20
Proxies................................................ 21
Dissenters Rights...................................... 21
Recommendation of Signal's Board of Directors.......... 21
BACKGROUND OF AND REASONS FOR MERGER........................ 22
Reasons for Merger -- FirstMerit....................... 22
Opinion of FirstMerit's Financial Advisor.............. 22
Recommendation of FirstMerit's Board of Directors...... 26
Background of Merger -- Signal......................... 26
Reasons for Merger -- Signal........................... 28
Opinion of Signal's Financial Advisor.................. 28
Recommendation of Signal's Board of Directors.......... 32
TERMS OF MERGER............................................. 32
General................................................ 33
Conversion of Signal Capital Stock..................... 33
No Effect on FirstMerit Common Stock................... 33
No Fractional Shares of FirstMerit Common Stock to be
Issued................................................ 33
Rights of Holders of Signal Stock Certificates Prior to
Surrender............................................. 33
</TABLE>
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Lost Certificates...................................... 33
Treatment of Stock Options Outstanding Under Signal
Stock Option Plans.................................... 34
Conduct of FirstMerit's Business Pending the Merger.... 34
Conduct of Signal's Business Pending the Merger........ 34
Conditions to the Merger............................... 35
Regulatory Approvals................................... 36
Actions Required for Regulatory Approval............... 36
Waiver of Conditions, Amendment, or Termination of the
Merger Agreement...................................... 36
Effective Time......................................... 37
Signal Stock Purchase Option........................... 38
Interests of Certain Persons in Merger................. 39
Employees of Signal.................................... 41
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 43
Market Prices.......................................... 43
Dividends.............................................. 43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................... 44
ACCOUNTING TREATMENT OF MERGER.............................. 45
RESALES OF FIRSTMERIT COMMON STOCK RECEIVED IN MERGER....... 45
FIRSTMERIT'S ARTICLES OF INCORPORATION AND CODE OF
REGULATIONS............................................... 46
RIGHTS OF DISSENTING SHAREHOLDERS........................... 46
PRO FORMA FINANCIAL INFORMATION............................. 48
PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED).................................... 49
BUSINESS OF FIRSTMERIT...................................... 57
Overview............................................... 57
Subsidiaries and Operations............................ 57
Recent Transactions.................................... 58
BUSINESS OF SIGNAL CORP..................................... 60
REGULATORY MATTERS.......................................... 61
General................................................ 61
Regulation of Bank Holding Companies................... 61
Limits on Dividends and Other Payments................. 62
DESCRIPTION OF FIRSTMERIT CAPITAL STOCK..................... 63
FirstMerit Common Shares............................... 63
FirstMerit Preferred Stock............................. 63
COMPARISON OF FIRSTMERIT AND SIGNAL CAPITAL STOCK........... 64
FirstMerit Common Stock and Signal Common Stock........ 64
Voting Rights.......................................... 64
Shareholder Rights Plan................................ 65
Anti-Takeover Statutes................................. 67
Amendment to Charter Documents......................... 69
Directors.............................................. 69
Dividends.............................................. 71
Preferred Stock........................................ 71
Transfer Agent......................................... 71
SHAREHOLDER PROPOSALS....................................... 71
LEGAL MATTERS............................................... 72
EXPERTS..................................................... 72
APPENDICES.................................................. A-1
A. Agreement of Affiliation and Plan of Merger
B. Fairness Opinion of Sandler O'Neill & Partners, L.P.
C. Fairness Opinion of Goldman, Sachs & Co
D. Ohio Dissenters' Rights Statute
</TABLE>
-ii-
<PAGE> 9
AVAILABLE INFORMATION
Each of FirstMerit and Signal are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). FirstMerit has filed
with the Commission a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
covering the FirstMerit Capital Stock to be issued to Signal shareholders in the
Merger. As permitted by the rules and regulations of the Commission, this Joint
Proxy Statement/Prospectus omits certain information, exhibits and undertakings
contained in the Registration Statement. Reference is made to the Registration
Statement and to the exhibits thereto for further information. Statements
contained herein concerning such documents are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements and other information filed with the Commission by
FirstMerit and Signal under the Exchange Act, may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains an Internet
worldwide web site that contains reports, proxy and information statements and
other information regarding issuers, like FirstMerit and Signal, who file
electronically with the Commission. The address of that site is
http://www.sec.gov. In addition, reports, proxy statements and other information
concerning FirstMerit and Signal may be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates certain documents of
FirstMerit by reference which are not presented herein or delivered herewith.
These documents (without exhibits, unless such exhibits are specifically
incorporated by reference into this Joint Proxy Statement/Prospectus) are
available without charge to each person, including any beneficial owner, to whom
a copy of this Joint Proxy Statement/Prospectus is delivered, upon written or
oral request. Requests for such documents should be directed to Terry E. Patton,
Secretary, FirstMerit Corporation, III Cascade Plaza, Akron, Ohio 44308,
telephone (330) 996-6300.
This Joint Proxy Statement/Prospectus incorporates certain documents of
Signal by reference which are not presented herein or delivered herewith. These
documents (without exhibits, unless such exhibits are specifically incorporated
by reference into this Joint Proxy Statement/Prospectus) are available without
charge to each person, including any beneficial owner, to whom a copy of this
Joint Proxy Statement/Prospectus is delivered, upon written or oral request.
Requests for such documents should be directed to L. Dwight Douce, Secretary,
Signal Corp, 135 East Liberty Street, Wooster, Ohio 44691, telephone (330)
264-8001.
IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS, REQUESTS FOR DOCUMENTS
RELATING TO FIRSTMERIT SHOULD BE MADE BY , 1998 AND REQUESTS FOR
DOCUMENTS RELATING TO SIGNAL SHOULD BE MADE BY ,
1998. PERSONS REQUESTING COPIES OF EXHIBITS TO DOCUMENTS WHICH ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS MAY BE CHARGED THE COST
OF REPRODUCTION AND MAILING.
The following documents filed with the Commission under the Exchange Act by
FirstMerit (File No. 0-10161) are hereby incorporated by reference into this
Joint Proxy Statement/Prospectus: (a) FirstMerit's Annual Report on Form 10-K
for the year ended December 31, 1997 filed with the Commission on February 24,
1998, as amended by Form 10-K/A filed with the Commission on April 30, 1998; (b)
the portions of FirstMerit's Proxy Statement for the Annual Meeting of
Shareholders held April 8, 1998 that have been incorporated by
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<PAGE> 10
reference in the FirstMerit Annual Report on Form 10-K for the year ended
December 31, 1997; (c) FirstMerit's Quarterly Reports on Form 10-Q for the
period ended March 31, 1998 filed with the Commission on May 14, 1998, and for
the period ended June 30, 1998 filed with the Commission on August 14, 1998, as
amended by Form 10-Q/A filed with the Commission on August 26, 1998; (d)
FirstMerit's Current Reports on Form 8-K filed with the Commission on April 9,
1998, May 22, 1998, June 22, 1998, August 31, 1998 and September 10, 1998; (e)
Appendix C to FirstMerit's Registration Statement on Form S-4 (No. 333-57439)
filed with the Commission on June 22, 1998; and (f) the description of the
FirstMerit Common Stock contained in (i) FirstMerit's Current Report Form 8-K
filed with the Commission on September 10, 1998, and (ii) the description of the
rights issued pursuant to the FirstMerit Shareholders Rights Agreement, dated as
of October 23, 1993, by and between FirstMerit and FirstMerit Bank, N.A., as
rights agent, as amended and restated May 20, 1998, contained in Amendment No. 2
to FirstMerit's Registration Statement on Form 8-A with respect thereto filed
with the Commission on June 22, 1998; and any further amendment or report filed
for the purpose of updating the description.
The following documents previously filed with the Commission by Signal
(File No. 0-17894) are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus: (i) the Annual Report on Form 10-K of Signal for the
fiscal year ended December 31, 1997, as amended on Form 10-K/A filed on April
30, 1998 (the "Signal 1997 10-K"); (ii) the Quarterly Reports on Form 10-Q of
Signal for the quarterly periods ended March 31, 1998 and June 30, 1998; (iii)
the Current Reports on Form 8-K of Signal filed with the Commission on February
3, 1998, February 9, 1998; May 1, 1998, July 8, 1998, as amended on Form 8-K/A
filed on August 31, 1998 and August 14, 1998; and (iii) the Current Report on
Form 8-K of Signal filed with the Commission pursuant to Commission Release No.
34-90721 (together with the following portions of Signal's Registration
Statement on Form S-4 filed with the Commission on February 23, 1989 (File No.
33-27243), and of all Post-Effective Amendments to such Registration Statement:
"Market Prices and Dividends" and "The Holding Company Merger and
Reorganization -- Comparison of Stockholder Rights").
All documents filed by FirstMerit and Signal under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Effective Time (as defined
below) shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which is also incorporated or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement, as so modified or
superseded, shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus. The information
relating to FirstMerit and Signal contained in this Joint Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains or incorporates by reference
certain forward-looking statements with respect to the financial condition,
results of operations and business of FirstMerit and Signal prior to the
consummation of the Merger, and FirstMerit following the consummation of the
Merger, including statements relating to the cost savings and other advantages
that are expected to be realized from the Merger, the expected impact of the
Merger on FirstMerit's financial performance and earnings estimates for the
combined company (See "BACKGROUND OF AND REASONS FOR MERGER -- Reasons of
Merger -- FirstMerit," and " -- Reasons for the Merger -- Signal."). These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) expected cost savings from the Merger cannot be fully realized or realized
within the expected time frame; (2) greater than expected deposit attrition,
customer loss or revenue loss following the Merger; (3) competitive pressure in
the banking industry increases significantly; (4) greater than expected costs or
difficulties related to regulatory requirements attendant to the consummation of
the Merger or the integration of the businesses of FirstMerit and Signal; (5)
changes in the interest rate environment that reduce margins; (6) general
economic conditions, either nationally or regionally,
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<PAGE> 11
are less favorable than expected, resulting in, among other things, a
deterioration in credit quality; (7) legislation or regulatory requirements or
changes adversely that affect the businesses in which the combined company would
be engaged; (8) changes in business conditions and inflation; and (9) changes in
the securities markets. The forward-looking earnings estimates included or
incorporated by reference in this Joint Proxy Statement/ Prospectus have not
been examined or compiled by the independent public accountants of FirstMerit or
Signal nor have such accountants applied any procedures thereto. Accordingly,
such accountants do not express an opinion or any other form of assurance on
them. Further information on other factors which could affect the financial
results of FirstMerit and Signal is included in the Commission filings
incorporated by reference herein.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY FIRSTMERIT OR SIGNAL. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFER, SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS, NOR
ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS
OF FIRSTMERIT OR SIGNAL OR ANY OF THEIR RESPECTIVE SUBSIDIARIES SINCE THE DATE
OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ALL INFORMATION CONTAINED OR INCORPORATED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO FIRSTMERIT WAS SUPPLIED BY FIRSTMERIT AND
ALL INFORMATION CONTAINED OR INCORPORATED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO SIGNAL WAS SUPPLIED BY SIGNAL, ALL
INFORMATION WITH RESPECT TO SANDLER O'NEILL & PARTNERS, L.P. ("SANDLER O'NEILL")
AND ITS ANALYSES AND OPINION HAS BEEN SUPPLIED BY SANDLER O'NEILL AND ALL
INFORMATION WITH RESPECT TO GOLDMAN, SACHS & CO. ("GOLDMAN SACHS") AND ITS
ANALYSES AND OPINION HAS BEEN SUPPLIED BY GOLDMAN SACHS. ALTHOUGH NEITHER
FIRSTMERIT NOR SIGNAL HAS ANY KNOWLEDGE THAT WOULD INDICATE THAT ANY STATEMENTS
OR INFORMATION RELATING TO THE OTHER PARTY CONTAINED HEREIN IS INACCURATE OR
INCOMPLETE, NEITHER FIRSTMERIT NOR SIGNAL CAN WARRANT THE ACCURACY OR
COMPLETENESS OF SUCH STATEMENTS OR INFORMATION AS THEY RELATE TO THE OTHER
PARTY.
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<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and is not intended to be a complete
statement of all material facts regarding the matters to be considered at the
Signal Meeting. This summary is qualified in its entirety by reference to the
more detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the appendices hereto and the documents referred to and
incorporated herein.
INTRODUCTION
The Boards of Directors of FirstMerit and Signal have each approved and
adopted the Merger Agreement. A copy of the Merger Agreement is attached hereto
at Appendix A. The Merger Agreement provides for the proposed merger of Signal
with and into FirstMerit. The terms of the Merger and information regarding the
FirstMerit and Signal Meetings and related matters are summarized below.
PARTIES TO THE MERGER
FIRSTMERIT CORPORATION. FirstMerit is a bank holding company organized in
1981 under the laws of the State of Ohio and registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"). FirstMerit's principal subsidiaries
include FirstMerit Bank, N.A. ("FirstMerit Bank"), FirstMerit Credit Life
Insurance Company and FirstMerit Community Development Corporation. Although
FirstMerit is primarily a banking organization, its direct and indirect
nonbanking subsidiaries also provide securities brokerage services, corporate
and personal trust services, equipment lease financing, insurance and other
financial services.
FirstMerit Bank serves a 14 county area in northeastern and central Ohio.
As part of its community banking philosophy, FirstMerit Bank has divided its
markets into eight geographic areas each headed by its own President and local
community board. This strategy allows FirstMerit to deliver a broad line of
financial products and services with a community orientation and a high level of
personal service. With a network of 158 full service banking offices and 194
automated teller machines, FirstMerit Bank serves over 400,000 households and
businesses in the 14th largest consolidated metropolitan statistical area
("MSA") in the country (which combines the primary MSAs for Cleveland,
Lorain/Elyria, and Akron, Ohio). FirstMerit Bank has the leading market share in
Summit, Medina, Stark and Lorain counties in Ohio. Following the consummation of
its two pending acquisitions of Security First Corp., Mayfield Heights, Ohio
("Security First"), and Signal, FirstMerit Bank will also have the leading
market share in Wayne County, Ohio and will have one of the three highest market
share positions in 11 of the 21 counties in which it operates. See "BUSINESS OF
FIRSTMERIT -- Recent Transactions."
For the year ended December 31, 1997 and the six months ended June 30,
1998, FirstMerit had a return on average assets of 1.64% and 1.69%,
respectively, a return on average equity of 16.62% and 16.90%, respectively, and
an efficiency ratio of 55.60% and 57.15%, respectively. As of June 30, 1998,
FirstMerit had total assets of $6.2 billion, total deposits of $4.9 billion and
total shareholders' equity of $646.0 million. On a pro forma basis giving effect
to the acquisitions of Security First and Signal, FirstMerit would have had
total assets of $8.8 billion, total deposits of $6.7 billion and total
shareholders' equity of $850.7 million as of June 30, 1998. See "BUSINESS OF
FIRSTMERIT -- Overview."
FirstMerit's strategy for growth includes strengthening market share in its
existing markets, expanding into complementary markets and broadening its
product offerings. Consistent with this strategy, FirstMerit recently concluded
the acquisition of CoBancorp Inc. ("CoBancorp"), the parent of PremierBank &
Trust and Jefferson Savings Bank, on May 22, 1998. In addition, FirstMerit
entered into an agreement to acquire Security First, the parent of Security
Federal Savings and Loan Association of Cleveland and First Federal Savings Bank
of Kent, on April 5, 1998, and entered into the Merger Agreement to acquire
Signal, the parent of Signal Bank, N.A., Summit Bank, N.A., First Federal
Savings Bank of New Castle, Pennsylvania, and Mobile Consultants, Inc., on
August 10, 1998. FirstMerit currently intends to consummate the Security First
and Signal transactions in the last quarter of 1998 and the first quarter of
1999, respectively. FirstMerit believes that these acquisitions will further
strengthen its competitive position in the northeastern and central Ohio markets
and will broaden the financial services it can offer to its customers. See
"BUSINESS OF FIRSTMERIT -- Recent Transactions."
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<PAGE> 13
On September 17, 1998, FirstMerit closed on the secondary underwritten
public offering of 1.2 million shares of FirstMerit Common Stock. On October
, 1998, FirstMerit closed on the secondary underwritten public
offering of an additional 180,000 shares of FirstMerit Common Stock, which were
granted as an over-allotment option to the underwriters. The re-issuance of
these shares was necessary to allow FirstMerit to treat the Security First
acquisition as a pooling-of-interest for accounting purposes.
SIGNAL CORP. Signal, an Ohio corporation, is a bank holding company which
has as its primary wholly-owned subsidiaries Signal Bank, N.A., a national bank
("Signal Bank"), Summit Bank, N.A., a national bank ("Summit Bank"), First
Federal Savings Bank of New Castle, a federal savings bank ("New Castle Bank")
(collectively, "Signal Banks") and Mobile Consultants, Inc., a broker and
servicer of manufactured housing finance contracts ("MCi"). At June 30, 1998,
Signal had assets of $1.9 billion, deposits of $1.3 billion and shareholders'
equity of $155.9 million. Signal's executive offices are located at 135 East
Liberty Street, Wooster, Ohio 44691, and its telephone number at that address is
(330) 264-8001.
Founded in 1905 as an Ohio chartered building and loan association, Signal
Bank (formerly known as First Federal Savings and Loan Association of Wooster)
converted to a federally chartered mutual thrift in 1935, converted from mutual
to stock form in 1987, and converted from a savings and loan association to a
national bank in July 1997. On September 15, 1997, Signal Bank completed the
acquisition of seven banking offices with approximately $151 million in deposits
from another institution. Signal Bank serves north central Ohio (its "Market
Area") through its home office, 25 full service banking offices, and three
limited service facilities.
Signal Bank offers a wide range of competitive consumer-oriented lending
and deposit products and services throughout its Market Area. Signal Bank has
achieved significant growth in recent years through the expansion of its asset
origination capabilities to include commercial business loans and commercial
real estate loans and by acquiring branches from other institutions in its
Market Area.
Summit Bank was acquired by Signal in July 1997. Summit Bank offers a full
complement of banking products and services to small businesses, individuals and
professionals in the Akron, Canton and Cleveland, Ohio metropolitan areas.
Summit Bank operates two full service banking offices.
New Castle Bank was acquired by Signal on June 29, 1998. New Castle Bank is
a community oriented, full service retail savings institution offering
traditional mortgage loan products. During recent years, New Castle Bank has
expanded its loan origination activities to include multi-family, commercial
real estate, consumer and commercial business loans.
MCi, a manufactured housing finance company which brokers manufactured home
loans to and on behalf of financial institutions, was acquired by Signal in
April 1996. MCi facilitates the origination of primarily non-mortgage, consumer
loan contracts through approximately 3,500 dealers of manufactured homes located
in 44 states. MCi also services the collection and recovery of troubled loans on
behalf of the financial institutions which originate the loans.
In February 1998, Signal formed Signal Capital Trust One ("Signal Trust"),
a Delaware business trust. Signal Trust was formed for the purpose of (i)
issuing and selling $50.0 million of its 8.67% Capital Securities, Series A (the
"Capital Securities") and common securities (the "Common Securities"), (ii)
investing the proceeds thereof in the 8.67% Junior Subordinated Deferrable
Interest Debentures, Series A, issued by Signal (the "Signal Debentures") and
(iii) engaging in certain other limited activities.
For additional information regarding Signal, see "SELECTED FINANCIAL
DATA -- Signal Corp" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
2
<PAGE> 14
FIRSTMERIT MEETING
Meeting Date, Time and Place The FirstMerit Meeting will be held on
, 1998 at 10:00 A.M. (local
time), at , Akron, Ohio. This
Joint Proxy Statement/Prospectus is being
furnished to the holders of FirstMerit Common
Stock in connection with the solicitation of
proxies by the Board of Directors of FirstMerit
for use at the FirstMerit Meeting and any
adjournments or postponements thereof.
Purpose of Meeting The purpose of the FirstMerit Meeting is to
consider and vote upon (i) a proposal to adopt
the Merger Agreement, including the issuance of
shares of FirstMerit Common Stock and
FirstMerit Series B Preferred Stock
contemplated thereby; (ii) to set the number of
directors at 21, increasing such number by
three; and (iii) to transact such other
business as may properly come before the
FirstMerit Meeting or any adjournment or
postponement thereof.
Shares Entitled to Vote Shares of FirstMerit Common Stock are the only
shares entitled to be voted at the FirstMerit
Meeting. Each share of FirstMerit Common Stock
issued and outstanding on the FirstMerit Record
Date (as defined below) is entitled to one
vote.
Required Votes to Adopt
Proposals The affirmative vote of the holders of
two-thirds of the outstanding shares of
FirstMerit Common Stock is required to adopt
the Merger Agreement, including the issuance of
shares of FirstMerit Common Stock and
FirstMerit Series B Preferred Stock
contemplated thereby; and the affirmative vote
of the holders of a majority of the outstanding
shares of FirstMerit Common Stock is required
to set the number of directors at 21. Each vote
is important and all FirstMerit shareholders
are encouraged to vote their shares, in person
or by proxy, at the FirstMerit Meeting.
Record Date and Shares
Outstanding The record date ("FirstMerit Record Date") for
determination of the FirstMerit shareholders
entitled to notice of and to vote at the
FirstMerit Meeting is , 1998. Only
FirstMerit shareholders of record as of the
FirstMerit Record Date are entitled to notice
of, and to vote at, the FirstMerit Meeting. On
such date, there were approximately 69,522,670
shares of FirstMerit Common Stock outstanding.
The affirmative vote of a majority of the
shares represented at the FirstMerit Meeting,
in person or by proxy, may authorize the
adjournment of the Meeting; provided, however,
that no proxy which is voted against a proposal
will be voted in favor of adjournment to
solicit further proxies for such proposal.
THE BOARD OF DIRECTORS OF FIRSTMERIT RECOMMENDS
THAT THE SHAREHOLDERS OF FIRSTMERIT VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT AND INCREASE
IN DIRECTORS.
SIGNAL MEETING
Meeting Date, Time and Place The Signal Meeting will be held on
, 1998 at 9:00
a.m. (local time), at the Black Tie Affair
Conference Center, located at 50 Riffel Road,
Wooster, Ohio. This Joint Proxy
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<PAGE> 15
Statement/Prospectus is being furnished to the
holders of Signal Common Stock in connection
with the solicitation of proxies by the Board
of Directors of Signal for use at the Signal
Meeting and any adjournments or postponements
thereof.
Purpose of Meeting The purpose of the Signal Meeting is to
consider and vote upon (i) a proposal to adopt
the Merger Agreement and authorize the Merger,
and (ii) to transact such other business as may
properly come before the Meeting or any
adjournment or postponement thereof.
Shares Entitled to Vote Shares of Signal Common Stock are the only
shares entitled to be voted at the Signal
Meeting. Each share of Signal Common Stock
issued and outstanding on the Signal Record
Date (as defined below) is entitled to one
vote.
Required Votes to Adopt
Proposals To adopt the Merger Agreement and thereby
authorize the Merger, it will be necessary to
obtain the affirmative vote of the holders of a
majority of the outstanding shares of Signal
Common Stock. entitled to vote in the election
of directors, as well as under the Ohio Control
Share Acquisition Act ("Acquisition Act"), the
favorable vote of a majority of the shares
entitled to vote in the election of directors
represented at the Signal Meeting in person or
by proxy, excluding any "interested shares,"
which are defined to include shares in respect
of which FirstMerit, any corporate officer of
Signal and any employee of Signal who is also a
director of Signal may exercise or direct the
exercise of the voting power of Signal in the
election of its directors. In addition,
"interested shares" are defined to include
those acquired by any person (i) after the
first date of public disclosure (August 11,
1998) of the Merger and prior to the date of
the Signal Meeting, provided such person has
paid over $250,000 for such purchased shares or
such purchased shares represent greater than
.05% of the outstanding shares of Signal, and
(ii) that transfers such shares for valuable
consideration after the record date established
by the directors, if accompanied by the voting
power.
Each vote is important and all Signal
shareholders are encouraged to vote their
shares, in person or by proxy, at the Signal
Meeting.
Record Date and Shares
Outstanding The record date ("Signal Record Date") for
determination of the Signal shareholders
entitled to notice of and to vote at the Signal
Meeting is , 1998. Only holders
of Signal Common Stock of record as of the
Signal Record Date are entitled to notice of,
and to vote at, the Signal Meeting. On such
date, there were 11,777,374 shares of Signal
Common Stock outstanding.
The affirmative vote of a majority of the
shares represented at the Signal Meeting, in
person or by proxy, may authorize the
adjournment of the Signal Meeting; provided,
however, that no proxy which is voted against a
proposal will be voted in favor of adjournment
to solicit further proxies for such proposal.
THE BOARD OF DIRECTORS OF SIGNAL RECOMMENDS
THAT THE SHAREHOLDERS OF SIGNAL VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT.
Ownership of FirstMerit As of the FirstMerit Record Date, FirstMerit's
directors and executive officers and their
affiliates beneficially owned
4
<PAGE> 16
shares of FirstMerit Common Stock (excluding
shares that may be acquired by
the exercise of outstanding options), which
represented % of the outstanding shares of
FirstMerit Common Stock entitled to vote at the
FirstMerit Meeting.
Accordingly, assuming such shares are voted
"FOR" the proposal to adopt the Merger
Agreement, adoption of the Merger Agreement
will require the affirmative vote of the
holders of approximately an additional %
of the outstanding shares of FirstMerit Common
Stock. See "SPECIAL MEETING OF FIRSTMERIT
SHAREHOLDERS -- Vote Required."
As of the FirstMerit Record Date, FirstMerit
and its directors and executive officers and
their affiliates owned shares of
Signal Common Stock.
Ownership of Signal As of the Signal Record Date, Signal's
directors and executive officers and their
affiliates beneficially owned 2,267,399 shares
of Signal Common Stock (excluding 578,548
shares that may be acquired by the exercise of
outstanding options and the conversion of
Signal Preferred Stock to acquire Signal Common
Stock), which represented 19.25% of the
outstanding shares of Signal Common Stock
entitled to vote at the Signal Meeting.
Certain of the shareholders of Signal have
executed Shareholder Voting Agreements dated
August 10, 1998 (the "Voting Agreements"). The
Voting Agreements provide that such
shareholders irrevocably agree to vote the
shares of Signal Common Stock owned by them for
the approval of the Merger Agreement. The
Voting Agreements further provide that the
shareholder shall provide FirstMerit with
notice prior to the sale of the shareholder's
stock. The following shareholders have each
provided FirstMerit with a Voting Agreement:
Robert F. Belden; The Belden Brick Company;
Gary G. Clark; Ronald A. James, Jr.; David J.
Olderman; and Steven N. Stein. As of the Signal
Record Date, the 1,870,295 shares subject to
the Voting Agreements represented 15.88% of the
outstanding shares of Signal Common Stock
entitled to vote at the Signal Meeting (which
includes 1,870,295 shares or 15.88% of Signal
Common Stock included in the amounts listed
above for the directors and executive officers
and their affiliates).
Accordingly, assuming all such shares listed
above are voted "FOR" the proposal to adopt the
Merger Agreement, adoption of the Merger
Agreement, which requires a majority of the
outstanding shares of Signal Common Stock
entitled to vote in the election of directors,
will require the affirmative vote of the
holders of approximately an additional 34.13%
of the outstanding shares of Signal Common
Stock. Authorization of the Merger is also
required under the Acquisition Act. This
authorization will require the affirmative vote
of a majority of the shares entitled to vote in
the election of directors excluding any
"interested shares" ("interested shares") being
those held by (i) FirstMerit, (ii) any
corporate officer of Signal, (iii) any employee
of Signal who is also a director of Signal, or
(iv) any shares acquired by any person after
the first date of public disclosure (August 11,
1998) of the Merger and prior to the date of
the Signal
5
<PAGE> 17
Meeting, provided such person has paid over
$250,000 for such purchased shares or such
purchased shares represent greater than .05% of
the outstanding shares of Signal, and that
transfers such shares for valuable
consideration after the record date established
by the directors, if accompanied by the voting
power).
Each vote is important and all Signal
shareholders are encouraged to vote their
shares, in person or by proxy, at the Signal
Meeting. See "SPECIAL MEETING OF SIGNAL
SHAREHOLDERS -- Vote Required" and
"-- Beneficial Ownership of Signal."
As of the Signal Record Date, Signal and its
directors and executive officers and their
affiliates owned 19,330 shares of FirstMerit
Common Stock.
Dissenters' Rights Any holder of Signal Common Stock who does not
vote in favor of the adoption of the Merger
Agreement and who delivers a written demand for
appraisal of such shareholder's shares in the
manner provided by Section 1701.85 of the Ohio
Revised Code ("ORC") (a copy of which is
attached hereto as Appendix D), shall be
entitled, if and when the Merger becomes
effective, and upon strict compliance with the
procedures set forth in Section 1701.85, to
receive the fair cash value of the Signal
Common Stock. See "RIGHTS OF DISSENTING
SHAREHOLDERS."
TERMS OF MERGER
Structure Signal will be merged with and into FirstMerit,
and FirstMerit will be the surviving
corporation. See "TERMS OF MERGER -- General."
It is currently contemplated that promptly
after the consummation of the Merger, the
Signal Banks will be merged with and into
FirstMerit Bank, N.A., a national bank
subsidiary of FirstMerit ("FirstMerit Bank").
Conversion of Signal Capital
Stock Upon consummation of the Merger, each
outstanding share of Signal Common Stock will
be canceled and exchanged for the right to
receive 1.32 shares of FirstMerit Common Stock
(the "Common Exchange Ratio") and each
outstanding share of Signal Preferred Stock
will be canceled and exchanged for the right to
receive one share of FirstMerit Series B
Preferred Stock (the "Preferred Exchange
Ratio") (collectively, the "Merger
Consideration"). If a Signal shareholder would
receive a fraction of a share of FirstMerit
Common Stock, cash will be paid in lieu of such
fractional share.
Value of the Merger If the Merger had been consummated on
, 1998, based on the closing sale
price of FirstMerit Common Stock as reported on
Nasdaq/NMS on that date ($ ), the
market value for a share of Signal Common Stock
would have been $ . The approximate
market value of the total merger consideration
as of such date would have equaled $
million.
Effective Time The Merger will be consummated after the
adoption of the Merger Agreement by the
requisite votes of the Signal and FirstMerit
shareholders, the receipt of the necessary
regulatory approvals and the satisfaction or
waiver of all other conditions to the
consummation of the Merger specified by the
Merger Agreement. See "TERMS OF
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<PAGE> 18
MERGER -- Effective Time," "Conditions to the
Merger," and "Regulatory Approvals." It is
currently anticipated that the Merger will be
consummated during the first quarter of 1999.
Conditions Consummation of the Merger is conditioned upon
the adoption of the Merger Agreement by the
requisite vote of the Signal and FirstMerit
shareholders, the receipt of all necessary
approvals of the Merger from government
regulatory agencies, the absence of a material
adverse change in the consolidated financial
condition, results of operations, or business
of FirstMerit or Signal, the truth and accuracy
of the representations and warranties of each
party as set forth in the Merger Agreement, the
performance of obligations by each party, and
certain other customary conditions. See "TERMS
OF MERGER -- Conditions to Merger" and
"-- Regulatory Approvals."
Right of Signal to Terminate Signal may terminate the Merger Agreement if
the Average Closing Price of FirstMerit Common
Stock for the pricing period is less than
$21.85 (subject to certain dilution
adjustments) and by the vote of a majority of
its Board of Directors Signal delivers written
notice thereof to FirstMerit (which notice is
final and may not be withdrawn) at any time
during the fourth and fifth Nasdaq/NMS trading
days immediately prior to the Effective Time,
and FirstMerit does not give written notice to
Signal on the second or third Nasdaq/NMS
trading day immediately prior to the Effective
Time which notice indicates that FirstMerit
elects that the Common Exchange Ratio (as
defined below) shall be $28.84 divided by the
Average Closing Price. The term "Average
Closing Price" means the average of the last
sale prices of the FirstMerit Common Stock
during the period beginning on the day that is
15 trading days prior to the Effective Date and
ending on the day that is five trading days
prior to the Effective Date. If FirstMerit
makes the election contemplated by the
preceding sentence, then no termination shall
have occurred and the Common Exchange Ratio
shall have been so modified. See "TERMS OF
MERGER -- Conversion of Signal Common Stock."
Tax and Accounting Treatment The Merger is intended to qualify as a
reorganization under Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the
"Code"). FirstMerit's legal counsel has
delivered an opinion, based upon certain
customary assumptions and representations, and
conditioned on the accuracy of certain
representations made or to be made by
FirstMerit and Signal, that the Merger will
constitute a "reorganization" for federal
income tax purposes and that, accordingly, no
gain or loss will be recognized by FirstMerit,
Signal or the Signal shareholders who exchange
their shares of Signal Common Stock solely for
shares of FirstMerit Common Stock in the
Merger. Signal shareholders who, however,
receive cash in exchange for Signal Common
Stock in lieu of fractional shares will
recognize taxable income to the extent of cash
received.
No ruling has been or will be requested from
the Internal Revenue Service ("IRS") with
respect to the federal income tax consequences
of the Merger. The opinion of counsel only
represents counsel's best judgment and is not
binding on the IRS or the courts. Accordingly,
no assurance can be given that the IRS or a
court (if a matter is
7
<PAGE> 19
litigated), will agree with counsel's
conclusions, that the IRS will not challenge
the tax treatment of the Merger, or that such a
challenge if made (whether or not it is
litigated), will not be successful.
IT IS IMPORTANT THAT EACH SHAREHOLDER OF SIGNAL
CONSULT THEIR OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER.
No Solicitation Signal has agreed, subject to certain fiduciary
obligations of its Board of Directors, that
neither it nor any of its subsidiaries will
solicit or initiate any discussions or offers
from any person to acquire Signal or any of its
subsidiaries or any material amount of its
assets or any of its equity securities. See
"TERMS OF MERGER -- Conduct of Signal's
Business Pending the Merger."
Signal Stock Purchase Option In connection with the execution of the Merger
Agreement, Signal has granted FirstMerit an
option to purchase shares of Signal Common
Stock under certain circumstances set forth in
the Stock Purchase Option dated August 11, 1998
between Signal and FirstMerit (the "Signal
Stock Option" or "Option"). The Signal Stock
Option provides FirstMerit an option to
purchase up to 19.9% of the outstanding shares
of Signal's Capital Stock (without giving
effect to any shares subject to or issued
pursuant to the Stock Purchase Option) in
shares of Signal Common Stock at $28 per share,
subject to certain adjustments. The Option is
exercisable only upon the occurrence of certain
events, all as set forth in the Signal Stock
Option. None of such events has occurred as of
the date hereof. Signal granted the Option as a
condition of and in consideration for
FirstMerit's entering into the Merger
Agreement. The Signal Stock Option is intended
to increase the likelihood that the Merger will
be consummated in accordance with the terms of
the Merger Agreement. Consequently, the Signal
Stock Option may have the effect of
discouraging persons who might now or prior to
the consummation of the Merger be interested in
acquiring Signal (or a significant interest in
Signal) from considering or proposing such an
acquisition, even if such person were prepared
to pay a higher price per share for Signal
Common Stock than the price per share implicit
in the merger consideration. In the event
FirstMerit acquires shares pursuant to the
Signal Stock Option, it would vote those shares
in the election of Signal directors and other
matters requiring a shareholder vote, thereby
potentially having a material impact on the
outcome of such matters. See "TERMS OF
MERGER -- Signal Stock Purchase Option."
REASONS FOR MERGER
FIRSTMERIT. After careful review and consideration, and based upon the
factors discussed herein, FirstMerit's Board of Directors approved the terms of
the Merger and the terms of the Merger Agreement. The Merger with Signal
represents the continued realization of FirstMerit's long-standing philosophy of
acquiring retail-oriented financial institutions with dominant market share for
continued customer growth. The Merger also represents a continuation of
FirstMerit's acquisition strategy of combining with banking institutions in Ohio
and contiguous states where FirstMerit already has or intends to obtain a
significant market position. The expansion of FirstMerit's existing operations
in its Northeastern and Central Ohio markets, as well as its entry into the
western Pennsylvania market, which will result from the Merger will provide both
stronger market positions and
8
<PAGE> 20
opportunities to achieve efficiencies for the combined operations in these
markets. FirstMerit will draw on its experience with previous acquisitions in
seeking to achieve an effective consolidation of Signal's operations with those
of FirstMerit. See "BACKGROUND OF AND REASONS FOR MERGER -- Reasons for
Merger -- FirstMerit."
SIGNAL CORP. Signal's Board of Directors believes that the Merger is in
the best interests of Signal and its shareholders and has approved the Merger
Agreement and the Signal Stock Option. In approving the Merger Agreement and the
Signal Stock Option, Signal's Board of Directors considered a number of factors,
including, among others, the financial terms of the Merger and the value of the
consideration to be received by Signal's shareholders; the fairness opinion
rendered by Sandler O'Neill, a copy of which is attached hereto as Appendix B;
and the strategic fit between FirstMerit and Signal. See "BACKGROUND OF AND
REASONS FOR MERGER -- Reasons for Merger -- Signal;" "-- Opinion of Signal's
Financial Advisor" and "-- Recommendation of Signal's Board of Directors."
OPINION OF FINANCIAL ADVISORS
FIRSTMERIT. Goldman, Sachs & Co. has delivered written opinions to the
Board of Directors of FirstMerit that, as of the date the Merger Agreement was
signed, and as of the date of this Joint Proxy Statement/Prospectus, the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to FirstMerit. The opinions of Goldman Sachs referred to herein do not
constitute a recommendation as to how any holder of FirstMerit Common Stock
should vote with respect to such transaction. The full text of the written
opinion of Goldman Sachs dated the date of this Joint Proxy
Statement/Prospectus, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is attached
hereto as Appendix C and is incorporated herein by reference. Holders of
FirstMerit Common Stock are urged to, and should, read such opinion in its
entirety. See "BACKGROUND OF AND REASONS FOR MERGER -- Opinion of FirstMerit's
Financial Advisor."
SIGNAL. Signal has retained Sandler O'Neill as its financial advisor in
connection with the transactions contemplated by the Merger Agreement and to
evaluate the financial terms of the Merger. Sandler O'Neill has delivered
opinions to the Signal Board that, as of the date the Merger Agreement was
signed, and as of the date of this Joint Proxy Statement/Prospectus, the
Exchange Ratio was fair, from a financial point of view, to the holders of
Signal Common and Preferred Stock. A copy of the opinion of Sandler O'Neill
dated as of the date of this Joint Proxy Statement/Prospectus is attached to
this Joint Proxy Statement/Prospectus as Appendix B. See "BACKGROUND OF AND
REASONS FOR MERGER -- Opinion of Signal's Financial Advisor."
RECOMMENDATION OF DIRECTORS
FIRSTMERIT. The Board of Directors of FirstMerit has approved the Merger
Agreement including the issuance of the FirstMerit Common and Series B Preferred
Stock and the increase in the number of directors, and recommends the adoption
of the Merger Agreement and the increase in the number of directors by the
FirstMerit shareholders. See "BACKGROUND OF AND REASONS FOR
MERGER -- Recommendation of FirstMerit's Board of Directors."
SIGNAL. The Board of Directors of Signal has approved the Merger Agreement
and recommends the adoption of the Merger Agreement by the Signal shareholders.
See "BACKGROUND OF AND REASONS FOR MERGER -- Recommendation of Signal's Board of
Directors."
INTERESTS OF CERTAIN PERSONS IN MERGER
Certain members of Signal's management and the Signal Board of Directors
have interests in the Merger in addition to their interests as shareholders of
Signal generally. Those interests relate to provisions in the Merger Agreement,
among other provisions, regarding: (i) the appointment of Gary G. Clark,
Chairman of the Board and Chief Executive Officer of Signal, to the FirstMerit
Board of Directors; (ii) change in control payments of $ , $
and $ expected to be made to Gary G. Clark, James J. Little and L.
Dwight Douce, respectively, subject to possible cut-back of such amounts if the
receipt thereof would result in a penalty tax under Section 280G of the Code;
(iii) the assumption of outstanding Signal stock options by FirstMerit; and
9
<PAGE> 21
(iv) the continuation of certain indemnification and limitation of liability
provisions provided to Signal's and its subsidiaries' directors and officers by
Signal and the subsidiaries. For a more detailed description of these and other
interests of certain persons in the Merger, see "TERMS OF THE
MERGER -- Interests of Certain Persons in the Merger."
COMPARISON OF RIGHTS OF HOLDERS OF FIRSTMERIT COMMON STOCK AND SIGNAL COMMON
STOCK
The rights of the holders of Signal Capital Stock are governed by the Ohio
General Corporation Law ("OGCL"), Signal's Articles of Incorporation (the
"Signal Articles") and Signal's Code of Regulations (the "Signal Regulations").
At the Effective Time, Signal's shareholders will become FirstMerit shareholders
and their rights will continue to be governed thereafter by the OGCL, but also
by FirstMerit's Amended and Restated Articles of Incorporation, as amended (the
"FirstMerit Articles"), its Amended and Restated Code of Regulations (the
"FirstMerit Regulations"), and the FirstMerit Shareholders Rights Agreement
dated October 21, 1993, as amended and restated on May 20, 1998 ("FirstMerit
Rights Agreement").
The rights of a holder of Signal Common Stock are similar in most respects
to the rights of a holder of FirstMerit Common Stock. FirstMerit Common Stock
has associated rights which trade with the FirstMerit Common Stock, which arise
pursuant to the terms of the FirstMerit Rights Agreement. Each share of
FirstMerit Common Stock issued to shareholders of Signal in the Merger
represents an interest in the FirstMerit Rights Agreement. The rights provide a
shareholder of FirstMerit with the ability to acquire shares of capital stock of
FirstMerit in the event of an attempted "takeover" of FirstMerit. The rights are
not currently exercisable. All references to the FirstMerit Common Stock in this
Joint Proxy Statement/Prospectus include the associated rights (the "Rights").
See "COMPARISON OF FIRSTMERIT AND SIGNAL CAPITAL STOCK."
MARKET PRICES FOR FIRSTMERIT AND SIGNAL COMMON STOCK
FirstMerit Common Stock and Signal Common Stock are included for quotation
on Nasdaq/NMS, under the symbols "FMER" and "SGNL," respectively. As of
, 1998, the Signal Record Date, there were 69,522,670 shares of
FirstMerit Common Stock outstanding and held by approximately 7,695 holders of
record, and 11,777,374 shares of Signal Common Stock outstanding and held by
approximately 3,800 holders of record.
The information presented in the table below sets forth the closing prices
as reported on Nasdaq/NMS for FirstMerit Common Stock and Signal Common Stock on
August 10, 1998 (the last trading date preceding the public announcement of the
Merger Agreement). In addition, the table indicates the closing sale prices as
reported on Nasdaq/NMS for FirstMerit Common Stock and Signal Common Stock on
, 1998, the most recent practicable date prior to the mailing of
the Joint Proxy Statement/Prospectus. The "Equivalent Value Per Share" is
calculated by multiplying the closing sale price of FirstMerit Common Stock on
such dates by the Common Exchange Ratio of 1.32.
<TABLE>
<CAPTION>
FIRSTMERIT SIGNAL EQUIVALENT
COMMON COMMON VALUE
STOCK STOCK PER SHARE
---------- ------ ----------
<S> <C> <C> <C>
August 10, 1998............................................. $28.19 $28.00 $37.21
, 1998............................................ $ $ $
</TABLE>
For additional information regarding the market prices and dividends paid
on the FirstMerit Common Stock and Signal Common Stock during 1996, 1997 and
1998, see "PRICE RANGE OF COMMON STOCK AND DIVIDENDS -- Market Price;" and
"-- Dividends."
NO ASSURANCE CAN BE GIVEN AS TO THE MARKET PRICE OF SHARES OF FIRSTMERIT COMMON
STOCK IF AND WHEN THE MERGER IS CONSUMMATED, OR WHEN THE SHARES OF FIRSTMERIT
COMMON STOCK ARE ACTUALLY DELIVERED.
10
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present, for FirstMerit and Signal, selected
consolidated financial data for the five year period ended December 31, 1997,
and for Security First, selected consolidated financial data for the five year
period ended March 31, 1998. Information presented for years ended 1997 and
prior thereto for Security First is based on its fiscal years ended March 31,
1998, 1997, 1996, 1995 and 1994. Selected consolidated financial data for the
six month periods ended June 30, 1998 and 1997 is also presented for FirstMerit,
Security First and Signal. The selected consolidated financial data presented is
unaudited, except for the following fiscal year end information: Statement of
Income Data, Per Share Data and Balance Sheet Data.
The information for FirstMerit has been derived from the consolidated
financial statements of FirstMerit, including the unaudited consolidated
financial statements of FirstMerit incorporated in this Joint Proxy
Statement/Prospectus by reference to FirstMerit's Quarterly Report on Form 10-Q
for the period ended June 30, 1998, as amended by Form 10-Q/A filed on August
26, 1998, and the audited consolidated financial statements of FirstMerit
incorporated in this Joint Proxy Statement/Prospectus by reference to
FirstMerit's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended by Form 10-K/A filed on April 30, 1998, and should be read in
conjunction therewith and with the notes thereto. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
The information for Security First has been derived from the consolidated
financial statements of Security First, including the unaudited financial
statements for the three month period ended June 30, 1998, and the audited
consolidated financial statements of Security First for the year ended March 31,
1998, and should be read in conjunction therewith and with the notes thereto.
Information presented for the years ended 1997 and prior is based on Security
First's fiscal years ended March 31, 1998, 1997, 1996, 1995 and 1994.
Information presented for the six months ended June 30, 1998 and 1997 represents
the results of Security First's fiscal fourth quarters ended March 31 added to
results for Security First's fiscal first quarters ended June 30.
The information for Signal has been derived from the consolidated financial
statements of Signal, including the incorporated audited consolidated restated
financial statements of Signal for the year ended December 31, 1997 and the
incorporated unaudited interim financial statements for the six month period
ended June 30, 1998, and should be read in conjunction therewith and with the
notes thereto.
Historical results are not necessarily indicative of results to be expected
for any future period. With respect to FirstMerit, results for the six month
period ended June 30, 1998 are not necessarily indicative of results which may
be expected for any other interim period or for the year as a whole. See
"BUSINESS OF FIRSTMERIT -- Recent Transactions" for information concerning
FirstMerit's pending acquisitions of Security First and Signal.
11
<PAGE> 23
FIRSTMERIT CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income..................... $ 211,708 $ 200,777 $ 407,825 $ 411,745 $ 416,627 $ 371,018 $ 361,208
Interest expense.................... 79,421 74,032 152,369 160,773 180,933 140,181 135,149
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................. 132,287 126,745 255,456 250,972 235,694 230,837 226,059
Provision for possible loan
losses............................ 10,906 9,194 21,593 17,751 19,763 4,624 8,056
Non-interest income................. 50,207 39,394 83,578 82,496 68,517 70,656 71,909
Non-interest expense................ 104,973 95,326 191,080 209,702 227,779 193,410 187,945
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 66,615 61,619 126,361 106,015 56,669 103,459 101,967
Provision for federal income tax.... 20,505 20,067 39,998 35,075 30,950 32,110 33,335
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before extraordinary
item.............................. 46,110 41,552 86,363 70,940 25,719 71,349 68,632
Extraordinary item (net of tax
effect)........................... 5,599
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......................... $ 46,110 $ 41,552 $ 86,363 $ 70,940 $ 31,318 $ 71,349 $ 68,632
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:(1)
Net income -- basic................. $ 0.74 $ 0.66 $ 1.38 $ 1.09 $ 0.47 $ 1.07 $ 1.03
Net income -- diluted............... 0.73 0.65 1.36 1.08 0.47 1.07 1.03
Dividends........................... 0.32 0.29 0.61 0.55 0.51 0.49 0.44
Book value.......................... 9.91 8.37 8.56 8.19 8.10 7.86 7.52
BALANCE SHEET DATA:
Total assets........................ $6,179,390 $5,317,118 $5,307,461 $5,227,908 $5,596,621 $5,722,573 $5,179,298
Loans............................... 4,295,933 3,877,685 3,834,875 3,655,998 3,770,366 3,687,889 3,135,866
Allowance for possible loan
losses............................ 65,749 50,893 53,774 49,336 46,840 35,834 35,030
Securities.......................... 1,327,598 1,072,734 1,116,787 1,187,524 1,403,059 1,610,360 1,579,651
Deposits............................ 4,878,882 4,202,816 4,255,211 4,204,875 4,501,925 4,541,457 4,429,681
Borrowings.......................... 547,368 514,680 441,755 423,701 486,958 612,624 199,898
Shareholders' equity................ 646,013 517,160 530,336 523,707 542,881 523,319 500,121
PERFORMANCE RATIOS:(2)
Return on average assets............ 1.69% 1.61% 1.64% 1.29% 0.55% 1.32% 1.34%
Return on average equity............ 16.90% 16.37% 16.62% 13.44% 5.93% 13.86% 14.30%
Net interest margin................. 5.25% 5.31% 5.25% 4.94% 4.53% 4.68% 4.90%
Interest rate spread................ 4.45% 4.56% 4.44% 4.18% 3.78% 4.15% 4.38%
Non-interest income to average
assets............................ 1.84% 1.53% 1.59% 1.51% 1.21% 1.31% 1.41%
Non-interest expense to average
assets............................ 3.84% 3.70% 3.64% 3.83% 4.03% 3.59% 3.67%
Efficiency ratio(3)................. 57.15% 56.56% 55.60% 59.10% 65.65% 62.14% 60.72%
ASSET QUALITY RATIOS:
Non-performing loans to total
loans............................. 0.37% 0.27% 0.35% 0.29% 0.37% 0.70% 0.85%
Non-performing assets to total
assets............................ 0.26% 0.19% 0.26% 0.20% 0.25% 0.27% 0.26%
Allowance for possible loan losses
to total loans.................... 1.53% 1.31% 1.40% 1.35% 1.24% 0.97% 1.12%
Allowance for possible loan losses
to non-performing loans........... 438.77% 521.66% 423.15% 471.75% 364.80% 229.00% 192.30%
Net charge-offs to average
loans(2).......................... 0.36% 0.41% 0.45% 0.40% 0.23% 0.11% 0.15%
CAPITAL RATIOS(4):
Shareholders' equity to total
assets............................ 10.45% 9.73% 9.99% 10.02% 9.70% 9.14% 9.66%
Leverage ratio(5)................... 8.75% 9.89% 9.66% 9.63% 9.66% 9.53% 9.43%
Tier 1 capital to risk-weighted
assets............................ 9.68% 11.79% 12.30% 12.63% 14.53% 15.32% 16.18%
</TABLE>
- ---------------
(1) Per share data has been restated to reflect all stock dividends and stock
splits.
(2) Ratios for the six months ended June 30, 1998 and 1997 are stated on an
annualized basis.
(3) The efficiency ratio is equal to non-interest expense less amortization of
intangible assets divided by net interest income plus non-interest income
less gains or losses on securities transactions.
(4) Ratios are calculated based on period-end balances.
(5) Leverage ratio is computed as a ratio of period-end assets less goodwill.
12
<PAGE> 24
SECURITY FIRST CORP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEARS ENDED MARCH 31,
------------------- ----------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income................................ $ 28,703 $ 26,289 $ 55,715 $ 49,178 $ 43,593 $ 39,410 $ 38,578
Interest expense............................... 14,922 13,928 29,566 25,563 22,608 18,123 18,000
-------- -------- -------- -------- -------- -------- --------
Net interest income............................ 13,781 12,361 26,149 23,615 20,985 21,287 20,578
Provision for possible loan losses............. 168 118 310 323 377 582 695
Non-interest income............................ 1,012 844 1,758 1,698 1,699 1,418 1,518
Non-interest expense........................... 6,775 6,528 13,306 15,209 13,367 12,009 11,386
-------- -------- -------- -------- -------- -------- --------
Income before income taxes..................... 7,850 6,559 14,291 9,781 8,940 10,114 10,015
Provision for federal income tax............... 2,738 2,220 4,980 3,371 3,334 3,414 3,433
Cumulative effect of accounting change......... 1,168
-------- -------- -------- -------- -------- -------- --------
Net income..................................... $ 5,112 $ 4,339 $ 9,311 $ 6,410 $ 5,606 $ 6,700 $ 7,750
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:(1)
Net income -- basic............................ $ 0.67 $ 0.58 $ 1.23 $ 0.86 $ 0.78 $ 0.93 $ 1.40
Net income -- diluted.......................... 0.60 0.52 1.11 0.78 0.70 0.82 1.15
Dividends...................................... 0.17 0.15 0.32 0.28 0.27 0.21 0.12
Book value..................................... 8.77 8.12 8.56 7.92 7.35 6.90 7.33
BALANCE SHEET DATA:
Total assets................................... $696,462 $653,226 $685,482 $634,761 $547,227 $507,751 $476,910
Loans and mortgage-backed securities........... 632,105 586,096 629,303 570,498 478,906 435,119 402,926
Allowance for possible loan losses............. 5,287 5,018 5,189 4,968 4,572 4,283 3,973
Securities..................................... 28,107 34,923 21,318 35,555 40,782 45,245 46,786
Deposits....................................... 511,183 464,976 508,157 445,182 410,737 393,314 387,776
Borrowings..................................... 109,195 120,100 105,107 123,700 76,858 59,347 47,513
Shareholders' equity........................... 68,943 61,541 64,679 59,435 54,381 50,209 36,701
PERFORMANCE RATIOS:(2)
Return on average assets....................... 1.48% 1.36% 1.39% 1.07% 1.07% 1.37% 1.64%
Return on average equity....................... 15.62% 14.61% 14.92% 11.33% 10.64% 14.58% 23.23%
Net interest margin............................ 4.15% 4.02% 4.05% 4.12% 4.16% 4.57% 4.56%
Interest rate spread........................... 3.81% 3.68% 3.70% 3.78% 3.80% 4.30% 4.39%
Non-interest income to average assets.......... 0.29% 0.26% 0.26% 0.28% 0.32% 0.29% 0.32%
Non-interest expense to average assets......... 1.96% 2.04% 1.98% 2.55% 2.54% 2.46% 2.41%
Efficiency ratio(3)............................ 45.47% 48.76% 47.29% 49.52% 55.19% 50.18% 51.03%
ASSET QUALITY RATIOS:
Non-performing loans to total loans............ 0.68% 0.31% 0.46% 0.29% 0.53% 0.76% 0.92%
Non-performing assets to total assets.......... 0.62% 0.28% 0.42% 0.26% 0.47% 0.70% 0.83%
Allowance for possible loan losses to total
loans........................................ 0.83% 0.85% 0.82% 0.87% 0.95% 0.98% 0.99%
Allowance for possible loan losses to
non-performing loans......................... 122.38% 274.50% 178.50% 302.37% 180.85% 128.70% 107.82%
Net charge-offs (recoveries) to average
loans(2)..................................... 0.01% 0.01% 0.01% (0.01%) 0.02% 0.07% 0.15%
CAPITAL RATIOS(4)(5):
Shareholders' equity to total assets........... 9.90% 9.42% 9.44% 9.36% 9.94% 9.89% 7.70%
Leverage ratio(6).............................. 7.64% 7.92% 7.45% 7.92% 8.42% 8.74% 7.87%
Tier 1 capital to risk-weighted assets......... 10.69% 11.40% 10.21% 11.39% 12.65% 13.24% 11.76%
</TABLE>
- ---------------
(1) Per share data has been restated to reflect all stock dividends and stock
splits.
(2) Ratios for the six months ended June 30, 1998 and 1997 are stated on an
annualized basis.
(3) The efficiency ratio is equal to non-interest expense less amortization of
intangible assets divided by net interest income plus non-interest income
less gains or losses on securities transactions.
(4) Ratios are calculated based on period-end balances.
(5) Capital ratios for Security First's principal subsidiary, Security Federal
Savings & Loan, only.
(6) Leverage ratio is computed as a ratio of period-end assets less goodwill.
13
<PAGE> 25
SIGNAL CORP
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:(1)
Interest income..................... $ 68,368 $ 53,912 $ 119,653 $ 101,169 $ 88,709 $ 72,709 $ 66,235
Interest expense.................... 43,391 34,707 76,512 63,007 53,765 39,945 36,809
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................. 24,977 19,205 43,141 38,162 34,944 32,764 29,426
Provision for possible loan
losses............................ 3,234 657 1,615 1,259 918 801 1,848
Non-interest income................. 15,240 11,926 30,075 18,957 5,133 3,719 7,152
Non-interest expense................ 32,775 15,832 41,479 35,451 19,781 18,787 16,656
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 4,208 14,642 30,122 20,409 19,378 16,895 18,074
Provision for federal income tax.... 1,831 5,037 11,088 7,549 6,853 5,601 6,271
Cumulative effect of accounting
change............................ 451
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......................... $ 2,377 $ 9,605 $ 19,034 $ 12,860 $ 12,525 $ 11,294 $ 12,254
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:(2)
Net income -- basic................. $ 0.18 $ 1.01 $ 1.93 $ 1.29 $ 1.30 $ 1.21 $ 1.14
Net income -- diluted............... 0.18 0.82 1.57 1.09 1.08 1.01 1.00
Dividends........................... 0.20 0.17 0.34 0.30 0.27 0.22 0.14
Book value.......................... 12.51 14.07 13.43 14.91 16.80 15.71 14.91
BALANCE SHEET DATA:
Total assets........................ $1,912,225 $1,614,566 $1,832,387 $1,486,168 $1,279,391 $1,147,607 $ 979,632
Loans............................... 1,226,851 979,214 1,166,938 922,009 769,086 685,862 522,908
Allowance for possible loan
losses............................ 10,191 7,487 8,773 5,783 5,466 5,904 6,745
Securities.......................... 483,690 487,225 452,222 399,714 423,927 414,345 358,338
Deposits............................ 1,305,086 932,204 1,256,896 939,538 828,447 752,484 706,358
Borrowings.......................... 417,097 524,540 394,968 398,868 313,192 273,180 168,379
Shareholders' equity................ 155,912 136,149 152,597 128,341 124,156 113,127 95,936
PERFORMANCE RATIOS:(3)
Return on average assets............ 0.25% 1.26% 1.14% 0.92% 1.04% 0.95% 1.23%
Return on average equity............ 3.07% 14.58% 13.56% 10.08% 10.54% 9.30% 13.11%
Net interest margin................. 2.84% 2.64% 2.77% 2.85% 2.99% 3.25% 3.36%
Interest rate spread................ 2.54% 2.29% 2.41% 2.50% 2.54% 2.89% 3.04%
Non-interest income to average
assets............................ 1.61% 1.56% 1.80% 1.35% 0.43% 0.36% 0.78%
Non-interest expense to average
assets............................ 3.47% 2.08% 2.49% 2.52% 1.64% 1.80% 1.82%
Efficiency ratio(4)................. 60.01% 48.72% 52.55% 51.33% 48.39% 51.50% 45.54%
ASSET QUALITY RATIOS:
Non-performing loans to total
loans............................. 0.61% 0.59% 0.73% 0.64% 0.45% 0.88% 1.23%
Non-performing assets to total
assets............................ 0.40% 0.36% 0.47% 0.40% 0.28% 0.53% 0.73%
Allowance for possible loan losses
to total loans.................... 0.82% 0.76% 0.75% 0.63% 0.70% 0.85% 1.16%
Allowance for possible loan losses
to non-performing loans........... 134% 130% 103% 98% 154% 97% 94%
Net charge-offs to average
loans(2).......................... 0.31% 0.09% 0.11% 0.11% 0.18% 0.26% 0.14%
CAPITAL RATIOS(5):
Shareholders' equity to total
assets............................ 8.15% 8.43% 8.33% 8.64% 9.70% 9.86% 9.79%
Leverage ratio(6)................... 8.91% N/A 5.23% N/A N/A N/A N/A
Tier 1 capital to risk-weighted
assets............................ 11.77% N/A 8.18% N/A N/A N/A N/A
</TABLE>
- ---------------
N/A -- Not available.
(1) Results for the six months ended June 30, 1998 contain certain merger
charges and other non-recurring items.
(2) Per share data has been restated to reflect all stock dividends and stock
splits.
(3) Ratios for the six months ended June 30, 1998 and 1997 are stated on an
annualized basis.
(4) The efficiency ratio is equal to non-interest expense less amortization of
intangible assets divided by net interest income plus non-interest income
less gains or losses on securities transactions.
(5) Ratios are calculated based on period-end balances.
(6) Leverage ratio is computed as a ratio of period-end assets less goodwill.
14
<PAGE> 26
HISTORICAL FINANCIAL DATA
The following Signal balance sheet information as of December 31, 1997, and
income statement information for the periods ended June 30, 1998 and December
31, 1997 have been derived from the consolidated financial statements of Signal
incorporated by reference from FirstMerit's Current Report on Form 8-K filed
with the Commission on August 31, 1998.
SIGNAL CORP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
ASSETS:
Cash and due from banks..................................... $ 34,393
Investment securities....................................... 452,222
Loans held for sale......................................... 90,379
Loans and leases receivable................................. 1,175,711
Allowance for possible loan losses.......................... (8,773)
Accrued interest receivable and other assets................ 88,455
----------
Total assets...................................... $1,832,387
==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits.................................................... $1,256,896
Short-term borrowings....................................... 124,275
Long-term debt.............................................. 270,693
Other liabilities........................................... 27,926
----------
Total liabilities................................. 1,679,790
----------
Shareholders' equity:
Preferred stock........................................... 9,917
Common stock.............................................. 9,748
Treasury stock............................................ (7,984)
Additional paid-in capital................................ 63,725
Retained earnings......................................... 75,947
Securities equity valuation............................... 1,244
----------
Total shareholders' equity........................ 152,597
----------
Total liabilities and shareholders' equity........ $1,832,387
==========
</TABLE>
SIGNAL CORP
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Interest income............................................. $68,368 $119,653
Interest expense............................................ 43,391 76,512
------- --------
Net interest income....................................... 24,977 43,141
Allowance for possible loan losses.......................... 3,234 1,615
------- --------
Net interest income after allowance for possible loan
losses................................................. 21,743 41,526
------- --------
Other income................................................ 15,240 30,075
Other expenses.............................................. 32,775 41,479
------- --------
Income before income taxes................................ 4,208 30,122
------- --------
Provision for income taxes.................................. 1,831 11,088
------- --------
Net income.................................................. 2,377 19,034
Preferred stock dividends................................... 349 1,584
------- --------
Net income applicable to common shares...................... $ 2,028 $ 17,450
======= ========
Net income per common share................................. $ 0.18 $ 1.93
Net income per diluted share................................ $ 0.18 $ 1.57
Weighted-average basic common shares outstanding............ 11,339 9,051
Weighted-average diluted common shares outstanding.......... 11,339 12,151
</TABLE>
15
<PAGE> 27
COMPARATIVE PER SHARE DATA (UNAUDITED)
For the periods indicated, the following table sets forth common share book
value, cash dividends paid, and net income (unaudited) of (a) FirstMerit on a
historical basis, (b) Signal on a historical basis, (c) Security First on a
historical basis, (d) FirstMerit, Security First and Signal on a pro forma
combined basis, and (e) FirstMerit, Security First and Signal on a pro forma
combined adjusted basis that gives effect to the merger. The pro forma data in
the table assumes that each of the acquisitions of Security First and Signal are
treated as a pooling-of-interest for accounting purposes. The pro forma
dividends per share are assumed to be the same as FirstMerit's historical
dividends per share. The selected annual historical data for each entity
coincides with their respective fiscal years, which were years ended December 31
for FirstMerit and Signal and years ended March 31 for Security First, and the
selected unaudited interim historical financial data for each entity, including
Security First, is based on the six month periods ended June 30, 1998 and 1997.
Information presented for years ended 1997 and prior thereto for Security First
is based on its fiscal years ended March 31, 1998, 1997, 1996, 1995 and 1994.
Upon consummation of the Security First and Signal mergers, the fiscal year of
the combined company will be December 31. Accordingly, historical financial
statements of the combined company subsequent to the Security First and Signal
mergers will include the financial information of Security First on a calendar
year basis.
The following information should be read in conjunction with the historical
selected financial information of FirstMerit, CoBancorp, Security First and
Signal and the pro forma condensed combined financial information giving effect
to the Security First and Signal mergers included elsewhere in the Joint Proxy
Statement/Prospectus.
THE INFORMATION PRESENTED BELOW IS NOT NECESSARILY INDICATIVE OF THE
RESULTS WHICH ACTUALLY WOULD HAVE BEEN OBTAINED IF THE SECURITY FIRST AND SIGNAL
MERGERS HAD BEEN CONSUMMATED IN THE PAST OR WHICH MAY BE OBTAINED IN THE FUTURE.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED
---------------- -----------------------
1998 1997 1997 1996 1995
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
HISTORICAL PER SHARE DATA:
FIRSTMERIT
Net income per basic common share.......................... $ 0.74 $ 0.66 $1.38 $1.09 $0.47
Net income per diluted common share........................ 0.73 0.65 1.36 1.08 0.47
Cash dividends paid per common share....................... 0.32 0.29 0.61 0.55 0.51
Book value per common share (period end)................... 9.91 8.29 8.56 8.19 8.10
SECURITY FIRST
Net income per basic common share.......................... 0.67 0.58 1.23 0.86 0.78
Net income per diluted common share........................ 0.60 0.52 1.11 0.78 0.70
Cash dividends paid per common share....................... 0.17 0.15 0.32 0.28 0.27
Book value per common share (period end)................... 8.77 8.12 8.56 7.92 7.35
SIGNAL(1)
Net income per basic common share.......................... 0.18 1.01 1.93 1.29 1.30
Net income per diluted common share........................ 0.18 0.82 1.57 1.09 1.08
Cash dividends paid per common share....................... 0.20 0.17 0.34 0.30 0.27
Book value per common share (period end)................... 12.51 14.07 13.43 14.91 16.80
PRO FORMA COMBINED
Net income per basic common share(2)(3).................... 0.59 0.63 1.30 1.06 0.57
Net income per diluted common share(2)(3).................. 0.59 0.60 1.24 1.02 0.55
Cash dividends paid per common share(4).................... 0.32 0.29 0.61 0.55 0.51
Book value per common share (period end)................... 9.07 8.54 9.01 8.41 8.33
PRO FORMA COMBINED ADJUSTED
Net income per basic common share(2)(3).................... 0.59 0.62 1.28 1.05 0.49
Net income per diluted common share(2)(3).................. 0.58 0.60 1.22 1.01 0.48
Cash dividends paid per common share(4).................... 0.32 0.29 0.61 0.55 0.51
Book value per common share (period end)................... 9.21 8.70 9.16 8.57 8.49
</TABLE>
- ---------------
(1) Signal's results for the six months ended June 30, 1998, contain certain
merger charges and other non-recurring items.
(2) FirstMerit actual cash dividends per share used in pro forma combined
presentation.
(3) The Pro Forma Condensed Combined net income and Pro Forma Condensed Combined
net income per basic and diluted share excludes $724,000 of extraordinary
expenses (net of tax) for merger related costs included in the December 31,
1997 CoBancorp financial statements.
(4) The Pro Forma Condensed Combined net income and Pro Forma Condensed Combined
net income per basic and diluted share excludes $5.6 million of
extraordinary income (net of tax) on the disposition of assets after
business acquisition included in the December 31, 1995 FirstMerit financial
statements.
16
<PAGE> 28
ACQUIRING PERSON STATEMENT
Consummation of the proposed Merger of Signal with and into FirstMerit in
accordance with the terms of the Merger Agreement requires compliance with the
Acquisition Act. The Acquisition Act requires the advance approval of the
shareholders of an "Issuing Public Corporation" prior to the purchase of a
controlling interest in such corporation. Signal is an Issuing Public
Corporation within the meaning of the Acquisition Act and therefore the
transactions contemplated by the Merger Agreement must be approved under the
Acquisition Act. A vote "for" adoption of the Merger Agreement will also
constitute an affirmative vote to authorize the acquisition of 100% of the
outstanding shares of Signal Common Stock by FirstMerit as required by the
Acquisition Act.
Presented below is FirstMerit's Acquiring Person Statement as required by
the Acquisition Act. FirstMerit submitted its Acquiring Person Statement to
Signal on the date this Joint Proxy Statement/Prospectus was first mailed to
Signal shareholders. In addition to a majority vote of the outstanding shares of
Signal Common Stock entitled to vote in the election of directors, approval
under the Acquisition Act requires the favorable vote of a majority of the
shares entitled to vote in the election of directors represented at the meeting
in person or by proxy excluding any "interested shares," which are defined to
include shares in respect of which FirstMerit, any corporate officer of Signal
and any employee of Signal who is also a director of Signal may exercise or
direct the exercise of the voting power of Signal in the election of its
directors. In addition "interested shares" are defined to include those acquired
by any person after the first date of public disclosure (August 11, 1998) of the
Merger and prior to the date of the Signal Meeting, provided such person has
paid over $250,000 for such purchased shares or such purchased shares represents
greater than .05% of the outstanding shares of the Issuing Public Corporation.
As of the Signal Record Date, FirstMerit owned shares of Signal
Common Stock. Officers and employees of Signal who are interested shareholders
within the meaning of the Acquisition Act own 1,624,390 shares of Signal Common
Stock. Neither Signal nor FirstMerit are aware of any other shares of Signal
Common Stock which could be considered as held by an interested shareholder as
defined by the Acquisition Act. Therefore approval of the proposed acquisition
of a controlling interest in Signal by FirstMerit under the provisions of the
Acquisition Act requires the affirmative vote of shares of Signal
Common Stock which represents a majority of the shares entitled to vote in the
election of directors and shares of Signal Common Stock in
connection with the vote which excludes interested shares, as defined by the
Acquisition Act.
FirstMerit's Acquiring Person Statement under the Ohio Control Share
Acquisition Act is as follows:
1. The identity of the Acquiring Person is FirstMerit Corporation,
Akron, Ohio.
2. This Statement is given pursuant to ORC Section 1701.831(B).
3. FirstMerit owns no shares of Signal Common Stock.
4. If the proposed Merger is consummated, FirstMerit will acquire 100%
of the voting power of Signal Common Stock.
5. FirstMerit proposes to acquire Signal in a merger transaction
pursuant to and in accordance with the provisions of ORC Section 1701.78
and the Merger Agreement. The Merger Agreement is incorporated into this
Acquiring Person Statement as if fully restated herein.
The proposed control share acquisition, if consummated, will not be
contrary to law, and FirstMerit has the financial capacity to make the proposed
control share acquisition.
17
<PAGE> 29
SPECIAL MEETINGS OF SHAREHOLDERS
FIRSTMERIT MEETING
Place, Time and Date. The FirstMerit Meeting will be held at
, located at , Akron, Ohio at 10:00 A.M., local
time, on , 1998. This Joint Proxy Statement/
Prospectus is being sent to holders of FirstMerit Common Stock and accompanies a
form of proxy (the "FirstMerit Proxy") which is being solicited by the
FirstMerit Board for use at the FirstMerit Meeting and at any and all
adjournments or postponements thereof.
Matters to Be Considered. At the FirstMerit Meeting, holders of shares of
FirstMerit Common Stock will vote on (i) the adoption of the Merger Agreement,
including the issuance of shares of FirstMerit Common Stock and FirstMerit
Series B Preferred Stock, contemplated thereby; and (ii) to set the number of
directors at 21, increasing such number by three. FirstMerit shareholders will
also consider and vote upon such other matters as may properly be brought before
the FirstMerit Meeting. As of the date hereof, the FirstMerit Board knows of no
business that will be presented for consideration at the FirstMerit Meeting
other than the matters described in this Joint Proxy Statement/Prospectus.
FirstMerit Record Date. The FirstMerit Board has fixed the close of
business on , 1998 (the "FirstMerit Record Date") as the date for
determining holders of FirstMerit Common Stock who will be entitled to notice
of, and to vote at the FirstMerit Meeting. As of the FirstMerit Record Date
there were outstanding and entitled to vote at the FirstMerit Meeting 69,522,670
shares of FirstMerit Common Stock. Each holder of record of shares of FirstMerit
Common Stock on the FirstMerit Record Date will be entitled to cast one vote per
share at the FirstMerit Meeting. Such vote may be exercised in person or by
properly executed proxy.
Vote Required. The affirmative vote of the holders of two-thirds of the
outstanding shares of FirstMerit Common Stock, being shares of
FirstMerit Common Stock, is required for adoption of the Merger Agreement,
including the issuance of shares of FirstMerit Common Stock and FirstMerit
Series B Preferred Stock contemplated thereby; and the affirmative vote of the
holders of a majority of the outstanding shares of FirstMerit Common Stock,
being shares of FirstMerit Common Stock, is required to set the
number of directors at 21. As of the FirstMerit Record Date, the directors and
executive officers of FirstMerit and their affiliates beneficially owned in the
aggregate shares of FirstMerit Common Stock (excluding
shares underlying stock options currently exercisable or which
will become exercisable within 60 days of , 1998), or approximately
% of the then outstanding shares of FirstMerit Common Stock entitled to
vote at the FirstMerit Meeting.
Quorum; Broker Non-Votes. The required quorum for the transaction of
business at the FirstMerit Meeting is a majority of the shares of FirstMerit
Common Stock, issued and outstanding on the FirstMerit Record Date, which must
be present in person or represented by proxy at the FirstMerit Meeting.
Abstentions and broker non-votes (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons as to certain proposals on which such beneficial owners
or persons are entitled to vote their shares but with respect to which the
brokers or nominees have no discretionary power to vote without such
instructions) will be treated as shares present at the FirstMerit Meeting for
purposes of determining the presence of a quorum. Therefore, abstentions and
broker non-votes will have the same effect as votes against adoption of the
Merger Agreement and the proposal to increase the number of directors.
If a quorum is not obtained, or if fewer shares of FirstMerit Common Stock
than the number required therefor are voted in favor of the adoption of the
Merger Agreement, the FirstMerit Meeting may be postponed or adjourned in order
to permit additional time for soliciting and obtaining additional proxies or
votes, and, at any subsequent reconvening of the FirstMerit Meeting, all proxies
will be voted in the same manner as such proxies would have been voted at the
original convening of the FirstMerit Meeting, except for any proxies that have
theretofore effectively been revoked or withdrawn.
Proxies. Shares of FirstMerit Common Stock represented by properly
executed proxies received prior to or at the FirstMerit Meeting will, unless
such proxies have been revoked, be voted at the FirstMerit Meeting and any
adjournments or postponements thereof, in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed FirstMerit Proxy, the shares will be voted FOR adoption of the Merger
Agreement and FOR approval of the proposal to increase the number of directors
of FirstMerit to 21.
18
<PAGE> 30
Any FirstMerit Proxy given pursuant to this solicitation may be revoked at
any time before it is voted. Proxies may be revoked by (i) filing with the
Secretary of FirstMerit at or before the FirstMerit Meeting a written notice of
revocation bearing a later date than the FirstMerit Proxy, (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of FirstMerit at or before the FirstMerit Meeting, or (iii) attending the
FirstMerit Meeting and voting in person (although attendance at the FirstMerit
Meeting will not in and of itself constitute revocation of a proxy). Any written
notice revoking a proxy should be delivered to Terry E. Patton, Secretary,
FirstMerit Corporation, III Cascade Plaza, Akron, Ohio 44308.
If any other matters are properly presented at the FirstMerit Meeting for
consideration, the persons named in the FirstMerit Proxy or acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. As of the date hereof, the FirstMerit Board knows of no such other
matters.
In addition to solicitation by mail, directors, officers and employees of
FirstMerit, who will not be specifically compensated for such services, may
solicit proxies from the shareholders of FirstMerit, personally or by telephone,
telegram or other forms of communication. FirstMerit has engaged Georgeson &
Company Inc. ("Georgeson") to assist FirstMerit in distributing proxy materials
and contacting record and beneficial owners of FirstMerit Common Stock.
FirstMerit has agreed to pay Georgeson approximately $ plus
out-of-pocket expenses for its services to be rendered on behalf of FirstMerit.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending proxy material to beneficial
owners. FirstMerit will bear its own expenses in connection with the
solicitation of proxies for the FirstMerit Meeting.
HOLDERS OF FIRSTMERIT COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING FIRSTMERIT PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Proposal to Increase Number of Directors. The FirstMerit Regulations
presently provide that the number of directors shall not be greater than 24,
divided into three classes, which classes are to be as equal as possible. The
shareholders of FirstMerit at the 1995 Special Meeting of Shareholders fixed the
number of directors at 18. The FirstMerit Regulations provide that the
shareholders have the sole authority to fix the number of directors, as long as
such number does not exceed 24. The FirstMerit Board is proposing that the
current number of 18 directors be increased by three to 21.
Although there currently exists one vacancy on the Board, pursuant to the
terms of the agreement between FirstMerit and Security First, FirstMerit has
agreed to appoint Mr. Charles F. Valentine to the FirstMerit Board immediately
upon the effectiveness of the merger of Security First with and into FirstMerit.
It is contemplated that the Security First merger will take place early in the
fourth quarter of 1998. Mr. Valentine's appointment would leave no vacancies on
the FirstMerit Board.
Pursuant to the terms of the Merger Agreement, FirstMerit has agreed to
appoint Gary G. Clark to the FirstMerit Board at the Effective Time. Assuming
approval of the proposal, with the appointment of Mr. Clark, two vacancies would
remain. As a matter of corporate policy, the Board believes it is important to
maintain vacancies on the Board. This would allow a majority of the Board,
pursuant to Article III, Section 3 of the Regulations, to appoint individual(s)
to the Board. Such a need could occur, as example, as part of the terms of a
future acquisition, or in the event the Board finds a highly qualified candidate
for the Board and believes it is important to appoint such person prior to the
next Annual Shareholder meeting. Any such person appointed would serve the
remaining term of such position, which could exceed one year.
RECOMMENDATION OF FIRSTMERIT'S BOARD OF DIRECTORS
The FirstMerit Board has approved the Merger Agreement and the transactions
contemplated thereby and has determined that the Merger is in the best interests
of FirstMerit and its shareholders. For a discussion of the factors considered
by the FirstMerit Board in reaching its decision to approve the Merger
Agreement, see "BACKGROUND OF AND REASONS FOR MERGER -- Reasons for
Merger -- FirstMerit." The Board has also determined that the proposal to
increase the number of directors to 21 is in the best interests of FirstMerit.
THE BOARD OF DIRECTORS OF FIRSTMERIT RECOMMENDS THAT ITS SHAREHOLDERS VOTE
FOR THE ADOPTION OF THE MERGER AGREEMENT AND THE INCREASE IN THE NUMBER OF
DIRECTORS.
19
<PAGE> 31
SIGNAL MEETING
Place, Time and Date. The Signal Meeting will be held at the Black Tie
Affair Conference Center, located at 50 Riffel Road, Wooster, Ohio at 9:00 a.m.,
local time, on , 1998. This Joint Proxy
Statement/Prospectus is being sent to holders of Signal Common Stock and
accompanies a form of proxy (the "Signal Proxy") which is being solicited by the
Signal Board for use at the Signal Meeting and at any and all adjournments or
postponements thereof. The Joint Proxy Statement/Prospectus is also being sent
for informational purposes to the holders of Signal Preferred Stock. The holders
of Signal Preferred Stock are entitled to notice of the Merger, but are not
entitled to vote at the Signal Meeting.
Matters to Be Considered. At the Signal Meeting, holders of shares of
Signal Common Stock will vote on the adoption of the Merger Agreement pursuant
to Sections 1701.78 and 1701.831 of the ORC, pursuant to which Signal will merge
with and into FirstMerit. Holders of Signal Common Stock will also consider and
vote upon such other matters as may properly be brought before the Signal
Meeting. As of the date hereof, the Signal Board knows of no business that will
be presented for consideration at the Signal Meeting other than the matters
described in this Joint Proxy Statement/Prospectus.
Signal Record Date. The Signal Board has fixed the close of business on
, 1998 (the "Signal Record Date") as the date for determining
holders of Signal Common Stock who will be entitled to notice of, and to vote at
the Signal Meeting. As of the Signal Record Date there were outstanding and
entitled to vote at the Signal Meeting 11,777,374 shares of Signal Common Stock.
Each holder of record of shares of Signal Common Stock on the Signal Record Date
will be entitled to cast one vote per share at the Signal Meeting. Such vote may
be exercised in person or by properly executed proxy.
Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of Signal Common Stock being shares of Signal
Common Stock is required for adoption of the Merger Agreement, as well as under
the Acquisition Act, a favorable vote of a majority of the shares entitled to
vote in the election of directors present at the Signal Meeting in person or by
proxy excluding any Interested Shares, which are defined to include shares in
respect of which FirstMerit, any corporate officer of Signal and any employee of
Signal who is also a director of Signal may exercise or direct the exercise of
voting power of Signal in the election of its directors. In addition "Interested
Shares" are defined to include those acquired by any person (i) after the first
date of public disclosure (August 11, 1998) of the Merger and prior to the date
of the Signal Meeting, provided such person has paid over $250,000 for such
purchased shares or such purchased shares represents greater than .05% of the
outstanding shares of the Issuing Public Corporation, and (ii) that transfers of
such shares for valuable consideration after the record date established by the
directors, if accompanied by the voting power in form of a blank proxy, an
agreement to vote as instructed by the transferee, or otherwise. As of the
Signal Record Date, FirstMerit owned no shares of Signal Common Stock. Officers
and employees of Signal own 1,624,390 Interested Shares. Neither Signal nor
FirstMerit are aware of any other shares of Signal Common Stock which could be
considered as held by an interested shareholder as defined by the Acquisition
Act. Therefore approval of the proposed acquisition of a controlling interest in
Signal by FirstMerit under the provisions of the Acquisition Act requires the
affirmative vote of shares of Signal Common Stock which
represents a majority of the shares entitled to vote in the election of
directors and shares of Signal Common Stock in connection with
the vote which excludes Interested Shares, as defined by the Acquisition Act. As
of the Signal Record Date, the directors and executive officers of Signal and
their affiliates beneficially owned in the aggregate 2,845,947 shares of Signal
Common Stock (including 401,645 shares underlying stock options currently
exercisable or which will become exercisable within 60 days of ,
1998 and 176,903 shares issuable upon conversion of shares of Signal's Preferred
Stock), or approximately 24.16% of the then outstanding shares of Signal Common
Stock entitled to vote at the Signal Meeting. As of such date, neither
FirstMerit, nor the directors and executive officers of FirstMerit and their
affiliates, beneficially owned any shares of Signal Common Stock.
Quorum; Broker Non-Votes. The required quorum for the transaction of
business at the Signal Meeting is any number of the shares of Signal Common
Stock, issued and outstanding on the Signal Record Date, which must be present
in person or represented by proxy at the Signal Meeting. Abstentions and broker
non-votes (i.e., proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owners or other persons as to
certain proposals on which such beneficial owners or persons are entitled to
vote
20
<PAGE> 32
their shares but with respect to which the brokers or nominees have no
discretionary power to vote without such instructions) will be treated as shares
present at the Signal Meeting for purposes of determining the presence of a
quorum. Therefore, abstentions and broker non-votes will have the same effect as
votes against adoption of the Merger Agreement and authorization under the
Acquisition Act.
If a quorum is not obtained, or if fewer shares of Signal Common Stock than
the number required therefor are voted in favor of the adoption of the Merger
Agreement and approval under the Acquisition Act, the Signal Meeting may be
postponed or adjourned in order to permit additional time for soliciting and
obtaining additional proxies or votes, and, at any subsequent reconvening of the
Signal Meeting, all proxies will be voted in the same manner as such proxies
would have been voted at the original convening of the Signal Meeting, except
for any proxies that have theretofore effectively been revoked or withdrawn.
Proxies. Shares of Signal Common Stock represented by properly executed
proxies received prior to or at the Signal Meeting will, unless such proxies
have been revoked, be voted at the Signal Meeting and any adjournments or
postponements thereof, in accordance with the instructions indicated in the
proxies. If no instructions are indicated on a properly executed Signal Proxy,
the shares will be voted FOR adoption of the Merger Agreement
Any Signal Proxy given pursuant to this solicitation may be revoked at any
time before it is voted. Proxies may be revoked by (i) filing with the Secretary
of Signal at or before the Signal Meeting a written notice of revocation bearing
a later date than the Signal Proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of Signal at or
before the Signal Meeting, or (iii) attending the Signal Meeting and voting in
person (although attendance at the Signal Meeting will not in and of itself
constitute revocation of a proxy). Any written notice revoking a proxy should be
delivered to L. Dwight Douce, Secretary, Signal Corp, 135 East Liberty Street,
Wooster, Ohio 44691. PLEASE DO NOT FORWARD ANY STOCK CERTIFICATES WITH YOUR
PROXY CARDS.
If any other matters are properly presented at the Signal Meeting for
consideration, the persons named in the Signal Proxy or acting thereunder will
have discretion to vote on such matters in accordance with their best judgment.
As of the date hereof, the Signal Board knows of no such other matters.
In addition to solicitation by mail, directors, officers and employees of
Signal, who will not be specifically compensated for such services, may solicit
proxies from the shareholders of Signal, personally or by telephone, telegram or
other forms of communication. Signal has engaged Regan & Associates, Inc.
("Regan") to assist Signal in distributing proxy materials and contacting record
and beneficial owners of Signal Common Stock. Signal has agreed to pay Regan
approximately $5,500 plus out-of-pocket expenses for its services to be rendered
on behalf of Signal. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy material to beneficial owners. Signal will bear its own expenses in
connection with the solicitation of proxies for the Signal Meeting. See "The
Merger--Expenses."
HOLDERS OF SIGNAL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING SIGNAL PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Dissenters' Rights. Holders of Signal Common Stock who so desire are
entitled to relief as dissenting shareholders under Section 1701.84 of the ORC.
A shareholder of Signal, however, will be entitled to such relief only if he
complies strictly with all of the procedural and other requirements of Section
1701.85 of the ORC. See, "RIGHTS OF DISSENTING SHAREHOLDERS," and the copy of
Section 1701.85 attached hereto as Appendix D.
RECOMMENDATION OF SIGNAL'S BOARD OF DIRECTORS
The Signal Board has approved the Merger Agreement and the transactions
contemplated thereby and has determined that the Merger is fair to, and in the
best interests of, Signal and its shareholders. For a discussion of the factors
considered by the Signal Board in reaching its decision to approve the Merger
Agreement, see "BACKGROUND OF AND REASONS FOR MERGER -- Reasons for
Merger -- Signal."
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THE BOARD OF DIRECTORS OF SIGNAL RECOMMENDS THAT ITS SHAREHOLDERS VOTE FOR
THE ADOPTION OF THE MERGER AGREEMENT.
BACKGROUND OF AND REASONS FOR MERGER
REASONS FOR MERGER -- FIRSTMERIT
After careful review and consideration, FirstMerit's Board of Directors
approved the terms of the Merger and Merger Agreement. The Merger with Signal
represents the continued realization of FirstMerit's long-standing philosophy of
acquiring retail oriented financial institutions with dominant market share for
continued customer growth. The Merger will expand FirstMerit's existing banking
operations in its major Northern Ohio markets, providing both stronger market
positions and opportunities to achieve efficiencies for the combined operations
in those markets.
In approving the Merger, FirstMerit's Board of Directors reviewed a number
of factors, including certain risks of the Merger and Merger Agreement, with a
view to increasing shareholder value in the intermediate and long term. These
factors included the analysis and advice of FirstMerit's management and outside
advisors on the due diligence review of Signal and their analysis and advice on
the financial and strategic implications of the Merger. Some of the significant
strategic matters considered by FirstMerit's Board of Directors and management
included the analysis and advice that the Merger will result in (a) anticipated
cost savings attributable to consolidation of operations, increased
efficiencies, economies of scale, and related factors, (b) improved positions in
FirstMerit's major markets, and (c) a combined entity with increased financial
resources. Certain risks of the Merger considered by FirstMerit's Board and
senior management included Signal's loan quality, litigation, regulatory, and
other legal contingencies, the uncertainties inherent in any combination of two
companies, and the effort that would be necessary to achieve the anticipated
cost savings and enhanced revenues. FirstMerit believes that its prior
successful experience in effecting mergers will assist it in achieving the
anticipated cost savings and enhanced revenues.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the FirstMerit Board did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination.
During the review process, FirstMerit's senior management believed it could
achieve cost reductions over time through consolidating the operations of
Signal, especially where those operations will overlap or become redundant, and
by achieving greater efficiencies. See "TERMS OF MERGER -- Conduct of Signal's
Business Pending the Merger." The cost reductions are expected to result from
consolidation of certain facilities, elimination of duplicate data processing
and other corporate overhead, and consolidation of other operations. While
FirstMerit believes that these anticipated cost reductions are realistic and
achievable, no assurance can be given that the cost reductions, in fact, will be
achieved, or will be achieved within the time frame planned by FirstMerit, or
that any cost savings which are achieved will not be offset by declining
revenues or other charges to earnings. In the event that such cost reductions
are not achieved, or are not achieved within the time frame planned by
FirstMerit, there would be a reduction in FirstMerit's anticipated earnings on a
combined basis after the Merger.
OPINION OF FIRSTMERIT'S FINANCIAL ADVISOR
On August 10, 1998, Goldman Sachs delivered its written opinion to the
Board of Directors of FirstMerit that, as of the date of such opinion, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to FirstMerit. Goldman Sachs has also delivered a written opinion dated
the date of this Joint Proxy Statement/Prospectus that as of such date, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to FirstMerit.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED THE DATE OF
THIS JOINT PROXY STATEMENT/ PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH
THE OPINION, IS ATTACHED HERETO AS APPENDIX C TO THIS JOINT PROXY STATEMENT/
PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF FIRSTMERIT
ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
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In connection with its opinions, Goldman Sachs reviewed, among other
things, the Merger Agreement; the Annual Reports to Shareholders and Annual
Reports on Form 10-K of FirstMerit and Signal for the five years ended December
31, 1997; certain interim reports to shareholders and Quarterly Reports on Form
10-Q of FirstMerit and Signal; certain other communications from FirstMerit and
Signal to their respective shareholders; certain internal financial analyses and
forecasts for FirstMerit and Signal prepared by their respective managements;
and certain internal financial forecasts for FirstMerit and Signal, prepared by
the management of FirstMerit, on a combined basis after giving effect to the
Merger, including projections with respect to cost savings and operating
synergies resulting from the Merger. Goldman Sachs also held discussions with
members of the senior management of FirstMerit and Signal regarding the past and
current business operations, financial condition, and future prospects of their
respective companies and as combined pursuant to the Merger. In addition,
Goldman Sachs reviewed the reported price and trading activity for FirstMerit
Common Stock and Signal Common Stock, compared certain financial and stock
market information for FirstMerit and Signal with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the banking and
thrift industries specifically and other industries generally and performed such
other studies and analyses as it considered appropriate.
Goldman Sachs has relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed that the financial forecasts prepared by FirstMerit, including,
without limitation, projected cost savings and operating synergies resulting
from the Merger and projections regarding under-performing and non-performing
assets and net charge-offs, were reasonably prepared on a basis reflecting the
best currently available judgments and estimates of FirstMerit and that such
forecasts will be realized in the amounts and at the times contemplated thereby.
Goldman Sachs also assumed, in evaluating the loan portfolios of FirstMerit and
Signal, that the allowances for losses with respect thereto for each of
FirstMerit and Signal are in the aggregate adequate to cover such losses. In
addition, Goldman Sachs has not reviewed individual credit files of FirstMerit
or Signal and has not made an independent evaluation or appraisal of the assets
and liabilities of FirstMerit or Signal, and Goldman Sachs has not been
furnished with any such evaluation or appraisal.
The opinions of Goldman Sachs referred to herein were provided for the
information and assistance of the Board of Directors of FirstMerit in connection
with its consideration of the transaction contemplated by the Merger Agreement,
and such opinions do not constitute a recommendation as to how any holder of
FirstMerit Common Stock should vote with respect to such transaction. Goldman
Sachs has consented to the references to its opinions and to the inclusion of
its opinion dated the date hereof in this Joint Proxy Statement/Prospectus as
Appendix C hereto. In giving such consent, Goldman Sachs does not thereby admit
that it comes within the category of persons whose consent is required under
Section 7 of the Securities Act and the rules and regulations of the Commission
thereunder.
The following is a summary of certain of the financial analyses provided to
FirstMerit's Board of Directors in a presentation on August 8, 1998 by Goldman
Sachs in connection with rendering its written opinion to the FirstMerit Board
dated August 10, 1998.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for Signal Common Stock on a daily
basis for the past year and on a monthly basis for the past five years.
This analysis showed that the closing market price of Signal Common Stock
ranged from approximately $24.75 per share to approximately $39.20 per
share, with a closing price of $26.31 on August 6, 1998. Goldman Sachs also
reviewed the ratios of stock price to earnings ("P/E Ratio") for Signal
Common Stock over the past five years, and compared this ratio with the P/E
Ratios of FirstMerit, a selected group of banks and thrifts, and the S&P
500 Index over the same period. This analysis indicated that the P/E Ratio
for Signal Common Stock ranged from approximately 6.8x to approximately
21.2x, with a P/E Ratio of approximately 12.9x on July 31, 1998. Goldman
Sachs calculated the ratio of the market price per share of Signal Common
Stock to the market price per share of FirstMerit Common Stock (the
"Implied Exchange Ratio") on a daily basis from August 6, 1997 to August 6,
1998. These calculations indicated that the Implied Exchange Ratio ranged
from approximately 0.87 to 1.49 and was 0.90 on August 6, 1998.
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to FirstMerit to corresponding
financial information, ratios and public market multiples for
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seven publicly traded corporations: First Empire State Corporation,
Mercantile Bankshares Corporation, Provident Financial Group Inc., Keystone
Financial, Inc., CNB Bankshares, Inc., Old National Bancorp and First
Financial Bancorp (the "First Merit Comparison Companies"). The FirstMerit
Comparison Companies were chosen because they are publicly traded companies
with operations that for purposes of analysis may be considered similar to
FirstMerit. Goldman Sachs calculated and compared various financial
multiples and ratios of FirstMerit and the FirstMerit Comparison Companies.
The multiples of FirstMerit were calculated using a price of $29.13 per
Share, the closing price of the FirstMerit Common Stock on the NASDAQ on
August 6, 1998. The multiples and ratios for FirstMerit and the FirstMerit
Comparison Companies were based on information provided by the
Institutional Brokers Estimate Service ("IBES"). IBES is a data service
which monitors and publishes a compilation of earnings estimates produced
by selected research analysts on companies of interest to investors.
Goldman Sachs' analysis indicated P/E Multiples for the FirstMerit
Comparison Companies, based on estimated 1998 and 1999 earnings per share
("EPS"). These indicated P/E Multiples ranged from 15.7x to 20.7x, with a
median of 17.5x 1998 EPS, and from 14.0x to 18.8x, with a median of 15.8x
1999 EPS, compared with P/E multiples for FirstMerit of 18.8x and 16.6x,
respectively, in 1998 and 1999, based on estimated 1998 and 1999 EPS. This
analysis also indicated five-year compound annual growth rate estimates
from IBES ranging from 10% to 14% for the FirstMerit Comparison Companies,
with a median of 11%, compared with 11% for FirstMerit; price to stated
book value ratios ranging from 2.3x to 3.5x, with a median of 2.8x,
compared with 3.0x for FirstMerit; price to tangible book value ratios
ranging from 2.6x to 5.7x, with a median of 3.2x, compared with 4.0x for
FirstMerit; dividend yields ranging from 0.8% to 3.4%, with a median of
2.0%, compared with 2.2% for FirstMerit; tangible common equity to tangible
assets ratios ranging from 7.0% to 12.7%, with a median of 8.9%, compared
with 8.2% for FirstMerit; returns on average assets ("ROAA") ranging from
1.09% to 1.97%, with a median of 1.46%, compared with 1.56% for FirstMerit;
and returns on average common equity ("ROACE") ranging from 13.0% to 19.6%,
with a median of 14.7%, compared with 16.1% for FirstMerit.
In addition, Goldman Sachs reviewed and compared certain financial
information relating to Signal to corresponding financial information,
ratios and public market multiples for 11 publicly traded corporations:
Park National, Provident Bankshares, Mid Am, Brenton Banks, Citizens
Bankshares, Chemical Financial, Republic Bancorp, Farmers Capital Bank,
Mahoning National Bancorp, First Source Bancorp and First Financial Corp.
(the "Signal Comparison Companies"). The Signal Comparison Companies were
chosen because they are publicly traded companies with operations that for
purposes of analysis may be considered similar to Signal. Goldman Sachs
calculated and compared various financial multiples and ratios of Signal
and the Signal Comparison Companies. The multiples of Signal were
calculated using a price of $26.31 per share, the closing price of Signal
Common Stock on the NASDAQ on August 6, 1998. The multiples and ratios for
Signal and the Signal Comparison Companies were based on IBES estimates.
Goldman Sachs' analysis indicated ratios ("P/E Multiples") of market price
to earnings per share ("EPS") for the Signal Comparison Companies based on
estimated 1998 and 1999 EPS, which ranged from 15.7x to 25.5x, with a
median of 19.7x 1998 EPS, and from 14.1x to 21.1x, with a median of 16.8x
1999 EPS. These estimated multiples compared with P/E multiples for Signal
of 12.8x and 11.5x, respectively, in 1998 and 1999, based on estimated 1998
and 1999 EPS. This analysis also indicated five-year compound annual growth
rate estimates from IBES ranging from 7% to 15% for the Signal Comparison
Companies, with a median of 11.5%, compared with 10% for Signal; price to
stated book value ratios ranging from 0.7x to 4.1x, with a median of 2.6x,
compared with 2.3x for Signal; price to tangible book value ratios ranging
from 0.8x to 4.4x, with a median of 2.6x, compared with 2.9x for Signal;
dividend yields ranging from 1.3% to 4.8%, with a median of 2.2%, compared
with 1.7% for Signal; tangible common equity to tangible assets ratios
ranging from 6.8% to 12.5%, with a median of 8.4%, compared with 6.7% for
Signal; ROAA ranging from 0.70% to 1.75%, with a median of 1.31%, compared
with 1.08% for Signal; and ROACE ranging from 9.8% to 18.5%, with a median
of 14.6%, compared with 13.1% for Signal.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow analysis for Signal Common Stock using FirstMerit
management's projections for Signal's earnings. Goldman Sachs calculated a
net present value of free cash flows for the years 1998 through 2002 using
discount rates ranging from 8.5% to 16%. Goldman Sachs calculated Signal's
terminal values in the year 2002 based on
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multiples ranging from 14.0x to 24.0x. These terminal values were then
discounted to present value using discount rates ranging from 8.5% to
16.0%. Based on this methodology, Goldman Sachs calculated implied per
share values for Signal Common Stock ranging from $21.19 to $46.42.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected merger transactions in the banking and
thrift industries since 1994 (the "Selected Banking and Thrift
Transactions"). This analysis indicated that for the Selected Banking and
Thrift Transactions that occurred in 1998 through August 6, 1998, (i) the
price/earnings multiple based on estimated EPS for the 12 months prior to
announcement ("LTM EPS") ranged from 12.1x to 38.4x, with a median of
25.4x, compared with 22.6x for the Merger; (ii) the price to stated book
value ratio ranged from 1.1x to 4.9x, with a median of 2.8x, compared with
a price to stated book value ratio of 3.2x for the Merger; (iii) the price
to tangible book value ratio ranged from 1.1x to 4.9x, with a median of
2.9x, compared with a price to tangible book value ratio of 4.0x for the
Merger; (iv) the premium of the per share consideration to market price
ranged from (0.1)% to 79.1%, with a median of 19.8%, compared with 46.1%
for the Merger, and (v) the announced premium to deposits ranged from 1.3%
to 45.6%, with a median of 25.2%, compared with a premium of 29.0% for the
Merger.
Goldman Sachs also analyzed certain information relating to selected
merger transactions in the thrift industry since 1994 (the "Selected Thrift
Transactions"). This analysis indicated that for the Selected Thrift
Transactions that occurred in 1998 through August 6, 1998, (i) the
price/earnings multiple based on LTM EPS ranged from 12.1x to 40.0x, with a
median of 26.4x, compared with 22.6x for the Merger; (ii) the price to
stated book value ratio ranged from 1.4x to 4.0x, with a median of 2.5x,
compared with a price to stated book value ratio of 3.2x for the Merger;
(iii) the price to tangible book value ratio ranged from 1.4x to 4.0x, with
a median of 2.6x, compared with a price to tangible book value ratio of
4.0x for the Merger; (iv) the premium of the per share consideration to
market price ranged from (0.1%) to 37.0%, with a median of 19.2%, compared
with 46.1% for the Merger, and (v) the announced premium to deposits ranged
from 11.0% to 44.2%, with a median of 21.8%, compared with a premium of
29.0% for the Merger.
(v) Pro Forma Merger Analysis. Goldman Sachs prepared a pro forma
analysis of the financial impact of the Merger. Using both FirstMerit
management's EPS projections for Signal and FirstMerit and IBES EPS
estimates for Signal and FirstMerit for the years 1999 and 2000, Goldman
Sachs presented pro forma estimated combined "GAAP EPS" (EPS calculated
using GAAP) and pro forma estimated combined "Cash EPS" (GAAP EPS excluding
amortization of goodwill and certain other intangibles) for each of
FirstMerit and Signal in order to analyze the pro forma combined impact of
the Merger. Based on FirstMerit management's projections for Signal and
FirstMerit, the 1999 standalone and pro forma combined GAAP EPS for
FirstMerit were estimated at $1.73 and $1.74, respectively, representing
0.34% accretion; the 2000 standalone and pro forma combined GAAP EPS for
FirstMerit were estimated at $1.93 and $1.97, respectively, representing
2.16% accretion; the 1999 standalone and pro forma combined Cash EPS for
FirstMerit were estimated at $1.84 and $1.86, respectively, representing
0.99% accretion; and the 2000 standalone and pro forma combined Cash EPS
for FirstMerit were estimated at $2.04 and $2.09, respectively,
representing 2.65% accretion. Based on IBES EPS estimates for Signal and
FirstMerit, the 1999 standalone and pro forma combined GAAP EPS for
FirstMerit were estimated at $1.75 and $1.80, respectively, representing
2.98% accretion; the 2000 standalone and pro forma combined GAAP EPS for
FirstMerit were estimated at $1.94 and $2.02, respectively, representing
3.85% accretion; the 1999 standalone and pro forma combined Cash EPS for
FirstMerit were estimated at $1.86 and $1.92, respectively, representing
3.47% accretion; and the 2000 standalone and pro forma combined Cash EPS
for FirstMerit were estimated at $2.05 and $2.14, respectively,
representing 4.25% accretion.
In connection with its opinion dated the date of this Joint Proxy
Statement/Prospectus, Goldman Sachs confirmed the appropriateness of its
reliance on the analyses used to render its August 10, 1998 opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible of partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman
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Sachs' opinion. In arriving at its fairness determination, Goldman Sachs
considered the results of all such analyses. No company or transaction used in
the above analyses as a comparison is directly comparable to FirstMerit or
Signal or the contemplated transaction. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the FirstMerit Board of
Directors as to the fairness from a financial point of view of the Exchange
Ratio pursuant to the Agreement and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control the parties or their respective advisors, none of FirstMerit, Signal,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to the Board of Directors of FirstMerit was one of many factors taken
into consideration by the FirstMerit Board of Directors in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. FirstMerit selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of FirstMerit and/or Signal for its own account and for the account
of customers.
Pursuant to a letter agreement, dated August 3, 1998 (the "Engagement
Letter"), FirstMerit engaged Goldman Sachs to act as its financial advisor in
connection with the possible acquisition of all or a portion of the stock or
assets of Signal. Pursuant to the terms of the Engagement Letter, FirstMerit has
agreed to pay Goldman Sachs upon consummation of the Merger a transaction fee of
$3.3 million. FirstMerit has agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including the fees and disbursements of its
attorneys, and to indemnify Goldman Sachs against certain liabilities, including
certain liabilities under the federal securities laws.
RECOMMENDATION OF FIRSTMERIT'S BOARD OF DIRECTORS
The FirstMerit Board has adopted and approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is fair to,
and in the best interests of, FirstMerit and its shareholders. The Board has
also approved the increase in the number of directors to 21. THE FIRSTMERIT
BOARD THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF THE MATTERS PRESENTED AT THE
FIRSTMERIT MEETING.
For a discussion of the factors considered by the FirstMerit Board in
reaching its decision to approve the Merger Agreement, see "BACKGROUND OF AND
REASONS FOR MERGER -- Reasons for Merger -- FirstMerit."
THE BOARD OF DIRECTORS OF FIRSTMERIT RECOMMENDS THAT ITS SHAREHOLDERS VOTE
FOR THE ADOPTION OF THE MATTERS PRESENTED AT THE FIRSTMERIT MEETING.
BACKGROUND OF MERGER -- SIGNAL
Signal Corp (formerly FirstFederal Financial Services Corp) was formed in
1989 to serve as the holding company for Signal Bank, which since 1905 had been
operated as a traditional savings and loan association. Beginning in April 1996
with the acquisition of MCi, and following in 1997 with the acquisition of
Summit Bank and the conversion of Signal Bank from a federal thrift to a
national bank, Signal Corp transformed itself into an alliance of diversified
financial service companies. This alliance was recently expanded in June 1998,
with the acquisition of New Castle Bank, a federal savings bank.
Signal's Board of Directors and senior management had, from time to time,
discussed the continuing consolidation of the banking and financial services
industries and the pricing multiples that were being paid for
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Ohio franchises. Signal's Board of Directors, however, continued to pursue the
plan of expansion of Signal's network of banking and finance subsidiaries.
After the acquisition of New Castle Bank, Mr. Clark received, on July 8,
1998, a telephone call from John R. Cochran, Chairman, President and Chief
Executive Officer of FirstMerit, requesting an opportunity to meet with Mr.
Clark on July 13, 1998. Mr. Clark and Mr. Cochran met on July 13,1998, and
preliminarily discussed the possibility of a business combination of FirstMerit
and Signal. The two discussed, on a preliminary basis, their visions for their
respective businesses and the role, if any, of Signal's senior management
following a business combination with FirstMerit.
Mr. Cochran, during the July 13, 1998 meeting with Mr. Clark, outlined his
proposed steps toward execution of a definitive agreement for a business
combination of Signal and FirstMerit. Mr. Clark and Mr. Cochran agreed to
execute confidentiality agreements and exchange preliminary financial
information for their respective companies. No transaction terms were discussed
at the July 13, 1998 meeting.
On July 16, 1998, Mr. Cochran, along with Gary J. Elek, Senior Vice
President of FirstMerit, and two representatives of Goldman Sachs (representing
FirstMerit) met with Mr. Clark, James J. Little, President and Chief Operating
Officer of Signal, and a representative of Sandler O'Neill (representing Signal)
to discuss Signal's manufactured housing finance business, conducted through
MCi. A second meeting of the same parties was held on July 24, 1998, during
which Signal's three-year strategic plan and projected financial results were
analyzed. On July 28, 1998, Mr. Cochran met with Mr. Clark and Mr. Little to
present FirstMerit's preliminary pricing proposal. The parties decided to
continue discussions and held an additional meeting on July 30, 1998.
Mr. Clark then informed the Signal Board of FirstMerit's proposal and the
scheduled due diligence investigations to be conducted of each company during
the first week of August, 1998. A majority of the members of the Board gave Mr.
Clark their preliminary support to progress into the due diligence process with
FirstMerit.
At the time Mr. Clark disclosed FirstMerit's preliminary pricing proposal
to members of Signal's Board, a majority of the Board members were in general
agreement to proceed with consideration of the FirstMerit proposal on a
negotiated basis because: (1) FirstMerit's offer was bona fide and unsolicited,
(2) FirstMerit's preliminary pricing proposal appeared commensurate with current
industry acquisition premiums and (3) prolonged discussions with multiple
prospective buyers could negatively impact morale, productivity and Signal's
focus on strategic initiatives.
On August 3, 1998, Signal was presented with a draft definitive agreement
prepared by FirstMerit's counsel. With due diligence investigations of each
other ongoing, the parties and their legal and financial advisers commenced
negotiations of the terms of the definitive agreement.
A special meeting of Signal's Board of Directors was held on August 10,
1998 to consider and discuss the Merger Agreement and to discuss the findings of
Signal's due diligence investigation of FirstMerit. Representatives of Sandler
O'Neill made an oral presentation at the meeting that included, among other
things: an analysis of the transaction value at various price levels of
FirstMerit Common Stock; historical stock price and volume analyses of Signal
and FirstMerit; peer group analyses for Signal and FirstMerit; analyses of
Signal's and FirstMerit's respective earnings models; and an analysis of merger
transactions involving commercial banks in the Midwest and nationwide. Sandler
O'Neill rendered its oral opinion to Signal's Board of Directors (which was
confirmed in writing) that, as of August 10, 1998, the Exchange Ratio was fair
to the holders of Signal Common and Preferred Stock from a financial point of
view. Representatives of Signal's special and corporate legal counsel were also
present at the meeting, and reviewed the terms and conditions of the Merger
Agreement with Signal's Board of Directors and responded to questions raised by
the directors. Signal's Board of Directors evaluated the terms of the Merger
Agreement and discussed the advantages that could be derived from a business
combination with FirstMerit, including significant cost savings and expense
reduction, the eventual accretion to earnings that could result from the
combination and the value to be received by Signal's shareholders as a result of
the transaction, as well as other options, including remaining independent and
combining with other possible acquirors.
After thorough discussion and consideration of the factors identified below
under "BACKGROUND OF AND REASONS FOR MERGER -- Reasons for the
Merger -- Signal," Signal's Board of Directors approved
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the Merger Agreement and the Signal Stock Option and authorized execution of the
agreements by Signal by a vote of ten in favor, none opposed, with one
abstention.
REASONS FOR THE MERGER -- SIGNAL
Signal's Board of Directors believes that the Merger is in the best
interests of Signal and its shareholders and has approved the Merger Agreement
and the Signal Stock Option. In the course of approving the Merger Agreement and
the Signal Stock Option and recommending adoption of the Merger Agreement by the
holders of Signal Common Stock, Signal's Board of Directors, without assigning
any relative or specific weights, considered a number of factors, including,
without limitation, the following:
(i) the financial and valuation analyses prepared by Sandler O'Neill;
(ii) the fairness opinion rendered by Sandler O'Neill, a copy of which
is attached hereto as Appendix B;
(iii) the terms of the Merger, including but not limited to the
Exchange Ratio and the value of the consideration to be received by
Signal's shareholders as a multiple of per share book value and earnings;
(iv) the Signal Board of Directors' familiarity with FirstMerit's
business and operations;
(v) the performance of FirstMerit Common Stock on a historical basis,
the higher trading volume and enhanced liquidity and the prospects of
positive long-term performance of the FirstMerit Common Stock;
(vi) the strategic fit between FirstMerit and Signal, enhanced funding
capacity to portfolio assets originated, the enhanced opportunities for
operating efficiencies and cost savings that could result from the Merger
and the respective contributions the parties would bring to a combined
company;
(vii) the anticipated impact of the Merger on employees, customers and
communities serviced by Signal;
(viii) industry and economic factors; and
(ix) regulatory and other factors.
Signal's Board has adopted and approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is fair to,
and in the best interests of, Signal and its shareholders. THE SIGNAL BOARD
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
OPINION OF SIGNAL'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated as of August 3, 1998 (the "Sandler
O'Neill Agreement"), Signal retained Sandler O'Neill as an independent financial
advisor in connection with Signal's consideration of a possible business
combination with FirstMerit. Sandler O'Neill is a nationally recognized
investment banking firm whose principal business specialty is financial
institutions. In the ordinary course of its investment banking business, Sandler
O'Neill is regularly engaged in the valuation of such businesses and their
securities in connection with mergers and acquisitions and other corporate
transactions.
Pursuant to the terms of the Sandler O'Neill Agreement, Sandler O'Neill
acted as financial advisor to Signal in connection with the Merger. In
connection therewith, the Signal Board requested Sandler O'Neill to render its
opinion as to the fairness, from a financial point of view, of the Common
Exchange Ratio to the holders of Signal Common, and the Preferred Exchange Ratio
to the holders of Signal Preferred, respectively. On August 10, 1998, Sandler
O'Neill delivered to the Signal Board its oral and written opinion that, as of
such date, the Common Exchange Ratio was fair to the holders of shares of Signal
Common, from a financial point of view, and the Preferred Exchange Ratio was
fair to the holders of Signal Preferred, from a financial point of view. Sandler
O'Neill has also delivered to the Signal Board a written opinion dated the date
of this Joint Proxy Statement/ Prospectus (the "Sandler O'Neill Fairness
Opinion") which is substantially identical to the August 10, 1998 opinion. THE
FULL TEXT OF THE SANDLER O'NEILL FAIRNESS OPINION, WHICH SETS FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINION, IS
ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE OPINION SET FORTH
HEREIN IS QUALIFIED IN ITS ENTIRETY
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BY REFERENCE TO APPENDIX B. HOLDERS OF SHARES OF SIGNAL COMMON ARE URGED TO READ
THE SANDLER O'NEILL FAIRNESS OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR
CONSIDERATION OF THE PROPOSED MERGER.
THE SANDLER O'NEILL FAIRNESS OPINION WAS PROVIDED TO THE SIGNAL BOARD FOR
ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE COMMON EXCHANGE RATIO TO HOLDERS OF SHARES OF SIGNAL COMMON AND THE
PREFERRED EXCHANGE RATIO TO THE HOLDERS OF SIGNAL PREFERRED. IT DOES NOT ADDRESS
THE UNDERLYING BUSINESS DECISION OF SIGNAL TO ENGAGE IN THE MERGER OR ANY OTHER
ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
SHARES OF SIGNAL COMMON AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SIGNAL
SPECIAL MEETING WITH RESPECT TO THE MERGER AGREEMENT OR ANY OTHER MATTER RELATED
THERETO.
In connection with rendering its August 10, 1998 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of the
material analyses performed by Sandler O'Neill, but does not purport to be a
complete description of all the analyses underlying Sandler O'Neill's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial analysis or summary
description. Sandler O'Neill believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and processes underlying its opinion. In
performing its analyses, Sandler O'Neill made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of Signal,
FirstMerit and Sandler O'Neill. Any estimates contained in Sandler O'Neill's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates. Estimates on the
values of companies do not purport to be appraisals or necessarily reflect the
prices at which companies or their securities may actually be sold. Because such
estimates are inherently subject to uncertainty, neither Signal, FirstMerit nor
Sandler O'Neill assumes responsibility for their accuracy.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of FirstMerit Common on August
7, 1998 of $28.94 and an Exchange Ratio of 1.32, Sandler calculated an implied
transaction value per share of Signal of $38.20. Based upon such implied
transaction value and Signal's June 30, 1998 financial information, Sandler
O'Neill calculated the price to tangible book value and price to last twelve
months' normalized earnings. This analysis yielded a price to tangible book
value multiple of 4.01x and a price to last twelve months' earnings multiple of
26.5x.
Stock Trading History. Sandler O'Neill reviewed the history of the reported
trading prices and volume of Signal Common and FirstMerit Common, and the
relationship between the movements in the prices of Signal Common and FirstMerit
Common, respectively, to movements in certain stock indices, including the
Standard & Poor's 500 Index (the "S&P Index"), the Nasdaq Banking Index (the
"Bank Index") and selected composite groups of publicly traded commercial banks
(in the case of Signal) and larger publicly traded commercial banks (in the case
of FirstMerit), identified below. During the one-year period ended August 4,
1998, Signal Common underperformed each of the indices to which it was compared
and FirstMerit Common outperformed each of the indices to which it was compared.
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Signal and two different groups of commercial banks. The first group consisted
of Signal and the following twelve publicly traded regional commercial banks
(the "Regional Group"): 1st Source Corp., Area Bancshares Corp., Brenton Banks
Inc., Chemical Financial Corp., Community Trust Bancorp, Corus Bankshares Inc.,
F&M Bancorp., First Commerce Bancshares Inc., First Financial Corp., Irwin
Financial Corp., Park National Corp., and Republic Bancorp Inc. Sandler O'Neill
also compared Signal to a group of twelve publicly traded commercial banks which
had a return on average equity (based on last twelve months' earnings) of
greater than 16.0% and a price to tangible book value of greater than 263% (the
"Highly Valued Group"). The Highly Valued Group included the following
institutions: Cathay Bancorp Inc., Chittenden Corp., HUBCO Inc., Investors
Financial Services, Irwin Financial Corp., National Penn Bancshares Inc., Park
National Corp., Republic Bancorp Inc., Santa Barbara Bancorp, Silicon Valley
Bancshares, Southwest Bancorp. of Texas, and TrustCo Bank Corp. of NY. The
analysis compared publicly available financial information for Signal and the
median data for each of the Regional Group and the
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Highly Valued Group as of and for each of the years ended December 31, 1993
through December 31, 1997 and as of and for the twelve months ended June 30,
1998.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for
FirstMerit and two different groups of commercial banks. The first group
consisted of FirstMerit and the following twelve publicly traded commercial
banks (the "Peer Group"): AMCORE Financial Inc., Associated Banc-Corp, Citizens
Banking Corp., CNB Bancshares Inc., Commerce Bancshares Inc., Community First
Bankshares, First Financial Bancorp., First Midwest Bancorp Inc., Old National
Bancorp, Provident Financial Group Inc., TCF Financial Corp., and UMB Financial
Corp. Sandler O'Neill also compared FirstMerit to a group of twelve publicly
traded commercial banks which had a return on average equity (based on last
twelve months' earnings) of greater than 16.1% and a price to tangible book
value of greater than 259% (the "Large Commercial Highly Valued Group"). The
Large Commercial Highly Valued Group included BOK Financial Corp., Centura Banks
Inc., FirstBank Puerto Rico, Imperial Bancorp, National Commerce Bancorp., North
Fork Bancorp., Silicon Valley Bancshares, Synovus Financial Corp., TCF Financial
Corp., Valley National Bancorp, Westamerica Bancorp., and Zions Bancorp. The
analysis compared publicly available financial information for FirstMerit and
the median data for each of the Peer Group and the Large Commercial Highly
Valued Group as of and for each of the years ended December 31, 1993 through
December 31, 1997 and as of and for the twelve months ended June 30, 1998.
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed 134
transactions announced from January 1, 1998 to August 6, 1998 involving publicly
traded commercial banks nationwide as acquired institutions with transaction
values greater than $15.0 million ("Nationwide Transactions"), and 26
transactions announced from January 1, 1998 to August 6, 1998 involving public
commercial banks in the Midwest Region (Illinois, Indiana, Iowa, Kansas,
Kentucky, Minnesota, Missouri, Ohio and Wisconsin ) as acquired institutions
with transaction values greater than $15.0 million ("Regional Transactions").
Sandler O'Neill reviewed the ratios of transaction values to last four quarters'
earnings, transaction value to book value, transaction value to tangible book
value, tangible book premium to core deposits, transaction value to total
deposits and transaction value to total assets and computed high, low, mean, and
median ratios and premiums for the respective groups of transactions. These
multiples were applied to Signal's financial information as of and for the
twelve months ended March 31, 1998. Based upon the median multiples for
Nationwide Transactions, Sandler O'Neill derived an imputed range of values per
share of Signal Common of $31.07 to $43.25. Based upon the median multiples for
Regional Transactions, Sandler O'Neill derived an imputed range of values per
share of Signal Common of $35.11 to $45.01.
No company involved in the transactions included in the above analysis is
identical to Signal and no transaction included in the above analysis is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Signal and FirstMerit and the companies to which they are being
compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Signal through the year 2004 under various circumstances,
assuming Signal performed in accordance with the earnings forecasts of its
management and certain variations thereof. To approximate the terminal value of
Signal Common at December 31, 2004, Sandler O'Neill applied price to earnings
multiples ranging from 12x to 27x and applied multiples of tangible book value
ranging from 100% to 350%. The dividend income streams and terminal values were
then discounted to present values using different discount rates (ranging from
10% to 20%) chosen to reflect different assumptions regarding required rates of
return of holders or prospective buyers of Signal Common. This analysis,
assuming the current dividend payout ratio and management's earnings forecasts,
indicated an imputed range of values per share of Signal Common of between
$19.42 and $67.32 when applying the price to earnings multiples, and an imputed
range of values per share of Signal Common of between $11.24 and $59.44 when
applying multiples of tangible book value. In connection with its analysis,
Sandler O'Neill used sensitivity analyses to consider the effects changes in the
underlying assumptions (including variations with respect to the growth rate of
assets, net interest spread, non-interest income, non-interest expenses and
dividend payout ratio) would have on the resulting present value and discussed
these effects with the Signal Board. Sandler O'Neill noted that the discounted
dividend
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stream and terminal value analysis is a widely used valuation methodology, but
the results of such methodology are highly dependent upon the numerous
assumptions that must be made, and the results thereof are not necessarily
indicative of actual values or actual future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro
forma effects of the Merger through December 31, 2004, based upon an Exchange
Ratio of 1.32, Signal's and FirstMerit's current and projected income statements
and balance sheets, and assumptions regarding the economic environment,
accounting and tax treatment of the Merger, charges associated with the Merger,
operating efficiencies and other adjustments discussed with senior managements
of Signal and FirstMerit. This analysis indicated that the Merger would be
accretive to FirstMerit's earnings per share for all periods analyzed, and
initially dilutive to tangible book value per share of FirstMerit Common and
after 18 months accretive to tangible book value for the remainder of periods
analyzed. This analysis also indicated that, from a Signal shareholder's
perspective, as compared to the projected stand-alone performance of Signal, the
Merger would be initially accretive to Signal's earnings per share, dilutive in
the following year, accretive in the next two years and dilutive for the
remaining years and dilutive to tangible book value per share for all years
analyzed. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions
to, among other things, total assets, total net loans, total deposits, total
borrowings, total equity, 1997 net income, normalized twelve months net income
and market capitalization to be made by Signal and FirstMerit to the combined
institution based on data at and for the twelve months ended June 30, 1998. This
analysis indicated that Signal's implied contribution was 23.6% of total assets,
23.2% of total net loans, 21.1% of total deposits, 40.1% of total borrowings,
19.4% of total equity, 14.3% of 1997 net income, 11.52% of normalized latest
twelve months net income and 14.2% of market capitalization. On a fully diluted
basis, based upon an Exchange Ratio of 1.32, holders of the Signal Common would
own approximately 18.6% of the outstanding shares of the combined company.
In connection with rendering its August 10, 1998 opinion, Sandler O'Neill
reviewed, among other things: (i) the Merger Agreement and exhibits thereto;
(ii) the Signal Stock Purchase Option; (iii) certain publicly available
financial statements of Signal and other historical financial information
provided by Signal that Sandler O'Neill deemed relevant; (iv) certain publicly
available financial statements of FirstMerit and other historical financial
information provided by FirstMerit that Sandler O'Neill deemed relevant; (v)
certain financial analyses and forecasts of Signal prepared by and reviewed with
management of Signal and the views of senior management of Signal regarding
Signal's past and current business operations, results thereof, financial
condition and future prospects; (vi) certain financial analyses and forecasts of
FirstMerit prepared by and reviewed with management of FirstMerit and the views
of senior management of FirstMerit regarding FirstMerit's past and current
business operations, results thereof, financial condition and future prospects;
(vii) the pro forma impact of the Merger; (viii) the publicly reported
historical price and trading activity for Signal's and FirstMerit's common
stock, including a comparison of certain financial and stock market information
for Signal and FirstMerit with similar publicly available information for
certain other companies the securities of which are publicly traded; (ix) the
financial terms of recent business combinations in the banking industry, to the
extent publicly available; (x) the current market environment generally and the
banking environment in particular; and (xi) such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as Sandler O'Neill considered relevant. Sandler O'Neill was not asked to, and
did not, solicit indications of interest in a potential transaction from third
parties.
In connection with rendering the Sandler O'Neill Fairness Opinion, Sandler
O'Neill confirmed the appropriateness of its reliance on the analyses used to
render its August 10, 1998 opinion by performing procedures to update certain of
such analyses and by reviewing the assumptions upon which such analyses were
based and the factors considered in connection therewith.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon, without independent verification, the accuracy and completeness of all the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
Sandler O'Neill does not assume any responsibility or liability therefor.
Sandler O'Neill did not make an independent evaluation or appraisal of the
specific assets, the collateral securing assets or the liabilities (contingent
or otherwise) of Signal or FirstMerit or any of their respective subsidiaries,
or the collectibility of any such assets, nor was it furnished
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with any such evaluations or appraisals. Sandler O'Neill is not an expert in the
evaluation of allowances for loan losses and it has not made an independent
evaluation of the adequacy of the allowance for loan losses of Signal or
FirstMerit, nor has it reviewed any individual credit files relating to Signal
or FirstMerit. With Signal's consent, Sandler O'Neill has assumed that the
respective aggregate allowances for loan losses for both Signal and First Merit
are adequate to cover such losses and will be adequate on a pro forma basis for
the combined entity. In addition, Sandler O'Neill has not conducted any physical
inspection of the properties or facilities of Signal or FirstMerit. With respect
to all financial information and projections reviewed with each company's
management, Sandler O'Neill assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of Signal
and FirstMerit and that such performances will be achieved. Sandler O'Neill
expressed no opinion as to such financial projections or the assumptions on
which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the Merger Agreement
and all related agreements are true and correct, that each party to such
agreements will perform all of the covenants required to be performed by such
party under such agreements and that the conditions precedent in the Merger
Agreement are not waived. Sandler O'Neill also assumed, with Signal's consent,
that there has been no material change in Signal's or FirstMerit's assets,
financial condition, results of operations, business or prospects since the date
of the last publicly filed financial statements available to them, that Signal
and FirstMerit will remain as going concerns for all periods relevant to its
analyses, and that the Merger will be accounted for as a pooling of interests
and will qualify as a tax-free reorganization for federal income tax purposes.
Sandler O'Neill also assumed that the terms and conditions of the FirstMerit
Series B Preferred Stock will be substantially identical to the terms and
conditions of the Signal Preferred.
Under the Sandler O'Neill Agreement, Signal has agreed to pay Sandler
O'Neill a transaction fee in connection with the Merger, a substantial portion
of which is contingent upon the consummation of the Merger. Under the terms of
the Sandler O'Neill Agreement, Signal will pay Sandler O'Neill a transaction fee
equal to .75% of the aggregate purchase price paid in the transaction. Based on
the closing price of FirstMerit Common Stock on , 1998, Signal will
pay Sandler O'Neill a transaction fee of approximately $ , of which
$500,000 has been paid and the balance will be paid when the Merger is
consummated. Signal has also agreed to indemnify Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including liabilities under securities laws.
Sandler O'Neill has in the past provided certain other investment banking
services to Signal and has received compensation for such services. In the
ordinary course of its business, Sandler O'Neill may actively trade the debt and
equity securities of Signal and FirstMerit and their respective affiliates for
its own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
RECOMMENDATION OF SIGNAL'S BOARD OF DIRECTORS
The Signal Board has adopted and approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is fair to,
and in the best interests of, Signal and its shareholders. THE SIGNAL BOARD
THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF THE MATTERS PRESENTED AT THE SIGNAL
MEETING.
For a discussion of the factors considered by the Signal Board in reaching
its decision to approve the Merger Agreement, see "BACKGROUND OF AND REASONS FOR
MERGER -- Reasons for Merger -- Signal."
THE BOARD OF DIRECTORS OF SIGNAL RECOMMENDS THAT ITS SHAREHOLDERS VOTE FOR
THE ADOPTION OF THE MERGER AGREEMENT.
TERMS OF MERGER
This portion of the Joint Proxy Statement/Prospectus describes various
aspects of the Merger. The following description does not purport to be complete
and is qualified in its entirety by reference to the Merger Agreement attached
hereto at Appendix A and incorporated herein by reference. The shareholders of
FirstMerit and Signal are urged to read the Merger Agreement in its entirety.
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GENERAL
The Merger Agreement provides that, subject to the satisfaction or waiver
of certain conditions (including, among other things, the adoption of the Merger
Agreement by the shareholders of FirstMerit and Signal and the receipt of all
necessary regulatory approvals), Signal will be merged with and into FirstMerit
at the Effective Time. The separate corporate existence of Signal will cease at
the Effective Time, FirstMerit will be the surviving corporation in the Merger
and the shareholders of Signal will become shareholders of FirstMerit. See
"TERMS OF MERGER -- Effective Time."
CONVERSION OF SIGNAL CAPITAL STOCK
Upon consummation of the Merger, each outstanding share of Signal Common
Stock will be canceled and exchanged for the right to receive 1.32 shares of
FirstMerit Common Stock and each share of Signal Preferred Stock will be
canceled and exchanged for the right to receive one share of FirstMerit Series B
Preferred Stock . If a Signal shareholder would receive a fraction of FirstMerit
Common Stock, cash will be paid in lieu of such fractional share.
SIGNAL STOCK CERTIFICATES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT
UNTIL A SIGNAL SHAREHOLDER HAS RECEIVED THE TRANSMITTAL LETTER AND SHOULD NOT BE
RETURNED WITH THE ENCLOSED PROXY.
NO EFFECT ON FIRSTMERIT COMMON STOCK
At the Effective Time, each share of FirstMerit Common Stock then issued
and outstanding will continue to be one share of FirstMerit Common Stock.
NO FRACTIONAL SHARES OF FIRSTMERIT COMMON STOCK TO BE ISSUED
No fractional shares of FirstMerit Common Stock will be issued in the
Merger. In lieu of fractional shares, each holder of shares of Signal Common
Stock who otherwise would have been entitled to a fraction of a share of
FirstMerit Common Stock, upon surrender of his certificates representing shares
of Signal Common Stock, will be paid the cash value (without interest) of such
fraction, which will be equal to such fraction multiplied by the average of the
last sale prices of FirstMerit Common Stock as reported on Nasdaq/NMS for the
period commencing on the day that is 15 days before the Effective Date and
ending on the day that is five days before the Effective Date.
RIGHTS OF HOLDERS OF SIGNAL STOCK CERTIFICATES PRIOR TO SURRENDER
Upon surrender to the exchange agent of certificates representing shares of
Signal Common or Preferred Stock, the shareholder will be entitled to receive in
exchange, certificate(s) representing the appropriate number of shares of
FirstMerit Common or Preferred Stock to which such shareholder is entitled, as
well as cash in lieu of any fractional share of FirstMerit Common Stock. Unless
and until the certificates representing shares of Signal Common or Preferred
Stock are so surrendered, no dividend or other distribution with respect to
FirstMerit Common or Series B Preferred Stock with a record date occurring after
the Effective Time as of any time subsequent to the consummation of the Merger
will be paid to the holder of any such unsurrendered certificate. Holders of
unsurrendered Signal Common Stock certificates are entitled to vote after the
Effective Time at any meeting of FirstMerit shareholders regardless of whether
such holders have exchanged their certificates. Upon surrender of certificates
to the exchange agent, the former Signal shareholder will receive certificates
representing the FirstMerit Common or Series B Preferred Stock into which such
shareholder's shares of Signal Common or Preferred Stock were converted and the
dividends or other distributions (without interest) that have previously become
payable with respect to such FirstMerit Common or Series B Preferred Stock.
LOST CERTIFICATES
Any Signal shareholder who has lost or misplaced a certificate for any of
his shares of Signal Common or Preferred Stock should immediately contact
ChaseMellon Shareholder Services, L.L.C. at (800)777-3674, to begin the process
for replacing the lost certificate prior to the Effective Time.
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TREATMENT OF STOCK OPTIONS OUTSTANDING UNDER SIGNAL STOCK OPTION PLANS
As of June 30, 1998, there were unexercised stock options outstanding under
the Amended and Restated Stock Option and Incentive Plan, the Non-Employee
Director Stock Option Plan, the 1997 Omnibus Incentive Plan, the First Shenango
Bancorp, Inc. 1993 Stock Option Plan and the Summit Bancorp 1989 Stock Incentive
Plan (collectively, the "Signal Option Plans") to purchase 983,766 shares of
Signal Common Stock at prices varying from $2.54 to $35.70 per share. Each stock
option or right to acquire Signal Common Stock granted pursuant to the Signal
Option Plans which is outstanding and unexercised, whether or not then
exercisable, immediately prior to the Effective Time, will cease to represent
the right to acquire shares of Signal Common Stock and shall be converted into
the right to acquire that number of FirstMerit Common Stock equal to (a) the
number of shares of Signal Common Stock subject to the unexercised option
multiplied by (b) the Common Exchange Ratio. The exercise price per share of
FirstMerit Common Stock under such option shall be equal to the exercise price
per share of the Signal Common Stock which was purchasable under each
unexercised option divided by the Common Exchange Ratio (rounded to the nearest
whole cent) necessary to assure that the rights and benefits of the optionee
under such option shall not be increased or decreased by reason of this
conversion. The duration and other terms and conditions of the options shall be
the same, except that references to Signal shall be deemed to be references to
FirstMerit. Under the Merger Agreement, with limited exceptions, Signal has
agreed not to grant additional options under the Signal Option Plans without the
written consent of FirstMerit. See "TERMS OF MERGER -- Interests of Signal
Executive Officers and Directors."
CONDUCT OF FIRSTMERIT'S BUSINESS PENDING THE MERGER
The Merger Agreement requires FirstMerit (including its subsidiaries) to
conduct its business, during the period from the date the Merger Agreement was
signed until the Effective Time, in such a manner so as not to materially
interfere with the ability to consummate the Merger, to delay the Effective Time
or to have a material adverse effect upon the transactions contemplated by the
Merger Agreement.
CONDUCT OF SIGNAL'S BUSINESS PENDING THE MERGER
General. The Merger Agreement requires Signal (including its subsidiaries)
to conduct its business, during the period from the date the Merger Agreement
was signed until the Effective Time, in the ordinary course substantially
consistent with its practices in effect on the date the Merger Agreement was
signed. In addition, the Merger Agreement restricts Signal from engaging in
certain transactions during the period from the date the Merger Agreement was
signed until the Effective Time, including, among other things, (a) amending,
repealing, or otherwise modifying the Signal Articles or Signal Regulations, or
comparable organizational documents of any of the subsidiaries of Signal, (b)
entering into any loan or credit commitment to, or investing or agreeing to
invest in, any person or entity if such commitment or investment would exceed
$375,000 as a residential loan or $750,000 as a commercial loan, without first
consulting with FirstMerit (except that Signal and its subsidiaries may honor
contractual obligations in existence on the date of the Merger Agreement and may
make certain specified loans without consultation with FirstMerit), (c) selling,
assigning or disposing of certain of its significant assets to a third party or
purchasing or acquiring certain significant assets from a third party, (d)
entering into any transaction, agreement, or commitment outside the ordinary
course of its business which is material to Signal and its subsidiaries taken as
a whole, (e) issuing or selling any capital stock or other securities (with
certain limited exceptions, including pursuant to the exercise of employee stock
options or the convertible preferred stock outstanding on the date of the Merger
Agreement), (f) acquiring beneficial ownership of any class of equity securities
of any corporation, (g) declaring a dividend, except for a regular quarterly
cash dividend on the Signal Common Stock not in excess of $.11 per share, or a
regular quarterly cash dividend on the Signal Preferred Stock not in excess of
$.40625 per share, or (h) adopting or amending (with certain limited exceptions)
any employee compensation, bonus, or benefit plans or, except in amounts
generally consistent with past practice, increasing the compensation or fringe
benefits of any present or former director, officer or employee or paying any
bonus, compensation, or benefit not required by any existing plan or
arrangement.
No Solicitation of Alternative Acquisition Transactions. The Board of
Directors of Signal is recommending that the holders of Signal Common Stock vote
in favor of adoption of the Merger Agreement at the Signal Meeting. Signal has
agreed that neither it nor any of its subsidiaries will solicit or initiate any
proposals or offers from any person, or discuss or negotiate with any such
person, to acquire Signal, any of its subsidiaries, any
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<PAGE> 46
material amount of its assets, any of its equity securities, or consider any
merger or business consolidations, except that Signal and/or its subsidiaries
may furnish information to and discuss or negotiate with any person making an
unsolicited proposal if (i) the Board of Directors of Signal determines in good
faith and upon the advice of legal counsel that such action is required for the
directors of Signal to fulfill their fiduciary duties and obligations to the
Signal shareholders and other constituencies under Ohio law, and (ii) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Signal provides immediate written notice to
FirstMerit to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such a person or entity. In addition, the
Merger Agreement provides that the Signal Board of Directors may not withdraw or
modify its recommendation to the Signal shareholders following receipt of a
proposal for any such transaction unless the Board of Directors of Signal
determines in good faith and upon the advice of legal counsel that such action
is required for the directors of Signal to fulfill their fiduciary duties and
obligations to the Signal shareholders and other constituencies under Ohio law.
Additional Signal Reserves, Accruals, Charges, and Expenses. The Merger
Agreement provides that FirstMerit and Signal will consult and cooperate with
each other prior to the Effective Time (a) to conform Signal's approach to
determining the level of the allowance for loan losses to the approach used by
FirstMerit, (b) to determine appropriate accruals, reserves and charges for
Signal to establish and take in respect of excess facilities and equipment
capacity, severance costs, write-down or write-off of various assets, and other
appropriate accounting adjustments, taking into account FirstMerit's business
plan following the Merger, and (c) to determine the amount and timing for
recognizing, for financial accounting purposes, the expenses of the Merger and
the restructuring charges related to or to be incurred in connection with the
Merger. Signal will, on a basis mutually satisfactory to Signal and FirstMerit,
establish and take all such reserves, accruals and charges and recognize, for
financial accounting purposes, such expenses and charges, provided that all
conditions to FirstMerit's and Signal's obligations to consummate the Merger
have been satisfied or waived and that such reserves, accruals and charges
conform with generally accepted accounting principles, applicable laws and
regulations and the requirements of governmental entities.
CONDITIONS TO THE MERGER
Conditions for Both FirstMerit and Signal. The obligations of each of
FirstMerit and Signal to consummate the Merger are subject to the fulfillment or
waiver at or prior to the closing of the Merger, including, but not limited to,
of the following conditions: (a) the Merger Agreement shall have been approved
and adopted by the requisite vote of the shareholders of Signal and FirstMerit;
(b) there shall have been received all necessary consents to and approvals of
the transactions contemplated by the Merger Agreement from governmental agencies
(other than immaterial consents), and such consents shall not include any
conditions or requirements which, in the reasonable opinion of the Board of
Directors of FirstMerit, would have a Material Adverse Effect (as defined below)
on the anticipated economic and business benefits to FirstMerit of the
transactions contemplated by the Merger, taken as a whole; (c) the Registration
Statement shall have been declared effective by the Commission and shall not be
subject to a stop order; (d) no restraining order or injunction prohibiting the
Merger shall be in effect; (e) FirstMerit shall have received an opinion of its
counsel to the effect the Merger will constitute a tax-free reorganization under
Code Section 368(a)(1)(A); and (f) FirstMerit shall have received a letter,
dated the date of the Closing, from its independent certified public accounting
firm to the effect that, for financial reporting purposes, the Merger qualifies
for pooling-of-interest accounting treatment under generally accepted accounting
principles, if consummated in accordance with the Merger Agreement.
Conditions for FirstMerit. The obligation of FirstMerit to consummate the
Merger is also subject to the fulfillment or waiver of the following additional
conditions: (a) Signal shall have performed in all material respects all of its
obligations contained in the Merger Agreement required to be performed at or
prior to the closing of the Merger; (b) the representations and warranties of
Signal contained in the Merger Agreement shall be true and correct as of the
Effective Time, except (among other exceptions) as expressly contemplated by the
Merger Agreement and to the extent that the inaccuracy of Signal's
representations or warranties, individually or in the aggregate, shall not have
a Material Adverse Effect on Signal; (c) there shall not have been any change in
the financial condition, results of operations or business of Signal and its
subsidiaries that either individually or in the aggregate would have a Material
Adverse Effect on Signal, other than as a result of any action taken by Signal
at the written request of FirstMerit pursuant to the Merger Agreement to
establish specified additional reserves,
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accruals, charges or expenses; (d) receipt by FirstMerit of officers'
certificates as to certain matters; and (e) receipt by FirstMerit of an opinion
of Signal's legal counsel regarding certain customary legal matters.
Conditions for Signal. The obligation of Signal to consummate the Merger is
also subject to the fulfillment or waiver of the following additional
conditions: (a) FirstMerit shall have performed in all material respects all of
its obligations contained in the Merger Agreement required to be performed at or
prior to the closing of the Merger; (b) the representations and warranties of
FirstMerit contained in the Merger Agreement shall be true and correct as of the
Effective Time, except (among other exceptions) as expressly contemplated by the
Merger Agreement and to the extent that the inaccuracy of FirstMerit's
representations or warranties, individually or in the aggregate, shall not have
a Material Adverse Effect on FirstMerit; (c) receipt by Signal of officers'
certificates as to certain matters; (d) receipt by Signal of an opinion of
FirstMerit's legal counsel regarding certain customary legal matters; and (e)
there shall not have been any change in the financial condition, results of
operations or business of FirstMerit and its subsidiaries that would have a
Material Adverse Effect on FirstMerit.
"Material Adverse Effect" on Signal or FirstMerit is defined in the Merger
Agreement to mean a material adverse effect (other than as a result of changes
(x) in banking laws or regulations of general applicability or interpretations
thereof by court or governmental entities, and (y) in generally accepted
accounting principles) on the respective condition (financial and otherwise),
results of operations, or business of Signal and its subsidiaries, or FirstMerit
and its subsidiaries, as the case may be, taken as a whole, or on the ability of
Signal or FirstMerit, as the case may be, to consummate the transactions
contemplated hereby. The effect of any action taken by Signal at the written
request of FirstMerit pursuant to the Merger Agreement to establish specified
additional reserves, accruals, charges, or expenses, shall not be taken into
consideration in determining whether any Material Adverse Effect has occurred.
See "TERMS OF MERGER -- Conduct of Signal's Business Pending the Merger."
REGULATORY APPROVALS
Consummation of the Merger is subject to and conditioned upon receipt by
FirstMerit and Signal of all necessary and material regulatory approvals.
Approvals must be obtained from the Board of Governors of the Federal Reserve
System ("Federal Reserve") and the Office of the Comptroller of the Currency
("OCC"), with a notice filing with the Office of Thrift Supervision ("OTS"). The
Merger may not be consummated until all of these regulatory approvals are
received and until the specified time period up to 30 days after approval is
received from the latest of the Federal Reserve or OCC.
ACTIONS REQUIRED FOR REGULATORY APPROVAL
The Merger Agreement provides that each of FirstMerit and Signal shall use
its diligent efforts to resolve any objections asserted with respect to the
Merger by the Federal Reserve, the United States Department of Justice
("Department of Justice") or any other governmental entity (including, without
limitation, objections under any antitrust and banking laws). In the event a
suit is threatened or instituted challenging the Merger as violative of the
antitrust laws, the Merger Agreement requires each of FirstMerit and Signal to
use its diligent efforts to avoid the filing of, resist, or resolve such suit.
FirstMerit and Signal must use their diligent efforts to take such action as may
be required (a) by the Federal Reserve, the Department of Justice or any other
governmental entity in order to resolve such objections as any of them may have
to the Merger, or (b) by any federal or state court of the United States, in any
suit brought by a private party or governmental entity challenging the Merger as
violative of any antitrust laws, in order to avoid the entry of, or to effect
the dissolution of, any injunction, temporary restraining order, or other order,
which has the effect of preventing the consummation of the Merger.
WAIVER OF CONDITIONS, AMENDMENT, OR TERMINATION OF THE MERGER AGREEMENT
Waiver. The Merger Agreement provides that either FirstMerit or Signal may
extend the time for the performance of the obligations of the other, waive any
inaccuracies in the representations or warranties of the other party contained
in the Merger Agreement or in any document delivered pursuant thereto, waive
compliance with any of the conditions or covenants of the other party contained
in the Merger Agreement, or waive or modify performance of any of the
obligations of the other party under the Merger Agreement. Notwithstanding these
provisions, the Merger cannot be completed unless the approvals of the Merger by
the Federal Reserve and OCC, and certain other regulatory authorities are
obtained and unless the shareholders of FirstMerit and Signal adopt
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the Merger Agreement by the requisite affirmative vote. See "TERMS OF
MERGER -- Regulatory Approvals" and "SPECIAL MEETING OF SIGNAL
SHAREHOLDERS -- Vote Required."
Amendment. The Merger Agreement may be amended, either before or after its
adoption by the shareholders of Signal, upon authorization by the respective
Boards of Directors of Signal and FirstMerit. Any such amendment, however, made
subsequent to the adoption of the Merger Agreement by the shareholders of Signal
may not (a) alter the amount or change the form of the consideration
contemplated by the Merger Agreement, (b) alter or change any term of the
articles of incorporation of the surviving corporation to be affected by the
Merger, or (c) alter or change the qualification of the Merger as a tax-free
reorganization under the provisions of Section 368 of the Code.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after adoption of the Merger Agreement by
the shareholders of Signal, under any of the following circumstances: (a) by
mutual agreement of the parties by the vote of a majority of the Board of
Directors of each of FirstMerit and Signal; (b) by the vote of a majority of the
Board of Directors of either FirstMerit or Signal if the Merger is not
consummated on or before May 31, 1999, unless the failure to consummate is
related to the action or inaction of a regulatory agency and such action or
inaction is not related to either FirstMerit's or Signal's breach of their
respective obligations to file certain material with regulatory agencies, then
on or before June 30, 1999; (c) by the vote of a majority of the Board of
Directors of Signal if certain material conditions have not been met or waived
by Signal; (d) by the vote of a majority of the Board of Directors of FirstMerit
if certain material conditions have not been met or waived by FirstMerit; (e) by
the vote of a majority of the Board of Directors of either FirstMerit or Signal
if any regulatory agency has denied approval of the Merger and such denial has
become final and non-appealable; (f) by the vote of a majority of the Board of
Directors of either FirstMerit or Signal in the event of a material breach by
the other party of any representation or covenant, which breach is not cured,
within 30 days after written notice; and (g) by the vote of a majority of the
Board of Directors of Signal at any time during the fourth and fifth full
trading days immediately prior to the Effective Time, if (x) the Average Closing
Price (as defined below) is less than $21.85, and (y) FirstMerit has not have
given written notice to Signal on the second or third full trading day
immediately prior to the Effective Time that FirstMerit agrees that Exchange
Ratio shall be $28.84 divided by the Average Closing Price. The term "Average
Closing Price" means the average of the last sale prices of the FirstMerit
Common Stock during the period beginning on the day that is 15 trading days
prior to the Effective Date and ending on the day that is five trading days
prior to the Effective Date.
Expenses. Generally, each party is responsible for the costs and expenses
incurred by it in connection with the transactions contemplated by the Merger
Agreement. If the Merger Agreement is terminated by Signal or FirstMerit because
of the material breach by the other party of any representation, warranty,
covenant, undertaking or restriction contained in the Merger Agreement, and if
the terminating party is not in material breach of any representation, warranty,
covenant, undertaking or restriction contained in the Merger Agreement, then the
breaching party shall pay all costs and expenses of the terminating party,
including but not limited to printing, mailing and related fees, as well as fees
for financial advisors, accountants and legal counsel; provided, however, that
if the Merger Agreement is terminated under other circumstances, all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such costs and
expenses.
EFFECTIVE TIME
Upon satisfaction of all conditions under the Merger Agreement that have
not been waived, FirstMerit and Signal will file appropriate certificates with
the Secretary of State of the State of Ohio. The Merger will become effective
when such filing has been made, whereupon FirstMerit will be the surviving
corporation and the separate existence of Signal will cease. The Effective Time
will occur as promptly as practicable after the date all of the conditions to
the Merger are satisfied or duly waived or at such other date as FirstMerit and
Signal may agree. FirstMerit and Signal currently anticipate that the Merger
will be completed during the first quarter of 1999, although delays in obtaining
the necessary regulatory approvals, which approvals cannot be waived, could
delay such completion of the Merger. See "TERMS OF MERGER -- Regulatory
Approvals" and "Actions Required for Regulatory Approvals."
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SIGNAL STOCK PURCHASE OPTION
General. Subsequent to the execution of the Merger Agreement, FirstMerit
and Signal entered into the Signal Stock Option. One effect of the Signal Stock
Option is to increase the likelihood that the Merger will be consummated by
making it both more difficult and more expensive for another party to attempt to
obtain control of or acquire Signal. The terms of the Signal Stock Option
provide that FirstMerit has an option to purchase up to 19.9% of Signal Capital
Stock in shares of Signal Common Stock (without giving effect to the issuance of
any shares subject to the Signal Stock Option). The purchase price is $28 per
share. The number of shares and the purchase price are subject to adjustment as
described in the Signal Stock Option.
Purchase Events; Exercise of Option. The Signal Stock Option provides that
FirstMerit may exercise the Signal Stock Option upon the occurrence of one or
more of the following "Purchase Events:" (a) Signal shall have proposed to enter
into or enters into an agreement (other than with FirstMerit) to effect (i) a
merger, consolidation, or other business combination involving Signal or any of
its significant subsidiaries with or into any person, (ii) a sale, lease, or
other disposition of assets or earning power of Signal representing 20% or more
of the consolidated assets or earning power of Signal to any person, or (iii) an
issuance, sale, or other disposition of securities representing 20% or more of
the voting power of Signal to any person (any of the foregoing being an
"Acquisition Transaction"); (b) any person, other than FirstMerit, commences or
files a registration statement with respect to a tender offer or exchange offer
to acquire shares of Signal Common Stock such that the person would beneficially
own 25% or more of the Signal Common Stock then outstanding; (c) any person,
other than FirstMerit, acquires beneficial ownership of 20% or more of the
Signal Common Stock then outstanding, or any group has been formed that
beneficially owns 20% or more of the Signal Common Stock then outstanding; or
(d) the holders of Signal Common Stock do not approve the Merger Agreement at
the Signal Meeting, the Signal Meeting is not held or is canceled prior to
termination of the Merger Agreement, or Signal's Board of Directors withdraws or
modifies in a manner adverse to FirstMerit the recommendation of Signal's Board
of Directors that Signal's shareholders approve the Merger, in each case after
any person (i) publicly announces a bona fide proposal, or publicly discloses a
bona fide intention to make a bona fide proposal, to engage in an Acquisition
Transaction, or (ii) files an application or gives notice under the BHCA or the
Change in Bank Control Act of 1978 for approval to engage in an Acquisition
Transaction.
Generally, the right to exercise the Signal Stock Option terminates upon
the earliest of (a) the Effective Time, (b) 12 months after the first occurrence
of a Purchase Event, and (c) termination of the Merger Agreement in accordance
with its terms before the occurrence of a Purchase Event. In the event of any
change in the Signal Common Stock by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares, or similar transaction, the
type and number of shares or securities subject to the Signal Stock Option and
the purchase price therefor will be adjusted appropriately.
Repurchase of Option. During the 12-month period following the first
occurrence of a Repurchase Event (as described below), FirstMerit will have the
right to require Signal to repurchase the Signal Stock Option and all shares of
Signal Common Stock purchased upon exercise of the Signal Stock Option that are
beneficially owned by FirstMerit at the time the repurchase is requested. The
aggregate repurchase price will be the sum of (a) the aggregate purchase price
paid by FirstMerit for all shares of Signal Common Stock, if any, purchased upon
exercise of the Signal Stock Option that are beneficially held by FirstMerit at
the time the repurchase is requested, (b) the excess, if any, of the Applicable
Price (as described below) over the purchase price paid by FirstMerit for each
share of Signal Common Stock purchased upon exercise of the Signal Stock Option
that are beneficially held by FirstMerit at the time the repurchase is
requested, multiplied by the number of such shares, and (c) the excess, if any,
of the Applicable Price over the purchase price payable upon exercise of the
Signal Stock Option multiplied by the number of shares with respect to which the
Signal Stock Option has not been exercised.
"Repurchase Event" has the same meaning as "Acquisition Transaction,"
except that the percentage referred to in subparagraph (a)(ii) of the definition
of Acquisition Transaction above in the paragraph captioned "Purchase Events;
Exercise of Option" is 50%, and the percentage referred to in subparagraph
(a)(iii) of the definition is 40%. "Applicable Price" means the highest of (x)
the highest price per share to be paid by any person (other than FirstMerit) for
Signal Common Stock or the highest consideration per share to be received by the
holders of Signal Common Stock, in each case pursuant to an agreement for a
business combination with Signal that is entered into after August 10, 1998 and
before the repurchase is requested, (y) the highest closing
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sales price per share of Signal Common Stock reported on Nasdaq/NMS during the
60 business days before the repurchase is requested, and (z) in the event of the
sale by Signal of assets or earning power aggregating more than 50% of the
consolidated assets or earning power of Signal and its subsidiaries to any
person, the sum of the price paid for such assets or earning power and the
current value of the remaining assets of Signal and its subsidiaries, divided by
the number of shares of Signal Common Stock outstanding at the time of the sale.
Notwithstanding any other provision, the consideration payable to FirstMerit
shall be adjusted so that the maximum payable to FirstMerit under this provision
will not exceed the aggregate purchase price paid by FirstMerit pursuant to the
Signal Stock Option, plus $20 million.
Except to the extent that FirstMerit has exercised its right to require
Signal to repurchase the Signal Stock Option and the Signal Common Stock
purchased upon exercise of the Signal Stock Option, as described in the
preceding paragraphs, during the six-month period beginning 12 months after the
first occurrence of a Repurchase Event, Signal will have the right to repurchase
from FirstMerit all of the shares of Signal Common Stock purchased upon exercise
of the Signal Stock Option that are beneficially owned by FirstMerit at the time
the repurchase is requested. The aggregate price will be the greater of (a) 110%
of the average closing sales price per share of Signal Common Stock reported on
Nasdaq/NMS for the ten business days before the repurchase is requested and (b)
the sum of (x) the purchase price per share paid by FirstMerit for such shares
and (y) FirstMerit's "pre-tax per share carrying cost" (as defined in the Signal
Stock Option) for such shares, multiplied in either case by the number of shares
being repurchased.
Registration Rights; Right of First Refusal. Upon request by FirstMerit
within the 18-month period following the first exercise of the Signal Stock
Option (or later in the event of a delay in obtaining certain regulatory
approvals), Signal will prepare and file a registration statement with the
Commission if such registration is necessary to permit the sale or other
disposition of the shares of Signal Common Stock purchased upon exercise of the
Signal Stock Option. Signal is also required to permit FirstMerit to include the
shares in certain registration statements filed by Signal with the Commission
during the periods referred to in the prior sentence.
At any time after the first occurrence of a Purchase Event and until the
later of (a) 24 months following the first exercise of the Signal Stock Option
and (b) termination of the Signal Stock Option, Signal will have a right of
first refusal with respect to the sale or other disposition of shares of Signal
Common Stock purchased by FirstMerit upon exercise of the Signal Stock Option.
This right of first refusal will not, however, apply to (x) any disposition in
which the proposed transferee will receive not more than 2% of the outstanding
Signal Common Stock, (y) any registered public offering in which steps are taken
to reasonably ensure that no purchaser will acquire more than 2% of the
outstanding Signal Common Stock, and (z) any transfer to a wholly owned
subsidiary of FirstMerit that agrees to be bound by the terms of the Signal
Stock Option.
Termination of Option. FirstMerit may not exercise the Signal Stock Option
if, at the time of exercise, it is in material breach of the Merger Agreement.
Moreover, Signal's obligations under the Signal Stock Option will terminate and
the Signal Stock Option will no longer be exercisable if the Merger Agreement is
terminated and FirstMerit is in material breach of the Merger Agreement when it
is terminated; provided that, for this purpose, if the Merger Agreement is to be
terminated by FirstMerit, Signal must upon request notify FirstMerit if a
material breach by FirstMerit exists and, if the Merger Agreement is terminated
by Signal and all of the material breaches by FirstMerit are curable, Signal
must provide FirstMerit with notice of the material breaches and an opportunity
to cure.
Additional Provisions. Certain rights and obligations of Signal and
FirstMerit under the Signal Stock Option are subject to receipt of required
regulatory approvals. Among others things, regulatory approvals are required for
the acquisition by FirstMerit of more than 5% of the outstanding Signal Common
Stock.
INTERESTS OF CERTAIN PERSONS IN MERGER
Generally. Certain members of Signal's management and the Signal Board of
Directors may be deemed to have interests in the Merger in addition to their
interests as shareholders of Signal generally. The Signal Board of Directors was
aware of these interests and considered them in adopting the Merger Agreement.
Set forth below are descriptions of the material interests of the directors and
certain executive officers of Signal in the Merger in addition to their
interests as shareholders of Signal generally.
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Post-Merger Directors and Officers. Gary G. Clark, Chairman of the Board
and Chief Executive Officer of Signal will be appointed, promptly after the
Effective Time, as a member of the Board of Directors of FirstMerit for a term
to expire in the year 2002. Mr. John R. Cochran, the Chairman and Chief
Executive Officer of FirstMerit, will continue as the Chairman and Chief
Executive Officer of FirstMerit. The persons currently serving as directors of
FirstMerit will continue to serve on the Board of Directors of FirstMerit, and
persons currently serving as executive officers of FirstMerit will continue to
serve in such capacities.
Existing Employment Agreements. Each of Mr. Clark, James J. Little,
President and Chief Operating Officer and a director of Signal, and L. Dwight
Douce, Executive Vice President, Secretary and a director of Signal, has an
employment agreement with Signal. Each agreement provides for, among other
things, payment of an annual base salary in an amount not less than the
executive's salary in effect as of the date of the agreement, bonuses to be
awarded at the discretion of Signal's Board of Directors and full participation
in all employee benefit plans and programs offered to Signal's officers and
employees generally. Each agreement also provides that if the executive's
employment is "involuntarily terminated" in connection with or within 12 months
after a change in control of Signal (which will occur upon consummation of the
Merger), the executive shall be entitled to (i) a lump sum cash payment in an
amount equal to 299% of the executive's "base amount" (as defined in Section
280G of the Code) (subject to reduction to prevent payments to the executive in
connection with the change in control from being nondeductible for federal
income tax purposes) and (ii) substantially the same health benefits that Signal
or Signal Bank maintained for executive officers immediately prior to the change
in control for the remaining term of the agreement. It is expected that the
employment of each of Messrs. Clark, Little and Douce will be "involuntarily
terminated" in connection with the Merger. Accordingly, Messrs. Clark, Little
and Douce will be entitled to lump sum cash payments (which, under the Merger
Agreement, Signal has agreed to pay at the Effective Time) of $ ,
$ and $ , respectively, subject to possible cut-back of such
amounts if the receipt thereof would result in a penalty tax under Section 280G
of the Code.
David C. Vernon, a director of Signal and the Chairman, President and Chief
Executive Officer of Summit Bank, has an employment agreement with Signal and
Summit Bank. Mr. Vernon's employment agreement entitles him to, among other
things, a minimum annual base salary in an amount not less than Mr. Vernon's
salary in effect as of the date of the agreement, bonuses to be awarded at the
discretion of Signal's Board of Directors and participation in specified
retirement and executive benefit plans. Mr. Vernon's agreement provides that if
his employment is "involuntarily terminated" in connection with or within 12
months after a change in control of Signal or Summit Bank (which will occur upon
consummation of the Merger), he shall be entitled to (i) a lump sum cash payment
in an amount equal to 299% of his "base amount" (subject to reduction to prevent
payments to Mr. Vernon in connection with the change in control from being
nondeductible for federal income tax purposes) and (ii) substantially the same
health benefits as Summit maintains for its executive officers immediately prior
to the change in control for the remaining term of the agreement. It is expected
that Mr. Vernon's employment will be "involuntarily terminated" in connection
with the Merger. Accordingly at the Effective Time, Mr. Vernon will be entitled
to a lump sum cash payment of approximately $ . Mr. Vernon will be
entitled to receive his vested 15-year, annual retirement benefit of $39,962
under his Salary Continuation Agreement with Summit Bank.
Ronald A. James, Jr., a director of Signal and President of MCi, has an
employment agreement with MCi. Mr. James' employment agreement currently
entitles him to a minimum annual base salary of $100,000, bonuses to be awarded
at the discretion of the Board of Directors and participation in specified
retirement and executive benefit plans. Mr. James' employment agreement provides
that if his employment is "involuntarily terminated," he shall be entitled to be
paid during the remaining term of the agreement his base salary in effect
immediately prior to the date of termination. Mr. James' employment agreement
was amended on August 5, 1998 to, among other things, change the term of the
agreement to a period of one year, commencing on the Effective Time, and provide
for payment of an annual base salary to be determined on or before March 31,
1999. The amendment to Mr. James' employment agreement will not become effective
unless and until the Effective Time occurs.
Jon W. Park, Chief Financial Officer of Signal, has an employment agreement
with Signal. Mr. Park's employment agreement entitles him to, among other
things, a minimum annual base salary in an amount not less than Mr. Park's
salary in effect as of the date of the agreement, bonuses to be awarded at the
discretion of
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Signal's Board of Directors and participation in specified executive benefit
plans. Mr. Park's employment agreement provides that if his employment is
"involuntarily terminated," he shall be entitled to be paid during the remaining
term of the agreement (but in no event less than 12 months) his base salary in
effect immediately prior to the date of termination. It is expected that Mr.
Park's employment will be "involuntarily terminated" in connection with the
Merger.
As used above, the term "involuntary termination" includes, among other
things, a material diminution of the executive's current duties,
responsibilities and benefits.
Stock Options. The Signal outstanding options under its stock option plans
will be assumed by FirstMerit. All terms and conditions of the Signal stock
options will remain unchanged, except that from and after the Effective Time (i)
FirstMerit and its compensation committee shall be substituted for Signal and
its Stock Option Committee, (ii) each such Signal stock option may be exercised
only for FirstMerit Common Stock, (iii) the number of shares subject to Signal
stock options will be adjusted to allow the holder, upon exercise, to receive
shares of FirstMerit Common Stock calculated by multiplying the Exchange Ratio
(1.32) by the number of shares of Signal Common Stock subject to the Signal
stock options, and (iv) the exercise price of each Signal stock option will be
adjusted by dividing the exercise price per share by the Exchange Ratio.
Under the terms of the Omnibus Incentive Plan, stock options granted
thereunder which have not yet vested will vest and become exercisable in full
upon a change in control of Signal (which will occur upon adoption of the Merger
Agreement at the Signal Meeting). Upon adoption of the Merger Agreement at the
Signal Meeting, unvested options to purchase 142,802 shares of Signal Common
Stock granted to the directors and executive officers of Signal which have not
yet vested will vest and become exercisable in full.
Restricted Stock. The Omnibus Incentive Plan provides that upon a change in
control of Signal, all outstanding awards of restricted shares of Signal Common
Stock will vest (i.e., become free of restrictions) in full. Upon adoption of
the Merger Agreement at the Signal Meeting, 157,000 unvested shares of
restricted stock held by Messrs. Clark, Little and Douce in the amounts of
85,000, 47,500 and 25,000 shares, respectively, will vest.
Indemnification. The Merger Agreement provides that, except as may be
limited by applicable law, FirstMerit agrees to honor, for a period of six years
after the Effective Time, the terms of indemnification and the limitations on
liability which are provided Signal's and its subsidiaries' directors, officers
and employees, for matters occurring prior to the Effective Time. FirstMerit has
also agreed to maintain in effect, for a period of up to six years after the
Effective Time, the current insurance policies maintained by Signal (or
substitute policies with substantially the same coverage and terms) covering
directors' and officers' liability with respect to claims which arise from
factors or events which occurred before the Effective Time, except that
FirstMerit's obligation for the second and subsequent years following the
Effective Time will be based upon its ability to obtain such insurance at a
commercially reasonable cost.
Stay Bonus Program. FirstMerit has agreed to pay certain employees of
Signal an amount not to exceed $500,000 as part of a "Stay Bonus Program." The
employees selected by Signal, who are subject to FirstMerit's approval as to
participation and amount, will receive the Stay Bonus, less employment and
related taxes, as long as the employee does not voluntarily terminate his
employment without "good reason" prior to the expiration of six months after the
Effective Time. "Good reason" means cause, a reduction in base salary or an
involuntary move from the employee's place of employment at the Effective Time
to a location more than 50 miles away. Any payment due under the Stay Bonus
Program is conditioned upon receipt of a standard release of FirstMerit
regarding matters related to employment and termination of employment.
EMPLOYEES OF SIGNAL
Certain specified employees of Signal and its subsidiaries (not including
Messrs. Clark, Little and Douce) will be entitled to separation monies in an
amount equal to 12 months salary plus an amount sufficient to pay for medical
coverage under COBRA for 12 months, less taxes, if during the 24-month period
after the Effective Time either their employment is terminated for any reason
(other than for cause) or their base salary is reduced below that being received
at the Effective Time. The employees will as a condition to receiving such
separation monies be required to execute a standard release of FirstMerit
regarding matters relating to employment and termination of employment.
Employees of Signal, other than Messrs. Clark, Little and Douce and the
employees entitled to
41
<PAGE> 53
the separation benefits described in the preceding sentence, who do not become
employees of FirstMerit or its subsidiaries, or who become employees of
FirstMerit or its subsidiaries but whose employment is terminated during the
180-day period after the Effective Time (except if such termination is for
cause), will be entitled to receive separation monies under FirstMerit's
standard separation plan in consideration for a standard release of FirstMerit
regarding matters related to employment and termination of employment.
42
<PAGE> 54
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
FirstMerit Common Stock and Signal Common Stock are included for quotation
on Nasdaq/NMS, under the symbols "FMER" and "SGNL," respectively. As of the
, 1998, there were approximately 69,522,670 shares of FirstMerit
Common Stock outstanding and held by approximately 7,695 holders of record, and
11,777,374 shares of Signal Common Stock outstanding and held by approximately
3,800 holders of record. The following table sets forth the high and low closing
sale prices of the FirstMerit Common Stock and Signal Common Stock for the
periods indicated.
<TABLE>
<CAPTION>
FIRSTMERIT SIGNAL
SALE PRICES(1) SALE PRICES(2)
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
First Quarter........................................ $16.25 $13.88 $14.98 $13.97
Second Quarter....................................... 16.00 15.00 18.72 14.40
Third Quarter........................................ 16.00 14.13 20.16 18.72
Fourth Quarter....................................... 18.00 15.63 25.60 19.36
YEAR ENDED DECEMBER 31, 1997:
First Quarter........................................ 21.38 17.38 25.12 23.12
Second Quarter....................................... 25.25 19.25 33.60 21.44
Third Quarter........................................ 27.00 22.63 34.40 32.20
Fourth Quarter....................................... 30.75 24.88 38.50 32.20
YEAR ENDED DECEMBER 31, 1998:
First Quarter........................................ 34.38 25.88 35.60 30.00
Second Quarter....................................... 33.75 27.25 34.09 27.75
Third Quarter (through , 1998)......... -- -- -- --
</TABLE>
- ---------------
(1) Adjusted to reflect 2-for-1 stock split paid in the form of a 100% stock
dividend completed in September 1997.
(2) Adjusted to reflect 5-for-4 stock splits paid in the form of 25% stock
dividends in May 1998 and 1997 and 10% stock dividend paid in May 1996.
DIVIDENDS
The following table sets forth dividends declared per share of FirstMerit
Common Stock and Signal Common Stock, respectively, for the periods indicated.
The ability of either FirstMerit or Signal to pay dividends to its respective
shareholders is subject to certain restrictions. See "REGULATORY MATTERS."
<TABLE>
<CAPTION>
FIRSTMERIT SIGNAL
DIVIDENDS(1) DIVIDENDS(2)
------------ ------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................. $0.135 $.07
Second Quarter............................................ 0.135 .07
Third Quarter............................................. 0.135 .08
Fourth Quarter............................................ 0.145 .08
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................. $0.145 $.08
Second Quarter............................................ 0.145 .08
Third Quarter............................................. 0.16 .09
Fourth Quarter............................................ 0.16 .09
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. $ 0.16 $.09
Second Quarter............................................ 0.16 .11
Third Quarter(through , 1998)............... -- .11
</TABLE>
- ---------------
(1) Adjusted to reflect 2-for-1 stock split paid in the form of a 100% stock
dividend in September 1997.
(2) Adjusted to reflect 5-for-4 stock splits paid in the form of 25% stock
dividends in May 1998 and 1997 and 10% stock dividend paid in May 1996.
43
<PAGE> 55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION IS A SUMMARY OF THE ANTICIPATED MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO FIRSTMERIT, SIGNAL AND TO THE EXISTING
SHAREHOLDERS OF SIGNAL, BUT DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF ALL
THE POTENTIAL TAX EFFECTS OF THE MERGER. THE DISCUSSION IS BASED UPON AN OPINION
OF FIRSTMERIT'S LEGAL COUNSEL, WHICH IS BASED UPON THE CODE, TREASURY
REGULATIONS, IRS RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE
SUBJECT TO CHANGE AT ANY TIME BY LEGISLATIVE, JUDICIAL, OR ADMINISTRATIVE
ACTION. ANY SUCH CHANGE MAY OR MAY NOT BE APPLIED RETROACTIVELY. NO DISCUSSION
IS RENDERED WITH RESPECT TO THE EFFECT, IF ANY, OF ANY PENDING OR FUTURE
LEGISLATION OR ADMINISTRATIVE REGULATION OR RULING WHICH MAY HAVE A BEARING ON
ANY OF THE FOREGOING.
There is no undertaking or requirement to provide notice of changes which
may occur after the date hereof, including any change in the law, whether by
legislative or regulatory action, judicial interpretation or otherwise, or of
any change of facts as they presently exist. No information is provided herein
with respect to foreign, state or local tax laws or estate and gift tax
considerations, or the federal or state income tax considerations that may
affect the treatment of a shareholder who acquired his Signal Common Stock
pursuant to an employee stock option, under special circumstances or is subject
to special rules (such as foreign persons, financial institutions, tax-exempt
organizations, retirement plans, dealers in securities or insurance companies).
No ruling has been or will be requested from the IRS with respect to the
federal income tax consequences of the Merger. The opinion of counsel only
represents counsel's best judgment and is not binding on the IRS or the courts.
Accordingly, no assurance can be given that the IRS or a court (if a matter is
litigated), will agree with counsel's conclusions, that the IRS will not
challenge the tax treatment of the Merger, or that such a challenge if made
(whether or not it is litigated), will not be successful.
IT IS IMPORTANT THAT SHAREHOLDERS OF SIGNAL CONSULT THEIR OWN TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
FirstMerit has received an opinion of Brouse & McDowell, L.P.A., dated the
date of this Joint Proxy Statement/Prospectus, to the effect that, under
currently applicable law, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and, accordingly, for United States federal income tax purposes:
(i) no gain or loss will be recognized by FirstMerit or Signal as a
result of the Merger;
(ii) no gain or loss will be recognized by the shareholders of Signal
who exchange their shares of Signal Common Stock solely for shares of
FirstMerit Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in FirstMerit Common
Stock);
(iii) the tax basis of shares of FirstMerit Common Stock received by
shareholders of Signal who exchange all of their shares of Signal Common
Stock solely for shares of FirstMerit Common Stock in the Merger will be
the same as the tax basis of the shares of Signal Common Stock surrendered
in exchange therefor (reduced by any amount allocable to a fractional share
interest for which cash is received); and
(iv) the holding period of the shares of FirstMerit Common Stock
received in the Merger will include the period during which the shares of
Signal Common Stock surrendered in exchange therefor were held, provided
such shares of Signal Common Stock were held as capital assets at the
Effective Time.
The opinion of Brouse & McDowell, L.P.A. described above is based on facts,
representations and assumptions set forth in such opinion, and certificates of
officers of Signal and FirstMerit.
The obligations of the parties to consummate the Merger are conditioned
upon the receipt by FirstMerit of an opinion of Brouse & McDowell, L.P.A., dated
the day of the Effective Time, substantially to the foregoing effect. Such
opinion will be based upon facts, representations and assumptions set forth in
such opinion which are consistent with the state of facts existing at the
Effective Time. In rendering such opinion, Brouse & McDowell, L.P.A. may require
and rely upon representations contained in certificates of officers of Signal,
FirstMerit and others.
Cash received by a holder of Signal Common Stock in lieu of a fractional
share interest in FirstMerit Common Stock will be treated as received in
redemption of such fractional share interest, and a Signal shareholder should
generally recognize capital gain or loss for federal income tax purposes
measured by the
44
<PAGE> 56
difference between the amount of cash received and the portion of the tax basis
of the share of Signal Common Stock allocable to such fractional share interest.
Such gain or loss should be a long-term capital gain or loss if the holding
period for such share of Signal Common Stock is greater than one year at the
Effective Time. In the case of an individual Signal shareholder, such capital
gain will be taxed at a maximum rate of 20%, if such Signal shareholder's
holding period is more than one year. The holding period of a share of
FirstMerit Common Stock received in the Merger (including a fractional share
interest deemed received and redeemed as described above) will include the
holder's holding period in the Signal Common Stock surrendered in exchange
therefor.
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED MERGER UNDER THE CODE AND IS FOR GENERAL
INFORMATION ONLY. IT DOES NOT INCLUDE CONSEQUENCES OF STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS OR SPECIAL CONSEQUENCES TO PARTICULAR SHAREHOLDERS HAVING SPECIAL
SITUATIONS. SHAREHOLDERS OF SIGNAL SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND TAX
CONSEQUENCES OF SUBSEQUENT SALES OF FIRSTMERIT COMMON STOCK.
ACCOUNTING TREATMENT OF MERGER
The Merger, if completed as proposed, will qualify as a pooling-of-interest
for accounting and financial reporting purposes. Under the pooling-of-interest
method of accounting, the historical basis of the assets and liabilities of
FirstMerit and Signal will be retroactively combined for the entire fiscal
period in which the Merger occurs and for all periods prior to the Merger at
historically recorded amounts. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)."
The obligations of FirstMerit and Signal to effect the Merger are
conditioned, among other things, upon their receipt from FirstMerit's
independent certified public accounting firm of a letter, dated the day of the
Effective Time, to the effect that, for financial accounting purposes, the
Merger qualifies for pooling-of-interest accounting treatment under generally
accepted accounting principles if consummated in accordance with the Merger
Agreement. See "MERGER -- Conditions to the Merger -- Conditions to Each Party's
Obligations." The Merger Agreement further provides that neither FirstMerit nor
Signal shall intentionally take or cause to be taken any action, whether before
or after the Effective Time, which would disqualify the Merger as a
pooling-of-interest for accounting purposes.
RESALES OF FIRSTMERIT CAPITAL STOCK RECEIVED IN MERGER
The shares of FirstMerit Common and Series B Preferred Stock issued to
Signal shareholders pursuant to the Merger Agreement will have been registered
under the 1933 Act, but such registration does not cover resales by shareholders
of Signal who may be deemed to be "affiliates" of Signal, as that term is used
in paragraphs (c) and (d) of Rule 145 promulgated under the 1933 Act. In
addition, there are limitations on resales by affiliates of Signal necessary in
order for the Merger to qualify for pooling-of-interest accounting treatment.
Pursuant to the Merger Agreement, prior to the Effective Time, Signal shall
identify to FirstMerit all persons who were, at the time of the Signal Meeting,
possible "affiliates" of Signal. The Merger Agreement further provides that
Signal shall use reasonable efforts to obtain from each person it identifies to
FirstMerit as a possible "affiliate" of Signal a commitment that such person
will not sell, pledge, transfer or otherwise dispose of any shares of Signal
Capital Stock held by such "affiliate" or shares of FirstMerit Capital Stock
received by such "affiliate" in the Merger: (a) in the case of FirstMerit Common
and Series B Preferred Stock only, except in compliance with the applicable
provisions of the 1933 Act and the rules and regulations promulgated thereunder,
and (b) during the periods during which any such sale, pledge, transfer or other
disposition would, under generally accepted accounting principles or the rules,
regulations or interpretations of the Commission, disqualify the Merger for
pooling-of-interest treatment. Commission guidelines indicate that the
pooling-of-interest method of accounting generally will not be challenged on the
basis of sales by "affiliates" of the acquiring or acquired company if such
"affiliates" do not dispose of any of the shares of the acquiring or acquired
company they owned prior to the consummation of a merger or shares of the
acquiring corporation they receive in connection with a merger during
45
<PAGE> 57
the period beginning 30 days before the merger and ending when financial results
covering at least 30 days of post-merger operations of the combined entity have
been published.
This Joint Proxy Statement/Prospectus does not cover any reoffers or
resales of FirstMerit Common and Series B Preferred Stock received by affiliates
of Signal.
FIRSTMERIT'S ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
The Articles of FirstMerit in effect immediately prior to the Merger will
be the articles of incorporation of FirstMerit as the surviving corporation
after the Merger (except as amended to assume the terms and provisions of the
Signal Preferred Stock). The Regulations of FirstMerit in effect immediately
prior to the Merger will be the regulations of FirstMerit after the Merger.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Signal Common Stock who so desire are entitled to relief as
dissenting shareholders under Section 1701.84 of the Ohio Revised Code. A
shareholder of Signal, however, will be entitled to such relief only if he
complies strictly with all of the procedural and other requirements of Section
1701.85 of the Ohio Revised Code. The following summary does not purport to be a
complete statement of the method of compliance with Section 1701.85 and is
qualified in its entirety by reference to the copy of Section 1701.85 attached
hereto as Appendix D.
A holder of Signal Common Stock who wishes to perfect his rights as a
dissenting shareholder in the event the Merger Agreement is adopted:
(a) must have been a record holder of the Signal Common Stock as to
which he seeks relief as of the Signal Record Date;
(b) must not have voted his Signal Common Stock in favor of adoption
of the Merger Agreement; and
(c) must deliver to Signal, not later than ten days after the Signal
Meeting, a written demand for payment of the fair cash value of the shares
as to which he seeks relief. This written demand must state the name of the
shareholder, his address, the number and class of shares as to which he
seeks relief, and the amount claimed as the fair cash value thereof.
A vote against adoption of the Merger Agreement will not satisfy the
requirements of a written demand for payment. Any written demand for payment
must be mailed or delivered to L. Dwight Douce, Secretary, Signal Corp, 135 East
Liberty Street, Wooster, Ohio 44691. As the written demand must be delivered
within the ten-day period following the Signal Meeting, it is recommended,
although not required, that a shareholder using the mails should use certified
or registered mail, return receipt requested, to confirm that he has made a
timely delivery.
If Signal sends the dissenting shareholder at the address specified in his
demand, a request for the certificate(s) representing his shares, the
shareholder must deliver the certificate(s) within 15 days of the sending of
such request. Signal may endorse the certificate(s) with a legend to the effect
that the shareholder has demanded the fair cash value of the shares represented
by the certificate(s). Failure to deliver the certificate(s) within 15 days of
the request terminates the shareholder's rights as a dissenting shareholder.
Signal must notify the shareholder of its election to terminate his rights as a
dissenting shareholder within 20 days after the lapse of the 15 day period.
Unless the dissenting shareholder and Signal shall agree on the fair cash
value per share of the Signal Common Stock, either may, within three months
after the service of the written demand by the shareholder, file a petition in
the Court of Common Pleas of Cuyahoga County, Ohio. If the court finds that the
shareholder is entitled to be paid the fair cash value of any shares, the court
may appoint one or more appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value.
Fair cash value: (a) will be determined as of the day prior to Signal
Meeting, (b) will be the amount a willing seller and willing buyer would accept
or pay with neither being under compulsion to sell or buy, (c) will not exceed
the amount specified in the shareholder's written demand, and (d) will exclude
any appreciation or depreciation in market value resulting from the Merger. The
court shall make a finding as to the fair cash value of a share and render
judgment against Signal for its payment with interest at such rate and from such
date as the
46
<PAGE> 58
court considers equitable. The costs of proceedings shall be assessed or
apportioned as the court considers equitable.
The rights of any dissenting shareholder will terminate if (a) he has not
complied with Section 1701.85, unless Signal by its Board of Directors waives
such failure, (b) Signal abandons or is finally enjoined or prevented from
carrying out, or the shareholders of Signal rescind their adoption of, the
Merger, (c) the dissenting shareholder withdraws his written demand, with the
consent of Signal, by its Board of Directors, or (d) Signal and the dissenting
shareholder shall not have agreed upon the fair cash value per share of the
Signal Common Stock, respectively, and neither shall have timely filed or joined
in a petition in an appropriate court for a determination of the fair cash value
of the shares.
Because a proxy which does not contain voting instructions will be voted
for adoption of the Merger Agreement, a shareholder who wishes to exercise his
dissenters' rights must either not sign and return his proxy or, if he signs and
returns his proxy, vote against or abstain from voting on the adoption of the
Merger Agreement.
47
<PAGE> 59
PRO FORMA FINANCIAL INFORMATION
The pro forma condensed combined financial statements include (i) the
CoBancorp merger consummated on May 22, 1998, (ii) the pending merger of
Security First, contemplated to be completed in the fourth quarter of 1998,
(iii) the pending merger of Signal, contemplated to be completed during the
first quarter 1999, and (iv) the reissuance of 1.2 million shares of FirstMerit
Common Stock. Purchase accounting was used for the completed CoBancorp merger,
and pooling-of-interest accounting is used on the pro forma information
presented for the Security First and Signal mergers.
CoBancorp is already included in the balance sheet of FirstMerit as of June
30, 1998. The pro forma condensed combined income statements for the six months
ended June 30, 1998 and 1997, and December 31, 1997 include operating results of
CoBancorp as if the CoBancorp Merger were consummated at the beginning of each
of those periods. Results of FirstMerit for the six months ended June 30, 1998
already include the results of CoBancorp for the period May 22, 1998
(consummation) to June 30, 1998. The balance sheet and income statement
adjustments shown are based on management estimates, for pro forma presentation,
of costs associated with the mergers and issuances of shares of FirstMerit
Common Stock. FirstMerit cost estimates are forward-looking. Readers are
cautioned that the type and amount of actual costs incurred could vary
materially from these estimates if future developments differ from the
underlying assumptions used by management in determining the current estimate of
these costs. See "FORWARD-LOOKING STATEMENTS."
The unaudited pro forma balance sheet information is not necessarily
indicative of the actual financial position that would have existed had the
merger of CoBancorp been consummated on June 30, 1997 or December 31, 1997, and
had the Security First and Signal mergers been consummated on June 30, 1998 and
1997, and the years ended December 31, 1997, 1996 and 1995, or that may exist in
the future. The unaudited pro forma income statement information is not
necessarily indicative of the results that would have occurred had any of the
CoBancorp, Security First or Signal mergers been consummated on the dates
indicated or that may be achieved in the future. Assuming the consummation of
the Security First and Signal mergers, the actual financial position and results
of operations will differ, perhaps significantly, from the pro forma amounts
reflected herein because of a variety of factors, including changes in value and
changes in operating results between the dates of the pro forma financial data
and the date on which the Security First and Signal mergers take place.
THE FOLLOWING PRO FORMA INFORMATION IS NOT NECESSARILY INDICATIVE OF THE
RESULTS WHICH ACTUALLY WOULD HAVE BEEN OBTAINED IF THE MERGER HAD BEEN
CONSUMMATED IN THE PAST OR WHICH MAY BE OBTAINED IN THE FUTURE.
48
<PAGE> 60
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
ACQUISITION AND PRO FORMA
FIRSTMERIT SECURITY FIRST SIGNAL OFFERING ADJUSTMENTS COMBINED
---------- -------------- ---------- --------------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment securities........ $1,327,598 $ 29,501 $ 483,690 $1,840,789
Federal funds sold........... 10,600 7,500 18,100
Net loans.................... 4,230,184 630,422 1,280,197 $(24,100)(1) 6,116,703
Cash and due from banks...... 216,443 11,968 44,557 23,568(2) 296,536
Premises and equipment,
net....................... 118,120 8,355 22,701 149,176
Accrued interest and other
assets.................... 276,445 8,716 81,080 23,600(1) 389,841
---------- -------- ---------- -------- ----------
Total assets......... $6,179,390 $696,462 $1,912,225 $ 23,068 $8,811,145
========== ======== ========== ======== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Deposits..................... $4,878,882 $511,183 $1,305,086 $6,695,151
Securities sold under
agreement
to repurchase and other
borrowings................ 547,368 111,727 417,097 1,076,192
Accrued taxes, expenses and
other liabilities......... 107,127 4,609 34,130 $ 43,200(1) 189,066
---------- -------- ---------- -------- ----------
Total liabilities 5,533,377 627,519 1,756,313 43,200 7,960,409
Preferred stock.............. 9,917 9,917
Common stock................. 110,197 79 11,747 (1,565)(3) 120,458
Capital surplus.............. 25,919 17,614 58,844 4,086(2) 106,463
Accumulated other
comprehensive income...... 3,059 937 3,996
Retained earnings............ 550,558 51,250 76,032 (43,700)(1) 634,140
1,565(3)
Treasury stock............... (43,720) (1,565) 19,482(2) (24,238)
---------- -------- ---------- -------- ----------
Total shareholders'
equity 646,013 68,943 155,912 (20,132) 850,736
---------- -------- ---------- -------- ----------
Total liabilities and
shareholders'
equity............. $6,179,390 $696,462 $1,912,225 $ 23,068 $8,811,145
========== ======== ========== ======== ==========
</TABLE>
See accompanying notes to pro forma condensed combined financial information.
49
<PAGE> 61
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------
FIRSTMERIT
AND
COBANCORP
PRO FORMA PRO FORMA
FIRSTMERIT COBANCORP ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.......... $ 211,708 $ 18,634 $ (48)(4) $ 230,897
603(4)
Interest expense......... 79,421 11,380 1,283(4) 93,163
1,079(4)
---------- ---------- ------- -----------
Net interest income.... 132,287 7,254 (1,807)(4) 137,734
Provision for loan
losses................. 10,906 100 11,006
---------- ---------- ------- -----------
Net interest income
after provision for
loan losses.......... 121,381 7,154 (1,807) 126,728
Other income............. 50,207 2,646 52,853
Other expenses........... 104,973 6,670 374(4) 114,454
2,437(4)
---------- ---------- -------
Income before income
taxes................ 66,615 3,130 (4,618) 65,127
Federal income taxes..... 20,505 1,096 (1,616)(5) 19,984
---------- ---------- ------- -----------
Net income............. $ 46,110 $ 2,035 $(3,002) $ 45,143
========== ========== ======= ===========
Adjustments to net income
to calculate:
Basic net income.........
Diluted net income.......
Per share data:
Net income -- basic...... $ 0.74 $ 0.58 $ 0.68
Net income -- diluted.... $ 0.73 $ 0.58 $ 0.67
Average common shares
outstanding -- basic... 62,282,099 3,481,800 66,147,593(6)
Average common shares
outstanding -- diluted... 63,143,349 3,535,828 67,068,825(6)
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------
ADJUSTMENTS
FOR ISSUANCE
OF 1.2 MILLION
SECURITY SHARES OF PRO FORMA
FIRST SIGNAL COMMON STOCK COMBINED
--------- ---------- -------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.......... $ 28,703 $ 68,368 $ 327,700
Interest expense......... 14,922 43,391 151,208
--------- ---------- --------- ----------
Net interest income.... 13,781 24,977 176,492
Provision for loan
losses................. 168 3,234 14,408
--------- ---------- --------- ----------
Net interest income
after provision for
loan losses.......... 13,613 21,743 162,084
Other income............. 1,012 15,240 69,105
Other expenses........... 6,775 32,775 154,004
--------- ---------- --------- ----------
Income before income
taxes................ 7,850 4,208 77,185
Federal income taxes..... 2,738 1,831 24,553
--------- ---------- --------- ----------
Net income............. $ 5,112 $ 2,377 $ 52,632
========= ========== ========= ==========
Adjustments to net income
to calculate:
Basic net income......... (348) (348)
Diluted net income....... 128 128
Per share data:
Net income -- basic...... $ 0.67 $ 0.18 $ 0.59
Net income -- diluted.... $ 0.60 $ 0.18 $ 0.58
Average common shares
outstanding -- basic... 7,652,501 11,339,173 1,200,000 89,091,591(7)
Average common shares
outstanding -- diluted... 8,666,508 11,339,173 1,200,000 90,910,726(7)
</TABLE>
See accompanying notes to pro forma condensed combined financial information.
50
<PAGE> 62
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------------
FIRSTMERIT
AND
COBANCORP
PRO FORMA PRO FORMA
FIRSTMERIT COBANCORP ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.......... $ 200,777 $ 23,377 $ (61)(4) $ 224,861
768(4)
Interest expense......... 74,032 9,081 1,635(4) 86,123
1,375(4)
---------- ---------- ------- -----------
Net interest income.... 126,745 14,296 (2,303)(4) 138,738
Provision for loan
losses................. 9,194 150 9,344
---------- ---------- ------- -----------
Net interest income
after provision for
loan losses.......... 117,551 14,146 (2,303) 129,394
Other income............. 39,394 3,651 43,045
Other expenses........... 95,326 14,098 477(4) 113,007
3,106(4)
---------- ---------- ------- -----------
Income before income
taxes................ 61,619 3,699 (5,886) 59,432
Federal income taxes..... 20,067 736 (2,060)(5) 18,743
---------- ---------- ------- -----------
Net income............. $ 41,552 $ 2,963 $(3,826) $ 40,689
========== ========== ======= ===========
Adjustments to net income
to calculate:
Basic net income.......
Diluted net income.....
Per share data:
Net income -- basic...... $ 0.66 $ 0.86 $ 0.61
Net income -- diluted.... $ 0.65 $ 0.85 $ 0.60
Average common shares
outstanding -- basic... 63,296,726 3,445,348 67,121,751(6)
Average common shares
outstanding -- diluted... 63,851,138 3,499,376 67,736,145(6)
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------
ADJUSTMENTS
FOR ISSUANCE
OF 1.2 MILLION
SECURITY SHARES OF PRO FORMA
FIRST SIGNAL COMMON STOCK COMBINED
---------- ---------- -------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.......... $ 26,289 $ 53,912 $ 305,062
Interest expense......... 13,928 34,707 134,758
---------- ---------- --------- ----------
Net interest income.... 12,361 19,205 170,304
Provision for loan
losses................. 118 657 10,119
---------- ---------- --------- ----------
Net interest income
after provision for
loan losses.......... 12,243 18,548 160,185
Other income............. 844 11,926 55,815
Other expenses........... 6,528 15,832 135,367
---------- ---------- --------- ----------
Income before income
taxes................ 6,559 14,642 80,633
Federal income taxes..... 2,220 5,037 26,000
---------- ---------- --------- ----------
Net income............. $ 4,339 $ 9,605 $ 54,633
========== ========== ========= ==========
Adjustments to net income
to calculate:
Basic net income....... (809) (809)
Diluted net income..... 189 189
Per share data:
Net income -- basic...... $ 0.58 $ 1.01 $ 0.62
Net income -- diluted.... $ 0.52 $ 0.82 $ 0.60
Average common shares
outstanding -- basic... 7,501,849 8,708,451 1,200,000 86,459,794(7)
Average common shares
outstanding -- diluted... 8,740,342 11,670,792 1,200,000 92,081,164(7)
</TABLE>
See accompanying notes to pro forma condensed combined financial information.
51
<PAGE> 63
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1997
---------------------------------------------------
FIRSTMERIT
AND
COBANCORP
PRO FORMA PRO FORMA
FIRSTMERIT COBANCORP ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.......... $ 407,825 $ 48,141 $ (121)(4) $ 457,381
1,536(4)
Interest expense......... 152,369 19,087 3,269(4) 177,475
2,750(4)
---------- ---------- ------- -----------
Net interest income.... 255,456 29,054 (4,604)(4) 279,906
Provision for loan
loses.................. 21,593 225 21,818
---------- ---------- ------- -----------
Net interest income
after provision for
loan losses.......... 233,863 28,829 (4,604) 258,088
Other income............. 83,578 8,203 91,781
Other expenses........... 191,080 29,941 954(4) 228,187
6,212(4)
---------- ---------- ------- -----------
Income before taxes.... 126,361 7,091 (11,770) 121,682
Federal income taxes..... 39,998 1,567 (4,120)(5) 37,445
---------- ---------- ------- -----------
Net income............. $ 86,363 $ 5,524 $(7,650) $ 84,237
========== ========== ======= ===========
Adjustments to net income
to calculate:
Basic net income.......
Diluted net income.....
Per share data:
Net income -- basic...... $ 1.38 $ 1.60(8) $ 1.27(8)
Net income -- diluted.... $ 1.36 $ 1.58(8) $ 1.25(8)
Average common shares
outstanding -- basic... 62,717,185 3,455,010 66,552,937(6)
Average common shares
outstanding -- diluted... 63,537,328 3,497,150 67,419,864(6)
<CAPTION>
FOR THE YEAR ENDED 1997
-----------------------------------------------------
ADJUSTMENTS
FOR ISSUANCE
OF 1.2 MILLION
SECURITY SHARES OF PRO FORMA
FIRST SIGNAL COMMON STOCK COMBINED
---------- ---------- -------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.......... $ 55,715 $ 119,653 $ 632,749
Interest expense......... 29,566 76,512 283,553
---------- ---------- --------- ----------
Net interest income.... 26,149 43,141 349,196
Provision for loan
loses.................. 310 1,615 23,743
---------- ---------- --------- ----------
Net interest income
after provision for
loan losses.......... 25,839 41,526 325,453
Other income............. 1,758 30,075 123,614
Other expenses........... 13,306 41,479 282,972
---------- ---------- --------- ----------
Income before taxes.... 14,291 30,122 166,095
Federal income taxes..... 4,980 11,089 53,514
---------- ---------- --------- ----------
Net income............. $ 9,311 $ 19,033 $ 112,581
========== ========== ========= ==========
Adjustments to net income
to calculate:
Basic net income....... (1,584) (1,584)
Diluted net income..... 334 334
Per share data:
Net income -- basic...... $ 1.23 $ 1.93 $ 1.28(8)
Net income -- diluted.... $ 1.11 $ 1.57 $ 1.22(8)
Average common shares
outstanding -- basic... 7,552,329 9,050,918 1,200,000 86,387,736(7)
Average common shares
outstanding -- diluted... 8,718,437 12,151,159 1,200,000 92,379,570(7)
</TABLE>
See accompanying notes to pro forma condensed combined financial information.
52
<PAGE> 64
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1996
-----------------------------------------------------------------------
ADJUSTMENTS
FOR ISSUANCE
OF 1.2 MILLION
SECURITY SHARES OF PRO FORMA
FIRSTMERIT FIRST SIGNAL COMMON STOCK COMBINED
----------- --------- ---------- ------------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income............ $ 411,745 $ 49,178 $ 101,169 $ 562,092
Interest expense........... 160,773 25,563 63,007 249,344
---------- --------- ---------- --------- ----------
Net interest income...... 250,972 23,615 38,162 312,748
Provision for loan
losses................... 17,751 323 1,259 19,333
---------- --------- ---------- --------- ----------
Net interest income after
provision for loan
losses................ 233,221 23,292 36,903 293,415
Other income............... 86,048 1,698 18,957 106,703
Net securities gains
(losses)................. (1,776) (1,776)
Other expenses............. 209,702 15,209 35,451 260,361
---------- --------- ---------- --------- ----------
Income before income
taxes................. 106,015 9,781 20,409 136,205
Federal income taxes....... 35,075 3,371 7,549 45,995
---------- --------- ---------- --------- ----------
Net income............... $ 70,940 $ 6,410 $ 12,860 $ 90,210
========== ========= ========== ========= ==========
Adjustments to net income
to calculate:
Basic net income......... (1,696) (1,696)
Diluted net income....... 391 391
Per share data:
Net income -- basic........ $ 1.09 $ 0.86 $ 1.29 $ 1.05
Net income -- diluted...... $ 1.08 $ 0.78 $ 1.09 $ 1.01
Average common shares
outstanding -- basic..... 65,215,132 7,434,891 8,670,249 1,200,000 84,443,457(7)
Average common shares
outstanding -- diluted... 65,468,213 8,695,436 11,828,502 1,200,000 89,981,644(7)
</TABLE>
See accompanying notes to pro forma condensed combined financial information.
53
<PAGE> 65
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1995
------------------------------------------------------------------------
ADJUSTMENTS
FOR ISSUANCE
OF 1.2 MILLION
SECURITY SHARES OF PRO FORMA
FIRSTMERIT FIRST SIGNAL COMMON STOCK COMBINED
---------- --------- ---------- ------------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income................... $ 416,627 $ 43,593 $ 88,709 $ 548,929
Interest expense.................. 180,933 22,608 53,765 257,306
---------- --------- ---------- --------- ----------
Net interest income............. 235,694 20,985 34,944 291,623
Provision for loan losses......... 19,763 377 918 21,058
---------- --------- ---------- --------- ----------
Net interest income after
provision for loan losses..... 215,931 20,608 34,026 270,565
Other income...................... 68,517 1,699 5,133 75,349
Other expenses.................... 227,779 13,367 19,781 260,928
---------- --------- ---------- --------- ----------
Income before income taxes &
extraordinary item............ 56,669 8,940 19,378 84,986
Federal income taxes.............. 30,950 3,334 6,853 41,136
---------- --------- ---------- --------- ----------
Net income...................... $ 25,719(9) $ 5,606 $ 12,525 $ 43,850(9)
========== ========= ========== ========= ==========
Adjustments to net income to
calculate:
Basic net income................ (1,786) (1,786)
Diluted net income.............. 391 391
Per share data:
Net income -- basic(9)............ $ 0.38 $ 0.78 $ 1.30 $ 0.49
Net income -- diluted(9).......... $ 0.38 $ 0.70 $ 1.08 $ 0.48
Average common shares
outstanding -- basic............ 66,908,906 7,169,640 8,286,052 1,200,000 85,395,211(7)
Average common shares
outstanding -- diluted.......... 67,138,260 8,514,312 11,559,897 1,200,000 91,136,747(7)
</TABLE>
See accompanying notes to pro forma condensed combined financial information.
54
<PAGE> 66
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1
Pursuant to their respective merger agreements and consistent with
generally accepted accounting principles, FirstMerit, Security First and Signal
expect that costs incurred to effect the mergers, which would include
transaction costs of the mergers and costs to combine operations, will be
deducted in determining net income in the period in which they are incurred.
Adjustments to conform the accounting policies of the entities are reflected in
these Pro Forma Condensed Combined Financial Statements (Unaudited) and are
discussed in these notes. The pro forma financial statements do not give effect
to any cost savings which may be realized in connection with the consolidation
of the respective operations of FirstMerit, Security First and Signal.
Transaction costs of the mergers and costs to combine operations are
expected to approximate $67.3 million on a pre-tax basis. The Pro Forma
Condensed Combined Statements of Income (Unaudited) do not reflect these
charges. The Pro Forma Condensed Combined Balance Sheet (Unaudited) reflects
these charges at that amount. It is anticipated that these charges will be
incurred and recognized by FirstMerit, Security First and Signal and
substantially paid by the first quarter of 1999. The following table provides
details of the estimated charges by type of cost:
<TABLE>
<CAPTION>
ESTIMATED RANGE OF COSTS
---------------------------------------
SECURITY PRE-TAX POST-TAX
TYPES OF COSTS FIRST SIGNAL COMBINED COMBINED
-------------- -------- ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Severance and relocation................................ $ 1.0 $ 5.7 $ 6.7 $ 4.4
Allowance for loan losses............................... 7.3 16.8 24.1 15.7
Professional fees....................................... 4.0 10.0 14.0 9.1
Branch closings and real estate transactions............ 2.0 8.6 10.6 6.9
Systems................................................. .3 3.7 4.0 2.6
Other................................................... .5 7.4 7.9 5.0
----- ----- ----- -----
$15.1 $52.2 $67.3 $43.7
===== ===== ===== =====
</TABLE>
NOTE 2
This adjustment reflects the issuance of 1.2 million shares of FirstMerit
Common Stock in conjunction with the underwritten public offering that closed on
September 17,1998. The share price used for total proceeds was $19.64 which
includes underwriting discounts, commissions and estimated offering expenses
payable by FirstMerit. These shares were reissued out of treasury stock at their
approximate LIFO value of $16.235 per share.
NOTE 3
These reclassifications conform the acquired entities' capital structures
to that of FirstMerit.
55
<PAGE> 67
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
NOTE 4
The purchase accounting adjustments related to the CoBancorp Merger
reflected in the Pro Forma Condensed Combined Statements of Income (Unaudited)
are summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
THROUGH
AMORTIZATION MAY 22, 1998 SIX MONTHS ENDED YEAR ENDED
PERIOD (CONSUMMATION) JUNE 30, 1997 DECEMBER 31, 1997
------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Interest Income
Amortization of investment
securities adjustment........ 3 years $ (48) $ (61) $ (121)
Amortization of loan portfolio
adjustment................... 7 years 603 768 1,536
Interest Expense
Amortization of deposit
liabilities adjustment....... 3 years (1,283) (1,635) (3,269)
Imputed interest to fund cash
component of purchase
price........................ (1,079) (1,375) (2,750)
Other Expenses
Amortization of incremental
intangibles.................. 10 & 25 years (2,437) (3,106) (6,212)
Amortization of fixed asset
adjustments.................. 10 years (374) (477) (954)
Federal tax benefit of pro forma
adjustments..................... 1,616 2,060 4,120
------- ------- -------
Net decrease to pro forma combined
net income...................... $(3,002) $(3,826) $(7,650)
======= ======= =======
</TABLE>
NOTE 5
Income tax expense on pro forma adjustments is reflected using a 35.0% tax
rate.
NOTE 6
As permitted by the Agreement of Affiliation and Plan of Merger and for
purposes of the pro forma calculations, 70% of CoBancorp shares of common stock
were converted at an exchange rate of 1.586 shares of FirstMerit Common Stock
for each share of CoBancorp common stock.
NOTE 7
For purposes of the pro forma calculations, (i) all Security First shares
of common stock were converted at a fixed exchange ratio of 0.8855 shares of
FirstMerit Common Stock, and (ii) all Signal shares of common stock were
converted at a fixed exchange ratio of 1.32 shares of FirstMerit Common Stock.
NOTE 8
The Pro Forma Condensed Combined net income and Pro Forma Condensed
Combined net income per basic and diluted share excludes $724,000 of
extraordinary expenses (net of tax) for merger related costs included in the
December 31, 1997 CoBancorp financial statements.
NOTE 9
The Pro Forma Condensed Combined net income and Pro Forma Condensed
Combined net income per basic and diluted share excludes $5.6 million of
extraordinary income (net of tax) on the disposition of assets after business
acquisition included in the December 31, 1995 FirstMerit financial statements.
56
<PAGE> 68
BUSINESS OF FIRSTMERIT
OVERVIEW
FirstMerit is a bank holding company organized in 1981 under the laws of
the State of Ohio and registered under the BHCA. FirstMerit employed
approximately 2,900 full- and part-time employees as of June 30, 1998.
FirstMerit's principal business consists of owning and supervising its
affiliates. Although FirstMerit directs the overall policies of its affiliates,
including lending practices and financial resources, most day-to-day affairs are
managed by their respective officers.
At June 30, 1998, FirstMerit Bank operated a network of 158 full service
banking offices and 194 automated teller machines. Its offices span a total of
14 counties in Ohio, including Ashtabula, Cuyahoga, Delaware, Erie, Franklin,
Geauga, Lake, Lorain, Madison, Medina, Portage, Stark, Summit and Wayne
Counties. This market area has over 400,000 households and businesses and is the
14th largest consolidated MSA in the country (which combines the primary MSAs
for Cleveland, Lorain/Elyria and Akron, Ohio). FirstMerit Bank has the leading
market share in Summit, Medina, Stark and Lorain counties in Ohio. Following the
consummation of the two pending acquisitions of Security First and Signal,
FirstMerit Bank will also have the leading market share in Wayne County, Ohio,
and will have one of the three highest market share positions in 11 of the 21
counties in which it operates.
For the year ended December 31, 1997 and the six months ended June 30,
1998, FirstMerit had a return on average assets of 1.64% and 1.69%,
respectively, a return on average equity of 16.62% and 16.90%, respectively, and
an efficiency ratio of 55.60% and 57.15%, respectively. As of June 30, 1998,
FirstMerit had total assets of $6.2 billion, total deposits of $4.9 billion and
total stockholders' equity of $646.0 million. On a pro forma basis giving effect
to the acquisitions of Security First and Signal, FirstMerit as of June 30, 1998
would have had total assets of $8.8 billion, total deposits of $6.7 billion and
total shareholders' equity of $850.7 million. The principal executive offices of
FirstMerit are located at III Cascade Plaza, Akron, Ohio 44308, and its
telephone number is (330) 996-6300.
SUBSIDIARIES AND OPERATIONS
Through its affiliates, FirstMerit operates primarily as a regional banking
organization, providing a wide range of banking, fiduciary, financial, insurance
and investment services to corporate, institutional and individual customers
throughout northeastern and central Ohio. FirstMerit's largest subsidiary is
FirstMerit Bank into which FirstMerit has merged all of its subsidiary banks.
FirstMerit Bank engages in commercial and consumer banking in its
respective geographic markets. Commercial and consumer banking generally
consists of the acceptance of a variety of demand, savings and time deposits and
the granting of commercial and consumer loans for the financing of both real and
personal property. As part of its community banking philosophy, FirstMerit Bank
has divided its markets into eight geographic areas which are designated as
follows: FirstMerit Bank/Akron, FirstMerit Bank/Citizens (Canton), FirstMerit
Bank/ Cleveland, FirstMerit Bank/Columbus, FirstMerit Bank/Elyria, FirstMerit
Bank/Old Phoenix (Medina), FirstMerit Bank/Wooster and FirstMerit Bank/Peoples
(Mentor). Each of these regional operations is headed by a president and local
community board. This strategy allows FirstMerit Bank to deliver a broad line of
financial products and services with a community orientation and a high level of
personal service. FirstMerit can therefore offer a wide range of specialized
services tailored to specific markets in addition to the full range of customary
banking products and services. These services include personal and corporate
trust services, personal financial services, cash management services and
international banking services.
Other services provided by FirstMerit Bank or its affiliates include
automated banking programs, credit cards, rental of safe deposit boxes, letters
of credit, leasing, discount brokerage and credit life insurance. FirstMerit
Bank also operates a trust department, which offers estate and trust services.
The majority of its customers is comprised of consumers and small and medium
size businesses. FirstMerit Bank is not engaged in lending outside the
continental United States and is not dependent upon any one significant customer
or specific industry.
57
<PAGE> 69
FirstMerit's non-banking direct and indirect subsidiaries provide insurance
sales services, credit life, credit accident and health insurance, securities
brokerage services, equipment lease financing and other financial services.
FirstMerit's direct subsidiaries other than FirstMerit Bank include
FirstMerit Credit Life Insurance Company, FirstMerit Community Development
Corporation, Citizens Investment Corporation and Citizens Savings Corporation of
Stark County. FirstMerit Credit Life Insurance Company was formed in 1985 to
underwrite credit life and credit accident and health insurance in connection
with the extension of credit to its customers. FirstMerit Community Development
Corporation was organized in 1994 to further FirstMerit's efforts in identifying
the credit needs of its lending communities and meeting the requirements of the
Community Reinvestment Act ("CRA"). Congress enacted CRA to ensure that
financial institutions meet the deposit and credit needs of their communities.
Through a community development corporation, financial institutions can fulfill
these requirements by nontraditional activities such as acquiring,
rehabilitating or investing in real estate in low to moderate income
neighborhoods, and promoting the development of small business. FirstMerit Bank
is the parent corporation of several wholly-owned Ohio corporations. In 1995,
FirstMerit Mortgage Corporation ("FirstMerit Mortgage"), which is located in
Canton, Ohio, was organized and capitalized. FirstMerit Mortgage originates
residential mortgage loans and provides mortgage loan servicing for itself and
FirstMerit Bank. In 1993, FirstMerit Leasing Company ("FirstMerit Leasing") and
FirstMerit Securities, Inc. ("FirstMerit Securities") were organized. FirstMerit
Leasing provides equipment lease financing and related services, while
FirstMerit Securities offers discount brokerage services to customers of
FirstMerit Bank and other FirstMerit subsidiaries.
FirstMerit Bank is also the parent corporation of Abell & Associates, Inc.,
a nationally-known life insurance and financial consulting firm acquired in May
1997, and FirstMerit Insurance Agency, Inc. Abell & Associates assists in the
design and funding of estate plans, corporate succession plans and executive
compensation plans. The firm also does consulting work for law and accounting
firms, as well as individual corporations, designing funding for corporate
liability issues. FirstMerit Insurance Agency, Inc. became a subsidiary of
FirstMerit Bank when FirstMerit acquired Great Northern Financial Corporation in
1994 (at which time its life insurance license was inactive). FirstMerit
Insurance Agency, Inc.'s license to sell life insurance products and annuities
was reactivated in 1997.
Although FirstMerit is a corporate entity legally separate and distinct
from its affiliates, bank holding companies such as FirstMerit, which are
subject to the BHCA, are expected to act as a source of financial strength for
their subsidiary banks. The principal source of FirstMerit's income is dividends
from its subsidiaries. There are certain regulatory restrictions on the extent
to which financial institution subsidiaries can pay dividends or otherwise
supply funds to FirstMerit.
RECENT TRANSACTIONS
FirstMerit engages in discussions concerning possible acquisitions of other
financial institutions and financial services companies on a regular basis.
FirstMerit also periodically acquires branches and deposits in its principal
markets. FirstMerit's strategy for growth includes strengthening market share in
its existing markets, expanding into complementary markets and broadening its
product offerings. Consistent with this strategy, FirstMerit has announced three
strategic transactions in the last ten months.
CoBancorp Acquisition. FirstMerit completed the acquisition of CoBancorp,
Elyria, Ohio, the parent of PremierBank & Trust and Jefferson Savings Bank, on
May 22, 1998 (the "CoBancorp Merger"). FirstMerit had entered into an Agreement
of Affiliation and Plan of Merger with CoBancorp on November 2, 1997. Under the
terms of the CoBancorp Merger, CoBancorp shareholders had a right to elect to
exchange their common stock for either Common Stock of FirstMerit, cash, or a
combination of Common Stock and cash, provided that no less than 30% nor more
than 49% of the total transaction value could be paid in cash. The CoBancorp
Merger was structured as a tax-free exchange for CoBancorp shareholders who
received FirstMerit Common Stock, and was accounted for as a purchase
transaction. At the effective time of the CoBancorp Merger, based upon the
average closing price of FirstMerit's Common Stock of $29.375 per share over a
specified period, the value of the transaction on such date was approximately
$174.1 million. In connection with the CoBancorp Merger, FirstMerit issued
approximately 3.9 million shares of Common Stock, paid $50.0 million in cash
(based upon the
58
<PAGE> 70
CoBancorp shareholder elections and allocations), and assumed merger-related
liabilities of approximately $9.6 million. The transaction created goodwill of
approximately $136.6 million that will be amortized primarily over 25 years.
Secondary Offering. On September 17, 1998, FirstMerit closed on the
secondary underwritten public offering of 1.2 million shares of FirstMerit
Common Stock. On October , 1998, FirstMerit closed on the secondary
underwritten public offering of 180,000 shares of FirstMerit Common Stock which
were shares granted to the underwriters for over-allotments. The re-issuance of
these shares was necessary to allow FirstMerit to treat the Security First
Merger as a pooling-of-interest for accounting purposes.
Security First Acquisition. On April 5, 1998, FirstMerit entered into an
Agreement of Affiliation and Plan of Merger with Security First, the parent
company of Security Federal Savings and Loan Association of Cleveland and First
Federal Savings Bank of Kent. Pursuant to the merger agreement, Security First
will merge with and into FirstMerit in a tax-free, stock-for-stock exchange,
with FirstMerit as the surviving corporation (the "Security First Merger").
Under the terms of the merger agreement, all shares of Security First common
stock issued and outstanding immediately prior to the effective time of the
Security First Merger shall be converted into the right to receive 0.8855 of a
share of FirstMerit Common Stock. Based on the closing price of the Common Stock
on June 30, 1998 of $29.125 per share, the value of the transaction on such date
was approximately $227.2 million, assuming the issuance of approximately 7.8
million shares of Common Stock for Security First shares, options and
convertible debentures.
The Security First Merger, which will be accounted for as a
pooling-of-interest, is expected to close early in the fourth quarter of 1998.
The merger agreement has been approved by the Boards of Directors of both
companies. Consummation of the Security First Merger is subject to certain
customary conditions. Security First has also granted FirstMerit an option to
acquire up to 19.9% of Security First common stock under certain conditions.
At the time FirstMerit announced the Security First Merger, FirstMerit also
announced the termination of a previously initiated stock repurchase program. In
order for the Security First Merger to be treated as a pooling-of-interest for
accounting purposes, FirstMerit reissued approximately 1.2 million shares of
FirstMerit Common Stock prior to the effective time of the Security First
Merger.
Summary. On a pro forma basis, including Security First and Signal,
FirstMerit would have had total assets, deposits and shareholders' equity of
$8.8 billion, $6.7 billion and $850.7 million, respectively, as of June 30,
1998. Assuming the issuance of 7.8 million shares of Common Stock in connection
with the Security First Merger, and 17.9 million shares of FirstMerit Common
Stock in connection with the Signal Merger, and based upon the total outstanding
shares of Common Stock as of June 30, 1998, FirstMerit would have had
approximately 92.3 million shares outstanding and approximately 12,650
shareholders.
There can be no assurance that the Security First and Signal mergers will
be consummated as planned.
FirstMerit believes that these acquisitions have and will further
strengthen its competitive position in the northeastern and central Ohio markets
and will broaden the financial services it can offer to its customers.
FirstMerit believes it has significant experience in integrating acquired
businesses. FirstMerit continues to explore acquisition opportunities that would
meet its objectives.
59
<PAGE> 71
BUSINESS OF SIGNAL CORP
Signal is a bank holding company which has as its primary wholly-owned
subsidiaries Signal Bank, Summit Bank, New Castle Bank and MCi. At June 30,
1998, Signal had assets of $1.9 billion, deposits of $1.3 billion and
shareholders' equity of $155.9 million.
Founded in 1905 as an Ohio chartered stock building and loan association,
Signal Bank (formerly known as First Federal Savings and Loan Association of
Wooster) converted to a federally chartered mutual thrift in 1935, converted
from mutual to stock form in 1987, and converted from a savings and loan
association to a national bank in July 1997. On September 15, 1997, Signal Bank
completed the acquisition of seven banking offices with approximately $151
million in deposits. Signal Bank serves north central Ohio (its "Market Area")
through its home office, 25 full service banking offices, and three limited
service facilities.
Signal Bank offers a wide range of competitive consumer-oriented lending
and deposit products and services throughout its Market Area. Signal Bank has
achieved significant growth in recent years through the expansion of its asset
origination capabilities to include commercial business loans and commercial
real estate loans and by acquiring branches in its Market Area.
Summit Bank was acquired by the Corporation in July 1997. Summit Bank
offers a full complement of banking products and services to small businesses,
individuals and professionals in the Akron, Canton and Cleveland, Ohio
metropolitan areas. Summit Bank operates two full service banking offices.
New Castle Bank was acquired by Signal on June 29, 1998. New Castle Bank is
a community oriented, full service retail savings institution offering
traditional mortgage loan products. During recent years, New Castle Bank has
expanded its loan origination activities to include multi-family, commercial
real estate, consumer and commercial business loans.
MCi, a manufactured housing finance company which brokers manufactured home
loans to and on behalf of financial institutions, was acquired by the
Corporation in April 1996. MCi facilitates the origination of primarily
non-mortgage, consumer loan contracts through approximately 3,500 dealers of
manufactured homes located in 44 states. MCi also services the collection and
recovery of troubled loans on behalf of the financial institutions which
originate the loans.
In February 1998, Signal formed Signal Capital Trust One ("Signal Trust"),
a Delaware business trust. Signal Trust was formed for the purpose of (i)
issuing and selling $50.0 million of its 8.67% Capital Securities, Series A (the
"Capital Securities") and common securities (the "Common Securities"), (ii)
investing the proceeds thereof in the 8.67% Junior Subordinated Deferrable
Interest Debentures, Series A, issued by the Corporation (the "FirstFederal
Debentures") and (iii) engaging in certain other limited activities.
Signal has another wholly-owned subsidiary, Summit Banc Investments
Corporation, which offers a full range of investment advisory services,
financial planning and portfolio management. Signal Bank has 9 wholly-owned
subsidiaries: Signal Mortgage Corp, a mortgage originator; Signal Finance Corp,
a multi-purpose finance company; Signal Securitization Corp, an issuer of
asset-backed securities; Signal R Corp, a single purpose subsidiary formed to
hold a residual interest in the asset-backed securities issued by Signal
Securitization Corp; Alliance Corporate Resources, Inc., an information
technology equipment leasing and consulting company, Signal Agency, Inc., seller
of insurance and annuity products; Home Financial Services Corporation, an
investment sales and advisory company; Professional Appraisal Services Corp, a
real estate appraisal company; and Venture Mortgage Corp, a mortgage banking
joint venture. Summit Bank has one wholly-owned subsidiary, Alpha Equipment
Group, Inc., an equipment leasing company.
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REGULATORY MATTERS
GENERAL
Bank holding companies, banks and savings associations are regulated
extensively under federal and state law. The following information describes
statutory and regulatory provisions and is qualified in its entirety by
reference to the particular statutory or regulatory provisions.
FirstMerit Bank is a national bank and a member of the Federal Reserve, and
is subject to the supervision of and regular examination by the OCC and the
Federal Reserve. As an insured bank under the Federal Deposit Insurance Act,
FirstMerit Bank is a member of the Bank Insurance Fund (ABIF"). FirstMerit Bank
is also regulated by the FDIC. The affairs and records of FirstMerit Bank are
examined regularly by OCC and FirstMerit Bank must furnish quarterly and annual
reports to OCC.
Signal is a bank holding company subject to broad federal regulation and
oversight by the Federal Reserve and the parent corporation to Signal Bank,
Summit Bank, and New Castle Bank (collectively, the "Signal Banks"). Signal Bank
and Summit Bank are national banks subject to broad federal regulation and
oversight extending to all of their operations by the OCC and the FDIC. New
Castle Bank is a federal savings bank subject to broad federal regulation and
oversight extending to all of its operations by the OTS and the FDIC. Signal
Bank and New Castle Bank are members of the Savings Association Insurance Fund
and Summit Bank is a member of the BIF. The deposits of all of the Signal Banks
are insured by the FDIC.
After the Merger it is currently contemplated that the Signal Banks will be
merged with and into FirstMerit Bank and will cease to exist as separate
chartered institutions, and therefore neither will be subject to separate
regulation. Similarly, after the Merger, Signal will cease to exist and
therefore will no longer be subject to regulation by the Federal Reserve.
The periodic examinations by the regulatory agencies are intended to test
institutions' compliance with various regulatory requirements and to determine
if operations are conducted in a safe and sound manner. The regulatory structure
also gives the regulatory authorities extensive discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies with respect to the classification of nonperforming and other assets
and the establishment of adequate loan loss reserves for regulatory purposes.
Any change in such regulatory structure, whether by OTS, OCC, the FDIC, the
Federal Reserve or Congress, could materially and adversely impact the powers
and operations of FirstMerit, Signal or any of their respective subsidiary
financial institutions. It is impossible to predict when or whether any such
proposals will be adopted and the impact, if any, of such adoption on the
business of Signal or FirstMerit, or their subsidiaries.
The operations of financial institutions are significantly affected by
general economic conditions as well as the monetary and fiscal policies of the
federal government and its agencies, particularly the Federal Reserve, and other
policies of federal and state regulatory authorities. The Federal Reserve's
actions affect interest rates charged on bank loans and paid on bank deposits,
and therefore influence growth in bank loans, investments and deposits. The
nature and results of changes in monetary and fiscal policies likewise cannot be
predicted.
FirstMerit and Signal are also under the jurisdiction of the Commission and
certain state securities commissions for matters relating to the offering and
sale of securities. FirstMerit and Signal are subject to the disclosure and
regulatory requirements of the Securities Act and the Exchange Act, as
administered by the Commission.
REGULATION OF BANK HOLDING COMPANIES
FirstMerit is registered with the Federal Reserve as a bank holding company
under the BHCA. Bank holding companies and their activities are subject to
extensive regulation by the Federal Reserve. Bank holding companies are required
to file reports with the Federal Reserve and such additional information as the
Federal Reserve may require, and are subject to regular inspections by the
Federal Reserve. The Federal Reserve also has extensive enforcement authority
over bank holding companies, including, among other things, the ability to
assess civil money penalties, to issue cease and desist or removal orders and to
require that a holding company divest subsidiaries (including its bank
subsidiaries). In general, enforcement actions may be initiated for violations
of law and regulations and unsafe or unsound practices.
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Under Federal Reserve policy, a bank holding company is expected to act as
a source of financial strength to each subsidiary bank and to commit resources
to support such subsidiary banks. Under this policy the Federal Reserve may
require a bank holding company to contribute additional capital to an
undercapitalized subsidiary bank.
The BHCA requires the prior approval of the Federal Reserve in any case
where a bank holding company proposes to acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank that is not already
majority-owned by it, to acquire all or substantially all of the assets of
another bank or bank holding company, or to merge or consolidate with any other
bank holding company. Section 4 of the BHCA also prohibits a bank holding
company, with certain exceptions, from acquiring more than 5% of the voting
shares of any company that is not a bank and from engaging in any business other
than banking or managing or controlling banks. The primary exception allows the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve has determined to be so closely related to banking or
to managing or controlling banks as to be a proper incident thereto. The Federal
Reserve has by regulation determined that certain activities are closely related
to banking within the meaning of the BHCA. These activities include: operating a
savings association, mortgage company, finance company, credit card company or
factoring company; performing certain data processing operations; providing
investment and financial advice; and acting as an insurance agent for certain
types of credit-related insurance.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on maintenance of reserves
against deposits, extensions of credit to the bank holding company or any of its
subsidiaries, on investments in the stock or other securities of the bank
holding company or its subsidiaries and on the taking of such stock or
securities as collateral for loans to any borrower. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of any services. Various consumer laws and regulations
also affect the operations of these subsidiaries.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
FirstMerit and Signal are legal entities separate and distinct from their
respective subsidiary financial institutions. See "COMPARISON OF FIRSTMERIT AND
SIGNAL CAPITAL STOCK -- Dividends." There are various legal limitations on the
extent to which such subsidiary banks and savings associations may finance or
otherwise supply funds to their parent holding companies. Under federal law,
subsidiary banks may not, subject to certain limited exceptions, make loans or
extensions of credit to, or investments in the securities of, their bank holding
companies. Subsidiary banks are also subject to collateral security requirements
for any loans or extension of credit permitted by such exceptions.
A national bank, such as FirstMerit Bank, is required by federal law to
obtain the prior approval of OCC for the declaration and payment of dividends if
the total of all dividends declared by the board of directors of the bank in any
year will exceed the total of (i) the bank's net profits for that year, plus
(ii) the retained net profits for the preceding two years, less any required
transfers to surplus. In addition, a national bank may only pay dividends to the
extent that retained net profits (including any portion transferred to surplus)
exceed bad debts.
OTS regulations impose various restrictions on savings associations, such
as New Castle Bank, with respect to their ability to make distributions of
capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital account. OTS regulations
also prohibit a savings association from declaring or paying any dividends or
from repurchasing any of its stock if, as a result, the regulatory capital of
the association would be reduced below the amount required to be maintained for
the liquidation account established in connection with its mutual to stock
conversion.
As of June 30, 1998, FirstMerit Bank, without obtaining governmental
approvals, could declare aggregate dividends of approximately $45.2 million.
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DESCRIPTION OF FIRSTMERIT CAPITAL STOCK
FIRSTMERIT COMMON SHARES
The FirstMerit Articles have authorized for issuance 160,000,000 shares of
Common Stock, no par value, of which 69,522,670 were outstanding as of
, 1998. These shares may be issued and sold without further
shareholder action provided that the issuance and sale is made in compliance
with the corporate governance documents of FirstMerit and OGCL. Each share of
FirstMerit Common Stock is accompanied by one FirstMerit Right pursuant to the
Rights Agreement.
Each share of FirstMerit Common Stock is entitled to (a) dividends when and
as declared by the directors, but after payment of dividends to any FirstMerit
Series B Preferred Stock that may hereafter be issued, (b) to one vote per share
on each matter properly submitted to shareholders for their vote, and (c) to
participate ratably in the net assets of FirstMerit in the event of liquidation,
after any FirstMerit Preferred Stock that may hereafter be issued.
On , 1998, FirstMerit had approximately 7,594 shareholders of
record. Holders of FirstMerit Common Stock have no preemptive rights for the
purchase of additional shares of any class of FirstMerit capital stock, nor do
they have the right to cumulate their voting power.
FIRSTMERIT PREFERRED STOCK
The FirstMerit Articles have authorized 7,000,000 shares of Preferred
Stock, no par value, of which no shares were outstanding as of ,
1998. FirstMerit has created a class of Preferred Stock entitled the "Series A
Preferred Stock" and has currently designated 700,000 shares for issuance
thereunder. The Series A Preferred Stock was created pursuant to the
FirstMerit's Rights Agreement. The remaining 6,300,000 shares of Preferred Stock
may be issued and sold without further shareholder action provided that the
issuance and sale is made in compliance with the corporate governance documents
of FirstMerit and OGCL.
Unless otherwise stated, the holders of FirstMerit Preferred Stock are
entitled to one vote per share on matters on which they are entitled to vote,
and the other terms thereof may be fixed by FirstMerit's Board of Directors,
including dividend rate, liquidation price, redemption price, sinking fund
provisions, conversion rights, and restrictions on issuance of shares of the
same series or any other class or series as may be determined by the directors.
As to dividend, redemption, and liquidation rights, each series of FirstMerit
Preferred Stock will be senior to FirstMerit Common Stock. See "COMPARISON OF
FIRSTMERIT AND SIGNAL CAPITAL STOCK."
Pursuant to the terms of the Merger Agreement, FirstMerit will create a new
class of preferred stock designated the "FirstMerit Corporation 6 1/2%
Cumulative Convertible Preferred Stock, Series B, no par value." This
designation will provide the holders of the Signal Preferred Stock with a class
of preferred stock with identical terms. As of , there were
428,348 shares of Signal's Series B Preferred Stock outstanding and
shares of Signal's Common Stock reserved for issuance upon
conversion of such shares. The Signal Series B Preferred Stock can be converted
to Signal Common Stock at any time at a conversion ratio of 2.1015.
The material terms of the FirstMerit Series B Preferred Stock will be as
follows:
Dividends: Dividends of $.40625 per share will be paid quarterly. Unless
all prior dividends on FirstMerit's Series B Preferred Stock have been paid in
full, or a sum sufficient for payment has been reserved (i) no cash dividend or
distribution (other than in shares of FirstMerit Common Stock or other
securities ranking junior to the Series B Preferred Stock) may be declared or
paid on the FirstMerit Common Stock, and (ii) FirstMerit may not purchase,
retire or otherwise acquire any shares of FirstMerit Common Stock.
Liquidation: In the event of liquidation, dissolution or winding up of
FirstMerit, holders of the FirstMerit Series B Preferred Stock will be entitled
to receive, subject to the rights of creditors but before any distribution or
payment to the holders of Signal Common Stock or any shares subordinate to
Series B Preferred Stock, a liquidation preference of $25 per share, plus
accrued and unpaid dividends to the date of distribution.
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Right to Elect Directors Upon Default: In the event FirstMerit is in
default in payment of full dividends on the Series B Preferred Stock for six
dividend payment periods, two directors may be elected by the holders of all
series of preferred stock.
COMPARISON OF FIRSTMERIT AND SIGNAL CAPITAL STOCK
FIRSTMERIT COMMON STOCK AND SIGNAL COMMON STOCK
If the Merger is consummated, all shareholders of Signal will become
shareholders of FirstMerit. FirstMerit is a corporation organized under Ohio
law, and governed by the OGCL, the FirstMerit Articles, the FirstMerit
Regulations and the FirstMerit Rights Agreement. Signal is a corporation
organized under Ohio and is also governed by the OGCL, and by the Signal
Articles and the Signal Regulations. The rights of a holder of Signal Common
Stock are similar in most respects to, but different in certain other respects
from, the rights of a holder of FirstMerit Common Stock. Certain of the most
significant similarities and differences are summarized below.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OGCL, THE
FIRSTMERIT ARTICLES, THE FIRSTMERIT REGULATIONS, THE FIRSTMERIT RIGHTS
AGREEMENT, AND THE SIGNAL ARTICLES AND THE SIGNAL REGULATIONS.
VOTING RIGHTS
Cumulative Voting and Preemptive Rights. Each holder of FirstMerit Common
Stock and Signal Common Stock has the right to cast one vote for each share
owned on all matters submitted to a vote of shareholders. No holder of shares of
any class of capital stock of FirstMerit or Signal is entitled to the right of
cumulative voting in the election of directors.
The FirstMerit Articles and the Signal Articles provide that no holder of
shares of any class of capital stock of FirstMerit is entitled to preemptive
rights.
Director Nominations. Any shareholder of FirstMerit who determines to
nominate a person for election as a director must deliver written notice to the
Secretary of FirstMerit not later than (a) with respect to an election to be
held at an Special Meeting of Shareholders for the election of directors, 90
days in advance of such meeting, and (b) with respect to such an election to be
held at an Special Meeting of Shareholders, the close of business on the seventh
day following the date on which notice of such meeting is first given to
shareholders. The notice must set forth specific information regarding the
nominating shareholder and nominee, and must be accompanied by a consent of the
nominee to serve as a director if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
this procedure.
The Signal Regulations provide that Signal shareholders may make
nominations for the election of directors by delivering written notice of such
nominations to the Secretary of Signal not less than 30 days prior to the date
of the annual meeting of shareholders. In the event that less than 40 days
notice of the date of the meeting is given to shareholders, notice of nomination
by the shareholder must be received no later than ten business days following
the date on which notice of the meeting was mailed. The shareholder's notice
must contain certain information specified by the Signal Regulations.
Furthermore, if the Signal Board fails to nominate candidates for the board at
least 20 days prior to the annual meeting, then nominations may be made at the
meeting by any shareholder entitled to vote.
Special Meetings. A special meeting of the shareholders of FirstMerit can
be called by the President, by the Board of Directors acting at a meeting, by a
majority of the Board when not in a meeting, or by shareholder(s) owning
one-half or more of the outstanding shares of FirstMerit Common Stock. The
Signal Articles permit a special meeting of shareholders to be called by (i) the
Chairman of the Signal Board, (ii) the President of Signal, (iii) the Signal
Board by action at a meeting or by a majority of the Signal Board acting without
a meeting or (iv) upon the written request of the holders of at least 50% of all
shares outstanding and entitled to vote at the meeting.
Action Without a Meeting. Ohio law provides that any shareholder action to
be taken by written consent without a meeting, must be done unanimously.
Voting Limitations. FirstMerit does not have a provision restricting voting
rights of certain beneficial owners. The Signal Articles provide that if any
person, without obtaining the requisite regulatory approval,
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acquires ten percent or more of the voting power of the outstanding shares
entitled to vote generally in the election of directors, such person loses the
right to vote, receive dividends on and take actions otherwise authorized for
shareholders to take with respect to the shares in excess of ten percent of the
outstanding shares.
Mergers, Consolidations, Dissolutions, Combinations, and Other
Transactions. Subject to the provisions discussed in "Anti-Takeover Statutes"
below, Ohio law requires a merger, consolidation, dissolution, disposition of
all or substantially all of a corporation's assets, and a "majority share
acquisition" or "combination" involving issuance of shares with one-sixth or
more of the voting power of the corporation be adopted by the affirmative vote
of the holders of shares entitled to exercise at least two-thirds of the voting
power of the corporation on such proposal, unless the articles of incorporation
specify a different proportion (but not less than a majority). Adoption by the
affirmative vote of the holders of two-thirds of any class of shares, unless
otherwise provided in the articles, may also be required if the rights of
holders of that class are affected in certain respects by the merger or
consolidation. Except for the "Fair Price and Supermajority Vote Provisions"
discussed below, the FirstMerit Articles do not modify such voting requirements.
However, the Signal Articles provide that with the exception of a business
combination with a "Related Person" (as discussed below, see "-- Fair Price and
Supermajority Voting Provisions"), the vote required to adopt an agreement of
merger or consolidation is the affirmative vote of the holders of not less than
a majority of the outstanding shares of the capital stock of Signal entitled to
vote generally in the election of directors.
Fair Price and Supermajority Vote Provisions. Article Seventh of the
FirstMerit Articles requires that a merger or consolidation of FirstMerit into
or with a corporation, person, or entity that is the beneficial owner of 10% or
more of the issued and outstanding shares of a class of FirstMerit capital stock
("Interested Party"), or the sale, lease or other disposition of all or
substantially all of the assets of FirstMerit to an Interested Party, requires
the approval of 80% of the outstanding voting shares of each class of FirstMerit
stock entitled to vote as a class. This supermajority vote requirement is waived
in the event the transaction has been approved (i) by the Board of Directors
prior to the time the Interested Party beneficially owns 10% or more of the
outstanding capital stock of FirstMerit, or (ii) at any time before its
consummation by two-thirds vote of the total members of the FirstMerit Board of
Directors and a majority of the directors who either were appointed prior to the
time the party beneficially owned four percent or more of an outstanding class
of capital stock or were recommended to succeed such a director by a majority of
such directors; provided, that the transaction is structured in such a manner
that the price to be paid by the Interested Party is fair to all shareholders of
FirstMerit. A FirstMerit shareholder must receive a price equal to the highest
price per share previously paid to a shareholder by the Interested Party for a
share of FirstMerit capital stock of the same class. If that supermajority vote
requirement is waived, the transaction may be approved by the holders of at
least two-thirds of the outstanding capital stock.
The Signal Articles require that any "Business Combination" involving a
"Related Person" (which generally includes any person or entity owning or
controlling more than 10% of the outstanding voting stock), must be approved by
the holders of at least two-thirds of the outstanding shares entitled to vote,
unless the Business Combination has been approved in advance by two-thirds of
the "continuing directors" (which generally includes those members of the Signal
Board who are unaffiliated with the Related Person and who were either members
of the Signal Board prior to the time the Related Person became a Related Person
or are successors to continuing directors unaffiliated with the Related Person
recommended for their position by a majority of the continuing directors) or
satisfies certain fair price criteria. In the event the requisite approval of
the Signal Board is obtained or the fair price criteria are met, the vote
required under applicable Ohio law would apply or, for certain transactions, no
shareholder vote would be necessary.
SHAREHOLDER RIGHTS PLAN
Pursuant to the terms of the Rights Agreement, between FirstMerit and
FirstMerit Bank, as rights agent, a dividend of one preferred share purchase
right (a "Right") for each outstanding share of FirstMerit Common Stock
(sometimes hereinafter "Common Stock") was declared by the FirstMerit Board of
Directors. Each Right entitles its registered holder to purchase from
FirstMerit, after the Distribution Date, one one-hundredth of a share of Series
A Preferred Stock, no par value (the "Preferred Shares"), for $120 (the
"Purchase Price"), subject to adjustment. The Rights will be evidenced by the
Common Share certificates until the close of business on the earlier of the date
(either, the "Distribution Date") which is (i) the tenth business day (or such
later date as the Board of Directors of FirstMerit may from time to time fix by
resolution adopted prior to the Distribution Date
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that would otherwise have occurred) after the date on which any Person (as
defined in the Rights Agreement) commences a tender or exchange offer which, if
consummated, would result in such Person's becoming an Acquiring Person, as
defined below, or (ii) the tenth business day (or such earlier or later date as
the Board of Directors of FirstMerit may from time to time fix by resolution
adopted prior to the Flip-in Date (as defined below) that would otherwise have
occurred) after the first date of public announcement by FirstMerit that such
Person has become an Acquiring Person (the "Flip-in Date"); provided that if a
tender or exchange offer referred to in clause (i) is canceled, terminated or
otherwise withdrawn prior to the Distribution Date without the purchase of any
shares of stock pursuant thereto, such offer shall be deemed never to have been
made.
An Acquiring Person is any Person who is the Beneficial Owner (as defined
in the Rights Agreement) of 10% or more of the outstanding Common Stock,
provided, however, such term shall not include (i) FirstMerit, any wholly-owned
subsidiary of FirstMerit or any employee stock ownership or other employee
benefit plan of FirstMerit, (ii) any person who is the Beneficial Owner of 10%
or more of the outstanding Common Stock as of the date of the Rights Agreement
or who shall become the Beneficial Owner of 10% or more of the outstanding
Common Stock solely as a result of an acquisition of Common Stock by FirstMerit,
until such time as such Person acquires additional Common Stock, other than
through a dividend or stock split, (iii) any Person who becomes an Acquiring
Person without any plan or intent to seek or affect control of FirstMerit if
such Person promptly divests sufficient securities such that such 10% or greater
Beneficial Ownership ceases; or (iv) any Person who Beneficially Owns Common
Stock consisting solely of (A) shares acquired pursuant to the grant or exercise
of an option granted by FirstMerit in connection with an agreement to merge
with, or acquire, FirstMerit prior to a Flip-in Date, (B) shares owned by such
Person and its Affiliates and Associates at the time of such grant, (C) shares,
amounting to less than 1% of the outstanding Common Stock, acquired by
Affiliates and Associates of such Person after the time of such grant and (D)
shares which are held by such Person in trust accounts, managed accounts and the
like or otherwise held in a fiduciary capacity, that are beneficially owned by
third persons who are not Affiliates or Associates of such Person or acting
together with such Person to hold shares, or which are held by such Person in
respect of a debt previously contracted.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Promptly following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of Common Stock at the
Distribution Date.
The Rights will not be exercisable until the Business Day (as defined in
the Rights Agreement) following the Distribution Date. The Rights will expire on
the earliest of (i) the Exchange Time (as defined below), (ii) the close of
business on July 18, 2006, (iii) the date on which the Rights are redeemed as
described below and (iv) upon certain mergers of FirstMerit with another
corporation pursuant to an agreement entered into prior to a Flip-in Date (in
any such case, the "Final Expiration Date").
In the event that prior to the Expiration Time a Flip-in Date occurs, each
Right (other than Rights Beneficially Owned by the Acquiring Person or any
affiliate or associate thereof, which Rights shall become void) shall constitute
the right to purchase from FirstMerit, upon the exercise thereof in accordance
with the terms of the Rights Agreement, that number of Common Stock of
FirstMerit having an aggregate Market Price (as defined in the Rights
Agreement), on the date of the public announcement of an Acquiring Person's
becoming such (the "Stock Acquisition Date") that gave rise to the Flip-in Date,
equal to twice the Purchase Price for an amount in cash equal to the then
current Purchase Price. In addition, the Board of Directors of FirstMerit may,
at its option, at any time after a Flip-in Date and prior to the time an
Acquiring Person becomes the Beneficial Owner of more than 50% of the
outstanding Common Stock, elect to exchange all (but not less than all) the then
outstanding Rights (other than Rights Beneficially Owned by the Acquiring Person
or any affiliate or associate thereof, which Rights become void) for Common
Stock at an exchange ratio of one Common Share per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date of the Distribution Date (the "Exchange Ratio"). Immediately upon
such action by the Board of Directors (the "Exchange Time"), the right to
exercise the Rights will terminate and each Right will thereafter represent only
the right to receive a number of Common Stock equal to the Exchange Ratio.
Whenever FirstMerit shall become obligated under the preceding paragraph to
issue Common Stock upon exercise of or in exchange for Rights, FirstMerit, at
its option, may substitute therefor shares of Preferred Stock, at a ratio of one
one-hundredth of a share of Preferred Stock for each Common Share so issuable.
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In the event that prior to the Final Expiration Date FirstMerit enters
into, consummates or permits to occur a transaction or series of transactions
after the time an Acquiring Person has become such in which, directly or
indirectly, (i) FirstMerit shall consolidate or merge or participate in a
binding share exchange with any other Person if, at the time of the
consolidation, merger or share exchange or at the time FirstMerit enters into an
agreement with respect to such consolidation, merger or share exchange, the
Acquiring Person Controls the Board of Directors of FirstMerit (as defined in
the Rights Agreement) and either (A) any term of or arrangement concerning the
treatment of shares of capital stock in such merger, consolidation or share
exchange relating to the Acquiring Person is not identical to the terms and
arrangements relating to other holders of Common Stock or (B) the Person with
whom the transaction or series of transactions occurs is the Acquiring Person or
an Affiliate or Associate of the Acquiring Person or (ii) FirstMerit shall sell
or otherwise transfer (or one or more of its subsidiaries shall sell or
otherwise transfer) assets (A) aggregating more than 50% of the assets (measured
by either book value or fair market value) or (B) generating more than 50% of
the operating income or cash flow, of FirstMerit and its subsidiaries (taken as
a whole) to any other Person (other than FirstMerit or one or more of its
wholly-owned subsidiaries) or to two or more such Persons which are affiliated
or otherwise acting in concert, if, at the time such sale or transfer of assets
or at the time FirstMerit (or any such subsidiary) enters into an agreement with
respect to such sale or transfer, the Acquiring Person Controls the Board of
Directors of FirstMerit (a "Flip-over Transaction or Event"), FirstMerit shall
take such action as shall be necessary to ensure, and shall not enter into,
consummate or permit to occur such Flip-over Transaction or Event until it shall
have entered into a supplemental agreement with the Person engaging in such
Flip-over Transaction or Event or the parent corporation thereof (the "Flip-over
Entity"), for the benefit of the holders of the Rights, providing, that upon
consummation or occurrence of the Flip-over Transaction or Event (i) each Right
shall thereafter constitute the right to purchase from the Flip-over Entity,
upon exercise thereof in accordance with the terms of the Rights Agreement, that
number of shares of common stock of the Flip-over Entity having an aggregate
Market Price on the date of consummation or occurrence of such Flip-over
Transaction or Event equal to twice the Exercise Price for an amount in cash
equal to the then current Exercise Price and (ii) the Flip-over Entity shall
thereafter be liable for, and shall assume, by virtue of such Flip-over
Transaction or Event and such supplemental agreement, all the obligations and
duties of FirstMerit pursuant to the Rights Agreement. For purposes of the
foregoing description, the term "Acquiring Person" shall include any Acquiring
Person and its Affiliates and Associates counted together as a single Person.
The Board of Directors of FirstMerit may, at its option, at any time prior
to the close of business on the Flip-in Date, redeem all (but not less than all)
the then outstanding Rights at a price of $.01 per Right (the "Redemption
Price"), as provided in the Rights Agreement. Immediately upon the action of the
Board of Directors of FirstMerit electing to redeem the Rights, without any
further action and without any notice, the right to exercise the Rights will
terminate and each Right will thereafter represent only the right to receive the
Redemption Price in cash for each Right so held.
The holders of Rights will, solely by reason of their ownership of Rights,
have no rights as shareholders of FirstMerit, including, without limitation, the
right to vote or to receive dividends.
A copy of Rights Agreement is included as an exhibit to the Amendment No. 2
to Form 8-A filed by FirstMerit with the Commission on June 22, 1998. The
foregoing description of the Rights Agreement does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement.
Signal has not adopted a shareholder rights or similar plan.
ANTI-TAKEOVER STATUTES
Except as otherwise noted, the statutes described below apply to
FirstMerit.
Ohio Control Share Acquisition Act. The Acquisition Act provides that
certain notice and informational filings and special shareholder meeting and
voting procedures must be followed prior to consummation of a proposed "control
share acquisition," which is defined as any acquisition of an issuer's shares
which would entitle the acquiror, immediately after such acquisition, directly
or indirectly, to exercise or direct the exercise of voting power of the issuer
in the election of directors within any of the following ranges of such voting
power: (a) one-fifth or more but less than one-third of such voting power; (b)
one-third or more but less than a majority of such voting power; or (c) a
majority or more of such voting power. Assuming compliance with the notice and
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information filings prescribed by statute, the proposed control share
acquisition may be made only if, at a duly convened special meeting of
shareholders, the acquisition is approved by both a majority of the voting power
of the issuer represented at the meeting and a majority of the voting power
remaining after excluding the combined voting power of the "interested shares,"
being the shares held by the intended acquiror and the directors and officers of
the issuer. In addition "interested shares" are defined to include those
acquired by any person: (i) after the first date of public disclosure (August
11, 1998) of the Merger and prior to the date of the Signal Meeting, provided
such person has paid over $250,000 for such purchased shares or such purchased
shares represents greater than .05% of the outstanding shares of the company
being acquired, and (ii) that transfers such shares for valuable consideration
after the record date established by the directors, if accompanied by the voting
power. The Acquisition Act may be made inapplicable to a company by its
corporate governance documents, but those of Signal do not so provide.
FirstMerit, by the requisite vote of its shareholders, has opted out of the
Acquisition Act.
Ohio Merger Moratorium Statute. The Ohio Merger Moratorium provisions
prohibit certain business combinations and transactions between an "issuing
public corporation" and a beneficial owner of 10% or more of the shares of the
corporation (an "interested shareholder") for at least three years after the
interested shareholder attains 10% ownership, unless the board of directors of
the issuing public corporation approves the transaction before the interested
shareholder attains 10% ownership. An "issuing public corporation" is defined as
an Ohio corporation with 50 or more shareholders that has its principal place of
business, principal executive offices, or substantial assets within the State of
Ohio, and as to which no close corporation agreement exists. Examples of
transactions regulated by the Merger Moratorium provisions include the
disposition of assets, mergers and consolidations, voluntary dissolutions, and
the transfer of shares ("Moratorium Transactions").
Subsequent to the three-year period, a Moratorium Transaction may take
place provided that certain conditions are satisfied, including (a) the board of
directors approves the transaction, (b) the transaction is approved by the
holders of shares with at least two-thirds of the voting power of the
corporation (or a different proportion set forth in the articles of
incorporation), including at least a majority of the outstanding shares after
excluding shares controlled by the interested shareholder, or (c) the business
combination results in shareholders, other than the interested shareholder,
receiving a fair price plus interest for their shares. The Merger Moratorium
provisions are applicable to all corporations formed under Ohio law, but a
corporation may elect not to be covered by the Merger Moratorium provisions, or
subsequently elect to be covered, with an appropriate amendment to its articles
of incorporation. Neither FirstMerit nor Signal has taken any such corporate
action to opt out of the Ohio Merger Moratorium statute.
Ohio "Anti-Greenmail" Statute. Pursuant to ORC Section 1707.043, a public
corporation formed in Ohio may recover profits that a shareholder makes from the
sale of the corporation's securities within 18 months after making a proposal to
acquire control or publicly disclosing the possibility of a proposal to acquire
control. The corporation may not, however, recover from a person who proves
either (i) that his sole purpose in making the proposal was to succeed in
acquiring control of the corporation and there were reasonable grounds to
believe that he would acquire control of the corporation or (ii) that his
purpose was not to increase any profit or decrease any loss in the stock. Also,
before the corporation may obtain any recovery, the aggregate amount of the
profit realized by such person must exceed $250,000. Any shareholder may bring
an action on behalf of the corporation if a corporation refuses to bring an
action to recover these profits. The party bringing such an action may recover
his attorneys' fees if the court having jurisdiction over such action orders
recovery of any profits. An Ohio corporation may elect not to be covered by the
"anti-greenmail" statute with an appropriate amendment to its articles of
incorporation, but FirstMerit has not taken any such corporate action to opt out
of the statute.
Control Bid Provisions of the Ohio Securities Act. Ohio law further
requires that any offeror making a control bid for any securities of a "subject
company" pursuant to a tender offer must file information specified in the Ohio
Securities Act with the Ohio Division of Securities when the bid commences. The
Ohio Division of Securities must then decide whether it will suspend the bid
under the statute. If it does so, it must do so within three calendar days after
the hearing has been completed, and no later than 14 calendar days after the
date on which the suspension is imposed. For this purpose, a "control bid" is
the purchase of, or an offer to purchase, any equity security of a subject
company from a resident of Ohio that would, in general, result in the offeror
acquiring 10% or more of the outstanding shares of such company. A "subject
company" includes any company with both
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(a) its principal place of business or principal executive office in Ohio or
assets located in Ohio with a fair market value of at least $1,000,000 and (b)
more than 10% of its record or beneficial equity security holders are resident
in Ohio, more than 10% of its equity securities are owned of record or
beneficially by Ohio residents, or more than 1,000 of its record or beneficial
equity security holders are resident in Ohio.
BHCA. The BHCA requires the prior approval of the Federal Reserve in any
case where a bank holding company proposes to acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that is
not already majority-owned by it, to acquire all or substantially all of the
assets of another bank or bank holding company, or to merge or consolidate with
any other bank holding company. Section 4 of the BHCA also prohibits a bank
holding company, with certain exceptions, from acquiring more than 5% of the
voting shares of any company that is not a bank and from engaging in any
business other than banking or managing or controlling banks.
AMENDMENT TO CHARTER DOCUMENTS
The FirstMerit Articles presently require that two-thirds of the voting
power of FirstMerit approve any amendment to the Articles, except that (i) with
regard to FirstMerit's Series A Preferred Stock (no shares of which are
presently issued or outstanding), any amendment to the FirstMerit Articles that
would materially alter or change the powers, preferences, or special rights of
such Series A Preferred Stock so as to affect them adversely would have to be
approved by at least a majority vote of the holders of such shares, voting
together as a single class, and (ii) with regard to Article Seventh of the
FirstMerit Articles, certain business combinations require a vote of 80% of the
voting power of FirstMerit, unless the amendment is approved by 75% of the Board
and by a majority of the Continuing Directors, then by two-thirds of the voting
power.
Directors may not amend the code of regulations of an Ohio corporation. The
Regulations of FirstMerit provide for amendment by shareholders holding a
majority of the voting power at a meeting (although Ohio law requires that all
amendments by written action of the shareholders without a meeting must be
approved unanimously by the shareholders entitled to vote thereon). In addition,
any amendments regarding the calling of special meetings of shareholders,
classification of directors, nomination of or removal of directors, or amendment
to the FirstMerit Regulations, must be approved by shareholders holding at least
two-thirds of the voting power of FirstMerit.
The Signal Articles provide that amendments to the Signal Articles may be
made upon the affirmative vote of a majority of the voting power of Signal,
except that amendments relating to (i) shareholder meetings; (ii) the number,
election, classification and removal of directors; (iii) acquisitions of control
without regulatory approval; (iv) certain business combinations; and (v)
amendment of the Signal Articles, require the affirmative vote of two-thirds of
the voting power of Signal entitled to vote at the meeting called for that
purpose. However, the two-thirds vote requirement does not apply to an amendment
to the article relating to certain business combinations if two-thirds of the
entire Signal Board recommends the amendment to the shareholders. The Signal
Regulations may be amended by a majority of the voting power of Signal entitled
to vote at a meeting called for that purpose.
DIRECTORS
Number; Classification. The FirstMerit Regulations presently provide that
the number of directors shall not be greater than 24, divided into three
classes. The shareholders of FirstMerit at the 1995 Special Meeting of
Shareholders fixed the number of Directors at 18. The respective terms of the
classes are staggered so that the term of one class expires each year, at which
time members of that class are elected to a three-year term.
The Signal Board is currently comprised of eleven directorships, divided
into three classes with four members in two classes and three members in one
class. The Signal Articles provide that the number of directors may be changed
by the approval of two-thirds of the then-current members of the First Federal
Board. Under the Signal Articles, the number of directors may not be fewer than
six nor more than 15 (exclusive of two directors who may be elected by the
holders of all series of preferred stock in the event Signal is in default in
payment of full dividends on any series of preferred stock for six dividend
payment periods).
Removal; Vacancy. The FirstMerit Regulations provide that FirstMerit's
shareholders may remove a director for good cause by a vote of two-thirds of the
capital stock entitled to vote for directors. The FirstMerit Regulations provide
that vacancies in FirstMerit's Board of Directors, whether occurring by reason
of a
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resignation or otherwise, may be filled by the FirstMerit Board acting by a vote
of a majority of directors then in office, even if less than a quorum.
The Signal Articles provide that one or more directors may be removed only
with cause upon the affirmative vote of the holders of at least a majority of
the outstanding shares entitled to vote generally in the election of directors.
The Signal Articles provide that any vacancy (including one resulting from
a newly created directorship) that occurs on the Signal Board may be filled by
the affirmative vote of two-thirds of the directors then in office and that any
director appointed to fill the vacancy shall hold office for a term expiring at
the annual meeting of shareholders at which the term of the class to which he or
she has been elected expires.
Indemnification, Insurance and Limitation of Director Liability. Under
Ohio law, Ohio corporations are authorized to indemnify directors, officers,
employees, and agents within prescribed limits and must indemnify them under
certain circumstances. Ohio law does not provide statutory authorization for a
corporation to indemnify directors, officers, employees, and agents for
settlements, fines, or judgments in the context of derivative suits. It
provides, however, that directors (but not officers, employees, and agents) are
entitled to mandatory advancement of expenses, including attorneys' fees,
incurred in defending any action, including derivative actions, brought against
the director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard for the
corporation's best interests.
Ohio law does not authorize payment of expenses or judgments to a director,
officer, employee, or agent after a finding of negligence or misconduct in a
derivative suit absent a court order. Indemnification is required, however, to
the extent such person succeeds on the merits. In all other cases, if a
director, officer, employee, or agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, indemnification is discretionary except as otherwise provided by a
corporation's articles, code of regulations, or by contract and except with
respect to the advancement of expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees, or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, procure insurance for such
persons.
The FirstMerit Articles provide that FirstMerit may indemnify to the
fullest extent permitted by law any person made or threatened to be made a party
to any action, suit, or proceeding by reason of the fact that he is or was a
director, officer, employee or agent of FirstMerit, or of any other corporation
or organization for which he was serving as a director, officer, employee or
agent at the request of FirstMerit. FirstMerit has entered into Indemnification
Agreements with each of its directors and executive officers.
The Signal Articles provide that Signal shall indemnify to the full extent
then permitted by law a director or a former director, and may, at the
discretion of the Board of Directors, indemnify to the full extent then
permitted by law, an officer or employee or former officer or employee, against
expenses actually and reasonably incurred by him in connection with the defense
of any pending or threatened action, suit, or proceeding, criminal or civil, to
which he is or may be made a party by reason of being or having been such
director, officer or employee.
The Signal Articles provide that Signal may, to the full extent then
permitted by law, purchase and maintain insurance on behalf of or for any person
described above against any liability asserted against and incurred by any such
person in any such capacity or arising out of his status as such, whether or not
the corporation would have the power to indemnify such person against such
liability.
Signal has not entered into separate indemnification agreements with any of
its executive officers or directors.
Both FirstMerit and Signal have acquired insurance for their obligations to
provide indemnification to their officers and directors.
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DIVIDENDS
An Ohio corporation may pay dividends out of surplus, however created, but
must notify its shareholders if a dividend is paid out of capital surplus. The
ability of FirstMerit and Signal to pay cash dividends to their respective
shareholders is largely dependent on the amount of dividends which may be
declared and paid to each of them by their respective subsidiaries. There are a
number of statutory and regulatory requirements applicable to the payment of
dividends by banks, savings associations and bank holding companies. See
"REGULATORY MATTERS."
PREFERRED STOCK
The terms and provisions of FirstMerit's Preferred Stock are delineated
above under "DESCRIPTION OF FIRSTMERIT CAPITAL STOCK -- FirstMerit Preferred
Stock."
Signal is authorized under the Signal Articles to issue up to 1,500,000
shares of preferred stock, of which 428,342 of its Series B Preferred Stock is
outstanding. The Signal Board of Director's has the power to specify certain
rights and preferences of the preferred stock, such as voting rights, without
shareholder approval. Under the Signal Articles, the Board has the authority to
issue authorized shares of preferred stock in series and to fix the number,
designation, relative rights, preferences and limitations of the shares of each
series of preferred stock, subject to Ohio law and the Signal Articles. The
authority of the Signal Board includes the right to fix for each series the
dividend rate, redemption price, liquidation rights, sinking fund provisions,
conversion rights and voting rights.
TRANSFER AGENT
FirstMerit's transfer agent is FirstMerit Bank, N.A., Corporate Trust
Department, 121 South Main Street, Suite 200, Akron, Ohio 44308-1444; telephone
number (330) 384-7202; Signal's transfer agent is ,
, Cleveland, Ohio ; telephone number (800)
.
SHAREHOLDER PROPOSALS
FirstMerit will hold its 1999 Annual Shareholder Meeting on April , 1999.
Any proposals to be considered for inclusion in the proxy material to be
provided to shareholders of FirstMerit for its next Annual Meeting of
Shareholders to be held in 1999 may be made only by a qualified shareholder and
must be received by FirstMerit no later than October 27, 1998.
The Executive Committee will consider nominees for directors of FirstMerit
recommended by shareholders who submit the person's name and qualifications, in
writing, to the Executive Committee. Under Article II, Section 2, of
FirstMerit's Regulations, shareholders entitled to vote for the election of
directors who intend to nominate a director for election must deliver written
notice to the Secretary of FirstMerit no later than (i) with respect to the
election to be held at an annual meeting of shareholders, 90-days in advance of
such meeting, and (ii) with respect to the election to be held at a special
meeting of shareholders, the close of business on the seventh day following the
date on which notice of such meeting is first given to shareholders. The notice
from the shareholder must set forth certain information concerning the
shareholder and each nominee, including names and addresses, a representation
that the shareholder is entitled to vote and intends to appear in person or by
proxy at the meeting, a description of arrangements or understandings between
the shareholder and each nominee, such other information required to be included
in a proxy statement, and the consent of each nominee to serve as a director of
FirstMerit if so elected.
Signal will hold a 1999 Annual Meeting of Shareholders only if the Merger
is not consummated before the time of such meeting. In such event, in order to
be eligible for inclusion in Signal's proxy materials for its 1999 Annual
Meeting of Shareholders, any shareholder proposal to take action at such meeting
must be received at Signal's main office at 135 East Liberty Street, Wooster,
Ohio 44691, no later than , 1998. Any such proposal shall be subject
to the requirements of the proxy rules adopted under the Securities Exchange Act
of 1934, as amended, and, as with any shareholder proposal (regardless of
whether included in Signal's proxy materials), the Signal Articles and
Regulations and Ohio law. Under the proxy rules, in the event that Signal
receives notice of a shareholder proposal to take action at the 1999 Annual
Meeting that is not submitted for inclusion in Signal's proxy materials, or is
submitted for inclusion but is properly excluded from such proxy
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materials, the persons named in the form of proxy sent by Signal to its
shareholders intend to exercise their discretion to vote on such proposal in
accordance with their best judgment if notice of the proposal is not received at
the main office of Signal by the Deadline (as defined below). In addition to the
provision of the proxy rules regarding discretionary voting authority described
in the preceding sentence, the Signal Regulations provide that if notice of a
shareholder proposal to take action at the next Annual Meeting is not received
at the main office of Signal by the Deadline, such proposal will not be
recognized as a matter proper for submission to Signal's shareholders and will
not be eligible for presentation at such meeting. The "Deadline" means the date
that is 30 days prior to the date of the next annual meeting; however in the
event that less than 40 days' notice of the date of the next annual meeting is
given or made to shareholders, the "Deadline" means the close of business on the
10th day following the day on which notice of the meeting was mailed.
LEGAL MATTERS
The validity of the shares of FirstMerit Common Stock to be issued by
FirstMerit under the Merger Agreement and certain federal tax matters relating
to the Merger have been passed upon for FirstMerit by its counsel, Brouse &
McDowell, L.P.A. Philip A. Lloyd II is a shareholder of Brouse & McDowell,
L.P.A. and a director of FirstMerit. Kevin C. O'Neil is a shareholder of Brouse
& McDowell, L.P.A. Due to their involvement in this transaction, Messrs. Lloyd
and O'Neil are required to disclose their beneficial ownership of shares of
FirstMerit Common Stock, which is 331,643 and 3,022 shares, respectively.
Certain legal matters in connection with the Merger will be passed upon for
Signal by Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations) and by Critchfield, Critchfield and
Johnston, Ltd.
EXPERTS
The consolidated financial statements of FirstMerit incorporated in this
Joint Proxy Statement/Prospectus by reference to the FirstMerit Annual Report on
Form 10-K for the year ended December 31, 1997, as amended by the Form 10-K/A,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Signal as of December 31, 1997 and
1996, and for the years then ended have been incorporated by reference in this
Joint Proxy Statement/Prospectus in reliance on the report of KPMG Peat Marwick
LLP, independent certified public accountants, given on the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Signal (fka FirstFederal Financial
Services Corp) for the year ended December 31, 1995 (which are included in the
consolidated restated financial statements of Signal for the same period) have
been incorporated by reference in this Joint Proxy Statement/Prospectus in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, given on the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of First Shenango Bancorp, Inc. as of
December 31, 1997 and 1996 and for each of the years in the three year period
ended December 31, 1997 (which are included in the consolidated restated
financial statements of Signal for the same periods), have been incorporated by
reference in this Joint Proxy Statement/Prospectus in reliance upon the report
of Ernst & Young LLP, independent auditors given on the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Security First as of March 31,
1998 and 1997, and for each of the three years in the period ended March 31,
1998, incorporated by reference in this Joint Proxy Statement/ Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, and stated in their
report, appearing in Appendix C to Part 1 of Registration Statement No.
333-57439 on Form S-4 of FirstMerit Corporation filed on June 22, 1998 which is
incorporated by reference herein, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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APPENDIX A
AGREEMENT OF AFFILIATION AND PLAN OF MERGER DATED AUGUST 10, 1998, BY AND
BETWEEN FIRSTMERIT CORPORATION AND SIGNAL CORP
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AGREEMENT OF AFFILIATION AND PLAN OF MERGER
THIS AGREEMENT OF AFFILIATION AND PLAN OF MERGER, dated as of August 10,
1998 (this "Agreement"), is made by and between FirstMerit Corporation, an Ohio
corporation ("FirstMerit"), and Signal Corp., an Ohio corporation ("Signal").
WHEREAS, the respective Boards of Directors of FirstMerit and Signal have
each determined that it is in the best interests of their respective
shareholders for Signal to merge with and into FirstMerit upon the terms and
subject to the conditions set forth herein;
WHEREAS, the respective Boards of Directors of FirstMerit and Signal have
each approved the merger of Signal with and into FirstMerit, upon the terms and
subject to the conditions set forth herein;
WHEREAS, as an inducement for FirstMerit to enter into this Agreement,
certain of the shareholders of Signal have executed voting agreements in the
form attached hereto as Exhibit A;
WHEREAS, the Board of Directors of FirstMerit intends contemporaneously
with the merger of Signal with and into FirstMerit, to merge the wholly owned
subsidiaries of Signal (not including the non-banking subsidiaries), with and
into a wholly owned subsidiary of FirstMerit;
WHEREAS, the Board of Directors of FirstMerit will appoint to the
FirstMerit Board of Directors at the Effective Time, Mr. Gary G. Clark, the
individual recommended by Signal's Board of Directors;
WHEREAS, as an inducement for FirstMerit to enter into this Agreement,
Signal expects (but is not obligated) to provide FirstMerit with an option to
purchase up to 19.9 percent of the capital stock of Signal, but only if certain
events occur, pursuant to the terms and conditions of the Signal Stock Purchase
Option (as hereinafter defined);
WHEREAS, for Federal income tax purposes, it is intended that the merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the merger shall be
accounted for as a "pooling of interests;"
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the parties hereto hereby agree as
follows:
1. THE MERGER
1.1. MERGER.
1.1.1. MERGER. At the Effective Time (as hereinafter defined), Signal
will be merged with and into FirstMerit (the "Merger") in accordance with
the provisions of Section 1701.78 of the Ohio General Corporation Law
("OGCL"). FirstMerit shall be the surviving corporation in the Merger and
shall continue after the Merger to be incorporated under the laws of the
State of Ohio (the "Surviving Corporation"). The Merger shall have the
effects specified in the OGCL. The name of the Surviving Corporation shall
be "FirstMerit Corporation."
1.1.2. EFFECTIVE TIME. As soon as practicable following the Closing
(as hereinafter defined), FirstMerit and Signal (the "Constituent
Corporations") shall cause a certificate of merger complying with the
requirements of Section 1701.81 of the OGCL (the "Certificate of Merger")
to be filed with the Secretary of State of the State of Ohio. The Merger
will become effective at the time and date which the Certificate of Merger
is filed with the Secretary of State of the State of Ohio (the "Effective
Time").
1.1.3. CONSUMMATION OF MERGER. The closing of the Merger (the
"Closing") will take place (i) at 10:00 a.m. (local time) at the principal
executive offices of FirstMerit as promptly as practicable after the date
on which all of the conditions set forth in Article 6 are satisfied or duly
waived, but in no event prior to January 1, 1999, or (ii) at such other
time and place and on such other date as FirstMerit and Signal may
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agree, and for purposes of Section 7.1(h) shall be scheduled at least 15
trading days prior to the date of Closing.
1.1.4. ARTICLES OF INCORPORATION AND REGULATIONS. The Amended and
Restated Articles of Incorporation and Code of Regulations of FirstMerit,
attached hereto as Exhibit 1.1.4, in effect immediately prior to the
Effective Time will be the Amended and Restated Articles of Incorporation
and Regulations of the Surviving Corporation after the Effective Time,
until duly amended in accordance with their respective terms and the OGCL.
1.1.5. DIRECTORS AND OFFICERS. The directors and officers of
FirstMerit immediately prior to the Effective Time will be the directors
and officers, respectively, of the Surviving Corporation, until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the terms of the
Surviving Corporation's Amended and Restated Articles of Incorporation and
Code of Regulations and the OGCL. Immediately following Closing, the Board
of Directors of FirstMerit will appoint to the FirstMerit Board of
Directors, Mr. Gary G. Clark, the individual recommended by the Signal
Board of Directors, such individual to serve in the class whose terms
expire in 2002. If Mr. Clark is unable to serve, the Signal Board of
Directors will recommend another individual for appointment, subject to the
approval of the FirstMerit Board of Directors.
1.1.6. SERVICE OF PROCESS. B.&McD., Inc., whose address is 106 S. Main
Street, Akron, Summit County, Ohio 44308, is the statutory agent upon whom
any process, notice or demand against FirstMerit, or the Surviving
Corporation may be served.
2. CONVERSION OF SHARES
2.1. CONVERSION OF SHARES. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any party or shareholder: (a) each share of the Signal common
stock, $1 par value per share (the "Signal Common Stock"), issued and
outstanding immediately prior to the Effective Time (excluding (i) shares held
by Signal or any of the Signal Subsidiaries (as defined below) or by FirstMerit
or any of the FirstMerit Subsidiaries (as defined below), in each case other
than in a fiduciary capacity or as a result of debts previously contracted
("Treasury Shares") and (ii) Dissenting Shares (as defined below)), shall cease
to be outstanding and shall be converted into and become the right to receive
1.32 (subject to adjustment pursuant to Sections 2.5 and 7.1(h)) (the "Common
Exchange Ratio") shares of common stock, no par value, of FirstMerit, including
the associated rights attached thereto under the FirstMerit Rights Plan (as
defined herein) ("FirstMerit Common Stock"); and (b) each share of the Signal
6 1/2% Cumulative Convertible Preferred Stock, Series B, no par value per share
(the "Signal Preferred Stock"), issued and outstanding immediately prior to the
Effective Time (excluding shares held by Signal or any of the Signal
Subsidiaries (as defined below) or by FirstMerit or any of the FirstMerit
Subsidiaries (as defined below), in each case other than in a fiduciary capacity
or as a result of debts previously contracted ("Treasury Shares"), shall cease
to be outstanding and shall be converted into and become the right to receive
one share of FirstMerit 6 1/2% Cumulative Convertible Preferred Stock, Series B,
no par value per share ("FirstMerit Series B Preferred Stock") which preferred
stock shall contain terms substantially identical to that of the Signal
Preferred Stock and be convertible into a number of shares of FirstMerit Common
Stock equal to the product of the Common Exchange Ratio and the number of shares
of Signal Common Stock into which the Signal Preferred Stock was convertible
immediately prior to the Effective Time.. The FirstMerit Common Stock and
FirstMerit Preferred Stock is sometimes collectively referred to herein as the
"FirstMerit Capital Stock."
2.2. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of FirstMerit Capital Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, FirstMerit shall pay to each holder of Signal Common or Preferred Stock
who would otherwise be entitled to a fractional share of FirstMerit Capital
Stock (after taking into account all Signal Common or Preferred Stock
certificates ("Signal Certificates") delivered by such holder) an amount in cash
(without interest) determined by: for the FirstMerit Common Stock, multiplying
such fraction by the average of the last sale prices of FirstMerit Common Stock,
as reported by The Nasdaq Stock Market National Market System ("Nasdaq/ NMS")
reporting system (as reported in The Wall Street Journal or, if not reported
therein, in another authoritative source), starting 15 Nasdaq/NMS trading days
before the Effective Date and ending five Nasdaq/ NMS trading days immediately
preceding the Effective Date ("Average Closing Price"); and for the FirstMerit
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Series B Preferred Stock, multiplying the number of shares of FirstMerit Common
Stock into which such fraction of FirstMerit Series B Preferred Stock is
convertible by the Average Closing Price.
2.3. EXCHANGE PROCEDURES.
2.3.1. At or prior to the Effective Time, FirstMerit shall deposit, or
shall cause to be deposited, with the Exchange Agent, for the benefit of
the holders of Signal Certificates, for exchange in accordance with this
Article 2, certificates representing the shares of FirstMerit Capital Stock
("New Certificates") and an estimated amount of cash (such cash and New
Certificates, together with any dividends or distributions with respect
thereto (without any interest thereon), being hereinafter referred to as
the "Exchange Fund") to be paid pursuant to this Article 2 in exchange for
outstanding shares of Signal Capital Stock (as defined below).
2.3.2. As promptly as practicable after the Effective Date, FirstMerit
shall send or cause to be sent to each former holder of record of shares
(other than Treasury Shares or Dissenting Shares) of Signal Capital Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Signal Certificates for the consideration set
forth in this Article 2. FirstMerit shall cause the New Certificates into
which shares of a shareholder's Signal Capital Stock, as applicable, are
converted on the Effective Date and any fractional share interests or
dividends or distributions which such person shall be entitled to receive
to be delivered to such shareholder upon delivery to the Exchange Agent of
Signal Certificates representing such shares of Signal Capital Stock (or
indemnity reasonably satisfactory to FirstMerit and the Exchange Agent, if
any of such certificates are lost, stolen or destroyed) owned by such
shareholder. No interest will be paid on any such cash to be paid pursuant
to this Article 2 upon such delivery.
2.3.3. Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to any former holder of Signal Capital
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
2.3.4. No dividends or other distributions with respect to FirstMerit
Capital Stock with a record date occurring after the Effective Time shall
be paid to the holder of any unsurrendered Signal Certificate representing
shares of Signal Capital Stock converted in the Merger into shares of such
FirstMerit Capital Stock until the holder thereof shall surrender such
Signal Certificate in accordance with this Article 2. After the surrender
of a Signal Certificate in accordance with this Article 2, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of FirstMerit Capital Stock represented by
such Signal Certificate.
2.3.5. Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Signal for twelve months after the Effective Time shall be
paid to FirstMerit by the Exchange Agent. Any shareholders of Signal who
have not theretofore complied with this Article 2 shall thereafter look
only to FirstMerit for payment of the shares of FirstMerit Capital Stock,
cash in lieu of any fractional shares and unpaid dividends and
distributions on the FirstMerit Capital Stock deliverable in respect of
each share of Signal Capital Stock such shareholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
2.4. DISSENTERS' RIGHTS. To the extent provided by the OGCL, any holder of
record of the Signal Capital Stock as of the date fixed for the determination of
shareholders of Signal entitled to notice of the Signal Meeting (as defined
below), and who shall have filed with Signal, as applicable, not later than ten
(10) days after such meeting, a written demand for payment of the fair cash
value of such shares in compliance with Section 1701.85 of the OGCL, and whose
shares shall not have been voted in favor of the Merger or adoption of this
Agreement, and who comply with all of the relevant provisions of such Section
(the "Dissenting Shares"), shall cease at the Effective Time to have any of the
rights of a shareholder in respect of such shares, shall not be converted into
or be exchangeable for the right to receive the Merger Consideration (unless and
until such holders shall have failed to perfect or shall have effectively
withdrawn or lost their dissenters' rights under the OGCL), and shall only have
the right to be paid the fair cash value of such shares under Sections 1701.84
and 1701.85 of the OGCL. Any former holder of Signal Capital Stock who after the
Effective Time (i) surrenders his certificates representing shares of Signal
Capital Stock for exchange pursuant to Section 2.3 hereof, or (ii) validly
withdraws his written demand for payment of fair cash value of such shares
pursuant to Sections 1701.84 and 1702.85 of the OGCL, will thereupon be entitled
to receive the Merger Consideration as of the Effective Time pursuant to this
Agreement. If any such holder shall have failed to perfect or shall have
effectively withdrawn or lost such
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dissenters' rights, such holder's shares of Signal Capital Stock shall thereupon
be converted into and become exchangeable for the right to receive, as of the
Effective Time, the Merger Consideration, as applicable, without any interest
thereon, as provided in Section 2.3.
Signal shall give FirstMerit (i) prompt notice of any written demands for
payment for any Signal Capital Stock under Section 1701.85 of the OGCL,
attempted withdrawals of such demands, and any other instruments served pursuant
to the OGCL and received by Signal relating to dissenters' rights, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
the exercise of dissenters' rights under the OGCL. Signal shall not, except with
the prior written consent of the FirstMerit, voluntarily make any payment with
respect to any demands for payment for Signal Common or Preferred Stock under
the OGCL, offer to settle or settle any such demands or approve any withdrawal
of any such demands.
To the extent provided by the OGCL, any holder of record of FirstMerit
Common Stock as of the date fixed for the determination of stockholders of
FirstMerit entitled to notice of the FirstMerit Meeting (as hereinafter defined)
shall be entitled to relief as a dissenting shareholder in accordance, and
subject to compliance with, the OGCL.
2.5. ANTI-DILUTION PROVISIONS. In the event FirstMerit changes (or
establishes a record date for changing) the number of shares of FirstMerit
Capital Stock issued and outstanding prior to the Effective Date as a result of
a stock split, stock dividend, recapitalization or similar transaction with
respect to the outstanding FirstMerit Capital Stock and the record date therefor
shall be prior to the Effective Date, or exchanges FirstMerit Capital Stock for
a different number or kind of shares or securities or is involved in any
transaction resulting in any of the foregoing, the Common Exchange Ratio, and
the number of shares of FirstMerit Common Stock into which FirstMerit Series B
Preferred Stock is convertible, as applicable, shall be proportionately
adjusted.
2.6. TREASURY SHARES. Each of the shares of Signal Capital Stock held as
Treasury Shares immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
2.7. STOCK OPTIONS. The Signal Disclosure Letter (as hereinafter defined)
sets forth a list of each stock option outstanding on the date of this Agreement
(collectively, the "Signal Stock Options"), to purchase Signal Common Stock
heretofore granted pursuant to the Amended and Restated Stock Option and
Incentive Plan, the Non-Employee Director Stock Option Plan, the 1997 Omnibus
Incentive Plan, the FirstShenango Bancorp, Inc. 1993 Stock Option Plan and the
Summit Bancorp 1989 Stock Incentive Plan (the "Signal Option Plans"). The Signal
Disclosure Letter also sets forth with respect to each Signal Stock Option the
option exercise price, the number of shares subject to the option, the dates of
grant, vesting, exercisability and expiration of the option and that the option
is either an incentive or a nonqualified stock option. Without the written
consent of FirstMerit, no additional stock options shall, after the date of this
Agreement, be granted under the Signal Option Plans.
Each Signal Stock Option outstanding immediately prior to the Effective
Time shall be assumed at the Effective Time by the Surviving Corporation and
continue to be an issued and outstanding option of the Surviving Corporation in
accordance with the terms of the respective Signal Option Plans, except that:
(a) the Surviving Corporation and its Compensation Committee shall be
substituted for Signal and the committee of Signal's Board of Directors
administering such Signal Option Plans, (b) from and after the Effective Time,
each such Signal Stock Option may be exercised only for FirstMerit Common Stock
notwithstanding any contrary provision of the Signal Option Plans or stock
option agreements executed in connection therewith, (c) each such Signal Stock
Option shall at the Effective Time become an option to purchase a number of
shares of FirstMerit Common Stock equal to the product arrived at by multiplying
the Common Exchange Ratio by the number of shares of Signal Common Stock subject
to such option immediately prior to the Effective Time rounded to the nearest
whole share, and (d) the exercise price per share of FirstMerit Common Stock at
which each such Signal Stock Option is exercisable shall be the amount (rounded
down to the next whole cent) arrived at by dividing the exercise price per share
of Signal Common Stock at which such Signal Stock Option is exercisable
immediately prior to the Effective Time by the Common Exchange Ratio.
In addition, notwithstanding clauses (c) and (d) of the immediately
preceding sentence, each Signal Stock Option which is an incentive stock option
shall be adjusted as required by Section 424 of the Code, and the regulations
promulgated thereunder, so as not to constitute a modification, extension or
renewal of the option,
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within the meaning of Section 424 of the Code. The Board of Directors of the
Surviving Corporation shall take such action as may be required under the Signal
Option Plans to effectuate the foregoing. Immediately after Closing, FirstMerit
shall reserve for issuance (and, if not previously registered pursuant to the
Securities Act, register) the number of shares of FirstMerit Common Stock
necessary to satisfy FirstMerit's obligations under this Section. Prior to the
Closing, and thereafter as may be appropriate, FirstMerit shall take such
actions as are necessary to effect the provisions of this Section, and to
preserve for the holders of Signal Stock Options the benefits to be provided
pursuant to this Section.
2.8. SIGNAL CAPITAL TRUST. The Signal Disclosure Letter sets forth
information regarding Signal Capital Trust I, a Delaware business trust ("Signal
Capital Trust"). FirstMerit shall as of the Effective Time treat the Signal
Capital Trust as a subsidiary of FirstMerit and shall as of the Effective Time
assume the Indenture dated as of February 13, 1998 ("Indenture"), as well as the
Amended and Restated Declaration of Trust dated as of February 13, 1998
("Trust"), and continue the Signal Capital Trust in accordance with the terms of
the Indenture and Trust, except that: (a) the Surviving Corporation shall be
substituted for Signal; (b) the three individual "Administrative Trustees" will
be replaced with officers of the Surviving Corporation; and (c) such additional
ministerial changes as are necessary under the Indenture and Trust will be
effected. Without the written consent of FirstMerit, no additional interests
shall, after the date of this Agreement, be issued by the Signal Capital Trust.
2.9. SIGNAL SUBORDINATED NOTES. The Signal Disclosure Letter sets forth
information regarding the Signal Corp. 9.125% Subordinated Notes due March 15,
2004 ("Signal Notes"). FirstMerit shall as of the Effective Time assume the
Indenture dated March 19, 1997 ("Note Indenture"), continue the Signal Notes in
accordance with the terms of the Note Indenture, continue the due and punctual
payment of principal of and interest on the Signal Note, and the performance of
every covenant of the Note Indenture, except that: (a) the Surviving Corporation
shall be substituted for Signal; and (b) such additional ministerial changes as
are necessary under the Note Indenture will be effected. Without the written
consent of FirstMerit, no additional Signal Notes shall, after the date of this
Agreement, be issued by the Signal.
3. REPRESENTATIONS AND WARRANTIES OF FIRSTMERIT
FirstMerit hereby represents and warrants to Signal that:
3.1. CORPORATE ORGANIZATION. FirstMerit is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which its ownership or lease of property or the nature
of the business conducted by it makes such qualification necessary, except for
such jurisdictions in which the failure to be so qualified would not have a
Material Adverse Effect (as hereinafter defined) on FirstMerit. FirstMerit is
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHCA"). FirstMerit has the requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as it is now being conducted.
3.2. AUTHORITY. FirstMerit has the requisite corporate power and authority
to execute and deliver this Agreement and, except for any required approval of
the applicable Regulatory Authorities (as defined hereinafter) and the approval
of the FirstMerit shareholders, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved by the
Board of Directors of FirstMerit, including provisions for the resolution of
certain issues by management, and no other corporate proceedings on the part of
FirstMerit are necessary to authorize this Agreement or to consummate the
transactions so contemplated other than the approval of the FirstMerit
shareholders. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, FirstMerit, enforceable against
FirstMerit in accordance with its terms, except as enforceability hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought.
3.3. CAPITALIZATION. The authorized capital stock of FirstMerit consists of
160,000,000 shares of FirstMerit Common Stock and 7,000,000 shares of preferred
stock ("FirstMerit Preferred Stock"). As of March 31, 1998, (i) 61,245,221
shares of FirstMerit Common Stock (excluding 6,897,453 treasury shares) were
validly issued and
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outstanding, fully paid and nonassessable and not issued in violation of any
preemptive right of any shareholder of FirstMerit, and (ii) no shares of
FirstMerit Preferred Stock were issued and outstanding. Since March 31, 1998 and
through the date of this Agreement, FirstMerit has not issued any additional
shares of FirstMerit Common Stock or preferred stock other than pursuant to the
exercise of employee stock purchase rights or stock options under FirstMerit
Option Plans (as hereinafter defined) outstanding on March 31, 1998, except for
the 3,896,785 shares of FirstMerit Common Stock issued by FirstMerit to the
shareholders of CoBancorp Inc. on May 22, 1998 pursuant to the Agreement of
Affiliation and Plan of Merger between FirstMerit and CoBancorp Inc. dated
November 2, 1998. Except as contemplated by this Agreement, the FirstMerit
Rights Plan (as hereinafter defined), the Agreement of Affiliation and Plan of
Merger between FirstMerit and Security First Corp. dated April 5, 1998 regarding
the issuance of approximately 7,800,000 shares of FirstMerit Common Stock, the
agreement with McDonald & Company Securities, Inc. and Keefe Bruyette & Woods,
Inc. regarding the firm underwritten offering of approximately 1,200,000 shares
of FirstMerit Common Stock, or in the FirstMerit Disclosure Letter (which is a
letter attached hereto as Exhibit 3.3, dated the date of this Agreement, from
FirstMerit to Signal), as of the date of this Agreement, there are no shares of
capital stock of FirstMerit authorized, issued or outstanding and there are no
outstanding subscriptions, options, warrants, scrip, rights, calls, convertible
securities or any other similar agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock or other securities
of FirstMerit obligating, or which may obligate, FirstMerit to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of FirstMerit or obligating, or which may obligate, FirstMerit to grant,
extend or enter into any subscription, option, warrant, scrip, right, call,
convertible security or other similar agreement, arrangement or commitment.
Except as set forth in the FirstMerit Disclosure Letter, there are no voting
trusts or other similar agreements, arrangements or commitments to which
FirstMerit or any FirstMerit Subsidiary (as hereinafter defined) is a party with
respect to the voting of the capital stock of FirstMerit. All of the shares of
FirstMerit Common Stock issuable in exchange for the Signal Common Stock at the
Effective Time in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to preemptive rights. FirstMerit has reserved for issuance the number of shares
of FirstMerit Common Stock necessary to satisfy FirstMerit's obligations under
Section 2.1.
3.4. SUBSIDIARIES. The FirstMerit Disclosure Letter sets forth, as of the
date of this Agreement, the name and state of incorporation of each banking, and
each other significant subsidiary of FirstMerit (collectively, the "FirstMerit
Subsidiaries"). Except as set forth in the FirstMerit Disclosure Letter, each of
the FirstMerit Subsidiaries is a bank, or a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation or organization and is duly qualified to do business as a foreign
corporation in each jurisdiction in which its ownership or lease of property or
the nature of the business conducted by it makes such qualification necessary,
except for such jurisdictions in which the failure to be so qualified would not
have a Material Adverse Effect on FirstMerit. Each of the FirstMerit
Subsidiaries has the requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its businesses as they are now
being conducted.
Except as set forth in the FirstMerit Disclosure Letter, as of the date of
this Agreement, all outstanding shares of capital stock of each FirstMerit
Subsidiary are owned by FirstMerit or another FirstMerit Subsidiary and are
validly issued, fully paid and nonassessable, have not been issued in violation
of any preemptive right and are owned free and clear of all liens, claims,
charges, options, encumbrances or agreements with respect thereto. Except as set
forth in the FirstMerit Disclosure Letter, as of the date of this Agreement,
neither FirstMerit nor any FirstMerit Subsidiary owns beneficially more than 5%
of any class of equity securities or any similar interests of any corporation,
bank, business, trust, association or similar organization. There are, as of the
date of this Agreement, no outstanding subscriptions, options, warrants, scrip,
rights, calls, convertible securities or any other similar agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock or other securities of any FirstMerit Subsidiary obligating, or
which may obligate, any FirstMerit Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating, or which may obligate, any FirstMerit Subsidiary to grant, extend or
enter into any subscription, option, warrant, scrip, right, call, convertible
security or other similar agreement, arrangement or commitment.
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3.5. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT, ETC.
(a) None of the information with respect to FirstMerit or any FirstMerit
Subsidiary provided by FirstMerit for inclusion in the registration statement to
be filed with the Securities and Exchange Commission (the "Commission") by
FirstMerit on Form S-4 (or any other appropriate form) under the Securities Act
of 1933, as amended (the "Securities Act") for the purpose of registering the
shares of FirstMerit Capital Stock to be issued in the Merger and the shares of
FirstMerit Common Stock to be issued upon the conversion of the FirstMerit
Series B Preferred Stock (the "Registration Statement") will, at the time it
becomes effective and at the time of the Signal and FirstMerit Meetings (as
hereinafter defined), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. None of the information with respect to FirstMerit or any
FirstMerit Subsidiary provided by FirstMerit for inclusion in any
prospectus/proxy statement or information statement or notice of FirstMerit and
Signal, or any amendments or supplements thereto, required to be mailed to
Signal's and FirstMerit's shareholders in connection with the Merger (the
"Proxy" or "Proxy Statement") will, at the time of the mailing of the Proxy
Statement, and at the time of the Signal and FirstMerit Meetings, contain any
statement which, at the time it is made and in light of the circumstances under
which it is made, is false or misleading with respect to any material fact, or
which omits to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Signal and FirstMerit Meeting which has become false or misleading. The
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder. The Proxy Statement will comply as to form in all material respects
with the provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder.
(b) All documents that FirstMerit is responsible for filing with any
Governmental Entity (as hereafter defined) will comply as to form in all
material respects with applicable law. None of the information with respect to
FirstMerit or any FirstMerit Subsidiary provided by FirstMerit for inclusion in
any document to be filed with any regulatory authority in connection with the
transactions contemplated hereby will contain any statement of a material fact
which is untrue as of the time that such statement is made.
3.6. CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth in the
FirstMerit Disclosure Letter, neither the execution and delivery of this
Agreement by FirstMerit, nor the consummation by FirstMerit of the transactions
contemplated hereby, nor compliance by FirstMerit with any of the provisions
hereof will (a) conflict with or result in any breach of any provision of its
Amended and Restated Articles of Incorporation or Amended and Restated Code of
Regulations, (b) violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration of, or result in the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of FirstMerit or any of the FirstMerit Subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which FirstMerit or any FirstMerit Subsidiary is a party or to
which they or any of their respective properties or assets may be subject,
except for such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens or other encumbrances, which, individually
or in the aggregate, will not have a Material Adverse Effect on FirstMerit, (c)
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to FirstMerit or any FirstMerit Subsidiary or any of their
respective properties or assets, except for such violations which, individually
or in the aggregate, will not have a Material Adverse Effect on FirstMerit, or
(d) require any consent, approval, authorization or permit of or from, or filing
with or notification to, any court, governmental authority or other regulatory
or administrative agency or commission, domestic or foreign ("Governmental
Entity"), except (i) pursuant to the Exchange Act and the Securities Act, (ii)
filing the certificate of merger pursuant to the OGCL, (iii) filings required
under the securities or blue sky laws of the various states, (iv) filings with,
and approval by, the Board of Governors of the Federal Reserve System (the
"FRB"), (v) filings with, and approval by, the Office of the Comptroller of the
Currency (the "OCC"), (vi) filings with, and approval by, the Office of Thrift
Supervision (the "OTS"), (vii) filings and approvals pursuant to any applicable
state takeover laws ("State Takeover Approvals"), (viii) consents, approvals,
authorizations, permits, filings or notifications in connection with compliance
with applicable provisions of federal and state securities laws relating to the
regulation of
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broker-dealers, investment advisors, or stock transfer agents, or (ix) consents,
approvals, authorizations, permits, filings or notifications which have either
been obtained or made prior to the Closing or which, if not obtained or made,
will neither, individually or in the aggregate, have a Material Adverse Effect
on FirstMerit nor restrict FirstMerit's legal authority to execute and deliver
this Agreement and consummate the transactions contemplated hereby.
3.7. REPORTS AND FINANCIAL STATEMENTS. Since December 31, 1997, FirstMerit
has filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with the Commission, including,
but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements
(collectively, the "FirstMerit Reports"). FirstMerit has previously made
available or furnished, or, with respect to the FirstMerit Reports filed after
the date of this Agreement, will promptly furnish, Signal with true and complete
copies of each of the FirstMerit Reports. As of their respective dates (but
taking into account any amendments filed prior to the date of this Agreement),
the FirstMerit Reports complied, or, with respect to FirstMerit Reports filed
after the date of this Agreement, will comply, in all material respects with all
the rules and regulations promulgated by the Commission and did not contain, or,
with respect to FirstMerit Reports filed after the date of this Agreement, will
not contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of FirstMerit included in the FirstMerit Reports (the "FirstMerit
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position of FirstMerit and the FirstMerit Subsidiaries as at the dates thereof
and the consolidated results of operations and cash flows for the periods then
ended subject, in the case of the unaudited interim financial statements, to
normal year-end audit adjustments, any other adjustments described therein and
the absence of footnotes.
3.8. TAXES. Except as set forth in the FirstMerit Disclosure Letter,
FirstMerit and each FirstMerit Subsidiary have prepared in good faith and duly
and timely filed, all federal, state, local and foreign income, franchise,
sales, real and personal property and other tax returns and reports required to
be filed by them on or before the date of this Agreement, except where the
failure to file would not have a Material Adverse Effect on FirstMerit. Except
as set forth in the FirstMerit Disclosure Letter, FirstMerit and each FirstMerit
Subsidiary have paid, or have adequately reserved or have made adequate accruals
(in accordance with generally accepted accounting principles) with respect to,
all taxes, interest and penalties shown to be owing on all such returns or
reports. There are no liens for federal, state, local or foreign taxes upon the
assets of FirstMerit or of any FirstMerit Subsidiary, except for statutory liens
for taxes and assessments not yet delinquent or the validity of which is being
contested in good faith by appropriate proceedings. As of the date of this
Agreement, except as set forth in the FirstMerit Disclosure Letter, neither
FirstMerit nor any of the FirstMerit Subsidiaries is a party to any action or
proceeding, nor is any such action or proceeding threatened, by any Governmental
Entity for the assessment or collection of taxes which are material in amount,
and no deficiency notices or reports have been received by FirstMerit or any of
the FirstMerit Subsidiaries in respect of any material deficiencies for any tax,
assessment or government charges.
3.9. EMPLOYEE PLANS. All employee bonus, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase, employee stock
ownership, stock appreciation rights, savings, consulting, severance, collective
bargaining, group insurance, fringe benefit and other employee benefit,
incentive and welfare plans, policies, contracts and arrangements and all trust
agreements related thereto, now in effect and relating to any present or former
directors, officers or employees of FirstMerit or FirstMerit Subsidiaries,
whether or not described in Section 3(3) of Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), are identified in the FirstMerit Disclosure
Letter ("FirstMerit Employee Plans"). All of the FirstMerit employee plans have
been maintained, operated and administered in substantial compliance with their
terms, and FirstMerit, all of the FirstMerit Subsidiaries and all of the
FirstMerit Employee Plans currently comply, and have at all relevant times
complied, in all material respects with ERISA, the Code, and any other
applicable laws. FirstMerit has previously delivered or made available to Signal
copies of all FirstMerit Employee Plans, in each case as in effect on the date
of this Agreement.
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3.10. MATERIAL CONTRACTS. Except as set forth in the FirstMerit Disclosure
Letter or disclosed in the FirstMerit Reports, neither FirstMerit nor any
FirstMerit Subsidiary is, as of the date of this Agreement, a party to, or is
bound by, (a) any material lease not made in the ordinary course of business of
FirstMerit, (b) any agreement, arrangement, or commitment not made in the
ordinary course of business which materially restricts the conduct of any line
of business of FirstMerit, (c) any material agreement, indenture or other
instrument not specifically disclosed in the FirstMerit Financial Statements
relating to the borrowing of money by FirstMerit or the guarantee by FirstMerit
of any such obligation (other than trade payables and instruments relating to
transactions entered into in the ordinary course of business), (d) any
agreement, arrangement or commitment with or to a labor union, or (e) any other
contract or agreement or amendment thereto that would be required to be filed as
an exhibit to a Form 10-K filed by FirstMerit with the Commission as of the date
of this Agreement (the "FirstMerit Contracts"). Neither FirstMerit nor any
FirstMerit Subsidiary is in default under any FirstMerit Contract, which default
is reasonably likely to have, either individually or in the aggregate, a
Material Adverse Effect on FirstMerit, and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
default.
3.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
FirstMerit Disclosure Letter or disclosed in FirstMerit Reports filed by
FirstMerit with the Commission prior to the date of this Agreement, since
December 31, 1997 to the date of this Agreement, there has not been any change
in the financial condition, results of operations or business of FirstMerit and
the FirstMerit Subsidiaries that either individually or in the aggregate has had
a Material Adverse Effect on FirstMerit.
3.12. LITIGATION. Except as disclosed in the FirstMerit Disclosure Letter
or in FirstMerit Reports filed by FirstMerit with the Commission prior to the
date of this Agreement, there is no litigation, action, arbitration or
proceeding pending, or, to the best knowledge of FirstMerit, threatened against
or affecting FirstMerit or any FirstMerit Subsidiary which, either individually
or in the aggregate, is having, or insofar as reasonably can be foreseen, will
have, a Material Adverse Effect on FirstMerit, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator,
outstanding against FirstMerit or any FirstMerit Subsidiary having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect.
3.13. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in the
FirstMerit Disclosure Letter or in FirstMerit Reports filed by FirstMerit with
the Commission prior to the date of this Agreement, the businesses of FirstMerit
and the FirstMerit Subsidiaries are not being conducted, and have not been
conducted since December 31, 1997, in violation of any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity, except for possible violations which individually or in the aggregate do
not, and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on FirstMerit. Except as set forth in the FirstMerit
Disclosure Letter, no investigation or review by any Governmental Entity with
respect to FirstMerit or any of the FirstMerit Subsidiaries outside the ordinary
course of business and not generally applicable to entities engaged in the same
business is pending or, to the knowledge of FirstMerit, threatened, and no
Governmental Entity has indicated an intention to conduct the same in each case
other than those the outcome of which will not have a Material Adverse Effect on
FirstMerit.
3.14. AGREEMENTS WITH BANK REGULATORS. As of the date of this Agreement,
except as set forth in the FirstMerit Disclosure Letter, neither FirstMerit nor
any FirstMerit Subsidiary is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, any Governmental Entity outside the
ordinary course of business and not generally applicable to entities engaged in
the same business, including, without limitation, cease and desist or other
orders of any bank regulatory authority, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its credit
policies or its management, nor has FirstMerit been advised by any Governmental
Entity that it is contemplating issuing, requiring or requesting (or is
considering the appropriateness of issuing, requiring or requesting) any such
order, directive, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar undertaking. Except as set
forth in the FirstMerit Disclosure Letter, there are no (i) material violations
or (ii) violations with respect to which refunds or restitutions which are
material in amount to FirstMerit and the FirstMerit Subsidiaries taken as a
whole may be required, cited in any compliance report to FirstMerit or any
FirstMerit Subsidiary as a result of an examination by any bank regulatory
authority.
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3.15. FIRSTMERIT OWNERSHIP OF STOCK. Except as disclosed in the FirstMerit
Disclosure Letter, and except pursuant to Stock Purchase Option dated August 11,
1998 (the "Signal Stock Purchase Option"), a copy of which is attached hereto as
Exhibit 3.15, neither FirstMerit nor, to the best of its knowledge, any of its
affiliates or associates (i) beneficially owns, directly or indirectly, or (ii)
are parties to any agreement, arrangement or commitment for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of Signal
Capital Stock (other than shares of Signal Capital Stock held in a fiduciary,
trust, custodial or agency capacity by a bank or trust subsidiary of FirstMerit)
which in the aggregate, represent 2% or more of the outstanding shares of Signal
Common Stock.
3.16. FEES. Except for the fees paid and payable to Goldman, Sachs & Co.,
neither FirstMerit nor any FirstMerit Subsidiary has paid or become obligated to
pay any fee or commission to any broker, finder or intermediary in connection
with the transactions contemplated by this Agreement.
3.17. FIRSTMERIT ACTION. The Board of Directors of FirstMerit (at a meeting
duly called and held) has by the requisite vote (i) determined that the Merger
is advisable and in the best interests of FirstMerit and its shareholders, (ii)
authorized and approved this Agreement and the Stock Purchase Option, and the
transactions contemplated hereby and thereby, including the Merger, (iii)
directed that the Merger be submitted for consideration by FirstMerit's
shareholders entitled to vote thereon at the FirstMerit Meeting, and (iv)
authorized and approved the Merger in accordance with Chapter 1704 of the Ohio
Revised Code with the result that Chapter 1704 will not apply to the
consummation of the Merger and acquisition of shares of FirstMerit Common Stock
by the holders of Signal Capital Stock pursuant to this Agreement, the Signal
Stock Purchase Option or any of the transactions contemplated by this Agreement
or the Signal Stock Purchase Option. Goldman Sachs & Co., FirstMerit's financial
advisor, has provided the Board of Directors of FirstMerit with its opinion
that, as of the date of such duly called meeting of the Board, the Merger
Consideration is fair, from a financial point of view, to the shareholders of
Signal.
3.18. RIGHTS AGREEMENT. No person will become an "Acquiring Person" and no
"Shares Acquisition Date" or "Distribution Date" will occur under the
Shareholder Rights Agreement, as amended and restated, dated June 22, 1998,
between FirstMerit and FirstMerit Bank, as rights agent (the "FirstMerit Rights
Plan"), and no holder of rights issued under the FirstMerit Rights Plan shall
have any rights under the FirstMerit Rights Plan as a result of the approval,
execution or delivery of this Agreement or the consummation of the Merger. No
amendments have been made prior to the date of this Agreement to the FirstMerit
Rights Plan except as specifically referred to in this Section.
3.19. ENVIRONMENTAL MATTERS. Except as set forth in the FirstMerit
Disclosure Letter, to the best of FirstMerit's knowledge: (i) neither FirstMerit
nor any of the FirstMerit Subsidiaries has been or is in violation of or liable
under any Environmental Law (as hereinafter defined), except for any such
violations or liabilities which would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect on FirstMerit; and (ii)
none of the Loan Portfolio Properties and Other Properties Owned (as hereinafter
defined) by FirstMerit or any of the FirstMerit Subsidiaries has been since such
properties have been owned, operated or managed by FirstMerit or any of the
FirstMerit Subsidiaries is in violation of under any Environmental Law, except
for any such violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on FirstMerit. Except
as set forth in the FirstMerit Disclosure Letter, there are no actions, suits,
demands, notices, claims, investigations or proceedings pending, or to the best
of FirstMerit's knowledge threatened, relating to the liability of the Loan
Portfolio Properties and Other Properties Owned by FirstMerit or the FirstMerit
Subsidiaries under any Environmental Law, including, without limitation, any
notices, demand letters or requests for information from any federal, state or
local environmental agency relating to any such liabilities under or violations
of Environmental Law.
3.20. ACCOUNTING MATTERS. Neither FirstMerit nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action that
would prevent FirstMerit from accounting for the business combination to be
effected by the Merger as a "pooling of interests."
3.21. VOTE REQUIRED. The affirmative vote of the holders of two-thirds of
the outstanding shares of FirstMerit Common Stock is necessary to approve this
Agreement and the transactions contemplated hereby.
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4. REPRESENTATIONS AND WARRANTIES OF SIGNAL
Signal hereby represents and warrants to FirstMerit that:
4.1. CORPORATE ORGANIZATION. Signal is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which its ownership or lease of property or the nature
of the business conducted by it makes such qualification necessary, except for
such jurisdictions in which the failure to be so qualified would not have a
Material Adverse Effect on Signal. Signal is registered as a bank holding
company under the BHCA. Signal has the requisite corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
as it is now being conducted. Signal has delivered to FirstMerit true and
complete copies of its Articles of Incorporation, as amended, and its Code of
Regulations, as amended (the "Corporate Governance Documents") as currently in
effect.
4.2. AUTHORITY. Signal has the requisite corporate power and authority to
execute and deliver this Agreement and, except for any required approval of
Signal's shareholders and the approval of the applicable Regulatory Authorities,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized and approved by the Board of Directors of Signal and
no other corporate proceedings on the part of Signal are necessary to authorize
this Agreement or to consummate the transactions so contemplated, except for
approval by the shareholders of Signal as provided in Section 6.1(a). This
Agreement has been duly executed and delivered by, and constitutes a valid and
binding obligation of, Signal, enforceable against Signal in accordance with its
terms, except as enforceability hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought, and
except as enforceability hereof may be limited by laws relating to the safety
and soundness of insured depository institutions as set forth in 12 U.S.C.
sec..1818(b) or to the appointment of a conservator or receiver by the Federal
Deposit Insurance Corporation.
4.3. CAPITALIZATION. The authorized capital stock of Signal consists of
40,000,000 shares of Signal Common Stock and 1,500,000 shares of serial
preferred stock. As of the date of this Agreement, (i) 11,735,139 shares of
Signal Common Stock (which includes all restricted stock but not including
141,591 shares held as treasury shares), and (ii) 428,342 shares of Signal
Preferred Stock, were validly issued and outstanding, fully paid and
nonassessable and not issued in violation of any preemptive right of any Signal
shareholder. As of the date of this Agreement, there were outstanding Signal
Stock Options to purchase 963,149 shares of Signal Common Stock. The Signal
Common Stock and the Signal Preferred Stock are collectively known as the
"Signal Capital Stock."
Except as contemplated by this Agreement, the Signal Stock Purchase Option
or in the Signal Disclosure Letter (which is a letter attached hereto as Exhibit
4.3, dated the date of this Agreement, from Signal to FirstMerit, which includes
a letter from Signal to FirstMerit executed by FirstMerit listing items
previously delivered to FirstMerit by Signal which shall be deemed incorporated
by reference into the Signal Disclosure Letter), there are no shares of capital
stock of Signal authorized, issued or outstanding and there are no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of Signal
obligating, or which may obligate, Signal to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of Signal or
obligating, or which may obligate, Signal to grant, extend or enter into any
subscription, option, warrant, scrip, right, call, convertible security or other
similar agreement, arrangement or commitment. Except as set forth in the Signal
Disclosure Letter, there are no voting trusts or other similar agreements,
arrangements, or commitments to which Signal or any Signal Subsidiary (as
hereinafter defined) is a party with respect to the voting of the capital stock
of Signal.
4.4. SUBSIDIARIES. The Signal Disclosure Letter sets forth, as of the date
of this Agreement, the name and state of incorporation of each subsidiary of
Signal (collectively, the "Signal Subsidiaries") and the authorized capital
stock of each Signal Subsidiary. Except as set forth in the Signal Disclosure
Letter, each of the Signal Subsidiaries is a bank, savings bank, business trust,
limited liability company or a corporation, duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of incorporation
or organization
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and is duly qualified to do business as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the nature of the
business conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would not have a Material
Adverse Effect on Signal. Each of the Signal Subsidiaries has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its businesses as they are now being conducted. Signal
has delivered to FirstMerit true and complete copies of the Signal Subsidiaries'
corporate governance documents, organizational documents or certificates of
trust, each as currently in effect.
Except as set forth in the Signal Disclosure Letter, as of the date of this
Agreement, all outstanding shares of capital stock of each Signal Subsidiary are
owned by Signal or another Signal Subsidiary and are validly issued, fully paid
and nonassessable, have not been issued in violation of any preemptive right and
are owned free and clear of all liens, claims, charges, options, encumbrances or
agreements with respect thereto. Except as set forth in the Signal Disclosure
Letter, as of the date of this Agreement, neither Signal nor any Signal
Subsidiary owns beneficially more than 5% of any class of equity securities or
any similar interests of any corporation, bank, business trust, limited
liability company, association or similar organization, other than a Signal
affiliate. There are, as of the date of this Agreement, no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of any
Signal Subsidiary obligating, or which may obligate, any Signal Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating, or which may obligate, any Signal
Subsidiary to grant, extend or enter into any subscription, option, warrant,
scrip, right, call, convertible security or other similar agreement, arrangement
or commitment.
4.5. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT, ETC.
(a) None of the information with respect to Signal or any Signal Subsidiary
provided by Signal for inclusion in the Registration Statement will, at the time
it becomes effective and at the time of the Signal and FirstMerit Meetings,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information with respect to Signal or any Signal
Subsidiary provided in writing by Signal for inclusion in the Proxy Statement
will, at the time of the mailing of the Proxy Statement, and at the time of the
Signal and FirstMerit Meetings, contain any statement which, at the time it is
made and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the Signal or FirstMerit
Meeting which has become false or misleading. The Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act, and
the rules and regulations promulgated thereunder.
(b) All documents that Signal is responsible for filing with any
Governmental Entity will comply as to form in all material respects with
applicable law. None of the information with respect to Signal or any Signal
Subsidiary provided by Signal for inclusion in any document to be filed with any
Governmental Entity in connection with the transactions contemplated hereby will
contain any statement of a material fact which is untrue as of the time that
such statement is made.
4.6. CONSENT AND APPROVALS; NO VIOLATION. Except as set forth in the Signal
Disclosure Letter, neither the execution and delivery of this Agreement by
Signal, nor the consummation by Signal of the transactions contemplated hereby,
nor compliance by Signal with any of the provisions hereof, will (a) conflict
with or result in any breach of any provision of its Corporate Governance
Documents, (b) violate, conflict with, constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration of, or result in the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of Signal or any of the Signal Subsidiaries under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
Signal or any Signal Subsidiary is a party or to which they or any of their
respective properties or assets may be subject, except for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of liens
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or other encumbrances, that are set forth in the Signal Disclosure Letter or
which, individually or in the aggregate, will not have a Material Adverse Effect
on Signal, (c) violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Signal or any Signal Subsidiary or any
of their respective properties or assets, except for such violations which,
individually or in the aggregate, will not have a Material Adverse Effect on
Signal, or (d) require any consent, approval, authorization or permit of or
from, or filing with or notification to, any Governmental Entity, except (i)
pursuant to the Exchange Act and the Securities Act, (ii) filing certificates of
merger pursuant to the OGCL, (iii) filings required under the securities or blue
sky laws of the various states, (iv) filings with, and approval by, the FRB, (v)
filings with, and approval by, the OCC, (vi) filings with, and approval by, the
OTS, (vii) filings and approvals pursuant to any applicable State Takeover
Approvals, (viii) consents, approvals, authorizations, permits, filings or
notifications in connection with compliance with applicable provisions of
federal and state securities laws relating to the regulation of broker-dealers,
investment advisors, or stock transfer agents, or (ix) consents, approvals,
authorizations, permits, filings or notifications which have either been
obtained or made prior to the Closing or which, if not obtained or made, will
neither, individually or in the aggregate, have a Material Adverse Effect on
Signal nor restrict Signal's legal authority to execute and deliver this
Agreement and consummate the transactions contemplated hereby.
4.7. REPORTS AND FINANCIAL STATEMENTS. Except as set forth in the Signal
Disclosure Letter, since December 31, 1994, Signal and Signal Capital Trust have
filed all reports, registrations and statements, together with any required
amendments thereto, that they were required to file with the Commission,
including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements (collectively, the "Signal Reports"). Signal has previously made
available or furnished, or, with respect to Signal Reports filed after the date
of this Agreement, will promptly furnish, FirstMerit with true and complete
copies of each of the Signal Reports. As of their respective dates (but taking
into account any amendments filed prior to the date of this Agreement), and
except as stated in the Signal Disclosure Letter, the Signal Reports complied,
or, with respect to Signal Reports filed after the date of this Agreement, will
comply, in all material respects with all the rules and regulations promulgated
by the Commission, and did not contain, or, with respect to Signal Reports filed
after the date of this Agreement, will not contain, any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of Signal included in the
Signal Reports (the "Signal Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present the consolidated financial position of Signal and the Signal
Subsidiaries as at the dates thereof and the consolidated results of operations
and cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments, any other
adjustments described therein and the absence of footnotes.
4.8. TAXES. Except as set forth in the Signal Disclosure Letter, Signal and
each Signal Subsidiary have prepared in good faith and duly and timely filed, or
caused to be duly and timely filed, all federal, state, local and foreign
income, franchise, sales, real and personal property and other tax returns and
reports required to be filed by them on or before the date of this Agreement,
except where the failure to file would not have a Material Adverse Effect on
Signal. Except as set forth in the Signal Disclosure Letter, Signal and each
Signal Subsidiary have paid, or have adequately reserved or have made adequate
accruals (in accordance with generally accepted accounting principles) with
respect to, all taxes, interest and penalties shown to be owing on all such
returns and reports. The Signal Disclosure Letter sets forth, as of the date of
this Agreement, the following information with respect to Signal and each Signal
Subsidiary: (i) the most recent tax year through which the Internal Revenue
Service ("IRS") has completed its examination of such corporation, (ii) whether
there is an examination pending by the IRS with respect to such corporation and,
if so, the tax years involved, (iii) whether such corporation has executed or
filed with the IRS any agreement which is still in effect extending the period
for assessment and collection of any federal tax and, if so, the tax years
covered by such agreement and the expiration date of such extension, and (iv)
whether there are any existing material disputes as to state, local or foreign
taxes. Except as set forth in the Signal Disclosure Letter, there are no liens
for federal, state, local or foreign taxes upon the assets of Signal or of any
Signal Subsidiary, except for statutory liens for taxes and assessments not yet
delinquent or the validity of which is being contested in good faith by
appropriate proceedings. Except as set forth in the Signal Disclosure Letter,
neither Signal nor any of the Signal Subsidiaries is a party to any action or
proceeding, nor is
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any such action or proceeding threatened, by any Governmental Entity for the
assessment or collection of taxes which are material in amount, and no
deficiency notices or reports have been received by Signal or any of the Signal
Subsidiaries in respect of any material deficiencies for any tax, assessment, or
government charges. After the date of this Agreement, Signal will promptly
notify FirstMerit of (i) the commencement or threat of any such action or
proceeding involving an amount of taxes material to Signal and its subsidiaries
taken as a whole, and (ii) the receipt by Signal or the Signal Subsidiaries of
any such deficiency notices or reports in respect of any material deficiencies.
4.9. EMPLOYEE PLANS, EMPLOYEES. All employee bonus, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase, employee
stock ownership, stock appreciation rights, savings, consulting, severance,
collective bargaining, group insurance, fringe benefit and other employee
benefit, incentive and welfare plans, policies, contracts and arrangements and
all trust agreements related thereto, now in effect and relating to any present
or former directors, officers or employees of Signal or the Signal Subsidiaries,
whether or not described in Section 3(3) of ERISA ("Signal Employee Plans"), are
identified in the Signal Disclosure Letter. Signal has previously delivered or
made available to FirstMerit copies of all Signal Employee Plans, in each case
as in effect on the date of this Agreement.
Except as set forth in the Signal Disclosure Letter, all of Signal Employee
Plans have been maintained, operated and administered in substantial compliance
with their terms, and Signal, all of the Signal Subsidiaries and all of the
Signal Employee Plans currently comply, and have at all relevant times complied,
in all material respects with ERISA, the Code, and any other applicable laws.
With respect to each Signal Employee Plan which is a pension plan (as defined in
Section 3(2) of ERISA): (a) except as set forth in the Signal Disclosure Letter
each pension plan as amended (and any trust relating thereto) intended to be a
qualified plan under Section 401(a) of the Code either has been determined by
the IRS to be so qualified or is the subject of a pending application for such
determination that was timely filed, (b) except as set forth in the Signal
Disclosure Letter, would be fully funded (calculated using the interest rate and
other actuarial assumptions mandated by the Pension Benefit Guaranty Corporation
("PBGC")) if terminated at the Effective Time and there is no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, and no waiver of the minimum funding standards of
such sections has been requested from the IRS, (c) no reportable event described
in Section 4043 of ERISA has occurred, (d) no defined benefit plan has been
terminated, nor has the PBGC instituted proceedings to terminate a defined
benefit plan or to appoint a trustee or administrator of a defined benefit plan,
and no circumstances exist that constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute any such proceedings, and (e) no pension plan is
a "multi-employer plan" within the meaning of Section 3(37) of ERISA.
Except as set forth in the Signal Disclosure Letter, no Signal Employee
Plan provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than (i) temporary
coverage mandated by applicable law, (ii) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2) of
ERISA, (iii) deferred compensation benefits accrued as liabilities on the books
of Signal or any Signal Subsidiary, or (iv) benefits the full cost of which are
borne by the current or former employee (or his or her beneficiary)).
Except as set forth in the Signal Disclosure Letter, all employees of
Signal and the Signal Subsidiaries are "at will" and there are no employment,
consulting or like agreements, written or oral, expressed or implied.
4.10. MATERIAL CONTRACTS. Except as set forth in the Signal Disclosure
Letter or disclosed in the Signal Reports, neither Signal nor any Signal
Subsidiary is, as of the date of this Agreement, a party to, or is bound by, (a)
any material lease not made in the ordinary course of business of Signal, (b)
any agreement, arrangement, or commitment not made in the ordinary course of
business which materially restricts the conduct of any line of business of
Signal, (c) any benefit agreements providing for aggregate payments to any
person in any calendar year in excess of $100,000, (d) any material agreement,
indenture or other instrument not specifically disclosed in the Signal Financial
Statements relating to the borrowing of money by Signal or the guarantee by
Signal of any such obligation (other than trade payables and instruments
relating to transactions entered into in the ordinary course of business), (e)
any agreement, arrangement or commitment with or to a labor union or (f) any
other contract or agreement or amendment thereto that would be required to be
filed as an exhibit to a Form 10-K filed
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by Signal with the Commission (the agreements and other documents referred to in
clauses (a) through (f) of this sentence, collectively, the "Signal Contracts").
Except as stated in the Signal Disclosure Letter, neither Signal nor any Signal
Subsidiary is in default under any Signal Contract, which default is reasonably
likely to have, either individually or in the aggregate, a Material Adverse
Effect on Signal, and there has not occurred any event that with the lapse of
time or the giving of notice or both would constitute such a default.
4.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Signal Disclosure Letter or disclosed in Signal Reports filed by Signal with the
Commission prior to the date of this Agreement, since December 31, 1997 to the
date of this Agreement, there has not been any change in the financial
condition, results of operations or business of Signal and the Signal
Subsidiaries that either individually or in the aggregate has had a Material
Adverse Effect on Signal.
4.12. LITIGATION. Except as disclosed in the Signal Disclosure Letter or in
Signal Reports filed by the Signal with the Commission prior to the date of this
Agreement, there is no litigation, action, arbitration or proceeding pending,
or, to the best knowledge of Signal, threatened against or affecting Signal or
any Signal Subsidiary which, either individually or in the aggregate, is having,
or insofar as reasonably can be foreseen will have, a Material Adverse Effect on
Signal, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator, outstanding against Signal or any Signal
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
4.13. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in the Signal
Disclosure Letter or in Signal Reports filed by Signal with the Commission prior
to the date of this Agreement, the businesses of Signal and the Signal
Subsidiaries are not being conducted, and have not been conducted since December
31, 1997, in violation of any law, ordinance, regulation, judgment, order,
decree, license or permit of any Governmental Entity (including, without
limitation, zoning ordinances, building codes, and environmental, civil rights,
and occupational health and safety laws and regulations and, in the case of
Signal Subsidiaries that are savings and loans or thrifts, all statutes, rules
and regulations pertaining to the conduct of such business), except for possible
violations which individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on Signal. Except as set forth in the Signal Disclosure Letter, no
investigation or review by any Governmental Entity with respect to Signal or any
of the Signal Subsidiaries outside the ordinary course of business and not
generally applicable to entities engaged in the same business is pending or, to
the knowledge of Signal, threatened, nor has any Governmental Entity indicated
an intention to conduct the same in each case other than those the outcome of
which will not have a Material Adverse Effect on Signal.
4.14. AGREEMENTS WITH REGULATORS. As of the date of this Agreement, except
as disclosed in the Signal Disclosure Letter, neither Signal nor any Signal
Subsidiary is a party to any written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, any Governmental Entity outside the ordinary course of
business and not generally applicable to entities engaged in the same business,
including, without limitation, cease and desist orders of any regulatory
authority, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit policies or its management,
nor has Signal been advised by any Governmental Entity that it is contemplating
issuing, requiring, or requesting (or is considering the appropriateness of
issuing, requiring or requesting) any such order, directive, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar undertaking. Except as set forth in Signal Disclosure Letter, there
are no (i) material violations, or (ii) violations with respect to which refunds
or restitutions which are material in amount to Signal and the Signal
Subsidiaries taken as a whole may be required, cited in any compliance report to
Signal or any Signal Subsidiary as a result of an examination by any regulatory
authority.
4.15. SIGNAL OWNERSHIP OF STOCK. Except as disclosed in Signal Disclosure
Letter, as of the date of this Agreement, neither Signal nor, to the best of its
knowledge, any of its affiliates or associates (i) beneficially owns directly or
indirectly, or (ii) are parties to any agreement, arrangement or commitment for
the purpose of acquiring, holding, voting or disposing of, in each case, shares
of FirstMerit Common Stock (other than shares of FirstMerit Common Stock held in
a fiduciary, trust, custodial or agency capacity by a subsidiary of Signal)
which in the aggregate, represent 2% or more of the outstanding shares of
FirstMerit Common Stock.
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4.16. FEES. Except for fees paid and payable to Sandler O'Neill & Partners,
L.P. ("Sandler O'Neill"), neither Signal nor any Signal Subsidiary has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
4.17. SIGNAL ACTION. The Board of Directors of Signal (at a meeting duly
called and held) has by the requisite vote (i) determined that the Merger is
advisable and in the best interests of Signal and its shareholders, (ii)
authorized and approved this Agreement, the Signal Stock Purchase Option and the
transactions contemplated hereby and thereby, including the Merger, (iii)
directed that the Merger be submitted for consideration by Signal's shareholders
entitled to vote thereon at the Signal Meeting, and (iv) authorized and approved
the Signal Stock Purchase Option and the Merger in accordance with Chapter 1704
of the Ohio Revised Code with the result that Chapter 1704 will not apply to the
consummation of the Merger and the acquisition by FirstMerit of shares of Signal
Common Stock pursuant to the Merger, the Signal Stock Purchase Option or any of
the transactions contemplated by this Agreement or the Signal Stock Purchase
Option. Sandler O'Neill, Signal's financial advisor, has provided the Board of
Directors of Signal with its opinion that, as of the date of such duly called
meeting of the Board, the Merger Consideration is fair, from a financial point
of view, to the shareholders of Signal.
4.18. VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding shares of Signal Common Stock entitled to vote thereon, is the
only vote of the holders of any class or series of Signal Capital Stock
necessary to approve this Agreement and the transactions contemplated hereby,
unless FirstMerit has exercised its rights to acquire the Signal Common Stock
under the Signal Stock Purchase Option.
4.19. CONDUCT OF SIGNAL TO DATE. Except as disclosed in Signal Disclosure
Letter and in Signal Reports filed with the Commission prior to the date of this
Agreement, from and after December 31, 1997, to the date of this Agreement: (a)
Signal and the Signal Subsidiaries have carried on their respective businesses
in the ordinary and usual course consistent with their current practices, (b)
Signal has not issued or sold any of its Capital Stock (except shares of Signal
Common Stock issued upon exercise of employee stock options outstanding on or
before December 31, 1997), or any corporate debt securities which would be
classified as long-term debt on the balance sheets of Signal, (c) Signal has not
granted any option for the purchase of its Capital Stock (other than pursuant to
the Signal Stock Purchase Option), effected any stock split, or otherwise
changed its authorized capitalization, (d) Signal has not declared, set aside,
or paid any dividend or other distribution in respect of its capital stock, or,
directly or indirectly, redeemed or otherwise acquired any of its capital stock,
except regular quarterly cash dividends (based upon historic precedent), (e)
Signal has neither incurred nor prepaid any corporate debt securities or
instruments which are or would be classified as long-term debt on the balance
sheet of Signal, (f) neither Signal nor any Signal Subsidiary has sold,
assigned, transferred, or otherwise disposed of to a third party (i) equity
securities in or issued by any Signal Subsidiary, (ii) branch offices of any
Signal Subsidiary, (iii) assets constituting any other line of business, or (iv)
any of its other material properties or assets other than for a fair
consideration in the ordinary course of business, (g) neither Signal nor any
Signal Subsidiary has purchased or otherwise acquired from a third party equity
securities in or issued by such third party other than in the ordinary course of
business, branch offices of such third party, assets constituting any other line
of business, or any other material properties or assets outside the ordinary
course of its business, (h) neither Signal nor any Signal Subsidiary has:
increased the rate of compensation of, or paid any bonus to, any of its
directors, officers, or other employees, except under existing plans and
policies, entered into any new, or amended or supplemented any existing, or
secured, collateralized, or funded any, employment, management, consulting,
deferred compensation, severance, or other similar contract, entered into,
terminated, or substantially modified any Signal Employee Plan in respect of any
of its present or former directors, officers, or other employees, or agreed to
do any of the foregoing, (i) neither Signal nor any Signal Subsidiary, has
entered into any material transaction, contract, lease, agreement or commitment
requiring the approval of the Board of Directors of Signal or any Signal
Subsidiary, or amended, modified or terminated any contract, lease or other
agreement to which it is a party in a manner requiring the approval of the Board
of Directors of Signal or any Signal Subsidiary, and (j) no Signal Subsidiary
has entered into any material transaction, contract, lease, agreement or
commitment outside the ordinary course of business requiring the approval of the
Board of Directors of such Subsidiary or amended, modified or terminated outside
the ordinary course of business any material contract, lease or other agreement
to which it is a party in a manner requiring the approval of the Board of
Directors of such Subsidiary.
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4.20. ENVIRONMENTAL MATTERS. For purposes of this Agreement, the following
terms shall have the indicated meanings:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any Governmental Entity relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, ground water, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of Hazardous Substances. The term Environmental Law includes,
without limitation; the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, 42 U.S.C. sec.9601, et seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. sec.6901, et seq.; the
Clean Air Act, as amended, 42 U.S.C. sec.7401, et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. sec.1251 et seq.; the Toxic
Substances Control Act, as amended, 125 U.S.C. sec.9601, et seq.; the
Emergency Planning and Community Right to Know Act, 42 U.S.C. sec.11001, et
seq.; the Safe Drinking Water Act, 42 U.S.C. sec.300f, et seq.; all
comparable state and local laws; and any common law (including without
limitation common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a
component. Hazardous Substances include, without limitation, petroleum or
any derivative or by-product thereof, asbestos, radioactive material, and
polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, operated or managed (including those held in trust) by
Signal, as the case may be, or any of their subsidiaries.
Except as set forth in Signal Disclosure Letter, to the best of Signal's
knowledge: (i) neither Signal nor any of the Signal Subsidiaries has been or is
in violation of or liable under any Environmental Law, except for any such
violations or liabilities which would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect on Signal; and (ii) none
of the Loan Portfolio Properties and Other Properties Owned by Signal or any of
the Signal Subsidiaries has been since such properties have been owned, operated
or managed by Signal or any of the Signal Subsidiaries, is in violation of any
Environmental Law, except for any such violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Signal. Except as set forth in Signal Disclosure Letter, there are no actions,
suits, demands, notices, claims, investigations or proceedings pending, or to
the best of Signal's knowledge threatened, relating to the liability of the Loan
Portfolio Properties and Other Properties Owned by Signal or the Signal
Subsidiaries under any Environmental Law, including, without limitation, any
notices, demand letters or requests for information from any federal, state or
local environmental agency relating to any such liabilities under or violations
of Environmental Law.
4.21. ACCOUNTING MATTERS. Neither Signal nor, to the best of its knowledge,
any of its affiliates, has taken or agreed to take any action that would prevent
FirstMerit from accounting for the business combination to be effected by the
Merger as a "pooling of interests."
5. COVENANTS
5.1. ACQUISITION PROPOSALS AND NEGOTIATIONS. Each of Signal and the Signal
Subsidiaries shall not, directly or indirectly, and shall instruct and otherwise
use its diligent efforts to cause their respective officers, directors,
employees, agents and advisors not to, directly or indirectly, solicit or
initiate any proposals or offers from any person, or discuss or negotiate with
any such person, relating to any acquisition or purchase of all or a material
amount of the assets of, or any equity securities of, or any merger,
consolidation or business combination with, Signal or any of the Signal
Subsidiaries (such transactions are referred to herein as "Acquisition
Transactions"), provided, however, that nothing contained in this Section shall
prohibit:
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(i) Signal or any Signal Subsidiary, as the case may be, from
furnishing information to, or entering into discussions or negotiations
with, any person or entity that makes an unsolicited proposal of an
Acquisition Transaction if and to the extent that,
(a) the Board of Directors of Signal, after consultation with and
based upon the opinion of Silver, Freedman & Taff, L.L.P. (which firm
shall be entitled to rely on the opinion of Ohio counsel) determines in
good faith that such action is required for the directors of Signal to
fulfill their fiduciary duties and obligations to the Signal
shareholders and other constituencies under Ohio law, taking into
consideration the sale process engaged in connection with the
transactions contemplated hereby, and
(b) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, Signal provides
immediate written notice to FirstMerit at least two business days prior
to furnishing information to, or entering into discussions or
negotiations with, such a person or entity, or
(ii) the Board of Directors of Signal from failing to make,
withdrawing or modifying its recommendation referred to in Section 5.14
following receipt of a proposal for an Acquisition Transaction if the Board
of Directors of Signal, after consultation with and based upon the opinion
of Silver, Freedman & Taff, L.L.P. (which firm shall be entitled to rely on
the opinion of Ohio counsel) determines in good faith that such action is
required for the directors of Signal to fulfill their fiduciary duties and
obligations to the Signal shareholders and other constituencies under Ohio
law, taking into consideration the sale process engaged in connection with
the transactions contemplated hereby.
In the event Signal or any officer, director or representative thereof
receives any contact, either oral or written, from a third party or its
representative regarding an Acquisition Transaction or any matter directly or
indirectly related thereto after the date of this Agreement, Signal shall
immediately notify FirstMerit of such contact, and provide such information
requested by FirstMerit, including but not limited to the name of the party or
parties, and all details related thereto. Signal shall have a continuing
obligation to provide information to FirstMerit regarding any additional or
continuing contacts. Any writings received by Signal or any officer, director or
representative thereof, shall be immediately provided to FirstMerit, regardless
of such writing being marked confidential or otherwise.
In the event Signal receives an opinion from Silver, Freedman & Taff,
L.L.P. pursuant to this Section 5.1, Signal shall immediately provide a copy of
such opinion to FirstMerit.
5.2. INTERIM OPERATIONS OF SIGNAL. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement, as required by law, as set forth in Signal Disclosure Letter, or as
otherwise approved in writing by FirstMerit (which shall not be unreasonably
withheld):
5.2.1. CONDUCT OF BUSINESS. Signal shall, and shall cause each of the
Signal Subsidiaries to, conduct their respective businesses only in, and
not take any action except in the ordinary course of business substantially
consistent with current practices (which practices include any workout
arrangements for troubled loans and real estate development assets). Signal
shall use all diligent efforts to (i) maintain and preserve intact the
business organization of Signal and each of the Signal Subsidiaries, keep
available the services of its and their present officers and employees, and
keep the branch operations fully staffed with competent employees, (ii)
preserve the goodwill of those having business relationships with Signal or
the Signal Subsidiaries, (iii) maintain and keep its properties in as good
repair and condition as at present, except for depreciation due to ordinary
wear and tear, (iv) attempt to resolve such loans over $500,000 which
FirstMerit has identified in writing to Signal as "troubled," in a workout
arrangement which conditions and terms shall be satisfactory to Signal and
FirstMerit, (v) keep in full force and effect insurance and bonds
comparable in amount and scope of coverage to that now maintained by it,
provided however, in the event that any such insurance (including, without
limitation, directors' and officers' liability insurance) is canceled or
not renewable at its expiration at current or standard rates, Signal shall
consult with FirstMerit in order to determine whether to exercise its right
to extend the discovery period and in evaluating available alternatives to
replace the current insurance, (vi) perform in all material respects all
obligations required to be performed by each of Signal and each of the
Signal Subsidiaries under all material contracts, leases and documents
relating to or affecting its assets, properties, and business, and (vii)
comply with and perform in
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all material respects all obligations and duties imposed upon it by all
federal, state, municipal, and local laws, and all rules, regulations and
orders imposed by federal, state, municipal or local governmental agencies.
5.2.2. NEGATIVE COVENANTS. Signal shall not and shall not permit any
of the Signal Subsidiaries to make any change or amendment to, or to
repeal, their respective articles of incorporation or codes of regulations
(or comparable governing instruments). Neither Signal nor any Signal
Subsidiary shall after the date of this Agreement enter into any loan or
credit commitment (including standby letters of credit) to, or invest (as a
venture capital or similar investment) or agree to invest (as a venture
capital or similar investment) in, any person or entity if such loan,
commitment or investment, would exceed $375,000 as a residential loan or
investment, or $750,000 as a commercial loan, without first consulting with
FirstMerit; provided, however, that nothing in this paragraph shall
prohibit Signal or any Signal Subsidiary from honoring any contractual
obligation in existence on the date of this Agreement or making any loans
without consultation listed on Exhibit 5.2.2. Neither Signal nor any Signal
Subsidiary shall after the date of this Agreement enter into any
participatory agreements, loans, commitments or investments involving
collateral outside of Ohio, without first consulting with FirstMerit,
except that the following are excluded from this restriction: (i) Small
Business Association loans, (ii) agency rated asset backed securities, and
(iii) government obligations of the United States of America, or a state or
municipality within the United States of America; and subject to the second
sentence of this Section 5.2.2, loans and investments made by: First
Federal Savings Bank of New Castle within the State of Pennsylvania; and
Mobile Consultants, Inc., within the geographic areas where it conducts
business as of the date of this Agreement.
Neither Signal nor any Signal Subsidiary shall sell, assign, transfer
or otherwise dispose of to a third party, (i) branch offices of any Signal
Subsidiary, or (ii) any of its material properties or assets. Neither
Signal nor any Signal Subsidiary shall purchase or otherwise acquire from a
third party, branch offices of such third party, assets constituting any
other line of business, or any other material properties or assets outside
the ordinary course of its business. Neither Signal nor any Signal
Subsidiary shall enter into any transaction, contract, lease, agreement or
commitment (or any amendment to any transaction, contract, lease, agreement
or commitment) outside of the ordinary course of business which is material
to Signal and the Signal Subsidiaries taken as a whole.
5.2.3. CAPITAL STOCK. Signal shall not, and shall not permit any of
the Signal Subsidiaries to, issue or sell any shares of capital stock or
any other securities of any of them (other than pursuant to Signal Stock
Options outstanding on the date of this Agreement, the Signal Dividend
Reinvestment Plan ("DRIP"), as restricted pursuant to the terms herein, the
Employee Stock Purchase Plan ("ESPP"), as restricted pursuant to the terms
herein, the conversion of the Signal Preferred Stock, the issuance of 2,500
shares of restricted Signal Common Stock under the 1997 Omnibus Incentive
Plan to Mr. Edward Shriner, or the exercise by FirstMerit of its rights
under the Signal Stock Purchase Option) or issue any securities convertible
into or exchangeable for, or options, warrants to purchase, scrip, rights
to subscribe for, calls or commitments of any character whatsoever relating
to, or enter into any contract, commitment or arrangement with respect to
the issuance of, any shares of capital stock or any other securities of any
of them or enter into any arrangement, contract or commitment with respect
to the purchase or voting of shares of their capital stock, or adjust,
split, combine or reclassify any of their capital stock or other securities
or make any other changes in their capital structures. Neither Signal nor
any Signal Subsidiary shall acquire beneficial ownership of any class of
equity securities or any similar interests of any corporation, bank,
business, trust, association or similar organization.
5.2.4. DIVIDENDS. Signal shall not and shall not permit any of the
Signal Subsidiaries to declare, set aside, pay or make any dividend or
other distribution or payment (whether in cash, stock or property) with
respect to, or purchase or redeem, any shares of the capital stock of any
of them other than (a) Signal's regular quarterly cash dividends in the
amount (subject to the next paragraph) of $.11 per share of Signal Common
Stock and $.40625 per share of the Signal Preferred Stock (to the extent
legally permitted), and (b) dividends paid (to the extent legally
permitted) by any Signal Subsidiary to another Signal Subsidiary or Signal
with respect to such Signal Subsidiary's capital stock. From the date of
this Agreement to the earlier of the Effective Time or the termination of
this Agreement, Signal shall not, without the prior written consent of
FirstMerit, make any changes in its practice of setting dividend record or
dividend payment dates.
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5.2.5. EMPLOYEE PLANS, COMPENSATION AND BONUSES.
(a) Except as is necessary to comply with the Code or as contemplated
in this Agreement, Signal shall not, and shall not permit any of Signal
Subsidiaries to: adopt or amend any bonus (other than the Stay Bonus
Program (as defined below)), profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other employee benefit agreements, trusts, plans, funds or
other arrangements for the benefit or welfare of any present or former
director, officer or employee of Signal or any Signal Subsidiary; increase
the compensation or fringe benefits of any present or former director,
officer or employee, including the Senior Officers (as hereinafter
defined); pay any bonus (other than the Stay Bonus Program and other than
bonuses in the ordinary course of business consistent and at levels not
higher than past practice to employees other than Senior Officers),
compensation or benefit not required by any existing plan or arrangement
(including, without limitation, the granting of stock options or stock
rights); take any action or grant any benefit not required under the terms
of any existing agreements, trusts, plans, funds or other such
arrangements; or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Notwithstanding the restrictions contained in this Section, Signal or
the Signal Subsidiaries may grant individual annual increases to the
non-Senior Officer employees in accordance with past practices, up to a
total of 4% of the total annual compensation of all employees, excluding
from such total the aggregate of the compensation for the employees of
Signal and of the Signal Subsidiaries who are parties to an Employment
Agreement (as defined below) (the "Senior Officers").
(b) [Reserved]
5.2.6. CONFORMING ACCOUNTING AND RESERVE POLICIES; RESTRUCTURING
EXPENSES.
(a) Notwithstanding that Signal believes that it has established all
reserves and taken all provisions for possible loan losses required by
generally accepted accounting principles and applicable laws, rules and
regulations, Signal recognizes that FirstMerit has adopted different loan,
accrual and reserve policies (including loan classifications and levels of
reserves for possible loan losses), subject to applicable laws,
regulations, and the requirements of Governmental Entities and generally
accepted accounting principles. From and after the date of this Agreement
to the Effective Time, Signal and FirstMerit shall consult and cooperate
with each other with respect to conforming, as specified in a notice from
FirstMerit to Signal, based upon such consultation, Signal's loan, accrual
and reserve policies to those policies of FirstMerit.
(b) In addition, from and after the date of this Agreement to the
Effective Time, Signal and FirstMerit shall consult and cooperate with each
other with respect to determining, as specified in a notice from FirstMerit
to Signal, based upon such consultation, appropriate accruals, reserves and
charges to establish and take in respect of excess facilities and equipment
capacity, restructuring costs, severance costs, litigation matters,
write-off or write-down of various assets and other appropriate accounting
adjustments taking into account the Surviving Corporation's business plan
following the Merger.
(c) Signal and FirstMerit shall consult and cooperate with each other
with respect to determining, as specified in a notice from FirstMerit to
Signal, based upon such consultation, the amount and the timing for
recognizing for financial accounting purposes the expenses of the Merger
and the restructuring charges related to or to be incurred in connection
with the Merger.
(d) At the request of FirstMerit, and in an amount and on a basis
satisfactory to Signal, Signal shall promptly establish and take such
reserves and accruals as FirstMerit shall request to conform, on a mutually
satisfactory basis, Signal's loan, accrual and reserve policies to
FirstMerit's policies, shall establish and take such accruals, reserves and
charges in order to implement such policies in respect of excess facilities
and equipment capacity, severance costs, litigation matters, write-off or
write-down of various assets and other appropriate accounting adjustments,
and to recognize for financial accounting purposes such expenses of the
Merger and restructuring charges related to or to be incurred in connection
with the Merger; provided, however, that it is the objective of FirstMerit
and Signal that such reserves, accruals and charges be taken on or before
the Effective Time, but in no event later than immediately prior to the
Closing; and provided, further, that Signal shall not be obligated to take
any such action pursuant to this Section 5.2.6 unless and until (i)
FirstMerit specifies its request in a writing delivered to Signal, (ii) all
conditions to the obligations of Signal and FirstMerit to consummate the
Merger set forth in Sections 6.1 through 6.3 have been waived or
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satisfied by the appropriate party, and (iii) such reserves, accruals and
charges conform with generally accepted accounting principles, applicable
laws, regulations, and the requirements of Governmental Entities.
5.2.7. STOCK OPTION CASH ELECTION. Signal and FirstMerit, as
applicable shall: (i) not approve nor allow any holder of a Signal Stock
Option granted under the Amended and Restated Stock Option and Incentive
Plan to elect or receive a cash payment in lieu of the right to receive or
exercise a Signal Stock Option; and (ii) not allow any holder of a Signal
Stock Option granted under the 1997 Omnibus Incentive Plan to exercise
their right to receive cash pursuant to Section 8 of such Plan, and shall
institute a procedure to effect the issuance of Signal or FirstMerit Common
Stock, as applicable, in lieu thereof, with the right of the holder to sell
such Signal or FirstMerit Common Stock, as applicable.
5.3. INTERIM OPERATIONS OF FIRSTMERIT. During the period from the date of
this Agreement to the Effective Time, except as specifically contemplated by
this Agreement, as required by law, or as otherwise approved in writing by
Signal (which shall not be unreasonably withheld) FirstMerit shall, and shall
cause each of the FirstMerit Subsidiaries to, conduct their respective
businesses in such a manner so as not to materially interfere with the ability
to consummate the Merger, delay the Effective Time or have a Material Adverse
Effect upon the transactions contemplated by the Agreement.
5.4. EMPLOYMENT MATTERS.
(a) As of the Effective Time, Signal will pay the financial obligations of
Signal and the Signal Subsidiaries, as applicable, with regard to the employment
agreements with Gary G. Clark, James J. Little and L. Dwight Douce ("Employment
Agreements" or "Employment Agreement"). FirstMerit will assume the Employment
Agreements and provide medical and health insurance as provided therein, to the
extent such obligations can be assumed or benefits thereunder provided as a
matter of law, but conditioned upon receipt of a standard release of FirstMerit
regarding matters related to employment and termination of employment.
FirstMerit acknowledges that the consummation of the Merger will constitute a
change in status for the Senior Officers entitling each of them to terminate his
employment for good reason under his Employment Agreement. The parties listed
herein will not be provided any separation benefits under Section 5.4(b) or (c).
(b) (1) FirstMerit agrees to pay to certain employees of Signal an amount
not to exceed $500,000 as part of a "Stay Bonus Program." The employees selected
by Signal, who are subject to FirstMerit's approval as to participation and
amount, will receive the Stay Bonus, less employment and related taxes, as long
as the employee does not voluntarily terminate his employment without good
reason (good reason being defined as cause, a reduction in base salary or an
involuntary move from their place of employment at the Effective Time to a
location more than 50 miles away) prior to the expiration of six months after
the Effective Time. Signal will designate the employees participating and the
amounts payable to each under the Stay Bonus Program and shall notify FirstMerit
ten days prior to any offer so FirstMerit can approve the person and amount,
which approval shall not be unreasonably withheld. Any payment due hereunder is
conditioned upon receipt of a standard release of FirstMerit regarding matters
related to employment and termination of employment.
(2) FirstMerit agrees to pay as separation monies an amount equal to 12
months salary plus an amount sufficient to pay for medical coverage under COBRA
for 12-months, less employment and related taxes, to the employees of Signal
listed on Exhibit 5.4(b)-2. Payment will be due if during the 24-month period
after the Effective Time either their employment is terminated for any reason or
their base salary is reduced below that being received at the Effective Time. No
payment will be due if the person is terminated for cause. Such employees will
also be entitled to any other benefits, if any, required by law. Payment will
only be due and payable upon receipt of a standard release of FirstMerit
regarding matters related to employment and termination of employment.
(c) FirstMerit agrees to pay as separation monies to employees of Signal
and the Signal Subsidiaries, other than the persons with Employment Agreements
or covered in Section 5.4(a) or (b), in consideration for a standard release of
FirstMerit regarding matters related to employment and termination of
employment, who either at Closing do not become employees of FirstMerit or its
Subsidiaries or to persons who become employees of FirstMerit or its
Subsidiaries but whose employment is terminated during the 180-day period after
the Effective Time (except if such termination is for cause). The separation
monies will be calculated as indicated on Exhibit 5.4(c). Such employees will
also be entitled to any other benefits, if any, required by law.
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FirstMerit is not required to hire any employees of Signal or the Signal
Subsidiaries, but may if it so desires. All persons employed by FirstMerit and
its Subsidiaries as of the Effective Time, except those persons with written
employment agreements, will remain "at will" employees, meaning that their
employment can be terminated for any or no reason.
(d) Following the Effective Time, the employee benefit programs to be
available and applicable to the persons who were employees of Signal and the
Signal Subsidiaries, and who become employees of FirstMerit and/or its
subsidiaries, are as follows:
(i) Defined Benefit Retirement and Pension Plans. Signal does not have
in effect any defined benefit retirement, pension or similar type plan for
its employees. FirstMerit maintains the Pension Plan for Employees of
FirstMerit Corporation and Subsidiaries ("FirstMerit Pension Plan"). No
credit for years of service at Signal or of any of the Signal Subsidiaries
for purposes of determining eligibility, vesting, for benefit accrual
purposes, or as "participating" or "credit service" under the FirstMerit
Pension Plan will be granted to employees of Signal or Signal Subsidiaries.
(ii) Savings Plans. Signal has a qualified, tax-exempt profit sharing
plan with a cash-or-deferred feature qualifying under Section 401(k) of the
Code ("Signal 401K Plan"). With respect to the Signal 401K Plan, and
consistent with past practices, the participant salary deferral
contributions under Section 401(k) of the Code and employer matching
contributions under Section 401(m) of the Code may continue through the
Effective Date. FirstMerit maintains the FirstMerit Corporation and
Subsidiaries Employees' Salary Savings Retirement Plan ("FirstMerit 401K
Plan"). At the Effective Time, FirstMerit will credit the Signal employees
who become employees of FirstMerit or any of its current Subsidiaries, for
purposes of the FirstMerit 401K Plan, with all service with Signal or any
of the Signal Subsidiaries for purposes of determining their eligibility to
participate in such plan and the vested portion of their respective accrued
benefits under such plan.
(iii) Health Care Plans. At such time on or after the Effective Time
as FirstMerit shall deem appropriate, FirstMerit and its Subsidiaries will
provide Signal and Signal Subsidiaries employees hired by FirstMerit with
such coverage under the FirstMerit health care plan as they then provide
their employees, with all service with Signal or any of the Signal
Subsidiaries credited for purposes of determining such employee's
eligibility to participate in such plan and without any waiting period or
"prior existing condition" exclusion or duplication of deductibles or
co-payments, except if the Signal and Signal Subsidiaries employee(s) are
not participants in the Signal health care plans as of the Effective Time.
The Signal health care plans will be continued until the employees so hired
can participate in the FirstMerit health care plans.
No benefits currently provided Signal or the Signal Subsidiaries
employees which exceed those provided by FirstMerit and its Subsidiaries
will be grandfathered or provided, except if required by law. Other than
otherwise expressly stated herein, FirstMerit shall not assume any other
health care benefit plans or benefits. FirstMerit, where such right
currently exists, retains the existing rights to amend or terminate any
such plan which have been reserved by the plan sponsor in the plan document
or otherwise.
(iv) [Reserved.]
(v) Employee Stock Purchase Plan. As of the date hereof, the ESPP was
amended to freeze participation to the Signal employees who were then
currently participating in the ESPP with the further restriction that
allowable contributions by such employees shall be restricted to the amount
then currently elected by such employee (or less). An employee who is
participating is not restricted from ceasing his participation. If the
above is violative of Section 423 of the Code, then the ESPP will be
immediately suspended and will be terminated on or before the Effective
Date.
(vii) Dividend Reinvestment Plan. As of the date hereof, the DRIP was
suspended. On or before the Effective Date, the DRIP will be terminated.
(viii) Restricted Stock Plan. Signal has issued restricted stock under
the 1987 Stock Option and Incentive Plan and the 1997 Omnibus Incentive
Plan. Signal represents that as of the date of this Agreement 235,625
shares of restricted Signal Common Stock are currently issued and
outstanding. All of such restrictions will lapse as of the date of the
Signal Meeting if the Merger is approved at the Signal Meeting or
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as of the date of the "Change of Control," as that term is defined in the
applicable agreement. Signal covenants that it will not grant any
additional shares of restricted Signal Capital Stock, with the possible
exception of 2,500 shares to Mr. Edward Shriner, President of Signal
Finance Co., to whom the issuance of such shares has been approved, but not
yet issued.
5.5. ACCESS, INFORMATION AND CONFIDENTIALITY. Upon reasonable notice,
Signal and each of the Signal Subsidiaries shall afford to FirstMerit and its
representatives (including, without limitation, directors, officers and
employees of FirstMerit, its counsel, accountants, environmental consultants and
other professionals retained by FirstMerit) full access during normal business
hours throughout the period prior to the Effective Time to the books, contracts,
records (including, without limitation, tax returns and work papers of
independent auditors), shareholder and customer information, properties,
personnel and such other information and documents of Signal and each of the
Signal Subsidiaries. FirstMerit shall have a right with the prior notice to
Signal to have environmental assessments conducted on any properties owned,
managed or controlled by Signal and the Signal Subsidiaries. Signal shall not be
required to provide access to any such item or information if the providing of
such access (i) would be reasonably likely to result in the loss or impairment
of any privilege with respect to such information, or (ii) would be precluded by
any law, ordinance, regulation, judgment, order, decree, license or permit of
any Governmental Entity.
All information furnished by one party to another party in connection with
this Agreement and the transactions contemplated hereby which is regarded by
such furnishing party as confidential will be kept confidential by such other
party and its representatives (including, without limitation, directors,
officers and employees, its counsel, accountants and other professionals
retained by such party) and will be used only in connection with this Agreement
and the transactions contemplated hereby, and not in such party's business or by
its directors, officers and employees, its counsel, accountants and other
professionals retained by such party if the Merger is not consummated. Nothing
contained in this Section shall restrict or prohibit Signal or FirstMerit from
disclosing information in any document filed with the Commission, FRB, OCC, OTS,
and other Governmental Entities and bodies nor shall it in any way restrict
FirstMerit's right to exercise the Signal Stock Purchase Option, and so long as
this Agreement has not been terminated pursuant to Article 7 hereof, FirstMerit
may, notwithstanding this confidentiality provision, disclose such information
as it deems necessary or advisable in connection with explaining or providing
background information to security analysts and others concerning the
transactions contemplated by this Agreement, except that any such information
dealing with the areas of individual employees, their future employment,
reserves established for specific loans, matters related to litigation and
Signal's business strategies, may only be disclosed with the prior approval of
Signal, which approval shall not be unreasonably withheld. It is the parties'
intent to provide such analysts with accurate information regarding the
transaction in a light favorable to completion of the transactions contemplated
by this Agreement.
5.6. CERTAIN FILINGS; CONSENTS AND ARRANGEMENTS. FirstMerit and Signal
shall (a) promptly file all reports and applications required to be filed with
the Commission, the FRB and such other Governmental Entities (the "Regulatory
Authorities") as may have jurisdiction for such approvals as may be required to
be obtained from such Governmental Entities in order to carry out the
transactions contemplated by this Agreement as soon as practicable between the
date of this Agreement and the Effective Time and each FirstMerit Subsidiary or
Signal Subsidiary that is a bank or savings association shall also file all
reports required to be filed with the FRB, the OCC and the OTS with respect to
the Merger and the other transactions contemplated by this Agreement, (b)
cooperate with one another (i) in promptly determining whether any other filings
are required to be made or consents, approvals, permits or authorizations are
required to be obtained under any other federal, state or foreign law or
regulation, and (ii) in promptly making any such filings, furnishing information
required in connection therewith and seeking timely to obtain any such consents,
approvals, permits or authorizations, and (c) deliver to the other party to this
Agreement copies of all such applications and reports promptly after they are
filed. In no event, however, shall either party hereto be liable for any untrue
statement of a material fact or omission to state a material fact in any filing
made with any Governmental Entity pursuant to this Section made in reliance
upon, and in conformity with, written information concerning the other party
hereto furnished by such other party specifically for use in such filing. Each
party hereto shall advise the other party hereto promptly of the occurrence of
any event which makes untrue any statement of a material fact contained in any
such filing or any amendment or supplement thereto or that requires the making
of a change in any such filing or any amendment or supplement thereto in order
to make any material statement therein not misleading.
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5.7. TAKEOVER STATUTES AND PROVISIONS. Signal shall use its diligent
efforts to (i) exempt Signal, this Agreement, the Signal Stock Purchase Option
and the Merger from the requirements of any state takeover law (including
without limitation, statutes relating to business combinations, control share
acquisitions and merger moratoriums) and from any provisions under its Corporate
Governance Documents, as applicable, by action of Signal's Board of Directors or
otherwise, and (ii) assist in any challenge by FirstMerit to the applicability
to the Merger of any state takeover law.
5.8. INDEMNIFICATION AND INSURANCE. Except as may be limited by applicable
law, for a period of six years after the Effective Time, FirstMerit hereby
agrees to honor the terms of the indemnification provisions of Article FIFTH of
Signal's Articles of Incorporation, and all such provisions of the Signal
Subsidiaries (including the provisions contained in agreements whereby Signal
acquired other entities), copies of which are attached hereto as Exhibit 5.8,
which are provided to Signal's and its Subsidiaries' directors, officers and
employees, for matters occurring prior to the Effective Time. Moreover,
indemnification of directors, officers and employees of Signal and Signal
Subsidiaries following the Effective Time will be provided to the same extent it
is provided to other persons working in similar capacities for FirstMerit
following the Closing.
For a period of up to six years following the Effective Time, FirstMerit
will maintain in effect the current insurance policies maintained by Signal (or
substitute policies with substantially the same coverage and terms) covering
directors' and officers' liability with respect to claims which arise from
factors or events which occurred before the Effective Time, except that
FirstMerit's obligation under this paragraph for the second and subsequent years
following the Effective Time will be based upon its ability to obtain such
insurance at a commercially reasonable cost (which is defined as an amount not
in excess of 150% of the current cost). Signal shall notify FirstMerit prior to
purchasing or continuing any insurance to cover the matters contained herein,
provided, however, it is the intent of FirstMerit that tail coverage will be
purchased if such is available. To the extent insurance is available under any
of the provisions in this Section to cover such claims and costs, such insurance
shall be the primary source of funding these obligations.
5.9. ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its diligent efforts to take
promptly, or cause to be taken, all actions necessary, proper or advisable under
applicable laws to consummate the transactions contemplated by this Agreement.
In addition, without limitation, each party shall from time to time execute such
certificates as to factual matters necessary, proper or advisable in order to
receive the opinions contemplated by Article 6 of this Agreement.
If, at any time after the Effective Time, the Surviving Corporation
considers or is advised that any further deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record its right, title or interest in and to any of the
rights, properties or assets of Signal acquired or to be acquired by the
Surviving Corporation, Signal and its officers and directors shall be deemed to
have granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such deeds, bills of sale, assignments and assurances
and to take and do all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in
and to such rights, properties or assets in the Surviving Corporation.
5.10. COMPLIANCE WITH ANTITRUST LAWS. Each of FirstMerit and Signal shall
use its diligent efforts to resolve such objections, if any, which may be
asserted with respect to the Merger by the FRB, the Department of Justice, or
any other Governmental Entity (including, without limitation, objections under
any antitrust laws and any applicable laws or regulations). In the event a suit
is threatened or instituted challenging the Merger as violative of the antitrust
laws, each of FirstMerit and Signal shall use its diligent efforts to avoid the
filing of, resist or resolve such suit. FirstMerit and Signal shall use their
diligent efforts to take such action as may be required: (a) by the FRB, the
Department of Justice, or any other Governmental Entity in order to resolve such
objections as any of them may have to the Merger, or (b) by any federal or state
court of the United States, in any suit brought by a private party or
Governmental Entity challenging the Merger as violative of any antitrust laws,
in order to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order which has the effect of preventing
the consummation of the Merger.
5.11. PUBLICITY. The initial press release announcing this Agreement shall
be a joint press release in a form mutually agreed upon by the parties and
thereafter, except as required by law, Signal and FirstMerit shall consult with
each other and provide a written copy to each other prior to issuing any press
releases, or otherwise making
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public statements, with respect to the transactions contemplated hereby and in
making any filings with any Governmental Entity.
5.12. REGISTRATION STATEMENT, PROXY STATEMENT AND COMFORT LETTERS.
(a) FirstMerit will, as soon as practicable, prepare and file with the
Commission the Registration Statement, and any required amendments thereto, will
use all reasonable efforts to have the Registration Statement declared effective
by the Commission as promptly as practicable and will maintain the effectiveness
of such Registration Statement. FirstMerit will also take any action required to
be taken under any applicable state blue sky or securities laws in connection
with the issuance of the FirstMerit Capital Stock pursuant to the Merger and to
be issued upon conversion of the FirstMerit Series B Preferred Stock. Signal
shall promptly furnish FirstMerit all information concerning Signal, the Signal
Subsidiaries, and the holders of its capital stock and shall promptly take any
action as FirstMerit may reasonably request in connection with any such action.
FirstMerit, with the direct assistance of Signal, will as soon as
practicable prepare and file the Proxy Statement with the Commission, and take
such other action so that Signal and FirstMerit may promptly after the
effectiveness of the Registration Statement mail the Proxy Statement to Signal's
and FirstMerit's shareholders. FirstMerit and Signal shall cooperate and consult
with each other in the preparation of the Proxy Statement and Signal shall
promptly furnish FirstMerit all information concerning Signal, the Signal
Subsidiaries, and the holders of its capital stock, and shall promptly take any
action as FirstMerit may reasonably request in connection with any such action.
(b) Each of FirstMerit and Signal will cause its respective independent
auditors to issue a letter addressed to both FirstMerit and Signal, within three
business days prior to the effectiveness of the Registration Statement and also
as of Closing, stating among other things, the following: (i) such accountants
are independent public accountants within the meaning of the Securities Act and
the rules and regulations promulgated thereunder; (ii) in the opinion of such
accountants, the financial statements included in the Registration Statement and
reported on therein by such accountants comply as to form in all material
respects with the applicable accounting requirements of the Securities Act and
the Rules and Regulations promulgated thereunder; (iii) on the basis of
specified limited procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards), including a reading
of the latest available unaudited financial statements, inquiries of officials
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that, during the period subsequent to
December 31, 1997, to a specified date not more than three business days prior
to the effective date of the Registration Statement and to a specified date not
more than three business days prior to Closing, there was any change in the
shares of its capital stock or long-term debt, if any, (other than changes due
to payments in accordance with the terms of such debt, or in the event of any
such change in long-term debt, the amount thereof) or any decrease (increase) in
the total or per share amount of its net income (net loss) as compared with the
corresponding period in the preceding year, except in all instances for changes
or decreases (increases) which the Registration Statement discloses have
occurred or may occur; (iv) such accountants have read the other data included
in the Registration Statement with respect to the financial condition and
operations of their respective clients and they find such data to be correctly
computed and in agreement with their respective books and records of FirstMerit
and Signal.
(c) FirstMerit shall be responsible for all expenses incident to the
obtaining of the requisite regulatory approvals from Governmental Entities.
Without limiting the generality of the foregoing, the expenses to be assumed by
FirstMerit shall include (i) all expenses for its own legal counsel and other
expenses incurred by FirstMerit incident to the preparation and filing of
applications on its behalf and on behalf of Signal and other requests for
regulatory consents and approvals with the appropriate regulatory agencies as
contemplated by this Agreement; (ii) all expenses for its own legal counsel and
all other expenses incurred in connection with the registration of the
FirstMerit Capital Stock under the federal and state securities laws and (iii)
all printing and mailing expenses of the parties. The expenses to be assumed by
FirstMerit shall not include any legal, accounting or other expenses incurred by
Signal in connection with its own corporate proceedings or incident to the
transactions contemplated by this Agreement.
5.13. AFFILIATES COMPLIANCE WITH THE SECURITIES ACT.
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(a) Within 30 days after the date of this Agreement, each of Signal and
FirstMerit shall identify to the other party all persons whom it reasonably
believes are its "affiliates" as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act and/or Accounting Series, Releases 130 and
135, as amended, of the Commission (the "Affiliates"). Thereafter and until the
Effective Time, each of Signal and FirstMerit shall identify to the other party
each additional person whom it reasonably believes to have thereafter become its
Affiliate.
(b) Each of Signal and FirstMerit shall use its diligent efforts to cause
each person who is identified as an Affiliate pursuant to clause (a) above to
deliver to FirstMerit not later than the date on which the Merger is approved, a
written agreement, substantially in the form of Exhibit 5.13(b)-1 (in the case
of Affiliates of Signal) and Exhibit 5.13(b)-2 (in the case of Affiliates of
FirstMerit).
Because the Merger is intended to qualify for pooling of interests
accounting treatment, the shares of FirstMerit Common Stock received by such
Affiliates in the Merger shall not be transferable until such time as financial
results covering at least 30 days of post-Merger operations have been published,
and the certificates representing such shares will bear an appropriate
restrictive legend.
5.14. SHAREHOLDER MEETINGS.
(a) Signal shall take all action necessary, in accordance with applicable
law and its Corporate Governance Documents to convene a special or regular
meeting of the holders of Signal Common Stock and Signal Preferred Stock (the
"Signal Meeting") as promptly as practicable after the effectiveness of the
Registration Statement for the purpose of considering and taking action upon
this Agreement and the transactions contemplated herein. Subject to the
fiduciary obligations and duties of the Board of Directors of Signal under Ohio
law and to the provisions of Section 5.1 of this Agreement, the Board of
Directors of Signal shall recommend that the holders of the Signal Capital Stock
vote in favor of and approve the Merger and adopt this Agreement at the Signal
Meeting.
(b) FirstMerit shall take all action necessary, in accordance with
applicable law and its Corporate Governance Documents to convene a special
meeting of the holders of FirstMerit Common Stock (the "FirstMerit Meeting") as
promptly as practicable after the effectiveness of the Registration Statement
for the purpose of considering and taking action upon this Agreement and the
transactions contemplated herein. Subject to the fiduciary obligations and
duties of the Board of Directors of FirstMerit under Ohio law, the Board of
Directors of FirstMerit shall recommend that the holders of the FirstMerit
Common Stock vote in favor of and approve the Merger and adopt this Agreement at
the FirstMerit Meeting.
5.15. TAX-FREE REORGANIZATION TREATMENT. Neither FirstMerit nor Signal, nor
any Subsidiary of either, shall knowingly take or cause to be taken nor fail to
take any action, whether before or after the Effective Time, to disqualify the
Merger as a "pooling of interests" for accounting purposes or as
a"reorganization" within the meaning of Section 368(a) of the Code, other than
FirstMerit's exercise of its rights under the Signal Stock Purchase Option.
5.16. MERGERS OF SUBSIDIARIES. Signal shall cause such of the Signal
Subsidiaries as FirstMerit may request to enter into definitive merger or
consolidation agreements; provided, however, that, in all cases, the obligation
of Signal to cause such merger or consolidation shall be subject to the
condition that the Merger be simultaneously consummated; and provided further,
notwithstanding anything to the contrary in this Agreement, (i) the
representations and warranties of Signal in this Agreement shall not be deemed
to be untrue or breached, (ii) Signal shall not be deemed to have failed to
perform any covenant or obligation contained in this Agreement, and (iii) no
condition to FirstMerit's obligation to effect the Merger shall be deemed not to
have been satisfied by or as a result of any merger or consolidation consummated
pursuant to this Section. Signal shall cause the Signal Subsidiaries to fully
cooperate with FirstMerit in consummating these mergers or consolidations,
including cooperating in the filing of any necessary regulatory applications.
5.17. CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, each of Signal and FirstMerit will promptly
notify the other of (i) any material change in the normal course of its
business, (ii) any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or receipt of any
memorandum of understanding or cease and desist order from a regulatory
authority, or (iii) the institution or the threat of material litigation
involving such party and will keep the other party fully informed of such
events. During such period, FirstMerit and Signal shall promptly provide
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the other with monthly unaudited financial statements as soon as they are
available and each shall promptly provide the other with a copy of all Reports
filed by it after the date of this Agreement through the Effective Time. Each of
FirstMerit and Signal agrees to keep the foregoing information strictly
confidential, except as required by law.
5.18. INTEGRATION OF OPERATIONS. Subject to applicable laws, regulations
and the requirements of Governmental Entities, during the period from the date
of this Agreement to the Effective Time, the parties will consult and cooperate
fully with each other to do all things advisable to prepare for and facilitate
the integration of Signal and the applicable Signal Subsidiaries operations into
and with FirstMerit's operations as rapidly and effectively as possible as of
the Effective Time, including, without limitation, preparation for the
integration of such branch operations, if any (including, without limitation,
the preparation for the necessary installation of all of FirstMerit's or its
subsidiaries hardware and software systems), management information systems,
financial and accounting operations, employee compensation and benefit matters
and similar matters, and employee training, as requested by FirstMerit; provided
that all such integration prior to the Effective Time shall be subject to the
concurrence of Signal.
5.19. NASD LISTING. FirstMerit will file an additional listing application
with the National Association of Securities Dealers, Inc. (the "NASD") for the
FirstMerit Capital Stock to be issued in the Merger at the time prescribed by
applicable rules and regulations. In addition, FirstMerit will use its best
efforts to maintain its listing on the Nasdaq/NMS.
5.20. CREATION OF CLASS OF FIRSTMERIT PREFERRED STOCK. FirstMerit shall
take such action necessary to create and register under the Securities Act the
FirstMerit Series B Preferred Stock required to be exchanged with the holders of
the Signal Preferred Stock. FirstMerit shall assume, by written instrument, the
obligation to deliver shares of FirstMerit Common Stock upon the conversion of
shares of FirstMerit Series B Preferred Stock as required by Section 8 of
Division B of Article Fourth of the Articles of Incorporation of Signal. At or
prior to the Effective Time, FirstMerit shall reserve for issuance the number of
shares of FirstMerit Common Stock into which the shares of FirstMerit Series B
Preferred Stock are convertible.
6. CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) The Merger and this Agreement shall have been approved and adopted
by the requisite vote of the holders of Signal's Capital Stock and
FirstMerit's Common Stock.
(b) All authorizations, consents, orders or approvals, lack of any
injunctive actions by the Department of Justice or any state anti-trust
agency, of the FRB, OCC, OTS, and any other Governmental Entity
(collectively, "Consents") which are necessary for the consummation of the
Merger (other than immaterial Consents, the failure to obtain which would
not involve criminal liability, any material civil penalties or fines, or
would not have or reasonably be expected to have a Material Adverse Effect
on the combined businesses, financial condition, or results of operations
of FirstMerit, Signal, the FirstMerit Subsidiaries and the Signal
Subsidiaries taken as a whole), shall have been obtained or shall have
occurred and shall be in full force and effect, and all applicable waiting
periods shall have expired, at the Effective Time. A material Consent shall
not be deemed to have been obtained if the Consent shall include any
conditions or requirements which, in the reasonable opinion of the Board of
Directors of FirstMerit, would have a Material Adverse Effect on the
anticipated economic and business benefits to FirstMerit of the
transactions contemplated by this Agreement, taken as a whole.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and shall not be
subject to a stop order suspending the effectiveness of the Registration
Statement.
(d) No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court or agency in the
United States which enjoins or prohibits the consummation of the Merger
shall have been issued and remain in effect.
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(e) FirstMerit shall have obtained an opinion of its counsel,
reasonably satisfactory in form and substance to FirstMerit and dated as of
Closing, to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
(f) FirstMerit shall have received a letter, dated the date of the
Closing, from its independent certified public accounting firm to the
effect that, for financial reporting purposes, the Merger qualifies for
pooling-of-interests accounting treatment under generally accepted
accounting principles, if consummated in accordance with this Agreement.
6.2. CONDITIONS TO OBLIGATION OF SIGNAL TO EFFECT THE MERGER. The
obligation of Signal to effect the Merger shall be subject to the fulfillment or
waiver at or prior to the Closing of the additional following conditions:
(a) FirstMerit shall have performed in all material respects all of
its obligations contained in this Agreement required to be performed at or
prior to the Closing.
(b) The representations and warranties of FirstMerit contained in this
Agreement shall be true and correct both: (i) on the date of this
Agreement, and (ii) as of the Effective Time as if made at and as of such
time, (x) except, both on the date of this Agreement and at the Effective
Time, as expressly contemplated or permitted by this Agreement, (y) except,
as of the Effective Time, for representations and warranties relating to a
time or times other than the Effective Time, and (z) except, both on the
date of this Agreement and at the Effective Time, to the extent that the
untruthfulness or inaccuracy of the representations or warranties of
FirstMerit, individually or in the aggregate, shall not have a Material
Adverse Effect on FirstMerit.
(c) FirstMerit shall have furnished Signal a Certificate dated the
date of the Closing, signed on behalf of FirstMerit by the Chief Executive
Officer or President, and the Chief Financial Officer of FirstMerit, that
to the best of their knowledge and belief, the conditions set forth in
Sections 6.2(a), (b), (e) and (f) have been satisfied.
(d) Signal shall have received the opinion of legal counsel for
FirstMerit, dated as of Closing, substantially to the effect set forth in
Exhibit 6.2(d) hereto, and such certificates from the appropriate persons
and/or authorities regarding FirstMerit's board resolutions, form of
corporate governance documents and good standing.
(e) FirstMerit shall have filed a certificate of designation with the
Ohio Secretary of State amending its Articles to create the series of
FirstMerit Series B Preferred Stock to be exchanged herein.
(f) Since the date of this Agreement, there shall have not been any
change in the financial condition, results of operations or business of
FirstMerit and the Subsidiaries of FirstMerit that would have a Material
Adverse Effect on FirstMerit.
(g) The shares of FirstMerit Common Stock and FirstMerit Series B
Preferred Stock which shall be issued to the shareholders of Signal upon
consummation of the Merger shall have been authorized for listing on the
Nasdaq/NMS subject to official notice of issuance.
6.3. CONDITIONS TO OBLIGATION OF FIRSTMERIT TO EFFECT THE MERGER. The
obligation of FirstMerit to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the additional following
conditions:
(a) Signal shall have performed in all material respects all of its
obligations contained in this Agreement required to be performed at or
prior to the Closing.
(b) The representations and warranties of Signal contained in this
Agreement shall be true and correct both: (i) on the date of this
Agreement, and (ii) as of the Effective Time as if made on and as of such
time, (x) except, both on the date of this Agreement and at the Effective
Time, as expressly contemplated or permitted by this Agreement, (y) except,
as of the Effective Time, for representations and warranties relating to a
time or times other than the Effective Time, and (z) except, both on the
date of this Agreement and at the Effective Time, to the extent that the
untruthfulness or inaccuracy of the representations or warranties of
Signal, individually or in the aggregate, shall not have a Material Adverse
Effect on Signal.
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(c) Since the date of this Agreement there shall not have been any
change in the financial condition, results of operations or business of
Signal and the subsidiaries of Signal that either individually or in the
aggregate would have a Material Adverse Effect on Signal, other than change
as a result of action taken under Sections 5.2.5, 5.2.6 and 5.18, and the
responses thereto by Signal and the impact thereof on the operating
performance of Signal.
(d) Signal shall have furnished FirstMerit a certificate dated the
date of the Closing signed on behalf of Signal by the Chief Executive
Officer or President, and Chief Financial Officer of Signal, that to the
best of their knowledge and belief, the conditions set forth in Sections
6.3(a), (b) and (c) have been satisfied.
(e) FirstMerit shall have received the opinion of legal counsel for
Signal dated as of Closing, substantially to the effect set forth in
Exhibit 6.3(e) hereto, and such certificates from the appropriate persons
and/or authorities regarding Signal's and its subsidiaries' board
resolutions, forms of corporate governance documents and good standing.
7. MISCELLANEOUS
7.1. TERMINATION. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of this Agreement by the shareholders of
FirstMerit and Signal:
(a) by mutual agreement of the parties by the vote of a majority of
the Board of Directors of each of FirstMerit and Signal;
(b) by the vote of a majority of the Board of Directors of either
FirstMerit or Signal if the Merger shall not have been consummated on or
before May 31, 1999, unless the failure to consummate by such date is
related to the action or inaction of the Governmental Entities and such
action or inaction is not directly related to either FirstMerit's or
Signal's breach of their respective obligations under Sections 5.6 or
5.12(a), then on or before June 30, 1999 (provided that the terminating
party is not in material breach of any representation, warranty, covenant
or other agreement contained herein);
(c) by the vote of a majority of the Board of Directors of Signal if
any of the conditions specified in Sections 6.1 and 6.2 have not been met
or waived by Signal at such time as such condition can no longer be
satisfied;
(d) by the vote of a majority of the Board of Directors of FirstMerit
if any of the conditions specified in Sections 6.1 and 6.3 have not been
met or waived by FirstMerit at such time as such condition can no longer be
satisfied;
(e) by the vote of a majority of the Board of Directors of either
FirstMerit or Signal if any regulatory agency has denied approval of the
Merger and such denial has become final and non-appealable (regardless of
whether Signal is deemed to be a "party" to an application with respect to
the Merger);
(f) by the vote of a majority of the Board of Directors of either
FirstMerit or Signal in the event of a material breach by the other party
of any representation, warranty, covenant or agreement, which breach is not
cured, or cannot be cured, within 30 days after written notice thereof is
given to the party committing such breach;
(g) at any time after August 12, 1998, by FirstMerit if Signal shall
not have executed and delivered the Signal Stock Purchase Option; and
(h) by Signal, if it determines by the vote of a majority of its Board
of Directors (with written notice thereof to FirstMerit which notice is
final and may not be withdrawn) at any time during the fourth and fifth
Nasdaq/NMS trading days immediately prior to the Effective Time, if (x) the
Average Closing Price is less than $21.85 (subject to adjustment pursuant
to Section 2.5), and (y) FirstMerit shall not have given written notice to
Signal on the second or third Nasdaq/NMS trading day immediately prior to
the Effective Time which notice indicates that FirstMerit agrees that the
Common Exchange Ratio shall be $28.84 divided by the Average Closing Price.
If FirstMerit makes an election contemplated by the preceding sentence,
whereupon no termination shall have occurred pursuant to this Section 7(h)
and this Agreement shall remain in effect in accordance with its terms
(except as the Common Exchange Ratio shall have been so modified),
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and any references in this Agreement to "Common Exchange Ratio" shall
thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to
this Section.
7.2. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES; EFFECT OF
TERMINATION. The representations and warranties or covenants in this Agreement
will terminate at the Effective Time or the earlier termination of this
Agreement pursuant to Section 7.1, as the case may be: provided however, that if
the Merger is consummated, Sections 1.1.5, 2.1 through 2.9, 5.2.7, 5.4, 5.5,
5.8, 5.9, 5.10, 5.12(c), 5.13, 5.15, 5.16, 5.19, 5.20 and 7.2 will survive the
Effective Time to the extent contemplated by such Sections; provided, further in
the event of the termination of this Agreement, this Agreement shall become void
and of no effect except that the second paragraph of Section 5.5, all of
Sections of 5.11, 5.12(c), 7.2, 7.5, 7.6 and 7.11, will in all events survive
any termination of this Agreement.
7.3. WAIVER. Either party hereto may, by written notice to the other party
hereto, (a) extend the time for the performance of any of the obligations or
other actions of such other party under this Agreement, (b) waive any
inaccuracies in the representations or warranties of such other party contained
in this Agreement or in any document delivered pursuant to this Agreement, (c)
waive compliance with any of the conditions or covenants of such other party
contained in this Agreement, or (d) waive or modify performance of any of the
obligations of such other party under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any of the representations, warranties, covenants, conditions, or agreements
contained in this Agreement. The waiver by either party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
7.4. AMENDMENT. This Agreement may be amended or supplemented by the
parties hereto, by action taken by or on behalf of their respective Boards of
Directors, at any time before or after approval of this Agreement by the
shareholders of Signal, provided however, that any such amendment or supplement
to this Agreement made subsequent to the adoption of this Agreement by the
shareholders of Signal shall not (a) alter the amount or change the form of the
consideration contemplated by this Agreement, (b) alter or change any term of
the Amended and Restated Articles of Incorporation of the Surviving Corporation
to be affected by the Merger, or (c) alter or change the qualification of the
Merger as a tax-free reorganization under the provisions of Section 368 of the
Code.
7.5. ENTIRE AGREEMENT. This Agreement and the Signal Stock Purchase Option,
and the agreements referenced and contemplated therein and thereby, contain the
entire agreement among FirstMerit and Signal with respect to the Merger and the
other transactions contemplated hereby and thereby, and supersede all prior
agreements among the parties with respect to such matters.
7.6. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Ohio, without giving effect to the
principles of conflicts of law thereof.
7.7. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, the term:
(i) "affiliate" and "associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof;
(ii) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(iii) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(iv) "Material Adverse Effect" on Signal or FirstMerit means a
material adverse effect (other than as a result of changes (x) in banking
laws or regulations of general applicablilty or interpretations thereof by
court or governmental entities, and (y) in generally accepted accounting
principles) on the respective condition (financial and otherwise), results
of operations, or business of Signal and its Subsidiaries, or
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FirstMerit and its Subsidiaries, as the case may be, taken as a whole, or
on the ability of Signal or FirstMerit, as the case may be, to consummate
the transactions contemplated hereby.
The effect of any action taken by Signal at the written request of
FirstMerit pursuant to Sections 5.2.5, 5.2.6 and 5.18 shall not be taken
into consideration in determining whether any Material Adverse Effect has
occurred.
7.8. NOTICES. All notices and other communications hereunder will be in
writing and will be deemed to have been duly given or delivered, if delivered
personally or delivered by a recognized commercial courier, to each of the
parties at the following addresses:
<TABLE>
<S> <C>
TO SIGNAL: TO FIRSTMERIT:
Gary G. Clark, Chairman John R. Cochran, Chairman and
and Chief Executive Officer Chief Executive Officer
Signal Corp. FirstMerit Corporation
135 East Liberty Street III Cascade Plaza, 7th Floor
Wooster, Ohio 44691 Akron, Ohio 44308
WITH A COPY TO: WITH COPIES TO:
Barry P. Taff, P.C. Terry E. Patton, Senior Vice President
Jeffrey M. Werthan, P.C. FirstMerit Corporation
Silver, Freedman & Taff, L.L.P. III Cascade Plaza, 7th Floor
1100 New York Ave., N.W.,Suite 700 Akron, Ohio 44308
Washington, D.C. 20005
Kevin C. O'Neil
Brouse & McDowell, L.P.A.
500 First National Tower
Akron, Ohio 44308
</TABLE>
or to such other address as any party may have furnished to the other
parties in writing in accordance with this Section 7.8.
7.9. COUNTERPARTS; EXHIBITS. This Agreement may be executed in any number
of counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement. Any exhibits or schedules referenced
herein and attached hereto shall be incorporated by reference herein as if fully
written out in this Agreement.
7.10. PARTIES IN INTEREST. This Agreement is not intended to nor will it
confer upon any other person any rights or remedies, except as expressly stated
herein.
7.11. EXPENSES. Except as otherwise set forth in this Agreement, each party
shall be responsible for the costs and expenses incurred by it in connection
with the transactions contemplated by this Agreement. If this Agreement is
terminated by Signal or FirstMerit pursuant to 7.1(f) because of the material
breach by the other party of any representation, warranty, covenant, undertaking
or restriction contained in this Agreement, if the terminating party is not in
material breach of any representation, warranty, covenant, undertaking or
restriction contained in this Agreement, then the breaching party shall pay all
costs and expenses of the terminating party, including but not limited to
printing, mailing and related fees, as well as fees for financial advisors,
accountants and legal counsel; provided, however, that if this Agreement is
terminated under circumstances other than those described in this Section 7.11,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby will be paid by the party incurring such costs
and expenses.
7.12. ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, that it is impossible to measure in money the damages that
would result to a party by reason of the failure of any of the parties to
perform any of the obligations of this Agreement and that money damages would be
an inadequate remedy in this instance. It is accordingly agreed that the parties
hereto will be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms
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and provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, it is agreed and that if any party
should institute an action or proceeding seeking specific enforcement of this
Agreement, the party against which such action or proceeding is brought hereby
waives the claim or defense that the party instituting such action or proceeding
has an adequate remedy at law and hereby agrees not to assert in any such action
or proceeding the claim or defense that such a remedy at law exists and shall
waive or not assert any requirement to post bond in connection with seeking
specific performance. Notwithstanding anything to the contrary herein, and in
addition to any rights set forth in Section 7.11, a party may seek monetary
damages against a breaching party for any willful breach of this Agreement.
7.13. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced and does not adversely affect
the substance of these transactions in a material way, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
[Next Page is Signature Page]
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IN WITNESS WHEREOF, Signal and FirstMerit have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the day
and year first written above.
FIRSTMERIT CORPORATION
Attest:
<TABLE>
<S> <C>
/s/ TERRY E. PATTON By: /s/ JOHN S. COCHRAN
- -------------------------------------------- ----------------------------------------
Terry E. Patton, Secretary John R. Cochran, Chairman and
Chief Executive Officer
</TABLE>
ACKNOWLEDGMENT
STATE OF OHIO
SS:
COUNTY OF SUMMIT
BE IT REMEMBERED that on this 10th day of August, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, John R.
Cochran, Chairman and Chief Executive Officer, and Terry E. Patton, Senior Vice
President and Secretary of FirstMerit Corporation, an Ohio corporation, and they
duly executed the Agreement of Affiliation and Plan of Merger before me and
acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 10th day of
August, 1998.
By: /s/ KEVIN C. O'NEIL
----------------------------------
Kevin C. O'Neil, Notary Public
SIGNAL CORP.
Attest:
<TABLE>
<S> <C>
/s/ JON PARK By: /s/ GARY G. CLARK
- -------------------------------------------- ----------------------------------------
Jon Park, Asst. Secretary Gary G. Clark, Chairman and
Chief Executive Officer
</TABLE>
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<PAGE> 118
APPENDIX B
[Logo]
Sandler O'Neill & Partners, L.P.
, 1998
Board of Directors
Signal Corp
135 East Liberty Street
Wooster, OH 44691
Gentlemen:
Signal Corp ("Signal") and FirstMerit Corporation ("FirstMerit") have
entered into an Agreement of Affiliation and Plan of Merger, dated as of August
10, 1998 (the "Agreement"), pursuant to which Signal will be merged with and
into FirstMerit (the "Merger"). Under the terms of the Agreement, upon
consummation of the Merger, (a) each share of Signal common stock, par value
$1.00 per share, issued and outstanding immediately prior to the Effective Time
(the "Signal Common Shares"), other than certain shares specified in the
Agreement, will be converted into the right to receive 1.32 shares (the "Common
Exchange Ratio") of FirstMerit common stock, no par value, and (b) each share of
Signal 6 1/2% Cumulative Convertible Preferred Stock, Series B, no par value,
issued and outstanding immediately prior to the Effective Time (the "Signal
Preferred Shares"), other than certain shares specified in the Agreement, will
be converted into the right to receive 1.00 share (the "Preferred Exchange
Ratio") of a newly created series of preferred stock of FirstMerit (the
"FirstMerit Preferred Shares") having substantially identical, and in any event
no less favorable, terms and conditions as the Signal Preferred Shares;
provided, however, that the conversion price of the FirstMerit Preferred Shares
shall be adjusted to reflect the Common Exchange Ratio. The terms and conditions
of the Merger are more fully set forth in the Agreement. You have requested our
opinion as to the fairness, from a financial point of view, of the Common
Exchange Ratio to the holders of Signal Common Shares and of the Preferred
Exchange Ratio to the holders of Signal Preferred Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Purchase Option,
dated as of August 11, 1998, by and between Signal and FirstMerit; (iii) certain
publicly available financial statements of Signal and other historical financial
information provided by Signal that we deemed relevant; (iv) certain publicly
available financial statements of FirstMerit and other historical financial
information provided by FirstMerit that we deemed relevant; (v) certain
financial analyses and forecasts of Signal prepared by and reviewed with
management of Signal and the views of senior management of Signal regarding
Signal's past and current business, operations, results thereof, financial
condition and future prospects; (vi) certain financial analyses and forecasts of
FirstMerit prepared by and reviewed with management of FirstMerit and the views
of senior management of FirstMerit regarding FirstMerit's past and current
business, operations, results thereof, financial condition and future prospects;
(vii) the pro forma impact of the Merger; (viii) the publicly reported
historical price and trading activity for Signal's and FirstMerit's common
stock, including a comparison of certain financial and stock market information
for Signal and FirstMerit with similar publicly available information for
certain other companies the securities of which are publicly traded; (ix) the
financial terms of recent business combinations in the banking industry, to the
extent publicly available; (x) the current market environment generally and the
banking environment in particular; and (xi) such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as we considered relevant. In connection with rendering this opinion, we were
not asked to, and did not, solicit indications of interest in a potential
transaction from other third parties.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability therefor. We did not make an independent
evaluation or appraisal of the specific assets, the collateral securing assets
or the liabilities (contingent or otherwise) of Signal or FirstMerit or any of
their subsidiaries, or the collectibility of any such assets, nor have we been
furnished with any such evaluations or appraisals. With respect
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to the financial projections reviewed with management, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of Signal and FirstMerit and that such performances will
be achieved, and we express no opinion as to such financial projections or the
assumptions on which they are based. We have also assumed that there has been no
material change in Signal's or FirstMerit's assets, financial condition, results
of operations, business or prospects since the date of the most recent financial
statements made available to us. We have assumed in all respects material to our
analysis that Signal and FirstMerit will remain as going concerns for all
periods relevant to our analyses, that all of the representations and warranties
contained in the Agreement and all related agreements are true and correct, that
each party to such agreements will perform all of the covenants required to be
performed by such party under such agreements, that the conditions precedent in
the Agreement are not waived and that the Merger will be accounted for as a
pooling of interests and will qualify as a tax-free reorganization for federal
income tax purposes. We have also assumed that the terms and conditions of the
FirstMerit Preferred Shares will be substantially identical to the terms and
conditions of the Signal Preferred Shares.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof. We are expressing
no opinion herein as to what the value of FirstMerit's common stock or preferred
stock will be when issued to Signal's shareholders pursuant to the Agreement or
the prices at which Signal's or FirstMerit's common stock or preferred stock
will trade at any time.
We have acted as Signal's financial advisor in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. In the past, we have also provided
certain other investment banking services for Signal and have received
compensation for such services.
In the ordinary course of our business, we may actively trade the debt and
equity securities of Signal and FirstMerit for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion is directed to the Board of Directors of Signal in connection
with its consideration of the Merger and does not constitute a recommendation to
any shareholder of Signal as to how such shareholder should vote at any meeting
of shareholders called to consider and vote upon the Merger. Our opinion is not
to be quoted or referred to, in whole or in part, in a registration statement,
prospectus, proxy statement or in any other document, nor shall this opinion be
used for any other purposes, without Sandler O'Neill's prior written consent,
provided, however, that we hereby consent to the inclusion of this opinion as an
appendix to Signal's and FirstMerit's Joint Proxy Statement/Prospectus dated the
date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Common Exchange Ratio is fair, from a financial point of view,
to the holders of Signal Common Shares and the Preferred Exchange Ratio is fair,
from a financial point of view, to the holders of Signal Preferred Shares.
Very truly yours,
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<PAGE> 120
APPENDIX C
[Logo]
Goldman, Sachs & Co.
, 1998
Board of Directors
FirstMerit Corporation
III Cascade Plaza
Akron, Ohio 44308-1103
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to FirstMerit Corporation ("FirstMerit" or the "Company") of the exchange
ratio (the "Exchange Ratio") of 1.32 shares of common stock, no par value
("FirstMerit Shares"), of FirstMerit to be paid by the Company for each
outstanding share of Common Stock, par value $1.00 per share (the "Signal
Shares"), of Signal Corp ("Signal") pursuant to the merger of Signal into the
Company (the "Merger") contemplated by the Agreement of Affiliation and Plan of
Merger, dated as of August 10, 1998, by and between Signal and the Company (the
"Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with FirstMerit having provided certain investment banking services to
the Company, including having acted as the Company's financial advisor in
connection with the Company's acquisition of CoBancorp Inc. in 1997 and acting
as the Company's financial advisor in connection with, and having participated
in certain of the negotiations leading to, the Agreement. Goldman, Sachs & Co.
provides a full range of financial advisory and securities services and, in the
course of its normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of FirstMerit
or Signal for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company and Signal for the five years ended December 31, 1997; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and Signal; certain other communications from the Company and Signal to
their respective stockholders; certain internal financial analyses and forecasts
for the Company and Signal prepared by their respective managements; and certain
internal financial forecasts for the Company and Signal, prepared by the
management of the Company, on a combined basis after giving effect to the
Merger, including projections with respect to cost savings and operating
synergies resulting from the Merger. We have also held discussions with members
of the senior managements of the Company and Signal regarding the past and
current business operations, financial condition and future prospects of their
respective companies and as combined pursuant to the Merger. In addition, we
have reviewed the reported price and trading activity for the Company and Signal
shares, compared certain financial and stock market information for the Company
and Signal with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the banking and thrift industries specifically and
other industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed, with your consent, that the financial forecasts prepared by the
Company, including, without limitation, projected cost savings and operating
synergies resulting from the Merger and projections regarding under-performing
and non-performing assets and net charge-offs, have been reasonably prepared on
a basis reflecting the best currently available judgments and estimates of the
Company and that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan portfolios
for purposes of assessing the adequacy of the allowances for losses with respect
thereto and have assumed, with your consent, that such allowances for each of
the Company and Signal are in the aggregate adequate to cover all such losses.
In addition, we have not reviewed individual credit files of the Company or
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Signal nor have we made an independent evaluation or appraisal of the assets and
liabilities of the Company or Signal and we have not been furnished with any
such evaluation or appraisal. We also have assumed, with your consent, that the
Merger will be accounted for as a pooling of interest under generally accepted
accounting principles and that obtaining necessary regulatory approvals and
third party consents for the Merger or otherwise will not have an adverse effect
on the Company.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of FirstMerit shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the Company.
Very truly yours,
/s/ Goldman, Sachs & Co.
- -------------------------------
(GOLDMAN, SACHS & CO.)
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<PAGE> 122
APPENDIX D
OHIO DISSENTERS' RIGHTS STATUTE
RELIEF TO DISSENTING SHAREHOLDER
OF DOMESTIC CORPORATION
OHIO REVISED CODE 1701.85
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the corporation
involved, the dissenting shareholder shall be a record holder of the shares of
the corporation as to which he seeks relief as of the date fixed for the
determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 1701.80.1 of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 1701.80.1 of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested, so that the corporation may forthwith endorse on
them a legend to the effect that demand for the fair cash value of such shares
has been made. The corporation promptly shall return such endorsed certificates
to the dissenting shareholder. A dissenting shareholder's failure to deliver
such certificates terminates his rights as a dissenting shareholder, at the
option of the corporation, exercised by written notice sent to the dissenting
shareholder, within twenty days after the lapse of the fifteen-day period,
unless a court for good cause shown otherwise directs. If shares represented by
a certificate on which such a legend has been endorsed are transferred, each new
certificate issued for them shall bear a similar legend, together with the name
of the original dissenting holder of such shares. Upon receiving a demand for
payment from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the shareholder or the corporation, which
in case of a merger or consolidation may be the surviving or the new entity,
within three months after the service
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<PAGE> 123
of the demand by the dissenting shareholder, may file a complaint in the court
of common pleas of the county in which the principal office of the corporation
that issued such shares is located, or was located when the proposal was adopted
by the shareholders of the corporation, or, if the proposal was not required to
be submitted to the shareholders, was approved by the directors. Other
dissenting shareholders, within that three month period, may join as plaintiffs,
or may be joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint, and requiring
that a copy of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share, and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding, and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the rules of appellate
procedure and, to the extent not in conflict with those rules, Chapter 2505 of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or as fixed under this section
shall be paid within thirty days after the date of final determination of such
value under this division, the effective date of the amendment to the articles,
or the consummation of the other action involved, whichever occurs last. Upon
the occurrence of the last such event, payment shall be made immediately to a
holder of uncertificated securities entitled to such payment. In the case of
holders of shares represented by certificates, payment shall be made only upon
and simultaneously with the surrender to the corporation of the certificates
representing the shares for which such payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 1701.80.1 of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller, who is under no compulsion to sell, would be willing to
accept, and that a willing buyer, who is under no compulsion to purchase, would
be willing to pay, but in no event shall the fair cash value of a share exceed
the amount specified in the demand of the particular shareholder. In computing
such fair cash value, any appreciation or depreciation in market value resulting
from the proposal submitted to the directors or to the shareholders shall be
excluded.
(D) (1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section, unless
the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their
adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of
the corporation by its directors;
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<PAGE> 124
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the
shareholder nor the corporation has filed or joined in a complaint
under division (B) of this section within the period provided.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand, until
either the termination of the rights and obligations arising from it or the
purchase of the shares by the corporation, all other rights accruing from such
shares, including voting and dividend or distribution rights, are suspended. If
during the suspension, any dividend or distribution is paid in money upon shares
of such class, or any dividend, distribution, or interest is paid in money upon
any securities issued in extinguishment of or in substitution for such shares,
an amount equal to the dividend, distribution, or interest which, except for the
suspension, would have been payable upon such shares or securities, shall be
paid to the holder of record as a credit upon the fair cash value of the shares.
If the right to receive fair cash value is terminated other than by the purchase
of the shares by the corporation, all rights of the holder shall be restored and
all distributions which, except for the suspension, would have been made shall
be made to the holder of record of the shares at the time of termination.
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<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article Sixth of the Amended and Restated Articles of
Incorporation of FirstMerit, FirstMerit may indemnify any director or officer,
any former director or officer of FirstMerit and any person who is or has served
at the request of FirstMerit as a director, officer or trustee of another
corporation, partnership, joint venture, trust or other enterprise (and his
heirs, executors and administrators) against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him by reason of the fact that he is or was such director, officer
or trustee in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, to the
full extent permitted by applicable law, as the same may be in effect from time
to time. The indemnification provided for therein is not deemed to restrict the
right of FirstMerit to (i) indemnify employees, agents and others as permitted
by such law, (ii) purchase and maintain insurance or provide similar protection
on behalf of directors, officers or such other persons against liabilities
asserted against them or expenses incurred by them arising out of their service
to FirstMerit, and (iii) enter into agreements with such directors, officers,
employees, agents or others indemnifying them against any and all liabilities
(or such lesser indemnification as may be provided in such agreements) asserted
against them or incurred by them arising out of their service to FirstMerit.
The rights provided in Article Sixth are in addition to any rights provided
by contract or as a matter of law. Ohio Revised Code Section 1701.13(E) includes
indemnification provisions similar to Article Sixth. Section 1701.13(E) of the
Ohio Revised Code provides that a corporation may indemnify or agree to
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, other than an action by or in
the right of the corporation, by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee,
member, manager, or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or a partnership, joint venture,
trust, or other enterprise, against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, if he had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful. Section 1701.13(E)(2) further specifies that a corporation may
indemnify or agree to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor, by reason of the fact that he is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise, against
expenses, including attorney's fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of (a) any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent, that the court of
common pleas or the court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability, but in view of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses as the court of common pleas or such other court
shall deem proper, and (b) any action or suit in which the only liability
asserted against a director is pursuant to Section 1701.95 of the Ohio Revised
Code concerning unlawful loans, dividends and distribution of assets. In
addition, Section 1701.13(E) requires a corporation to pay any expenses,
including attorney's fees, of a director in defending an action, suit, or
proceeding referred to above as they are
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<PAGE> 126
incurred, in advance of the final disposition of the action, suit, or
proceeding, upon receipt of an undertaking by or on behalf of the director in
which he agrees to both (i) repay such amount if it is proved by clear and
convincing evidence that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the corporation or
undertaken with reckless disregard for the best interests of the corporation and
(ii) reasonably cooperate with the corporation concerning the action, suit, or
proceeding.
Section 1701.13(E) further authorizes a corporation to enter into contracts
regarding indemnification and to purchase and maintain insurance on behalf of
any director, trustee, officer, employee or agent for any liability asserted
against him or arising out of his status as such. FirstMerit presently has
contracts with each of its directors and key officers and maintains insurance
for the benefit of persons entitled to indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See the Exhibit Index.
(b) Financial Statement Schedules. Not Applicable.
(c) Reports, Opinions or Appraisals. Furnished as Appendix B and C to the
Joint Proxy Statement/ Prospectus.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
FirstMerit's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect
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<PAGE> 127
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(d) FirstMerit undertakes that every prospectus (i) that is filed pursuant
to paragraph (c) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities and at that
time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
FirstMerit pursuant to the foregoing provisions, or otherwise, FirstMerit has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by FirstMerit of expenses incurred or
paid by a director, officer or controlling person of FirstMerit in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, FirstMerit will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(g) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
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<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Akron, State of Ohio, on
the 18th day of September, 1998.
FIRSTMERIT CORPORATION
By: /s/ JOHN R. COCHRAN
------------------------------------
John R. Cochran, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
registration statement has been signed on the 18th day of September, 1998, by
the following persons (including a majority of the Board of Directors of the
registrant) in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOHN R. COCHRAN President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer) and
John R. Cochran Director
Executive Vice President, Finance and
/s/ JACK R. GRAVO Administration (Principal Financial
- ----------------------------------------------------- Officer and Principal Accounting
Jack R. Gravo Officer)
/s/ KAREN S. BELDEN* Director
- -----------------------------------------------------
Karen S. Belden
/s/ R. CARY BLAIR* Director
- -----------------------------------------------------
R. Cary Blair
/s/ JOHN C. BLICKLE* Director
- -----------------------------------------------------
John C. Blickle
/s/ SID A. BOSTIC* Director
- -----------------------------------------------------
Sid A. Bostic
/s/ ROBERT W. BRIGGS* Director
- -----------------------------------------------------
Robert W. Briggs
/s/ RICHARD COLELLA* Director
- -----------------------------------------------------
Richard Colella
/s/ ELIZABETH A. DALTON* Director
- -----------------------------------------------------
Elizabeth A. Dalton
/s/ TERRY L. HAINES* Director
- -----------------------------------------------------
Terry L. Haines
/s/ CLIFFORD J. ISROFF* Director
- -----------------------------------------------------
Clifford J. Isroff
/s/ PHILIP A. LLOYD II* Director
- -----------------------------------------------------
Philip A. Lloyd II
/s/ ROBERT G. MERZWEILER* Director
- -----------------------------------------------------
Robert G. Merzweiler
</TABLE>
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<PAGE> 129
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Director
- -----------------------------------------------------
Stephen E. Myers
/s/ ROGER T. READ* Director
- -----------------------------------------------------
Roger T. Read
/s/ JUSTIN T. ROGERS, JR.* Director
- -----------------------------------------------------
Justin T. Rogers, Jr.
/s/ RICHARD N. SEAMAN* Director
- -----------------------------------------------------
Richard N. Seaman
/s/ JERRY M. WOLF* Director
- -----------------------------------------------------
Jerry M. Wolf
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
registration statement on behalf of each of the indicated officers and
directors of FirstMerit Corporation pursuant to a Power of Attorney executed
by each such officer and director and filed with this registration statement.
Dated: September 18, 1998
/s/ KEVIN C. O'NEIL
--------------------------------------
Kevin C. O'Neil
Attorney-in-Fact
II-5
<PAGE> 130
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
<S> <C>
2.1 Agreement of Affiliation and Plan of Merger by and between
FirstMerit Corporation and Security First Corp. dated April
5, 1998 (incorporated by reference from Exhibit 99.1 to the
Form 8-K filed by the registrant on April 9, 1998)
2.2 Security First Corp. Stock Purchase Option by and between
FirstMerit Corporation and Security First Corp. dated April
5, 1998 (incorporated by reference from Exhibit 99.2 to the
Form 8-K filed by the registrant on April 9, 1998)
2.3 Agreement of Affiliation and Plan of Merger by and between
FirstMerit Corporation and Signal Corp dated August 10, 1998
(incorporated by reference from Exhibit 99.1 to the Form 8-K
filed by the registrant on August 18, 1998)
2.4 Signal Corp Stock Purchase Option by and between FirstMerit
Corporation and Signal Corp dated August 11, 1998
(incorporated by reference from Exhibit 99.2 to the Form 8-K
filed by the registrant on August 18, 1998)
3.1 Amended and Restated Articles of Incorporation of FirstMerit
Corporation, as amended (incorporated by reference from
Exhibit 3(a) to the Form 8-K filed by the registrant on
April 9, 1998, and the amendment incorporated by reference
from Exhibit 4 to the Form 8-K filed by the registrant on
June 22, 1998)
3.2 Amended and Restated Code of Regulations of FirstMerit
Corporation (incorporated by reference from Exhibit 3(b) to
the Form 10-K filed by the registrant on April 9, 1998)
4.1 Shareholders Rights Agreement dated October 21, 1993,
between FirstMerit Corporation and FirstMerit Bank, N.A., as
amended and restated May 20, 1998 (incorporated by reference
from Exhibit 4 to the Form 8-A/A filed by the registrant on
June 22, 1998)
5 Opinion Regarding Legality
8 Opinion Regarding Certain Tax Matters
10.1 1982 Incentive Stock Option Plan of FirstMerit Corporation
(incorporated by reference from Exhibit 4.2 to the Form S-8
(No. 33-7266) filed by the registrant on July 15, 1986)
10.2 Amended and Restated 1992 Stock Option Program of FirstMerit
Corporation (incorporated by reference from Exhibit 10.2 to
the Form 10-K filed by the registrant on February 24, 1998)
10.3 1992 Directors Stock Option Program (incorporated by
reference from Exhibit 10.3 to the Form 10-K filed by the
registrant on February 24, 1998)
10.4 FirstMerit Corporation 1995 Restricted Stock Plan
(incorporated by reference from Exhibit (10)(d) to the Form
10-Q for the fiscal quarter ended March 31, 1995, filed by
the registrant on May 15, 1995)
10.5 1997 Stock Option Program of FirstMerit Corporation
(incorporated by reference from Exhibit 10.5 to the Form
10-K filed by the registrant on February 24, 1998)
10.6 1985 FirstMerit Corporation Stock Plan (CV) (incorporated by
reference from Exhibit (10)(a) to the Form S-8 (No.
33-57557) filed by the registrant on February 1, 1995)
10.7 1993 FirstMerit Corporation Stock Plan (CV) (incorporated by
reference from Exhibit (10)(b) to the Form S-8 (No.
33-57557) filed by the registrant on February 1, 1995)
10.8 Amended and Restated FirstMerit Corporation Executive
Deferred Compensation Plan (incorporated by reference from
Exhibit 10(h) to the Form 10-K filed by the registrant on
February 25, 1997)
10.9 Amended and Restated FirstMerit Corporation Director
Deferred Compensation Plan (incorporated by reference from
Exhibit 10(i) to the Form 10-K filed by the registrant on
February 25, 1997)
10.10 FirstMerit Corporation Executive Supplemental Retirement
Plan (incorporated by reference from Exhibit 10(d) to the
Form 10-K filed by the registrant on March 15, 1996)
10.11 FirstMerit Corporation Unfunded Supplemental Benefit Plan
(incorporated by reference from Exhibit 10.11 to the Form
10-K filed by the registrant on February 24, 1998)
10.12 First Amendment to the FirstMerit Corporation Unfunded
Supplemental Benefit Plan (incorporated by reference from
Exhibit 10(v) to the Form 10-K filed by the registrant on
March 2, 1995)
</TABLE>
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<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT NUMBER
<S> <C>
10.13 Supplemental Pension Agreement of John R. Macso
(incorporated by reference from Exhibit 10.13 to the Form
10-K filed by the registrant on February 24, 1998)
10.14 FirstMerit Corporation Executive Committee Life Insurance
Program Summary (incorporated by reference from Exhibit
10(w) to the Form 10-K filed by the registrant on March 2,
1995)
10.15 Long Term Disability Plan (incorporated by reference from
Exhibit 10(x) to the Form 10-K filed by the registrant on
March 2, 1995)
10.16 Employment Agreement of John R. Cochran (incorporated by
reference from Exhibit 10(a) to the Form 10-Q filed by the
registrant on May 15, 1995)
10.17 Restricted Stock Award Agreement of John R. Cochran
(incorporated by reference from Exhibit 10(e) to the Form
10-Q filed by the registrant on May 15, 1995)
10.18 Restricted Stock Award Agreement of John R. Cochran dated
April 9, 1997 (incorporated by reference from Exhibit 10.18
to the Form 10-K filed by the registrant on February 24,
1998)
10.19 Employment Agreement of Sid A. Bostic dated February 1,1998
(incorporated by reference from Exhibit 10.19 to the Form
10-K filed by the registrant on February 24, 1998)
10.20 Restricted Stock Award Agreement of Sid A. Bostic dated
February 1, 1998 (incorporated by reference from Exhibit
10.20 to the Form 10-K filed by the registrant on February
24, 1998)
10.21 Form of FirstMerit Corporation Termination Agreement
(incorporated by reference from Exhibit 10(r) to the Form
10-K filed by the registrant on February 25, 1997)
10.22 Form of Director and Officer Indemnification Agreement and
Undertaking (incorporated by reference from Exhibit 10(s) to
the Form 8-K/A filed by the registrant on April 27, 1995)
10.23 Distribution Agreement, by and among FirstMerit Corporation,
FirstMerit Bank, N.A. and the Agents (incorporated by
reference from Exhibit (10)(ii) to the Form 8-K/A filed by
the registrant on April 27, 1995)
10.24 Form of FirstMerit Bank, N.A. Global Bank Note (Fixed Rate)
(incorporated by reference from Exhibit (10)(iii) to the
Form 8-K/A filed by the registrant on April 27, 1995)
10.25 Form of FirstMerit Bank, N.A. Global Bank Note (Floating
Rate) (incorporated by reference from Exhibit (10)(iv) to
the Form 8-K/A filed by the registrant on April 27, 1995)
21 Subsidiaries of FirstMerit Corporation
23.1 Consent of PricewaterhouseCoopers, L.L.P.
23.2 Consent of Deloitte & Touche, LLP
23.3 Consent of Deloitte & Touche, LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Ernst & Young, LLP
23.6 Consent of Sandler O'Neill Partners, L.P.*
23.7 Consent of Goldman, Sachs & Co.*
23.8 Consent of Brouse & McDowell (included in Exhibits 5 and 8)
24 Power of Attorney
99.1 Form of Proxy -- Signal Corp
99.2 Form of Proxy -- FirstMerit Corporation
99.3 Consent of Gary G. Clark
</TABLE>
- ---------------
* To be filed by amendment.
II-7
<PAGE> 132
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
FIRSTMERIT CORPORATION
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
-----------------
EXHIBITS
-----------------
<PAGE> 1
EXHIBIT 5
BROUSE & MCDOWELL
A LEGAL PROFESSIONAL ASSOCIATION
500 FIRST NATIONAL TOWER
AKRON, OHIO 44308
September 18, 1998
FirstMerit Corporation
III Cascade Plaza, 7th Floor
Akron, Ohio 44308
Gentlemen:
We have acted as legal counsel to you with regard to the Agreement of
Affiliation and Plan of Merger dated August 10, 1998, between FirstMerit
Corporation, an Ohio corporation ("FirstMerit" or "Company") and Signal Corp, an
Ohio Corporation ("Signal") ("Merger Agreement").
In providing our opinions herein, reference is made to: (a) the
registration statement on Form S-4 dated as of the date of this opinion, and any
amendments thereto (the"Registration Statement"), as filed with the Securities
and Exchange Commission ("Commission"); and (b) the terms of the Merger
Agreement between FirstMerit and Signal; all as described in the Registration
Statement.
Unless otherwise defined in this letter, all capitalized terms have the
same meanings as set forth in the Merger Agreement. Our opinion is provided to
you as a legal opinion only, and not as a guaranty or warranty, and is limited
to the specific transactions, documents and matters described above.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(a) the Merger Agreement, (b) the Signal Corp Stock Purchase Option dated August
11, 1998, (c) the Registration Statement, and (d) such other agreements,
certificates and documents as we have deemed necessary or appropriate in order
to enable us to render the opinions below.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authority of all persons signing
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed or photostatic copies and the authenticity of the originals of such
copies. In rendering the opinions set forth below, we have relied upon certain
statements, representations and covenants of Signal and FirstMerit contained in
the Merger Agreement and in documents related thereto. We have made no
independent investigation with regard to statements, representations or
covenants made or to be made in the Merger Agreement and in documents related
thereto. We assume that all such statements and representations are, and will be
at the Effective Time, true and complete, but we express no opinion as to their
accuracy or completeness. We also assume that the transactions described in the
Merger Agreement and in the Registration Statement will be carried out in
accordance with the terms of the Merger Agreement.
We are of the opinion that:
1. The Company is a corporation organized and existing in good standing
under the laws of the State of Ohio.
<PAGE> 2
FirstMerit Corporation
September 18, 1998
Page 2
2. The shares of FirstMerit common stock and preferred stock that may
be issued or transferred and sold pursuant to the Registration Statement are
duly authorized, and will be, when issued or transferred and sold in accordance
with the Registration Statement and the prospectus comprising a part thereof,
validly issued, fully paid and nonassessable.
Our opinion is based on the law, judicial decisions, and such other
legal authorities as we have deemed necessary or appropriate for purposes of our
opinion, as each exists as of the date of this opinion. Existing laws may be
changed by legislation or promulgation of regulations or may be interpreted
differently than they are at present by courts, and such changes may alter the
conclusions reached in this opinion. No opinion is rendered with respect to any
issue or matter not expressly stated herein. In addition, our conclusions are
based upon the law currently in effect, which is subject to change on a
prospective or retroactive basis. If any assumption or representation described
above or contained in the Merger Agreement or related documents is not true,
correct and complete, or in the event of a change in law adversely affecting the
conclusions reached in this letter, our opinion shall be void and of no force or
effect.
We disclaim any undertaking to advise you of changes which hereafter
may be brought to our attention, including any change in the law, whether by
legislative or regulatory action, judicial interpretation or otherwise, or of
any change of facts as they presently exist.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement filed by the Company to effect the registration of the
Shares and any amendments thereto, and to the reference to this firm under the
caption "Legal Opinion" in the prospectus comprising a part of the Registration
Statement.
Very truly yours,
BROUSE & McDOWELL
/s/ Brouse & McDowell
<PAGE> 1
EXHIBIT 8
BROUSE & MCDOWELL
A LEGAL PROFESSIONAL ASSOCIATION
500 FIRST NATIONAL TOWER
AKRON, OHIO 44308
September 18, 1998
FirstMerit Corporation
III Cascade Plaza, 7th Floor
Akron, Ohio 44308
Gentlemen:
We have acted as legal counsel to you with regard to the Agreement of
Affiliation and Plan of Merger dated August 10, 1998, between FirstMerit
Corporation, an Ohio corporation ("FirstMerit" or "Company") and Signal Corp
("Signal") ("Merger Agreement"). This opinion is rendered pursuant to the
requirements of the Merger Agreement and pursuant to the requirements of Item
21(a) of Form S-4 under the Securities Act of 1933, as amended.
In providing our opinions herein, reference is made to: (a) the
registration statement on Form S-4 dated as of the date of this opinion, and any
amendments thereto (the "Registration Statement"), and filed with the Securities
and Exchange Commission ("Commission") in connection with the registration for
issuance by FirstMerit of up to [17,900,000] shares of the Company's common
stock, no par value, and preferred stock, no par value ("Shares"); (b) the terms
of the Merger Agreement between FirstMerit and Signal; and (c) the provisions
for the issuance of the Shares; all as described in the Registration Statement.
Unless otherwise defined in this letter, all capitalized terms have the
same meanings as set forth in the Merger Agreement. Our opinion is provided to
you as a legal opinion only, and not as a guaranty or warranty, and is limited
to the specific transactions, documents and matters described above.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(a) the Merger Agreement, (b) the Signal Corp Stock Purchase Option dated August
11, 1998, (c) the Registration Statement, and (d) such other certificates and
documents as we have deemed necessary or appropriate in order to enable us to
render the opinions below. In our examination, we have assumed the genuineness
of all signatures, the legal capacity of all natural persons, the authority of
all persons signing documents, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. In rendering the opinions set forth below, we have
relied upon certain statements, representations and covenants of Signal and
FirstMerit contained in the Merger Agreement and in documents related thereto.
We have made no independent investigation with regard to statements,
representations or covenants made or to be made in the Merger Agreement and in
documents related thereto. We assume that all such statements and
representations are, and will be at the Effective Time, true and complete, but
we express no opinion as to their accuracy or completeness. We also assume that
the transactions described in the Merger Agreement and in the Registration
Statement will be carried out in accordance with its terms.
<PAGE> 2
FirstMerit Corporation
September 18, 1998
Page 2
In rendering our opinion, we have assumed that (a) the proposed merger
of Signal with and into FirstMerit will qualify as a statutory merger under the
Ohio General Corporation Law, and (b) Signal and FirstMerit will satisfy all of
the terms of the Merger Agreement and the respective covenants and agreements
set forth therein.
Based upon and subject to the foregoing, our opinion, as delineated in
the discussion set forth in the prospectus contained in the Registration
Statement under the heading "The Merger -- Material U.S. Federal Income Tax
Consequences," accurately describes the material federal income tax consequences
generally applicable to the Merger.
No opinion is rendered on any federal, state or local tax matter except
those expressly stated herein. Accordingly, this opinion should not be construed
as applying in any manner to any tax aspect of the Merger other than set forth
above. In addition, no opinion may be implied or inferred beyond that which is
expressly stated herein.
This opinion is based upon the current provisions of the Code, the
Treasury Regulations promulgated thereunder, and the interpretations thereof by
the Internal Revenue Service and those courts having jurisdiction over such
matters as of the date hereof, all of which are subject to change either
prospectively or retroactively. Existing laws may be changed by legislation or
promulgation of regulations or may be interpreted differently than they are at
present by courts, and such changes may alter the conclusions reached in this
opinion. No opinion is rendered with respect to the effect, if any, of any
pending or future legislation or administrative regulation or ruling which may
have a bearing on any of the foregoing.
We disclaim any undertaking to advise you of changes which thereafter
may be brought to our attention, including any change in the law, whether by
legislative or regulatory action, judicial interpretation or otherwise, or of
any change of facts as they presently exist.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus comprising a part of the Registration
Statement.
Very truly yours,
BROUSE & McDOWELL
/s/ Brouse & McDowell
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FIRSTMERIT CORPORATION
Citizens Investment Corporation Ohio corporation
Citizens Savings Corporation of Stark County Ohio corporation
FirstMerit Bank, N.A. National Banking Association
- Abell & Associates, Inc. Ohio corporation
- FirstMerit Leasing Company Ohio corporation
- FirstMerit Insurance Agency, Inc. Ohio corporation
- FirstMerit Mortgage Corporation Ohio corporation
- FirstMerit Securities, Inc. Ohio corporation
FirstMerit Community Development Corporation Ohio corporation
FirstMerit Credit Life Insurance Company Arizona corporation
<PAGE> 1
Exhibit 23.1
Consent of PricewaterhouseCoopers LLP
We consent to incorporation by reference in Registration Statement (Form S-4),
of our report dated January 15, 1998, relating to the consolidated balance
sheets of FirstMerit Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the years in the three year period ended December 31,
1997, which report appears in the 1997 Annual Report on Form 10-K of FirstMerit
Corporation, as amended by Form 10-K/A filed on April 30, 1998. We also consent
to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Akron, Ohio
September 18, 1998
<PAGE> 1
Exhibit 23.2
Consent of Deloitte & Touche LLP
We consent to the incorporation by reference in this Registration Statement of
FirstMerit Corporation on Form S-4 of our report dated January 26, 1996, related
to Signal Corp (formerly known as FirstFederal Financial Services Corp) for the
year ended December 31, 1995 appearing in Form 8-K dated August 31, 1998 of
FirstMerit Corporation and to the reference to us under the heading "Experts" in
the Joint Proxy Statement/Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
Columbus, Ohio
September 18, 1998
<PAGE> 1
Exhibit 23.3
Consent of Deloitte & Touche LLP
We consent to the incorporation by reference in this Registration Statement of
FirstMerit Corporation on Form S-4 of our report dated April 22, 1998, appearing
in Appendix C to Part 1 (Prospectus and Proxy Statement) of Registration
Statement No. 333-57439 on Form S-4 of FirstMerit Corporation filed on June 22,
1998. We also consent to the reference to us under the heading "Experts" in the
Joint Proxy Statement/Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
September 18, 1998
<PAGE> 1
Exhibit 23.4
Consent of KPMG Peat Marwick LLP
The Board of Directors
Signal Corp
We consent to the incorporation by reference in the registration statement on
Form S-4 of FirstMerit Corporation of our report dated February 6, 1998, except
as to note 1 (Stock Dividend), which is as of April 22, 1998, and note 15, which
is as of June 29, 1998, with respect to the consolidated balance sheets of
Signal Corp and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended, which report appears in the Form 8-K of
FirstMerit Corporation dated August 31, 1998, and to the reference of our firm
under the heading "Experts" in the registration statement on Form S-4.
Our report refers to the adoption of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," in 1997.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
September 18, 1998
<PAGE> 1
Exhibit 23.5
Consent of Ernst & Young LLP
We consent to the reference to our firm under the captions "Experts" in the
Registration Statement (Form S-4) and related Joint Proxy Statement/Prospectus
of FirstMerit Corporation for the registration of up to 17,575,342 shares of its
common and preferred stock and to the incorporation by reference therein of our
report dated February 6, 1998, with respect to the consolidated balance sheets
of First Shenango Bancorp, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
shareholder's equity, and cash flows for each of the years in the three year
period ended December 31, 1997 included in FirstMerit Corporation's Form 8-K
dated August 31, 1998 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Pittsburgh, Pennsylvania
September 16, 1998
<PAGE> 1
EXHIBIT 24
FIRSTMERIT CORPORATION
LIMITED POWER OF ATTORNEY
REGISTRATION STATEMENT ON FORM S-4
The undersigned directors and officers of FirstMerit Corporation (the
"Company") hereby constitute and appoint Terry E. Patton, and/or Kevin C.
O'Neil, and each of them, with full power of substitution and resubstitution, as
attorneys or attorney of the undersigned, to execute and file under the
Securities Act of 1933 a Registration Statement on Form S-4 relating to the
registration of shares of the common and preferred stock of the Company relating
to the acquisition of Signal Corp, and any and all amendments and exhibits
thereto, including pre- and post-effective amendments, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission, National Association of Securities Dealers and any state securities
agencies pertaining to such registration, with full power and authority to do
and perform any and all acts and things whatsoever necessary, appropriate or
desirable to be done in the premises, or in the name, place and stead of the
said directors and officers, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Effective the 18th day of September, 1998, unless otherwise indicated
below.
<TABLE>
<S> <C>
/s/ John R. Cochran /s/ Jack R. Gravo
- ------------------------------------------ -----------------------------------------------------
John R. Cochran Jack R. Gravo
President and Chief Executive Officer Executive Vice President, Finance and Administration
(Chief Financial Officer and Chief Accounting Officer)
/s/ Karen S. Belden /s/ R. Cary Blair
- ------------------------------------------ -----------------------------------------------------
Karen S. Belden, Director R. Cary Blair, Director
/s/ John C. Blickle /s/ Sid A. Bostic
- ------------------------------------------ -----------------------------------------------------
John C. Blickle, Director Sid A. Bostic, Director
/s/ Robert W. Briggs /s/ Richard Colella
- ------------------------------------------ -----------------------------------------------------
Robert W. Briggs, Director Richard Colella, Director
/s/ Elizabeth A. Dalton /s/ Terry L. Haines
- ------------------------------------------ -----------------------------------------------------
Elizabeth A. Dalton, Director Terry L. Haines, Director
/s/ Clifford J. Isroff /s/ Philip A. Lloyd II
- ------------------------------------------ -----------------------------------------------------
Clifford J. Isroff, Director Philip A. Lloyd, II, Director
/s/ Robert G. Merzweiler
- ------------------------------------------ -----------------------------------------------------
Robert G. Merzweiler, Director Stephen E. Myers, Director
/s/ Roger T. Read /s/ Justin T. Rogers
- ------------------------------------------ -----------------------------------------------------
Roger T. Read, Director Justin T. Rogers, Director
/s/ Richard N. Seaman /s/ Jerry W. Wolf
- ------------------------------------------ -----------------------------------------------------
Richard N. Seaman, Director Jerry W. Wolf, Director
</TABLE>
<PAGE> 1
EXHIBIT 99.1
SIGNAL CORP
SPECIAL MEETING OF SHAREHOLDERS
___________, 1998
The undersigned hereby appoints the Board of Directors of Signal Corp
("Signal"), and its survivor, with full power of substitution, to act as
attorneys and proxies for the undersigned to vote all shares of common stock of
Signal which the undersigned is entitled to vote at Signal's Special Meeting of
Shareholders (the "Meeting"), to be held on _______, ___________, 1998, at the
Black Tie Affair Conference Center, located at 50 Riffel Road, Wooster, Ohio at
__:__ _.m., local time, and at any and all adjournments and postponements
thereof, as follows:
The adoption of the Agreement of Affiliation and Plan of Merger, dated
August 10, 1998, by and between FirstMerit Corporation and Signal (the
"Merger Agreement"), pursuant to Sections 1701.78 and 1701.831 of the
Ohio Revised Code.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote "FOR"
adoption of the Merger Agreement.
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting. However, proxies instructed
to vote against the adoption of the Merger Agreement will not be voted for a
proposal to approve adjournment of the Meeting to solicit further proxies for
the vote on the Merger Agreement, in the event such a proposal comes before the
Meeting.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT. IF ANY OTHER BUSINESS
IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE> 2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned acknowledges receipt from Signal, prior to the
execution of this proxy, of Notice of the Meeting and a Joint Proxy
Statement/Prospectus.
Dated:
------------------ ------------------------------------
PRINT NAME OF SHAREHOLDER
------------------------------------
SIGNATURE OF SHAREHOLDER
------------------------------------
PRINT NAME OF SHAREHOLDER
------------------------------------
SIGNATURE OF SHAREHOLDER
Please sign exactly as your name
appears on this card. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title. If shares are held jointly,
each holder should sign.
---------------------------------------------------------------------------
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE
---------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.2
REVOCABLE PROXY FirstMerit Corporation
Special Meeting of Stockholders, ____________, 1998
This proxy is solicited on behalf of the Board of Directors of
FirstMerit Corporation
The undersigned hereby appoints _______________ and
_______________, and each of them, proxies with power of substitution to vote on
behalf of the stockholders of FirstMerit Corporation on ___________, 1998, and
any adjournments and postponements thereof, with all powers that the undersigned
would possess if personally present, with respect to the proposals set forth on
the reverse side hereof. The affirmative vote of a majority of the shares
represented at the meeting may authorize the adjournment of the meeting;
provided, however, that no proxy which is voted against a proposal will be voted
in favor of adjournment to solicit further proxies for such proposal.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON
THE REVERSE SIDE HEREOF, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED "FOR" APPROVAL OF ALL PROPOSALS. THE PROXIES MAY VOTE IN THEIR DISCRETION
AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt from FirstMerit Corporation
prior to the execution of this proxy of Notice of the Meeting and a Joint Proxy
Statement/Prospectus.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE HEREOF.)
================================================================================
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
I. The approval and adoption of the Affiliation and Plan of Merger
dated August 10, 1998, by and between FirstMerit Corporation and Signal Corp
[ ] FOR [ ] AGAINST [ ] ABSTAIN
II. The approval of the proposal to set the number of directors of
FirstMerit Corporation at 21.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. Such other matters as may properly come before the meeting.
A majority of the proxies or substitutes present at the meeting may
exercise all powers granted hereby.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
ON THIS PROXY. IF SIGNING FOR ESTATES,
TRUSTS, CORPORATIONS OR PARTNERSHIPS,
TITLE OR CAPACITY SHOULD BE STATED. IF
SHARES ARE HELD JOINTLY, EACH HOLDER
SHOULD SIGN.
Signature: Date:
--------------- --------
Signature: Date:
--------------- --------
IMPORTANT! PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS
PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 1
Exhibit 99.3
CONSENT OF GARY G. CLARK
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 193, I hereby consent to being named in the Joint Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
/s/ Gary G. Clark
-----------------------
Gary G. Clark
Date: September 18, 1998
