<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
FIRSTMERIT CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FirstMerit LOGO
III Cascade Plaza
Akron, Ohio 44308
March 17, 1999
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held on Wednesday, April 21, 1999 at 10:00 A.M. at the John S. Knight
Convention Center, 77 E. Mill Street, Akron, Ohio 44308.
The election of directors will take place at the Annual Meeting. This year
we will elect five Class II Directors whose terms will expire at the Annual
Meeting in 2002. All of the nominees are currently serving as directors. You
will also be asked to consider and approve the FirstMerit Corporation 1999 Stock
Plan as well as a proposal to increase the number of authorized shares of
FirstMerit Common Stock. These proposals are described in detail in the Proxy
Statement.
Enclosed with this letter is a Notice of Annual Meeting together with a
Proxy Statement which contains information with respect to the proposals and the
nominees for director, as well as the other directors who will continue in
office.
It is important that your shares be voted, and we hope that you will be
able to attend the Annual Meeting. We urge you to execute and return the
enclosed form of proxy as soon as possible, whether or not you expect to attend
the Annual Meeting in person.
Sincerely,
/s/ John R. Cochran
John R. Cochran
Chairman and Chief Executive Officer
NOTICE TO FORMER SIGNAL CORP SHAREHOLDERS:
YOU HAVE THE RIGHT TO VOTE AT THE ANNUAL MEETING REGARDLESS OF WHETHER YOU HAVE
CONVERTED YOUR SIGNAL CORP SHARES TO FIRSTMERIT SHARES. YOUR VOTE IS IMPORTANT.
PLEASE EXECUTE AND RETURN THE ENCLOSED FORM OF PROXY AS SOON AS POSSIBLE,
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING.
<PAGE> 3
FIRSTMERIT CORPORATION
III CASCADE PLAZA
AKRON, OHIO 44308
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, APRIL 21, 1999
The Annual Meeting of Shareholders of FirstMerit Corporation, an Ohio
corporation ("FirstMerit"), will be held at the John S. Knight Convention
Center, 77 E. Mill Street, Akron, Ohio, on Wednesday, April 21, 1999, at 10:00
A.M. (local time), for the following purposes:
1. To elect five Class II Directors;
2. To approve a proposal to amend FirstMerit's Amended and Restated
Articles of Incorporation to increase the authorized shares of Common
Stock from 160,000,000 to 300,000,000 shares;
3. To approve the FirstMerit Corporation 1999 Stock Plan; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on February 22,
1999, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. All shareholders are cordially
invited to attend the meeting in person. Whether or not you expect to attend the
meeting in person, please fill in, date, sign and return the enclosed Proxy
Card.
By Order of the Board of Directors,
/s/ Terry E. Patton
Terry E. Patton
Secretary
Akron, Ohio
March 17, 1999
THE 1998 ANNUAL REPORT TO SHAREHOLDERS ACCOMPANIES THIS NOTICE
<PAGE> 4
FIRSTMERIT(R) CORPORATION
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of FirstMerit Corporation, an Ohio corporation
("FirstMerit" or "Company"), of the accompanying proxy to be voted at the Annual
Meeting of Shareholders to be held on Wednesday, April 21, 1999, at 10:00 A.M.
(local time), and at any adjournment thereof. Shares represented by duly
executed proxies in the accompanying form received by the Board of Directors
prior to the meeting will be voted at the meeting. A shareholder who signs and
returns a proxy in the accompanying form may revoke it prior to or at the
meeting by giving notice to the Secretary. FirstMerit(R) is a registered
trademark of the Company.
The close of business on February 22, 1999, has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting. On that date FirstMerit had outstanding approximately 90,940,081
shares of common stock, no par value per share ("Common Stock"), each of which
is entitled to one vote. For information concerning principal shareholders, see
the section titled "Principal Shareholders" below.
The mailing address of the principal executive offices of FirstMerit is III
Cascade Plaza, Akron, Ohio 44308, telephone number (330) 996-6300. This Proxy
Statement, together with the related Proxy Card, FirstMerit's 1998 Annual Report
to Shareholders and FirstMerit's 1998 Supplemental Consolidated Financial
Statements as of December 31, 1998, are being mailed to the shareholders of
FirstMerit on or about March 17, 1999.
For Proposal No. 1, under Ohio law, FirstMerit's Amended and Restated
Articles of Incorporation, as amended, and its Code of Regulations
("Regulations"), if a quorum is present at the meeting, the nominees for
election as directors who receive the greatest number of votes cast will be
elected directors. A majority of the outstanding shares of Common Stock
constitutes a quorum. An abstention from voting any share with respect to the
election of any nominee for director will have the practical effect of a vote
against that nominee. A broker non-vote with respect to any share will not
affect the election of directors since the share is not counted for voting
purposes.
Proposal No. 2 regarding the increase in authorized shares of Common Stock
must be approved by the affirmative vote of the holders of two-thirds of the
shares of Common Stock, present in person or represented by proxy at the Annual
Meeting, assuming a quorum is present. Abstentions and broker non-votes will be
counted in determining votes present at the meeting. Consequently, an abstention
or a broker non-vote has the same effect as a vote against Proposal No. 2, as
each abstention or broker non-vote would be one less vote in favor of Proposal
No. 2.
Proposal No. 3 regarding the FirstMerit Corporation 1999 Stock Plan must be
approved by the affirmative vote of the holders of a majority of the shares of
Common Stock, present in person or represented by proxy at the Annual Meeting,
assuming a quorum is present. Abstentions and broker non-votes will be counted
in determining votes present at the meeting. Consequently, an abstention or a
broker non-vote has the same effect as a vote against Proposal No. 3, as each
abstention or broker non-vote would be one less vote in favor of Proposal No. 3.
1
<PAGE> 5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
Five Class II directors are being nominated and are to be elected at this
Annual Meeting of Shareholders. In December 1998 the shareholders fixed the
total number of directors at 21. There currently exist four vacancies on the
Board of Directors, one in each of Classes I and III and two in Class II. 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 an individual to the
Board. Such a need could occur, as examples, 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. The Board appointed Jerry M.
Wolf as a Class III Director and Charles F. Valentine as a Class I Director
effective June 18 and October 23, 1998, respectively, in connection with
CoBancorp Inc.'s and Security First Corp.'s respective mergers with and into
FirstMerit. Effective February 12, 1999, the Board appointed Gary G. Clark as a
Class II Director in connection with the merger of Signal Corp with and into
FirstMerit.
Set forth below for each nominee for election as a director and for each
director whose term will continue after the Annual Meeting of Shareholders is a
brief statement, including the age, principal occupation and business experience
during the past five years, and the number of shares of Common Stock
beneficially owned by such director. The Board of Directors has nominated the
persons listed below as nominees. If any nominee should become unavailable for
any reason, it is intended that votes will be cast for a substitute nominee
designated by the Board of Directors. The Board of Directors has no reason to
believe that the nominees named will be unable to serve if elected. The nominees
receiving the greatest number of votes cast by shareholders by proxy or in
person at the meeting, a quorum being present, will be elected. A majority of
the outstanding shares of Common Stock constitutes a quorum. Proxies cannot be
voted for a greater number of nominees than the number named in the Proxy
Statement.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS
(TERM EXPIRING IN 2002)(A)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR PAST FIVE YEARS SHARES BENEFICIALLY OWNED
NAME AGE AND OTHER INFORMATION NUMBER-PERCENT(B)(C)
---- --- ---------------------------------------- -------------------------
<S> <C> <C> <C>
Karen S. Belden 57 Realtor, The Prudential-DeHoff Realtors, Canton, 22,562(d)
Ohio; formerly Director of The CIVISTA Corpora- 167,600(e)(g)
tion, a publicly held savings and loan holding 6,000(f)
company
R. Cary Blair 59 Chairman, President and Chief Executive Officer of 5,145(e)
Westfield Companies, Westfield Center, Ohio, a 6,000(f)
group of insurance companies; Director, The Da-
vey Tree Expert Company, Kent, Ohio, a publicly
held horticultural company
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR PAST FIVE YEARS SHARES BENEFICIALLY OWNED
NAME AGE AND OTHER INFORMATION NUMBER-PERCENT(B)(C)
---- --- ---------------------------------------- -------------------------
<S> <C> <C> <C>
Robert W. Briggs 57 President of the law firm of Buckingham Doolittle 6,170(d)
& Burroughs, LLP, Akron, Ohio 107,602(e)(g)
6,000(f)
Gary G. Clark 49 Formerly Chairman and Chief Executive Officer of 206,297(d)
Signal Corp (formerly First Federal Financial Ser- 1,826(e)
vices Corp.) and Signal Bank, N.A. 57,750(i)
Clifford J. Isroff 62 Chairman and Secretary, I Corp., Akron, Ohio, a 9,200(d)
manufacturing holding company 10,800(f)
CLASS I DIRECTORS CONTINUING IN OFFICE
(TERM EXPIRING IN 2001)(A)
John R. Cochran 56 Chairman and Chief Executive Officer of 234,295(d)
FirstMerit, Chairman and Chief Executive Officer 27,420(e)
of FirstMerit Bank, N.A.; member of the Board of 580,000(f)
Directors of the Federal Reserve Bank of Cleve-
land; formerly President and Chief Executive Of-
ficer of FirstMerit, and President and Chief
Executive Officer, Norwest Bank, Omaha, Nebraska
Richard Colella 63 Attorney, Colella & Kolczun, P.L.L., Lorain, Ohio 8,898(d)
2,400(f)
Philip A. Lloyd, II 52 Attorney, Brouse McDowell, a Legal Professional 40,089(d)
Association, Akron, Ohio 375,002(e)(g)
10,800(f)
Roger T. Read 57 Formerly Chairman, Chief Executive Officer and 122,024(e)
President, Harwick Chemical Corporation, Akron, 9,600(f)
Ohio, a manufacturer and wholesaler of chemicals
and allied products
Richard N. Seaman 53 President and Chief Executive Officer, Seaman 2,900(d)
Corporation, a manufacturer of vinyl coated indus- 400(e)
trial fabrics 2,400(f)
Charles F. Valentine 59 Executive Vice President of FirstMerit; formerly 181,768(d)
Chairman and Chief Executive Officer of Security 53,130(e)
First Corp. and Security Federal Savings and Loan 79,140(f)(h)
Association
</TABLE>
3
<PAGE> 7
CLASS III DIRECTORS CONTINUING IN OFFICE
(TERM EXPIRING IN 2000)(A)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR PAST FIVE YEARS SHARES BENEFICIALLY OWNED
NAME AGE AND OTHER INFORMATION NUMBER-PERCENT(B)(C)
---- --- ---------------------------------------- -------------------------
<S> <C> <C> <C>
John C. Blickle 48 President of Heidman, Inc., dba McDonald's 25,590(d)
Restaurants, Akron, Ohio, quick service 3,072(e)
restaurants 10,800(f)
Sid A. Bostic 56 President and Chief Operating Officer, FirstMerit 9,197(d)
Corporation; President and Chief Operating 75,000(f)
Officer, FirstMerit Bank, N.A.; formerly Chairman,
President and Chief Executive Officer, Norwest
Bank Indiana, N.A., Fort Wayne, Indiana
Terry L. Haines 52 President, Chief Executive Officer and Director, 3,514(e)
A. Schulman Inc., Akron, Ohio, a publicly held 9,600(f)
manufacturer and wholesaler of plastic materials
Robert G. Merzweiler 45 President and Chief Executive Officer, Landmark 8,000(d)
Plastic Corporation, Akron, Ohio, a manufacturer 10,800(f)
of plastic products
Justin T. Rogers, Jr. 69 Formerly Chairman, Chief Executive Officer and 12,734(d)
Director, Ohio Edison Company, Akron, Ohio, a 8,400(f)
publicly held electric utility company
Jerry M. Wolf 53 President and Chief Executive Officer of Acoust-A- 9,000(d)
Fiber, Inc.; formerly Chairman of the Board of 150(e)
Directors of Jefferson Savings Bank and a member
of the Board of Directors of PremierBank & Trust
</TABLE>
- ---------------
(a) The directors have served since the year following their names: Messrs.
Isroff and Rogers, 1981; Mr. Lloyd, 1988; Mr. Blickle, 1990; Messrs.
Merzweiler and Haines, 1991; Mr. Read, 1992; Mr. Cochran, 1995; Mrs. Belden
and Messrs. Blair and Briggs, 1996; Messrs. Bostic, Colella, Seaman,
Valentine and Wolf, 1998. Mr. Clark was appointed to the Board on February
12, 1999.
(b) Number of shares beneficially owned is reported as of February 16, 1999.
None of the directors beneficially owns one percent (1%) or more of the
outstanding shares of FirstMerit Common Stock.
(c) All directors and executive officers as a group (29 persons) beneficially
owned 3,633,309 shares of Common Stock as of February 16, 1999. This
represents approximately 4.0% of the outstanding shares of Common Stock as
of that date.
(d) Sole voting and/or investment power.
(e) Shared voting and/or investment power.
(f) Shares with respect to which the nominee or director has the right to
acquire beneficial ownership by exercising options granted under
FirstMerit's 1992 Stock Option Program ("1992 Stock Plan"), the 1992
Directors Stock Option Program ("Director Stock Plan") or the FirstMerit
Corporation 1997 Stock Plan ("1997 Stock Plan").
4
<PAGE> 8
(g) Includes reported beneficial ownership of the following numbers of shares
owned by family members or trusts, as to which the director disclaims any
beneficial ownership: Mrs. Belden, 167,600; Mr. Briggs, 107,602; and Mr.
Lloyd, 346,070.
(h) Includes 904 shares of FirstMerit 6 1/4% Convertible Subordinated
Debentures.
(i) Shares subject to stock options granted by Signal Corp and assumed by
FirstMerit on February 12, 1999.
There are (and during the past five years there have been) no legal
proceedings material to an evaluation of the ability of any director or
executive officer of FirstMerit to act in such capacity or concerning his
integrity.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of FirstMerit has several committees and has
appointed members to such committees since the 1998 Annual Meeting of
Shareholders.
The Audit and Review Committee consisted of Robert G. Merzweiler, Chairman,
Karen S. Belden, Robert W. Briggs, Stephen E. Myers and Richard N. Seaman. It
met five times during 1998 to examine and review internal and external reports
of operations of FirstMerit and its operating subsidiaries (the "Subsidiaries")
for presentation to the full Board of Directors.
The Credit Committee consisted of Philip A. Lloyd, II, Chairman, Karen S.
Belden, John C. Blickle, Richard Colella, Elizabeth A. Dalton and Justin T.
Rogers, Jr. It met five times during 1998 to monitor the lending activities of
the Subsidiaries and to help assure such activities were conducted in a manner
consistent with FirstMerit's loan policy.
The Compensation Committee was appointed to establish policies for and
levels of reasonable compensation for directors, officers and employees of
FirstMerit and the Subsidiaries, and to administer (among other plans)
FirstMerit's stock option plans, the FirstMerit Corporation Executive Incentive
Plan (the "Compensation Program") and the Executive Life Insurance Program
("Insurance Plan"). In addition, the Committee is involved in administering the
Employee Stock Purchase Plan ("ESPP"), the Pension Plan for Employees of
FirstMerit Corporation and the Subsidiaries ("Pension Plan"), the Executive
Supplemental Retirement Plan ("SERP") and the FirstMerit Corporation and
Subsidiaries Employees' Salary Savings Retirement Plan ("401(k) Plan"). The
committee met eight times during 1998. Its members consisted of Roger T. Read,
Chairman, R. Cary Blair, Terry L. Haines, Clifford J. Isroff, Philip A. Lloyd,
II and Justin T. Rogers, Jr., although Mr. Lloyd recused himself from
determinations relating to compensation subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
The Executive Committee evaluates and responds to management's
recommendations concerning planning, management, acquisitions, nominations for
directors and committee membership. The Executive Committee is authorized to act
for the Board of Directors when the Board is not in session, except in certain
limited circumstances. The members of the Executive Committee consisted of
Clifford J. Isroff, Chairman, R. Cary Blair, John C. Blickle, Sid A. Bostic,
John R. Cochran, Philip A. Lloyd, II, Roger T. Read and Justin T. Rogers, Jr. It
met fourteen times during 1998.
There were 14 regularly scheduled and special meetings of the Board of
Directors in 1998. All of the incumbent directors attended more than 75% of the
aggregate of the total number of meetings of the Board of Directors and the
total number of meetings of committees on which each served.
5
<PAGE> 9
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires FirstMerit's directors, officers
and persons who own more than ten percent of its Common Stock ("Section 16
Filers") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission"), and to furnish FirstMerit
with copies of all such forms they file. FirstMerit understands from the
information provided to it by Section 16 Filers that for 1998 all reports were
duly and timely filed by the Section 16 Filers, except that Elizabeth A. Dalton
failed to file a Form 4 to report the open market sale of 1,500 shares of Common
Stock. The transaction was reported on a Form 5 filed in February, 1999.
6
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation paid or accrued by FirstMerit and its Subsidiaries, to or on behalf
of its executive officers. The table shows the compensation of the individual
serving in the capacity of Chief Executive Officer, as well as each of the four
other most highly compensated executive officers of FirstMerit, determined as of
the end of the last fiscal year, December 31, 1998 (collectively the "Named
Executive Officers"), and for the fiscal years ended December 31, 1997 and 1996:
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS(1)
--------------------------------------------- ----------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) COMPENSATION(4) AWARDS(5) OPTIONS/SARS(6) COMPENSATION(7)
------------------ ---- --------- -------- --------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Cochran(8) 1998 $540,000 $350,880 $ -0- $ -0-(9) 120,000 $39,042
Chairman and Chief 1997 492,500 264,000 52,436 511,888 110,000 29,655
Executive Officer 1996 430,000 -0- 32,652 -0- 200,000 36,292
Sid A. Bostic(10) 1998 320,833 8,238 -0- 255,375(11) 75,000 33,744
President and Chief
Operating Officer
Robert P. Brecht 1998 194,500 105,925 -0- -0- -0- 24,461
Executive Vice 1997 188,000 72,800 27,716 -0- -0- 20,460
President 1996 180,250 34,000 -0- -0- 60,000 24,086
Jack R. Gravo 1998 245,000 160,475 -0- -0- 21,375 20,308
Executive Vice 1997 236,792 100,000 -0- -0- 9,000 19,240
President 1996 195,920 46,384 -0- -0- 75,000 19,015
John R. Macso 1998 285,417 132,550 -0- -0- 16,904 26,169
Executive Vice 1997 272,505 130,000 -0- -0- 15,914 16,345
President 1996 263,013 44,975 42,123 -0- 105,000 25,794
</TABLE>
- ---------------
(1)Share information for 1996 has been restated to give effect to the 2-for-1
stock split effective in September 1997.
(2)Includes the deferred portion of salary under the 401(k) Plan.
(3)For 1998, 1997 and 1996, the bonus includes the amounts paid or accrued
pursuant to the Compensation Program. The amounts included represent the
incentive bonus earned for the prior year, but which cannot be determined
and paid until the first quarter of the following year. For 1998, the bonus
amounts reported include amounts which were deferred to subsequent periods
pursuant to FirstMerit's Executive Deferred Compensation Plan. The amounts
deferred to a subsequent period for each individual were as follows: Mr.
Cochran, $263,160, Mr. Bostic, -0-, Mr. Brecht, -0-, Mr. Gravo, -0-, and Mr.
Macso, $33,138.
(4)Perquisites provided to each of the Named Executive Officers in 1998 did not
exceed the disclosure thresholds established under Commission regulations
and are not included in these totals.
(5)Other than Messrs. Cochran and Bostic, none of the Named Executive Officers
holds restricted stock. No long-term incentive plan payouts were made in
1998.
(6)The terms of the stock options granted in 1998 to four of the Named
Executive Officers, due to new employment, promotion, and the granting of
reload options are described in detail in the footnotes to the table
"Options/SAR Grants in Last Fiscal Year."
(7)"All Other Compensation" for 1998 includes the following: (i) contributions
to FirstMerit's 401(k) Plan to match the 1998 pre-tax elective deferral
contributions made by each to the 401(k) Plan: Mr. Cochran, $7,500, Mr.
Bostic, $2,625,
7
<PAGE> 11
Mr. Brecht, $7,500, Mr. Gravo, $7,400, and Mr. Macso, $7,500, and (ii)
amounts paid or accrued by FirstMerit for life and accidental death
insurance under FirstMerit's Insurance Program (together with amounts paid
as a tax "gross-up" on such amounts): Mr. Cochran, $31,542, Mr. Bostic,
$31,119, Mr. Brecht, $16,961, Mr. Gravo, $12,908 and Mr. Macso, $18,669.
None of the Named Executive Officers received fees as a director or
committee member.
(8)Mr. Cochran was promoted to Chairman and Chief Executive Officer from
President and Chief Executive Officer on February 1, 1998.
(9)On March 1, 1995, Mr. Cochran received 25,000 shares of restricted Common
Stock pursuant to the FirstMerit Corporation 1995 Restricted Stock Plan and
on April 9, 1997, he received 25,200 shares of restricted Common Stock
pursuant to the 1997 Stock Plan. As of February 15, 1999, the fair market
value of such shares equaled $1,255,000, based upon a closing market price
of $25.00 per share. The restrictions on the 1995 shares lapse equally over
a three-year period beginning in March, 2001, and restrictions on the 1997
shares lapse equally over a three-year period beginning in April, 2005, but
all may vest at an earlier time due to death, disability, a Change of
Control, Termination Without Cause or Termination for Good Reason. The
dividends on such shares are currently paid to Mr. Cochran.
(10)Mr. Bostic joined the Company on February 1, 1998.
(11)The restrictions on the 9,000 shares of Common Stock awarded to Mr. Bostic
on February 1, 1998 will lapse on February 1, 2001 with respect to 7,000 of
such shares, on February 1, 2002 with respect to 1,000 of such shares and on
February 1, 2003 with respect to the remaining 1,000 shares, but all may
vest at an earlier time due to death, disability, a Change of Control,
Termination Without Cause or Termination for Good Reason. As of February 15,
1999, the fair market value of such shares equaled $225,000, based upon a
closing market price of $25.00 per share. The dividends on such shares are
currently paid to Mr. Bostic.
8
<PAGE> 12
STOCK OPTIONS
The following table contains information concerning the grant of stock
options and/or dividend units during fiscal 1998 under FirstMerit's 1997 Stock
Plan to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
---------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR BASE PRICE DATE 5% 10%
---- ------------ ---------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John R. Cochran 80,000(3) 18.09% $34.00 3/19/08 $782,136 $2,856,546
40,000(4) 9.04% 34.00 3/19/08 391,068 1,428,273
-------
120,000 27.13%
Sid A. Bostic 50,000(5) 11.3% 28.50 2/02/08 763,835 2,060,341
25,000(6) 5.65% 28.50 2/02/08 381,918 1,030,171
-------
75,000 16.96%
Robert P. Brecht -0- 0% N/A N/A N/A N/A
Jack R. Gravo 4,274 0.97% 23.00 7/18/06 71,404 147,919
17,101 3.87% 23.00 2/15/06 285,701 591,848
-------
21,375(7) 4.83%
John R. Macso 10,904(7) 2.47% 31.56 2/15/06 88,832 284,038
4,000(6) 0.90% 24.375 8/20/08 77,587 181,307
2,000(6) 0.45% 24.375 8/20/08 38,793 90,654
-------
16,904 3.82%
Total All Employees 442,346
</TABLE>
- ---------------
(1)The 1997 Stock Plans generally provide for granting of incentive stock
options ("ISOs"), non-qualified stock options ("NQSOs") (collectively "Stock
Options") and shares of restricted stock. The option price per share of ISOs
must be equal to the fair market value of a share of Common Stock on the
date granted; the option price of NQSOs may be set by the Compensation
Committee. The purchase price of any Stock Option must be paid upon exercise
in (i) immediately available funds, (ii) shares of Common Stock, or (iii) a
combination of (i) and (ii). If granted by the Committee, a one-time reload
option of NQSOs may be granted equal to the number of whole shares used by
the participant to exercise an option. Shares of stock acquired upon the
exercise of the reload option are restricted from sale for two years. If
granted by the Committee, an option may be transferred to an option holder's
immediate family. In the event of a "Change of Control," unless the
Committee otherwise determines, any unvested Stock Options will immediately
vest. "Change of Control" is basically defined as a change in 30% or more of
the beneficial ownership of FirstMerit or a change of a majority of the
Board of Directors within a two-year period.
The 1997 Stock Plans also provide that a "Dividend Unit" may be awarded to
participants with respect to each share of Common Stock for which a Stock
Option is granted, for a period of up to five years. The 1997 Stock
9
<PAGE> 13
Plans provide that in the event of a Change of Control, FirstMerit will
promptly thereafter pay to each participant an amount equal to the aggregate
amount accrued on the Dividend Units held by the participant on the date of
the Change of Control.
(2)This computation does not include the value of Dividend Units. In 1998, the
following amounts were accrued as Dividend Units by the named Executive
Officers: Mr. Cochran, $231,000, Mr. Bostic, $49,500, Mr. Brecht, $46,913,
Mr. Gravo, $53,286 and Mr. Macso, $49,726.
(3)These NQSOs vest on March 20, 1999.
(4)These NQSOs become exercisable in January, 2001 if FirstMerit reaches its
three-year earnings per share target for the vesting of these options.
Otherwise these options vest in September, 2007.
(5)Half of the shares subject to these NQSO's became exercisable on August
15,1998, and half become exercisable on February 15, 1999.
(6)These NQSOs became exercisable in January, 1999 because the Company reached
its earnings per share target for the vesting of these options.
(7)Reload option granted on the exercise of a prior option.
The following table contains information concerning the exercise of Stock
Options and/or Dividend Units under FirstMerit's 1992 Stock Plan and the 1997
Stock Plan, and information on unexercised Stock Options held as of the end of
the 1998 fiscal year, by the Named Executive Officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END AT YEAR-END
-------------------- ---------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE(2)
---- --------------- -------- -------------------- ---------------------
<S> <C> <C> <C> <C>
John R. Cochran -0- $ -0- 340,000/240,000 $5,363,400/1,455,000
Sid A. Bostic -0- -0- 0/75,000 0/120,000
Robert P. Brecht 6,110 116,586 41,396/33,333 543,603/404,162
Jack R. Gravo 33,332 274,989 30,276/47,667 180,903/525,823
John R. Macso 39,248 509,680 10,904/64,334 0/722,269
</TABLE>
- ---------------
(1) Share information relating to options granted prior to September, 1997 has
been restated to give effect to the 2-for-1 stock split effective in that
month.
(2) Based upon the closing price reported in the Nasdaq Stock Market National
Market System ("Nasdaq") for the Common Stock of FirstMerit on December 31,
1998. This computation does not include the value of any Dividend Units.
10
<PAGE> 14
BENEFICIAL OWNERSHIP AND STOCK OWNERSHIP GUIDELINES
The following table sets forth certain information regarding the Named
Executive Officers' beneficial ownership of the Common Stock of the Company as
of February 16, 1999.
<TABLE>
<CAPTION>
TITLE OF CLASS(1) NAME OF OFFICER NUMBER OF SHARES(2) PERCENT OF CLASS(3)
- ----------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
Common Stock John R. Cochran 721,715 --
Common Stock Sid A. Bostic 84,197 --
Common Stock Robert P. Brecht 88,687 --
Common Stock Jack R. Gravo 207,547 --
Common Stock John R. Macso 112,160 --
</TABLE>
- ---------------
(1) None of the Named Executive Officers owns any shares of FirstMerit 6 1/2%
Cumulative Convertible Preferred Stock, Series B ("Series B Preferred
Stock").
(2) The amounts shown represent the total shares owned outright by such
individuals together with shares which are issuable upon the exercise of
currently exercisable stock options. These individuals have the right to
acquire the shares indicated after their names, upon the exercise of such
stock options: Mr. Cochran, 460,000; Mr. Bostic, 75,000; Mr. Brecht, 74,730;
Mr. Gravo, 71,610; and Mr. Macso, 71,238.
(3) None of the listed officers owns more than one percent of Common Stock.
In February 1996, the Board adopted stock ownership guidelines for its
officers. The guidelines state that within five years after adoption, officers
of FirstMerit should own Common Stock having a market value equal to at least
the following levels of their base salary: Chief Executive Officer and
President, five times; Executive Vice President, three times; and Senior Vice
President, two times.
PENSION PLANS
Under the Pension Plan for Employees of FirstMerit Corporation and the
Subsidiaries (the "Pension Plan"), a tax-qualified defined benefit pension plan,
pension benefits may be paid to executive officers in the future. Executive
officers participate in the Pension Plan on the same basis as other employees.
Pension benefits at normal retirement age 65 are based on the average base
salary (exclusive of bonuses and overtime, if either exists, and not exceeding
$160,000 in 1998) of each participant for the highest four consecutive years
during the last ten years of employment. The benefits payable equal the sum of
1.35 percent of such average base salary multiplied by the number of years of
credited service, up to 40 years, plus .55 percent of such average base salary
in excess of "covered compensation," multiplied by the number of years of
credited service not exceeding 35 years. "Covered compensation" for this purpose
means the average (without indexing) of the Social Security taxable wage base in
effect for each calendar year during the 35-year period ending with the last day
of the calendar year in which the participant attains (or will attain) Social
Security retirement age.
Contributions to the Pension Plan are actuarially determined and cannot be
appropriately allocated to individual participants. As of December 31, 1998, the
Named Executive Officers had the following numbers of years of service credited
to them: Mr. Cochran had four years, Mr. Bostic, zero years, Mr. Brecht, 13
years, Mr. Gravo, 23 years and Mr. Macso, 33 years.
11
<PAGE> 15
The following table sets forth estimated annual retirement benefits
(assuming the payments are made on a straight-life annuity basis) at age 65
payable to persons in the specified remuneration and years of service
classification under the FirstMerit Pension Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT ON
AVERAGE BASE DECEMBER 31, 1998 WITH YEARS OF SERVICE INDICATED
SALARY USED FOR ---------------------------------------------------------------
PLAN BENEFITS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- --------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000 $ 40,182 $ 53,576 $ 66,970 $ 80,364 $ 93,758 $103,883
200,000 54,432 72,576 90,720 108,864 127,008 140,508
250,000 68,682 91,576 114,470 137,364 160,258 177,133
300,000 82,932 110,576 138,220 165,864 193,508 213,758
350,000 97,182 129,576 161,970 194,364 226,758 250,383
400,000 111,432 148,576 185,720 222,864 260,008 287,008
450,000 125,682 167,576 209,470 251,364 293,258 323,633
500,000 139,932 186,576 233,220 279,864 326,508 360,258
550,000 154,182 205,576 256,970 308,364 359,758 396,883
600,000 168,432 224,576 280,720 336,864 393,008 433,508
650,000 182,682 243,576 304,470 365,364 426,258 470,133
700,000 196,932 262,576 328,220 393,864 459,508 506,758
750,000 211,182 281,576 352,970 422,364 492,758 543,383
800,000 225,432 300,576 375,720 450,864 526,008 580,008
850,000 239,682 319,576 399,470 479,364 559,258 616,633
</TABLE>
The foregoing figures are provided without regard to limitations on annual
pension benefits that may be paid from a tax-qualified pension plan and trust
under the Internal Revenue Code ("Code").
FirstMerit has adopted the SERP for its employees, including executive
officers. Under the SERP, persons entitled to receive benefits under the Pension
Plan are eligible to receive the excess amounts they would have been entitled to
under the Pension Plan but for limitations on maximum benefits imposed by the
Code on tax-qualified pension plans. The SERP provides total executive
retirement income based upon a formula of 50% of the final two-year average of
the executive's earnings plus 1.5% of the final two-year average earnings for
each year of service up to ten years. This retirement income "target" is then
reduced by the benefits provided by other retirement and supplemental plans,
Social Security, and the benefits from previous employers' retirement plans to
produce a net benefit under the SERP. In addition, benefits are further reduced
by three percent for each year where the retirement age is less than 65 years.
The SERP benefit is payable for 15 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee members consisted of Roger T. Read, Chairman, R.
Cary Blair, Terry L. Haines, Clifford J. Isroff, Philip A. Lloyd, II and Justin
T. Rogers, Jr. In serving on the Compensation
12
<PAGE> 16
Committee, Mr. Lloyd has recused himself from determinations relating to
compensation subject to Section 16 of the Exchange Act.
Mr. Lloyd also served on the Executive and Credit Committees. He is a
shareholder of the law firm of Brouse McDowell, A Legal Professional Association
("Brouse McDowell") which performs legal services for FirstMerit and its
Subsidiaries. During 1998, Brouse McDowell was paid $820,993 for legal services
rendered to FirstMerit and $618,506 for legal services rendered to the
Subsidiaries. The amount of Mr. Lloyd's interest in such fees cannot be
practically determined.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
This section discusses the employment contracts and termination agreements
for the Chief Executive Officer and the other Named Executive Officers.
FirstMerit entered into a new employment agreement with John R. Cochran
effective December 1, 1998. The agreement provides that Mr. Cochran will serve
as the Chairman and Chief Executive Officer, established his annual base salary
at $550,000 (subject to annual review), as well as providing for the terms of
payment of salary and benefits in the event of his death or disability,
termination or a Change of Control. Pursuant to the agreement, Mr. Cochran will
receive bonuses in accordance with the Company's Compensation Program. His
target award under such program was set at 60% of his base salary.
Mr. Cochran was also provided the right to participate in various
retirement plans, as well as certain additional benefits provided executive
officers (including those provided to all employees generally), as detailed in
the "Summary Compensation" and "Option/SAR Grants in Last Fiscal Year" tables
above. The agreement contains a covenant not to compete for the two-year period
immediately following termination or expiration of the agreement that is
conditioned upon FirstMerit's payment of certain obligations. These obligations
consist essentially of the payment of Mr. Cochran's base salary, bonus and other
benefits until the earlier of the second anniversary of the termination date or
the last day of the month of Mr. Cochran's sixty-fifth birthday. In the event
that Mr. Cochran's employment is terminated at his election or for Cause, the
covenant not to compete remains in force, notwithstanding that FirstMerit may
elect not to make the payments described in the preceding sentence.
The Board of Directors also agreed to nominate Mr. Cochran to the Board of
Directors. Additionally, if Mr. Cochran's employment is terminated by FirstMerit
without Cause or by Mr. Cochran with Good Reason during the term of the
agreement, his base salary and benefits continue for one year. The agreement
terminates November 30, 2003, unless terminated at an earlier time pursuant to
its terms.
The employment agreement also provides that if there is a Change of Control
of FirstMerit, and within three years Mr. Cochran is terminated without Cause or
resigns with Good Reason, or within one year resigns without Good Reason, he
will be entitled to an amount payable in one lump sum. This amount will be equal
to (i) the lesser of (a) Mr. Cochran's annual base salary in effect at the time
of termination or immediately prior to the Change of Control (whichever is
higher) or (b) one-twelfth of such annual base salary, multiplied by the number
of months between the termination and Mr. Cochran's sixty-fifth birthday
(including both the months of termination and of Mr. Cochran's birthday), plus
(ii) an amount equal to the highest annual incentive compensation paid to Mr.
Cochran over the three-year period preceding the Change of Control. Such amount
will not be paid, however, if the termination is (i) due to death, retirement or
disability or (ii) by FirstMerit (or its successor) for Cause.
In addition, Mr. Cochran is to receive a lump-sum payment after termination
equal to (i) the lesser of (a) the annual cost of all accident, disability, and
life insurance in effect at the time of termination or immediately prior
13
<PAGE> 17
to the Change of Control (whichever is higher) or (b) one twelfth of such
amount, multiplied by the number of months between the termination and Mr.
Cochran's sixty-fifth birthday (including both the months of termination and of
Mr. Cochran's birthday). Mr. Cochran will be entitled to immediate vesting of
all stock options and similar rights in which he participates. He will also
receive continued health care coverage and continued payment by the Company of
premiums on the Executive Life Insurance Policy (plus 40% of such premiums as a
tax "gross-up").
FirstMerit must pay for one year (up to $35,000) of reasonable outplacement
expenses incurred by Mr. Cochran in seeking comparable employment through a
placement firm. Based upon the closing price of FirstMerit Common Stock
effective for February 15, 1999 of $25.00 and had a Change of Control occurred
on February 16, 1999, the Company believes Mr. Cochran would have been entitled
to a payment equal to $4,646,302. In addition, Mr. Cochran would have been
indemnified to the extent of $2,125,971 as reimbursement for the tax imposed
under Section 4999 the Code, or any similar tax.
To promote stability among the other executive officers, the Board of
Directors of FirstMerit authorized FirstMerit to enter into agreements with
other key officers regarding their termination due to a Change of Control. All
of the other Named Executive Officers have agreements which have Change of
Control provisions. These agreements each provide that if there is a Change of
Control of FirstMerit, and the Named Executive Officer is subsequently
terminated during the term of the his agreement, he will be entitled to an
amount payable in one lump sum. This amount will be equal to (i) the lesser of
(a) the Named Executive Officer's base salary at the time of termination or
immediately prior to the Change of Control (whichever is greater) multiplied by
two (two and a half in the case of Sid A. Bostic) or (b) one twelfth of such
annual base salary multiplied by the number of months between the termination
and the Named Executive Officer's sixty-fifth birthday (including both the
months of termination and of the officer's birthday), plus (ii) an amount equal
to the average annual incentive compensation paid to such officer over the two
years preceding the Change of Control, multiplied by two (or two and a half in
the case of Sid A. Bostic). Such amount will not be paid, however, if the
termination is (i) due to death, retirement or disability, (ii) by FirstMerit
for Cause, or (iii) by the Named Executive Officer other than for Good Reason.
In addition, each Named Executive Officer is to receive benefits during the
two-year period (or thirty-month period in the case of Mr. Bostic) after
termination which must include medical and life insurance benefits identical to
those in effect just before the Change of Control.
Each Named Executive Officer also will be entitled to immediate vesting of
all stock options and similar rights in which he participates. FirstMerit must
also pay for one year (up to $25,000) of reasonable outplacement expenses
incurred by the officer in seeking comparable employment through a placement
firm. Based upon the closing price of FirstMerit Common Stock effective for
February 15, 1999 of $25.00, the Company believes that, had a Change of Control
occurred on February 16, 1999, the Named Executive Officers would have been
entitled to the following payments: Mr. Bostic, $1,220,858 Mr. Brecht, $726,776;
Mr. Gravo, $857,237; and Mr. Macso, $1,095,804. The foregoing totals are limited
to the amounts permitted under Section 4999 of the Code without being considered
"parachute payments."
FIRSTMERIT COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
PHILOSOPHY AND COMPOSITION OF COMMITTEE
FirstMerit's executive compensation program is designed to enable
FirstMerit to attract, motivate and retain top quality executive officers by
providing a fully competitive and comprehensive compensation package. It
provides for base salaries that reflect individual performance as well as annual
variable incentive awards payable in cash for the achievement of financial
performance goals established by the Compensation Committee and
14
<PAGE> 18
approved by the non-employee members of the Board of Directors ("non-employee
directors"). In addition, long-term, stock-based incentive awards are granted to
strengthen the mutuality of interest between the executive officers and
FirstMerit's shareholders and to motivate and reward the achievement of
important long-term performance objectives of FirstMerit.
FirstMerit's executive compensation program is administered by the
Compensation Committee of the Board of Directors, composed entirely of the
following non-employee directors: Roger T. Read, Chairman, R. Cary Blair, Terry
L. Haines, Clifford J. Isroff, Philip A. Lloyd, II and Justin T. Rogers, Jr. Mr.
Lloyd, however, has recused himself from determination relating to compensation
subject to Section 16 of the Exchange Act.
ESTABLISHMENT OF EXECUTIVE COMPENSATION PROGRAM AND PROCEDURES
The Compensation Committee has utilized the services of Sibson & Company
("Sibson"), a nationally recognized independent compensation consulting company,
to review and to make recommendations regarding the effectiveness of
FirstMerit's executive compensation program. As part of that review and for
purposes of recommending a program to FirstMerit, Sibson was requested to review
the executive compensation program being utilized and compare it with similar
programs of public corporations that shared one or more common traits with
FirstMerit (such as market capitalization, asset size and geographic location),
which the Committee and Sibson felt might be FirstMerit's most direct
competitors for executive talent, and also to assist FirstMerit in establishing
and weighting specific assessment areas for the Chief Executive Officer. The
recommendations of Sibson have been utilized by the Committee and Board of
Directors.
The Compensation Committee is responsible for the establishment of the base
salary, as well as the award level for the annual incentive compensation
program, both subject to approval by the non-employee directors. The Committee
is also responsible for the award level and administration of the stock option
programs for executive officers, as well as recommendations regarding other
executive benefits and plans, also subject to approval by the non-employee
directors. In reviewing the individual performance of the Named Executive
Officers whose compensation is detailed in this Proxy Statement, the Committee
takes into account the views of the Chief Executive Officer of FirstMerit. In
reviewing the Chief Executive Officer's performance, the Committee reports on
that evaluation directly to the non-employee members of the Executive Committee
and then to the non-employee directors.
As an overall evaluation tool in determining levels of compensation for the
FirstMerit executive officers, as well as for the Chief Executive Officer, the
Committee reviews the compensation policies of other public companies, as well
as published financial industry salary surveys. Although the Committee has not
defined or established a specific comparison group of bank holding companies for
determination of compensation, those listed in the salary surveys which share
one or more common traits with FirstMerit, such as market capitalization, asset
size, geographic location, similar lines of business and financial returns on
assets and equity, are given more weight. The companies listed in the various
salary surveys may or may not be included in the Nasdaq Banks Index (an index
included in FirstMerit's "Performance Graph" below), and as such, the Committee
is unable to make any comparisons between the two.
COMPONENTS OF THE NAMED EXECUTIVE OFFICER COMPENSATION
For 1998, the executive compensation program for the Named Executive
Officers consisted of four primary components: (i) a base salary; (ii) incentive
compensation; (iii) executive benefits, such as insurance and retirement
benefits; and (iv) benefits which are generally available to all employees.
These components are discussed in detail below.
15
<PAGE> 19
BASE SALARY. The Named Executive Officers' base salaries and performance
are reviewed annually. They are primarily determined by evaluating the
individual officers' level of responsibilities for their position, comparing
their position to similar positions within FirstMerit and by comparing salaries
detailed in the salary surveys for executives with similar experience and
responsibilities outside of FirstMerit.
Significant weight is also given to the views of the Chief Executive
Officer of FirstMerit regarding how the Named Executive Officer has succeeded in
his annual performance goals. These goals are established by the Chief Executive
Officer for each Executive Officer, including personal and corporate goals. The
nature of these goals differs depending upon each Officer's job
responsibilities. Goals are both qualitative in nature, such as the development
and retention of key personnel, quality of products and services and management
effectiveness; and quantitative in nature, such as sales and revenue goals and
cost containment.
The Named Executive Officer's base salary is then established by the
Committee based upon the items listed above, as well as upon the Company's
overall performance during the preceding year. The Committee does not place a
specific weight value on any of the above-listed factors. The base salary as
established is subject to approval by the non-employee directors.
INCENTIVE COMPENSATION. Incentive compensation includes two programs: the
award of cash bonuses through the Compensation Program and the award of stock
options and restricted stock under the 1997 Stock Plan. The participants and
awards under FirstMerit's incentive plans are determined by the Committee,
subject to approval by the non-employee directors.
Cash Incentive Compensation. FirstMerit's policy for cash incentive
compensation is to reward the achievement of financial objectives
established in advance by the Compensation Committee. Prior to the
beginning of each year performance targets are established by the
Committee. The performance targets focus upon the net operating income
("NOI") of FirstMerit, and depending upon the duties of a Named Executive
Officer, the NOI of one or more Subsidiaries. Also included as targets are
individual performance goals. The Committee has the right, however, to also
take into consideration other factors related to the individual performance
of the Named Executive Officer in making an award to him under the
Compensation Program. An incentive bonus award for a Named Executive
Officer depends upon two basic factors: (i) the position held by the Named
Executive Officer, which establishes a maximum bonus available based upon a
percentage of the officer's base salary (60-100% of the base salary for the
Chief Executive Officer; 50-80% of the base salary for the Chief Operating
Officer; 40-70% of the base salary for the other Named Executive Officers)
and (ii) the extent to which the performance targets, including the NOI
target, have been met or exceeded.
All incentive bonus awards are currently paid in cash. The bonuses
paid or accrued in 1998 were based upon FirstMerit's 1997 performance.
Stock Options. FirstMerit's philosophy for granting stock options is
based on the principles of encouraging key employees to remain with the
Company by providing them with a long-term interest in the Company's
overall performance and an incentive to manage with a view toward
maximizing long-term shareholder value. Stock option grants provide an
incentive for the creation of shareholder value since the full benefit of
the grant to each Named Executive Officer can only be realized with an
appreciation in the price of FirstMerit's Common Stock.
16
<PAGE> 20
Option grants provide the right to purchase shares of FirstMerit's
Common Stock at the fair market value on the date of the grant. Stock
options are granted pursuant to the 1997 Stock Plan using guidelines which
include corporate performance, individual responsibilities and performance.
In 1996, the Committee determined and awarded to certain key
individuals "performance" stock options, which vest in January, 1999, but
only if a target cumulative EPS is achieved, otherwise the options vest in
August, 2005, as well as "multi-year" stock options representing grants
equal to approximately three times each Named Executive Officer's normal
annual grant, as determined by the Committee, which vest in 33 1/3%
increments on the anniversary of the option grant in 1997, 1998 and 1999.
Because of the grants made in 1996, other than grants to Mr. Cochran, the
Committee only granted options (performance or multi-year) in 1998 to newly
hired personnel (including Mr. Bostic) or personnel who had received a
promotion (including Mr. Macso). In 1999, the Committee may award similar
performance and multi-year grants to individuals if it determines such
awards are warranted.
The total number of option grants made in 1998 for all participants in
the 1997 Stock Plan was for 442,346 shares of FirstMerit Common Stock, of
which 233,279 shares, or 52.7%, were awarded to the Named Executive
Officers (including 32,279 reload options granted upon the exercise of
prior options).
Stock Ownership Guidelines. In February 1996, the Board adopted stock
ownership guidelines for its officers. The guidelines state that within
five years after adoption, officers of FirstMerit should own Common Stock
having a market value equal to at least the following levels of their base
salary: Chief Executive Officer and President, five times; Executive Vice
President, three times; and Senior Vice President, two times. The Board
annually reviews the level of ownership to monitor the progress towards
attaining these guidelines.
DETERMINATION OF THE CHIEF EXECUTIVE OFFICER'S COMPENSATION
On February 1, 1998, FirstMerit named John R. Cochran as its Chairman and
Chief Executive Officer. Prior to this Mr. Cochran was the President and Chief
Executive Officer of FirstMerit, a position to which he was appointed on March
1, 1995. FirstMerit entered into a new employment agreement with John R. Cochran
effective December 1, 1998. The compensation package entered into with Mr.
Cochran is detailed in this Proxy under the tables and descriptive paragraphs of
this section entitled "Executive Compensation and Other Information."
Mr. Cochran's base salary for 1998 was determined by the Committee through
an assessment of several areas, including the annual financial results of
FirstMerit and his overall performance as a leader of the Company. In
determining compensation the annual financial results (which focused on net
operating income) were given a 75% weight by the Committee, whereas overall
performance as a leader was given a 25% weight by the Committee. Overall
performance was further broken down into seven sub-areas, three of which were
each given a 20% weight, while the other four were each given a 10% weight. In
addition to these factors, the Committee also reviewed information from Sibson
to determine if there were any overall trends in the financial services industry
regarding compensation of chief executive officers that would suggest any
adjustments to the amounts to be paid to Mr. Cochran.
Based on these factors, the Committee established Mr. Cochran's annual base
salary effective as of April 1, 1998 at $550,000, which was approximately a 7.8%
increase from his 1997 base salary. Mr. Cochran was also granted options to
purchase 120,000 shares of FirstMerit Common Stock at a per share price equal to
100% of the fair market value on the date of grant. All of the options granted
were NQSOs. Of these options, 80,000 will vest
17
<PAGE> 21
within one year of the grant. The grant was made in accordance with the
guidelines of the Committee referenced above and equated to 27.13% of all
options granted in 1998 to participants in the 1997 Stock Plan.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Committee has reviewed the qualifying compensation regulations issued
by the Internal Revenue Service under Code Section 162(m) which provide that no
deduction is allowed for applicable employee remuneration paid by a publicly
held corporation to a covered employee to the extent that the remuneration paid
to the employee exceeds $1.0 million for the applicable taxable year, unless
certain conditions are met. Currently, remuneration is not expected to exceed
the $1.0 million base for any employee and therefore, compensation should not be
affected by the qualifying compensation regulations. Under the FirstMerit
Corporation Executive Deferred Compensation Plan ("Executive Deferred Plan"),
which was approved by the shareholders in April 1996, amounts deferred by
executives will not be subject to Code Section 162(m). The Executive Deferred
Plan permits executive officers of FirstMerit to elect to defer their base
salary and incentive compensation in "stock units" (which are not actual shares
of FirstMerit Common Stock but are tied to the performance thereof).
The foregoing report has been respectfully furnished by the members of the
Compensation Committee, being:
<TABLE>
<S> <C>
Roger T. Read, Chairman R. Cary Blair
Terry L. Haines Clifford J. Isroff
Philip A. Lloyd, II Justin T. Rogers, Jr.
</TABLE>
18
<PAGE> 22
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on FirstMerit's Common Stock against the
cumulative return of the Nasdaq Banks Index, the Nasdaq Index and the S&P 500
Index for the period of five fiscal years commencing December 31, 1993 and ended
December 31, 1998.(1)
<TABLE>
<CAPTION>
FMER NASDAQ NASDAQ BANKS(2) S&P 500
---- ------ --------------- -------
<S> <C> <C> <C> <C>
1993 100.00 100.00 100.00 100.00
1994 99.09 97.70 99.63 101.32
1995 124.97 126.32 132.37 139.35
1996 153.20 149.92 164.48 171.32
1997 251.43 177.66 230.72 228.48
1998 244.20 228.92 228.51 293.74
</TABLE>
- ---------------
(1) Assumes that the value of the investment in FirstMerit Common Stock and each
index was $100 on December 31, 1992 and that all dividends were reinvested.
(2) This is a CRSP Index and includes all companies on Nasdaq within the SI
Codes of 602 and 671. To the extent Nasdaq makes available the identity of
the companies which comprise this index, the Company, in a prompt manner,
will make such information available to any person requesting such.
DIRECTOR COMPENSATION
The following table describes the standard arrangements pursuant to which
non-employee directors of FirstMerit were compensated for their services
effective in April 1998:
<TABLE>
<CAPTION>
ANNUAL FEE PER FEE PER COMMITTEE
BASE RETAINER FEE BOARD MEETING MEETING
- ----------------- ------------- -----------------
<S> <C> <C>
12,00$0...... $800(1) $800(1)
</TABLE>
- ---------------
(1) Directors are paid $400 for telephonic Board and Committee meetings.
19
<PAGE> 23
The non-employee directors may also receive an additional cash payment of
$6,000 if a certain performance based criterion is met by FirstMerit. In 1998
the criterion was met and the directors received the additional payment.
The non-employee directors who serve as the chairmen of the various Board
committees receive additional cash compensation as follows: Audit, Compensation
and Credit Committees, $625; and the Executive Committee, $775. FirstMerit may
pay fees to directors who are former officers of FirstMerit or the Subsidiaries
but not to directors who are incumbent officers of FirstMerit or the
Subsidiaries.
The FirstMerit Director Deferred Compensation Plan ("Director Deferred
Plan"), which was approved by the shareholders in April 1996, permits directors
of FirstMerit who are not employees to elect to defer their fees in either
"stock units" (which are not actual shares of FirstMerit Common Stock but are
tied to the performance thereof), or have them credited by FirstMerit to a
deferred benefit account which is credited with interest at a rate of Moody's
plus two. Nine of FirstMerit's directors participated in the Director Deferred
Plan during 1998.
On April 9, 1997, the shareholders approved the 1997 Stock Plan. This Plan
generally provides for granting of NQSOs to directors who are not full-time
employees of FirstMerit. Under the Plan, up to 200,000 shares of FirstMerit
Common Stock may be issued, subject to adjustment in the event of certain
corporate transactions as described below. Each non-employee director is awarded
annually, on the day after the Annual Meeting of Shareholders, NQSOs to purchase
2,400 shares of Common Stock. The option price per share is 100 percent of the
fair market value of a share of Common Stock on the date the option is granted.
The Plan also provides that a Dividend Unit will be awarded to non-employee
directors with respect to each share of Common Stock for which a NQSO is
granted. The amount payable with respect to each Dividend Unit is equal to the
aggregate dividends actually paid on one share of Common Stock, to the extent
the participant held the Dividend Unit on the record date for payment of each
such dividend. Dividend Units will be awarded for terms of ten years, but they
will accrue dividends for only the five years following their award. The Plan
provides that in the event of a Change of Control, FirstMerit will promptly pay
to each participant an amount equal to the aggregate amount accrued on the
Dividend Units held by the participant on the date of the Change of Control.
In February 1996, the Board adopted stock ownership guidelines for its
directors. The guidelines state that within five years after adoption, directors
of FirstMerit should own Common Stock having a market value equal to at least
five times their base retainer.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, certain directors and executive officers of FirstMerit, and
their associates, were customers of and had banking transactions with the
Subsidiaries of FirstMerit in the ordinary course of business. FirstMerit
expects that these relationships and transactions will continue in the future.
All loans and commitments to loans included in such transactions, including
equipment leasing transactions, were made and will be made in the future on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons not
employed by or affiliated with FirstMerit. The existing transactions do not
involve more than the normal risk of collectability or present other unfavorable
features.
The law firm of Brouse McDowell performed legal services for FirstMerit and
the Subsidiaries in 1998. Philip A. Lloyd, II, a Class I Director of FirstMerit,
is a shareholder of the law firm. The amounts of such fees for legal services
are indicated under "Compensation Committee Interlocks and Insider
Participation," above. The amount of Mr. Lloyd's interest in such fees cannot
practicably be determined.
20
<PAGE> 24
The law firm of Buckingham, Doolittle & Burroughs received fees for the
performance of legal services for FirstMerit and a Subsidiary in 1998. Robert W.
Briggs, a nominee to serve as a Class II Director of FirstMerit, is a
shareholder of the law firm. The amount of Mr. Briggs' interest in such fees
cannot practicably be determined.
The law firm of Colella & Kolczun, P.L.L. received fees for the performance
of legal services for a Subsidiary of FirstMerit in 1998. Richard Colella, a
Class I Director of FirstMerit, is a shareholder of the law firm. The amount of
Mr. Colella's interest in such fees cannot practicably be determined.
FirstMerit and the Subsidiaries also employ other law firms to perform
legal services.
PROPOSAL NO. 2
INCREASE OF AMOUNT OF AUTHORIZED COMMON STOCK
The Board of Directors has approved and determined to submit to the
FirstMerit shareholders a proposal to amend FirstMerit's Articles to increase
the number of shares of authorized Common Stock from 160,000,000 to 300,000,000
shares. As of February 15, 1999, there were issued and outstanding 90,940,081
shares of Common Stock (excluding the 1,052,355 shares of Common Stock held as
treasury shares by FirstMerit).
The Board of Directors of FirstMerit is of the opinion that the present
balance of shares of Common Stock available for issuance is insufficient to
enable FirstMerit to provide for its employee stock option and purchase plans
and to allow it to take advantage of business opportunities, such as
acquisitions, that may arise. On April 8, 1998, at the Annual Meeting of
Shareholders, the shareholders approved an increase in authorized shares of
Common Stock from 80,000,000 to 160,000,000. Since that time, FirstMerit has
completed mergers through exchanges of common stock with CoBancorp Inc.,
resulting in the issuance of 3,896,785 shares; Security First Corp., resulting
in the issuance of 7,020,092 shares; and Signal Corp resulting in the issuance
of 16,829,673 shares. These mergers have reduced the number of shares of
FirstMerit Common Stock available for future transactions, stock splits, and
issuances under stock purchase and option plans. The increase in authorized
shares would give FirstMerit the flexibility to take advantage of various
business opportunities, including acquisitions, financings, stock splits and
stock dividends, the sale of shares of Common Stock in the open market or
otherwise, for other corporate purposes, as well as providing for future
employee stock option and purchase plans.
Authorized but unissued shares may be issued at some later date upon
authorization by the FirstMerit Board of Directors, except as may be limited by
the FirstMerit Articles, law, or by the rules of Nasdaq. The holders of shares
of FirstMerit Common Stock and the Series B Preferred Stock are not entitled to
preemptive rights to purchase or have offered to them any shares of Common or
Series B Preferred Stock whether now or hereafter authorized. Although the
proposed amendments would increase the number of shares of FirstMerit Common
Stock available for issuance, the directors currently have the authority
described above and the amendment would not increase the authority of the Board
to take such actions. The Board has no present plans to issue shares of
FirstMerit Common and/or Series B Preferred Stock for such purposes.
The Board of Directors believes that an increase in the number of
authorized shares of FirstMerit Common Stock would not significantly impact any
attempt to gain control of FirstMerit. It is possible, however, that the
availability of authorized but unissued shares of FirstMerit Common Stock could
discourage third parties from attempting to gain such control since the Board
could authorize the issuance of shares of Common Stock in a private placement or
otherwise to one or more persons. Such an issuance of shares of Common Stock
could dilute the voting power of a person attempting to acquire control of
FirstMerit, increase the cost of acquiring such control, affect the accounting
treatment thereof or otherwise hinder such efforts.
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<PAGE> 25
It is proposed that the first paragraph of Article Fourth of the FirstMerit
Articles be amended to read as follows:
FOURTH: The maximum number of shares which the Corporation is authorized to
issue and to have outstanding at any time shall be Three Hundred Seven Million,
which shall be classified as follows:
(a) Three Hundred Million (300,000,000) of said shares shall be Common
Stock, without par value; and
(b) Seven Million (7,000,000) of said shares shall be Series Preferred
Stock, without par value ("no par value Preferred Stock");
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 2
PROPOSAL NO. 3
APPROVAL OF THE COMPANY'S 1999 STOCK PLAN
The Board of Directors has adopted, subject to shareholder approval, the
FirstMerit Corporation 1999 Stock Plan (the "1999 Stock Plan" or the "Plan").
The Board of Directors believes that approval of the 1999 Stock Plan will
advance the interests of the Company by providing eligible participants the
opportunity to receive a broad variety of equity-based awards.
As of February 19, 1999, approximately 1,500,000 shares remain available
for grant under the 1997 Stock Plan. These shares will continue to be available
for grant even after shareholder approval of the 1999 Stock Plan.
A total of 4,000,000 shares of Common Stock have been reserved for issuance
under the 1999 Stock Plan. The Company estimates that such amount will meet its
stock based compensation needs for the next three years.
The following types of awards can be made under the 1999 Stock Plan:
discretionary employee stock options, automatic director stock options, dividend
units and restricted stock. The maximum number of shares reserved is 3,800,000
for employee stock options and for restricted stock, and 200,000 for director
stock options. The maximum number of shares of this amount which can be used for
restricted stock grants is 500,000. Restricted stock grants can only be made to
employees. The maximum annual grant which can be made to any one individual is
one and one-half percent of the total outstanding shares of Common Stock of
FirstMerit at the time of grant. No award may be granted under the 1999 Stock
Plan after ten years from the date of the Plan, but awards previously granted
may extend beyond such date.
As of January 1, 1999, 220 employees were eligible to participate in the
1997 Stock Plan and all of the non-employee directors were participants in the
1997 Stock Plan (except Messrs. Wolf and Clark). Such individuals will be
eligible to participate in the 1999 Stock Plan if it is approved, as well as all
employees of FirstMerit. It is not currently possible to determine the benefits
or amounts which may be received by the future participants of the 1999 Stock
Plan, other than the non-employee directors who will receive options to purchase
2,400 shares of Common Stock annually.
SUMMARY OF THE 1999 STOCK PLAN
The following summary description of the 1999 Stock Plan is qualified in
its entirety by reference to the full text of the 1999 Stock Plan. Copies of the
1999 Stock Plan may be obtained by a shareholder upon written request to the
Secretary of FirstMerit.
EMPLOYEE STOCK PROGRAM. Awards to participants under the employee stock
portion of the 1999 Stock Plan may be either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"). The option price
22
<PAGE> 26
per share for ISOs must be at least equal to the fair market value of a share of
Common Stock on the date the option is granted; the option price per share for
NQSOs can be set at any price.
The exercise period for ISOs cannot be more than ten years from the date of
grant, while the exercise period for NQSOs may be set by the Committee. Unless
specifically granted, stock options are not transferable, except by will or the
laws of descent and distribution, and they may not be subjected to any lien or
liability. A one-time reload option may also be granted at the time of award of
NQSOs equal to the number of shares issued upon exercise by the participant of
the original option. FirstMerit may also require a participant to pay or
otherwise satisfy applicable withholding for income and employment taxes. The
Compensation Committee may prescribe additional rules governing the exercise of
stock options and may accelerate their exercisability, subject to certain
restrictions imposed under the Code.
In the event a participant's employment is terminated due to death,
disability or retirement, ISOs awarded to the participant will remain
exercisable for the maximum period allowable under the Code, and NQSOs will
remain exercisable for the remainder of the option term or five years, whichever
is less. If a participant's employment is terminated for any reason other than
death, disability or retirement, all stock options granted under the 1999 Stock
Plan will be canceled immediately; provided, however, that if FirstMerit
terminates a participant for reasons other than misconduct or misfeasance, the
participant may be granted 30 days to exercise any Stock Options; and provided
further, that if termination is attributable to a "Change of Control" (as
defined in the 1999 Stock Plan), any stock options previously granted will
continue for their term, and will immediately vest, unless otherwise determined
at the time of the grant by the Committee. An award may be rescinded following a
participant's termination of employment upon a finding that the participant has
directly or indirectly competed with FirstMerit or has engaged in any activity
otherwise adverse to or not in the best interest of FirstMerit.
DIRECTORS STOCK PROGRAM. Each non-employee director will be awarded
annually, on the day after the Annual Meeting of Shareholders, NQSOs to purchase
2,400 shares of Common Stock. The option price per share is equal to 100 percent
of the fair market value of a share of Common Stock on the date the option is
granted. NQSOs may not be exercised until six months after the date of grant,
then will remain exercisable until ten years from the date of grant. NQSOs are
not transferable, except to family members, by will or the laws of descent or
distribution, and they may not be subjected to any lien or liability. If a
director is removed for cause, all NQSOs previously granted will be canceled
immediately. If a director is removed for any reason other than for cause, NQSOs
previously granted will remain exercisable for the remainder of their term or
five years, whichever is less.
DIVIDEND UNITS. The 1999 Stock Plan provides that a Dividend Unit may be
awarded for a term of ten years to participants with respect to each share of
Common Stock for which a Stock Option is granted. Dividend Units accrue
dividends for periods up to five years. The amount accrued with respect to a
Dividend Unit is equal to the aggregate dividends actually paid on one share of
Common Stock, to the extent the participant held the Dividend Unit on the record
date for payment. Dividend Units are not transferable, except by will or the
laws of descent and distribution, and they may not be subjected to any lien or
liability.
Accrued Dividend Units are payable only upon issuance of the shares of
Common Stock to which such Dividend Units relate at the time of exercise of the
underlying option. The 1999 Stock Plan provides that in the event of a Change of
Control, FirstMerit may promptly pay to each participant an amount equal to the
aggregate amount accrued on the Dividend Units held by the participant; or as
long as a participant holds a Dividend Unit during its term and dividends are
accrued thereon, FirstMerit (or its successor) will continue to make accruals
with respect to the Dividend Units.
RESTRICTED STOCK PROGRAM. Shares may be awarded under the Restricted Stock
Program for such consideration, if any, as may be deemed appropriate, including
(i) cash or cash equivalents, (ii) promissory notes
23
<PAGE> 27
payable to FirstMerit's order (which may be subject to cancellation in whole or
in part at the discretion of the Committee) or (iii) services rendered to
FirstMerit or its Subsidiaries. Shares issued under the Restricted Stock Program
may be fully vested upon issuance or may vest over a period of time. The vesting
schedule applicable to each issuance will be determined by the Committee,
including (i) the service period to be completed by the participant or the
performance objectives to be achieved by FirstMerit, (ii) the number of
installments in which the shares are to vest, (iii) the interval to lapse
between each installment, and (iv) the effect death, disability or any other
event designated by the Committee is to have on the vesting schedule.
A participant in the Restricted Stock Program will have full shareholder
rights with respect to the issued shares, including the right to vote such
shares and receive all cash dividends paid on such shares, whether or not such
shares are vested. Any new, additional or different securities, however, to
which the participant may become entitled with respect to the issued shares by
reason of (i) any stock dividend, stock split, reclassification,
recapitalization or other similar transaction affecting such shares, or (ii) a
Corporate Transaction (as such term is defined in the section entitled "Changes
in Capitalization/Change in Control" below) will be subject to the same vesting
schedule and escrow requirements applicable to those issued shares. Unvested
shares held under the Restricted Stock Program may not be sold, transferred or
assigned, except for certain permitted transfers to the participant's spouse or
issue or transfers effected upon the participant's death.
ADMINISTRATION OF THE 1999 STOCK PLAN
DISCRETIONARY PROGRAMS. The Employee Stock Program and the Restricted Stock
Program portions of the 1999 Stock Plan (collectively, the "Discretionary
Programs") will be administered by the Compensation Committee of the Board of
Directors. The Compensation Committee is comprised solely of persons who qualify
both as "outside directors" (within the meaning of Code Section 162(m)) and
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Exchange Act), except that a person who otherwise may not so qualify may be
appointed where a recusal procedure is utilized by the Committee for Awards
under the Plan.
Subject to the terms of the 1999 Stock Plan and approval by the
non-employee directors of the Board, the Committee has authority to interpret
the 1999 Stock Plan; determine eligibility for the grant of awards; determine,
modify or waive the terms and conditions of any award; and otherwise do all
things necessary to carry out the purposes of the 1999 Stock Plan. All awards
are subject to the approval of the non-employee directors of the Board.
DIRECTORS STOCK PROGRAM. The Directors Stock Program is a self-executing
option program and is administered by the Secretary of the Company.
ELIGIBILITY AND PARTICIPATION
DISCRETIONARY PROGRAMS. In general, the Committee will recommend, and then
non-employee directors of the Board will select, the participants for the
Discretionary Programs. Participants can include any employee, and may be among
the key employees of the Company who are in a position to make a significant
contribution to the success of FirstMerit.
DIRECTORS STOCK PROGRAM. On the day after the Annual Meeting of
Shareholders, each director is automatically awarded a NQSO to purchase 2,400
shares of Common Stock, at the then fair market value.
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<PAGE> 28
PAYMENT AND TAX WITHHOLDING
The full purchase price of any stock option must be paid upon exercise
either in (i) immediately available funds, (ii) shares of Common Stock having an
aggregate fair market value equal to the full purchase price, (iii) a
combination of (i) and (ii), or (iv) by use of a cashless exercise procedure.
CHANGES IN CAPITALIZATION; CHANGE IN CONTROL
In the event the outstanding shares of FirstMerit's Common Stock are
increased or decreased as a result of stock dividends, stock splits,
recapitalizations, reorganizations or other changes in corporate structure
effected without the receipt of consideration, or in the event FirstMerit's
Common Stock is converted into other shares or securities of FirstMerit or any
other corporation in connection with a "Corporate Transaction," then appropriate
adjustments will be made to the class and/or number of shares available for
subsequent issuance under the 1999 Stock Plan and, at the Compensation
Committee's discretion, the number shares of Common Stock subject to outstanding
stock options and the option price per share applicable to such stock options.
In the event of a Corporate Transaction or Change of Control, all stock
options or shares which have been outstanding under the 1999 Stock Plan will
immediately vest in full, except (and to the extent) there are limitations at
the time the shares are issued under the 1999 Stock Plan which preclude such
accelerated vesting in whole or in part. The acceleration of the vesting of
restricted shares and stock options could have the effect of discouraging a
Corporate Transaction or Change of Control of FirstMerit and in management even
though such Corporate Transaction or Change of Control could be favored by a
majority of shareholders. "Change of Control" is basically defined as a change
in 30% or more of the beneficial ownership of FirstMerit or a change of a
majority of the Board of Directors within a two-year period.
VALUATION
For purposes of valuation under the 1999 Stock Plan, the fair market value
of a share of Common Stock, on any relevant date, is the reported closing price
per share on Nasdaq.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend, suspend or terminate the 1999
Stock Plan, in whole or part, provided such action does not adversely affect the
rights of participants with respect to outstanding options or shares. No
modification to the 1999 Stock Plan may, without shareholder approval, increase
the number of shares issuable under the 1999 Stock Plan.
Unless sooner terminated by Board action, the 1999 Stock Plan will
terminate upon the earlier of (i) ten years after adoption, or (ii) the first
date when all the shares of FirstMerit's Common stock available for issuance
thereunder, or options therefor, have been issued.
PRICE OF COMMON STOCK
The closing price of the Common Stock on Nasdaq on February 12, 1999 was
$25.00.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the issuance and exercise of stock options and restricted stock awarded under
the 1999 Stock Plan. The summary does not address all federal tax consequences,
nor does it cover state or local tax consequences.
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<PAGE> 29
OPTIONS. In general, a participant realizes no taxable income on either the
grant or the vesting of a stock option. The exercise of a NQSO results in
ordinary income (generally subject to withholding, if the participant is an
employee) equal to the difference (the "Option Spread") between the value of the
Common Stock purchased and the option exercise price. A corresponding deduction
is available to the Company. In general, the ordinary income associated with the
exercise is measured and taken into account at the time of exercise. Any
subsequent sale of Common Stock purchased under a NQSO may result in a capital
gain or loss.
The exercise of an ISO does not produce ordinary taxable income. However,
because the Option Spread constitutes "alternative minimum taxable income"
(measured and taken into account, in general, at the time of exercise), exercise
of an ISO may result in an alternative minimum tax liability. In addition,
shares purchased under an ISO ("ISO Shares") are subject to special tax holding
rules. If a participant holds ISO Shares for at least two years from the date of
the ISO grant and at least one year after exercise, any gain or loss recognized
for tax purposes upon a subsequent sale of the shares will be a long-term
capital gain or loss. A disposition of ISO Shares, however, by the participant
within either of these special holding periods (a so-called "disqualifying
disposition") results in ordinary compensation income in the year of the
disposition equal, in general, to the Option Spread at the time the option was
exercised. The ordinary income realized upon a disqualifying disposition of ISO
Shares is deductible by the Company but is not subject to withholding. Any
additional gain recognized for tax purposes in a disqualifying disposition will
be taxed as short-term or long-term capital gain.
An ISO that is exercised by the participant more than three months
following termination of employment (one year, if termination occurred by reason
of total and permanent disability) is treated for tax purposes as a NQSO. ISOs
granted to a participant under the 1999 Stock Plan (together with ISOs granted
to the participant after 1986 under any other plans of the Company) are also
treated as NQSOs to the extent that, in the aggregate, they first become
exercisable in any calendar year for shares of Common Stock having a fair market
value (determined at time of grant) in excess of $100,000.
Under the so-called "golden parachute" provisions of the Code, certain
awards vested or paid in connection with a Change of Control of the Company may
also be non-deductible to the Company and may be subject to an additional 20%
federal excise tax. Non-deductible "parachute payments" will in general reduce
the $1.0 million limit on deductible compensation under Code Section 162(m), to
the extent such limit is applicable to remuneration paid under the 1999 Stock
Plan or otherwise.
DIVIDEND UNITS. The grant of a Dividend Unit generally will not result in
taxable income to the participant or a deduction for FirstMerit, but the payment
of cash with respect thereto generally will result in ordinary taxable income to
the participant and a deduction for FirstMerit. Income taxes will be withheld
from payments on Dividend Units.
RESTRICTED STOCK. To the extent the participant is issued vested shares,
the participant must report as ordinary income in the year of issuance an amount
equal to the excess of (i) the fair market value of those vested shares on the
date of issue over (ii) the aggregate purchase price paid for such shares. To
the extent the issued shares are unvested, the participant will not recognize
any taxable income at the time of issuance but will have to report as ordinary
income, for the taxable year in which the participant's interest in the issued
shares becomes vested, an amount equal to the excess of (i) the fair market
value of the shares on the date they become vested over (ii) the aggregate
purchase price paid for such shares. Such participant, however, may elect under
Code Section 83(b) to include as ordinary income in the taxable year of issuance
an amount equal to the excess of (i) the fair market value of the unvested
shares on the date of issue over (ii) the aggregate purchase price paid for such
shares. If the Code Section 83(b) election is made, the participant will not
recognize any additional income as and when such participant's interest in the
shares subsequently vests.
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<PAGE> 30
FirstMerit will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the participant in connection with the
acquisition of the shares and any note forgiveness. The deduction will be
allowed for the taxable year of FirstMerit in which the ordinary income is
recognized by the participant.
DEDUCTIBILITY OF PERFORMANCE AWARDS. If the 1999 Stock Plan is approved by
the shareholders, certain payments to executive officers under the 1999 Stock
Plan will be eligible for treatment as "performance-based" compensation under
Code Section 162(m).
FirstMerit anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of ISOs or exercises of NQSOs granted
with an exercise price equal to the fair market value of the option shares at
the time of grant will qualify as performance-based compensation for purposes of
Code Section 162(m) and will not have to be taken into account for purposes of
the $1.0 million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of FirstMerit. Accordingly, all
compensation deemed paid with respect to those options will remain deductible by
FirstMerit without limitation under Code Section 162(m).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR PROPOSAL NO. 3
PRINCIPAL SHAREHOLDERS
The following table describes the beneficial ownership of Common Stock of
each entity who was known by FirstMerit to be the beneficial owner of more than
five percent of the total shares issued and outstanding on or about February 16,
1999. Under rules and regulations promulgated by the Commission, a person is
deemed to be the "beneficial owner" of all the shares with respect to which he
has or shares voting power or investment power, regardless of whether he is
entitled to receive any economic benefit from his interest in the shares. As
used herein, the term "voting power" means the power to vote or to direct the
voting of shares and "investment power" means the power to dispose of or to
direct the disposition of shares.
These parties have certified to the Commission that the shares were
acquired in the ordinary course of business and were not acquired for the
purpose of and do not have the effect of changing or influencing the control of
FirstMerit.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
------------------- -------------------- ----------
<S> <C> <C>
Cincinnati Financial Corporation 6,581,292 7.2%
P.O. Box 145496
Cincinnati, OH 45250
FirstMerit Bank, N.A. 5,338,873 5.9%
Trust Division
121 S. Main Street
Akron, OH 44308
</TABLE>
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<PAGE> 31
AUDITORS
FirstMerit has selected PricewaterhouseCoopers LLP as its auditors for
1999. PricewaterhouseCoopers LLP, and its predecessor Coopers & Lybrand, has
served as auditors for FirstMerit since 1992. A representative of the auditors
will be present at the meeting and will be available to answer questions. The
representative will have the opportunity to make a statement at the meeting.
SHAREHOLDER PROPOSALS AND BOARD NOMINATIONS
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 2000 may be made only by a qualified shareholder and
must be received by FirstMerit no later than October 23, 1999.
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.
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GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of FirstMerit, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by FirstMerit.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by directors, officers and employees of
FirstMerit. Arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and FirstMerit
will reimburse them for reasonable out-of-pocket expenses incurred by them in
connection therewith. FirstMerit has engaged Georgeson & Company Inc. and
Innisfree M&A Incorporated ("Innisfree") to aid in the solicitation of proxies
in order to assure a sufficient return of votes on the proposals to be presented
at the meeting. It is expected that Innisfree will primarily solicit
institutional investors and owners not of record who are non-objecting
beneficial owners of FirstMerit Common Stock. The costs of such services are
estimated at $7,500, plus reasonable distribution and mailing costs, per
solicitor.
Management of FirstMerit has no information that other matters will be
brought before the meeting. If, however, other matters are properly presented,
the accompanying proxy will be voted in accordance with the best judgment of the
proxy holders with respect to such matters.
/s/ Terry E. Patton
Terry E. Patton
Secretary
Akron, Ohio
March 17, 1999
29
<PAGE> 33
<TABLE>
<CAPTION>
[ X ] PLEASE MARK VOTES
AS IN THIS EXAMPLE
<S> <C> <C> <C> <C>
- ----------------------- 1. For the election of five Class II For All With- For All
FIRSTMERIT CORPORATION Directors. Nominees hold Except
- -----------------------
Karen S. Belden Gary G. Clark [ ] [ ] [ ]
Mark box at right if an address change [ ] R. Cary Blair Clifford J. Isroff
or comment has been noted on the Robert W. Briggs
reverse side of this card.
RECORD DATE SHARES: NOTE: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Except" box and strike a line through the name(s)
of the nominee(s). Your shares will be voted for the remaining
nominee(s).
2. To approve the increase of Common For Against Abstain
Stock from 160,000,000 to 300,000,000 shares.
[ ] [ ] [ ]
3. To approve the 1999 Stock Plan [ ] [ ] [ ]
4. Such other business as properly may come before said meeting and
any adjournments thereof.
Please be sure to sign and date this Proxy Date
- ---------------------------------------------------
- -Shareholder sign here----Co-owner sign here-------
DETACH CARD DETACH CARD
</TABLE>
<PAGE> 34
FIRSTMERIT CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, APRIL 21, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRSTMERIT CORPORATION
The undersigned hereby appoints WILLIAM B. POE, FRANK H. HARVEY, JR. AND JAMES
L. HILTON, and each of them, proxies with full power of substitution to vote on
behalf of the Shareholders of FirstMerit Corporation on Wednesday, April 21,
1999, and at any adjournment(s) 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 the Notice of Meeting and a Proxy Statement.
- --------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN
THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name(s) appear(s) on the books of the
Company. Joint owners should each sign personally. Trustees, custodians and
other fiduciaries should indicate the capacity in which they sign, and where
more than one name appears, each person must sign. If the stockholder is a
corporation, the signature should be that of an authorized officer who should
state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
___________________________ ________________________________
___________________________ ________________________________
___________________________ ________________________________
