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PAGE
MERCANTILE BANKSHARES CORPORATION
TWO HOPKINS PLAZA
BALTIMORE, MARYLAND 21201
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Mercantile Bankshares Corporation
("Mercshares") will be held at 10:30 a.m. on April 24, 1996, in the Boardroom of
Mercantile-Safe Deposit and Trust Company, Two Hopkins Plaza, Baltimore,
Maryland, for the following purposes:
1. To elect Directors to serve until the next Annual Meeting of
Stockholders, and until their successors are elected and have qualified.
2. To approve the Mercantile Bankshares Corporation Retainer Stock Plan For
Non-Employee Directors.
3. To ratify the appointment of Coopers & Lybrand, L.L.P. as independent
public accountants to audit the financial statements of Mercshares for
1996.
4. To transact such other business as may be properly brought before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 15, 1996, will
be entitled to receive notice of, and vote at, this meeting.
These matters are explained more fully in the enclosed Proxy Statement.
EACH STOCKHOLDER IS CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO MARK, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
THE GIVING OF THIS PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE IT AND TO VOTE IN
PERSON IF YOU ATTEND THE MEETING.
JOHN A. O'CONNOR, JR.
Senior Vice President and Secretary
Dated: March 22, 1996
PAGE
MERCANTILE BANKSHARES CORPORATION
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by Mercantile Bankshares Corporation ("Mercshares") to be used in voting at the
Annual Meeting of Stockholders on April 24, 1996, and at any adjournments
thereof.
Holders of shares of Common Stock of Mercshares ("Common Stock") of record
at the close of business on March 15, 1996, will be entitled to vote at the
meeting. The Common Stock is entitled to one vote per share. The number of
shares of outstanding Common Stock as of January 31, 1996, entitled to vote is
48,015,631 shares. As of that date, to the best of the knowledge of the
management of Mercshares, no person owned beneficially more than five percent of
the outstanding shares of the Common Stock.
Unless otherwise instructed, it is intended that the shares represented by
valid proxies will be voted for the election of the 17 persons named below as
nominees to serve as Directors until the next Annual Meeting of Stockholders,
and until their successors are elected and have qualified, for approval of the
Retainer Stock Plan for Non-Employee Directors and for the ratification of the
appointment of auditors.
ELECTION OF DIRECTORS
The Bylaws of Mercshares provide that there shall be 17 Directors.
The Board of Directors of Mercshares meets regularly five times each year
and is subject to call for special meetings. The Board met at its five regular
meetings in 1995. The Executive Committee of the Board of Directors held no
meetings in 1995. The members of this Committee are indicated in the list of
nominees below.
Generally, the Directors serve until the annual meeting of stockholders next
following their election. Officers are elected annually by the Board to serve
for such periods of time as the Board determines.
Mercshares has an Audit Committee and a Compensation Committee which are
comprised solely of non-officer Directors and are elected annually by the Board.
The members of these Committees are indicated in the list of nominees below.
Mercshares has no nominating committee.
The Audit Committee recommends to the Board the persons or firms to be
employed as independent public accountants, consults with the independent public
accountants with respect to the scope of their audit, the proposed fee and the
reports to be rendered, reviews such audit reports and evaluates the internal
audit programs of Mercshares and its affiliates. It is authorized to determine
the advisability of engaging the independent public accountants to make and
report on special studies, and to examine and consider such other matters as it
or the Board deems desirable. The Audit Committee held one meeting in 1995.
The Compensation Committee performs the functions described in the Report of
the Compensation Committee. It held six meetings in 1995.
It is proposed that the persons listed below be elected Directors of
Mercshares, to serve until the next Annual Meeting of Stockholders, and until
their successors are elected and have qualified. It is not expected that any of
the nominees named herein will be unavailable for election, but if a nominee
should be unable to serve, the shares represented by the enclosed proxy may be
voted for a substitute nominee to be designated by management. Mercshares owns
100% of the capital stock of Mercantile-Safe Deposit and Trust Company
("Merc-Safe"). As indicated below, all of the nominees are Directors of
Merc-Safe. All nominees previously have been elected
PAGE 1
Directors of Mercshares by the stockholders except Martin L. Grass, who was
elected a Director by the Board on June 13, 1995.
The names of the nominees, their ages as of April 24, 1996, their principal
occupations and business experience for the past five years, the number of
shares of Common Stock deemed under certain federal securities laws to be
"beneficially owned" by each as of January 31, 1996, and certain other
information, are set forth below. In some instances, "beneficial ownership" of
shares may be deemed to exist by reason of voting or investment power even
though other persons, such as family members or beneficiaries of trusts, have
the economic interest in the shares, and in certain instances "beneficial
ownership" may be disclaimed by a nominee.
NAME AGE INFORMATION
- ---------------------------- --- -------------------------------------------
H. Furlong Baldwin 64 Chairman of the Board and Chief Executive
Officer, Mercshares, and Chairman of the
Board and Chief Executive Officer,
Merc-Safe. Mr. Baldwin has been Chairman of
the Board of Mercshares since 1984, and has
been its Chief Executive Officer since
1976. He has been Chairman of the Board and
Chief Executive Officer of Merc-Safe since
1976. Mr. Baldwin is a Director of
Baltimore Gas & Electric Company, Conrail,
Inc., GRC International Inc. and USF&G
Corp. He was elected a Director of
Merc-Safe in 1968.
Elected Director of Mercshares: 1970
Member: Executive Committee
Owns beneficially 187,769 shares of Common
Stock.
Thomas M. Bancroft, Jr. 66 Former Chairman of the Board and Chief
Executive Officer, The New York Racing
Association, Inc. Mr. Bancroft occupied
that position from 1983 until January,
1990. He was elected a Director of
Merc-Safe in 1974.
Elected Director of Mercshares: 1974
Member: Audit Committee
Owns beneficially 7,500 shares of Common
Stock.
Richard O. Berndt (1) 53 Partner, Gallagher, Evelius & Jones, a law
firm engaged in the general practice of
law. Mr. Berndt has been a partner in that
firm since 1972. He was elected a Director
of Merc-Safe in 1976.
Elected Director of Mercshares: 1978
Member: Audit Committee
Owns beneficially 18,429 shares of Common
Stock.
PAGE 2
NAME AGE INFORMATION
- ---------------------------- --- -------------------------------------------
James A. Block, M.D. 55 President and Chief Executive Officer,
Johns Hopkins Health System and The Johns
Hopkins Hospital. Dr. Block has occupied
these positions since July, 1992. Prior
thereto, he was President and Chief
Executive Officer of University Hospitals
of Cleveland. Dr. Block is a Director of
MMI Companies, Inc. He was elected a
Director of Merc-Safe in 1992.
Elected Director of Mercshares: 1992.
Owns beneficially 950 shares of Common
Stock.
George L. Bunting, Jr. 55 President and Chief Executive Officer,
Bunting Management Group, a private
financial management company. Mr. Bunting
has occupied this position since July,
1991. Prior thereto, he was Chairman of the
Board and Chief Executive Officer of Noxell
Corporation. Mr. Bunting is a Director of
Crown Central Petroleum Corporation, USF&G
Corp. and PHH Corporation. He was elected a
Director of Merc-Safe in 1992.
Elected Director of Mercshares: 1992
Owns beneficially 2,000 shares of Common
Stock.
Edward K. Dunn, Jr. 60 President, Mercshares, and President and
Chief Operating Officer, Merc-Safe. Mr.
Dunn has served as President of Mercshares
since 1991. He has served as President and
Chief Operating Officer of Merc-Safe since
July, 1995. From 1988 to 1991, he was
Chairman of the Executive Committee,
Mercshares and Merc-Safe. He was elected a
Director of Merc-Safe in 1988.
Elected Director of Mercshares: 1988
Member: Executive Committee
Owns beneficially 119,282 shares of Common
Stock, including 6,606 shares held by a
trust of which he is a co-trustee, and
15,000 shares held by a foundation of which
he is a co-trustee and officer.
Martin L. Grass 42 Chairman of the Board and Chief Executive
Officer, Rite Aid Corporation, retail drug
sales. Mr. Grass has occupied this position
since March, 1995. Prior thereto, he was
its President and Chief Operating Officer.
From 1989 to November, 1995, Mr. Grass was
Vice Chairman of the Board, Super Rite
Corporation, a food wholesaler and
retailer. Mr. Grass is a Director of
Baltimore Gas & Electric Company and Tessco
Technologies, Inc. He was elected a
Director of Merc-Safe in June, 1995.
Elected Director of Mercshares: June, 1995
Member: Audit Committee
Owns beneficially 1,000 shares of Common
Stock
PAGE 3
NAME AGE INFORMATION
- ---------------------------- --- -------------------------------------------
B. Larry Jenkins 57 Chairman of the Board, President and Chief
Executive Officer, Monumental Life
Insurance Company, a subsidiary of Aegon
USA, Inc. Mr. Jenkins has served in this
capacity since 1983. He was elected a
Director of Merc-Safe in 1983.
Elected Director of Mercshares: 1983
Member: Audit Committee
Owns beneficially 5,100 shares of Common
Stock.
Robert D. Kunisch 54 Chairman of the Board, President and Chief
Executive Officer, PHH Corporation, a
diversified business services company
engaged primarily in providing integrated
management services, information products
and expense management programs including
vehicle fleet management, relocation and
real estate services and mortgage banking
services. Mr. Kunisch has served in this
capacity since 1989. Mr. Kunisch is a
Director of CSX Corporation and GenCorp. He
was elected a Director of Merc-Safe in
1984.
Elected Director of Mercshares: 1984
Member: Executive Committee
Audit Committee
Compensation Committee
Owns beneficially 1,500 shares of Common
Stock.
William J. McCarthy (2) 65 Principal, William J. McCarthy, P.C., which
is a partner in Venable, Baetjer and
Howard, LLP, a law firm engaged in the
general practice of law. Either Mr.
McCarthy or his professional corporation
has been a member of that firm since 1964.
He was elected a Director of Merc-Safe in
1975.
Elected Director of Mercshares: 1975
Member: Executive Committee
Owns beneficially 1,500 shares of Common
Stock.
Morris W. Offit 59 Chairman of the Board and Chief Executive
Officer, OFFITBANK, a private New York
State bank offering integrated investment
management services to individuals,
corporations, pensions, trusts and
not-for-profit institutions. Mr. Offit has
served in this capacity since 1990. He was
elected a Director of Merc-Safe in 1984.
Elected Director of Mercshares: 1984
Member: Executive Committee
Compensation Committee
Owns beneficially 92,400 shares of Common
Stock.
PAGE 4
NAME AGE INFORMATION
- ---------------------------- --- -------------------------------------------
Christian H. Poindexter 57 Chairman of the Board and Chief Executive
Officer, Baltimore Gas & Electric Company,
an investor-owned diversified gas and
electric utility. He has occupied that
position since 1993. Prior thereto, Mr.
Poindexter was Vice Chairman of the Board.
He was elected a Director of Merc-Safe in
1987.
Elected Director of Mercshares: 1987
Member: Executive Committee
Compensation Committee
Owns beneficially 1,050 shares of Common
Stock.
William C. Richardson 55 President and Chief Executive Officer, W.K.
Kellogg Foundation, a private grant-making
foundation. Dr. Richardson has served in
this capacity since August 1, 1995. Prior
thereto, he was President of Johns Hopkins
University. Dr. Richardson is a director of
CSX Corporation. He was elected a Director
of Merc-Safe in 1991.
Elected Director of Mercshares: 1991
Owns beneficially 150 shares of Common
Stock.
Bishop L. Robinson 69 Secretary of The Department of Public
Safety and Correctional Services for the
State of Maryland. Mr. Robinson has
occupied that position since 1987. He was
elected a Director of Merc-Safe in 1989.
Elected Director of Mercshares: 1989
Member: Audit Committee
Owns beneficially 101 shares of Common
Stock.
Donald J. Shepard 49 Chairman of the Board, President and Chief
Executive Officer, Aegon USA, Inc., a
holding company owning insurance and
insurance related companies. Mr. Shepard
has occupied the position of President and
Chief Executive Officer since 1989. He was
elected Chairman of the Board in 1992. Mr.
Shepard is a member of the Executive Board
of Aegon, nv. He is a Director of PHH
Corporation. Mr. Shepard was elected a
Director of Merc-Safe in 1992.
Elected Director of Mercshares: 1992
Member: Executive Committee
Owns beneficially 4,500 shares of Common
Stock.
PAGE 5
NAME AGE INFORMATION
- ---------------------------- --- -------------------------------------------
Brian B. Topping 61 Vice President, Mercshares, and Vice
Chairman of the Board, Merc-Safe. Mr.
Topping has been Vice President of
Mercshares since 1988. He has served as a
Vice Chairman of the Board of Merc-Safe
since 1984. Mr. Topping was elected a
Director of Merc-Safe in 1983.
Elected Director of Mercshares: 1988
Owns beneficially 60,130 shares of Common
Stock.
Calman J. Zamoiski, Jr. 68 Chairman of the Board, Independent
Distributors, Incorporated, a general
wholesale distributor. Mr. Zamoiski has
occupied that position since April, 1991.
Prior thereto, he was President. He was
elected a Director of Merc-Safe in 1976.
Elected Director of Mercshares: 1978
Member: Executive Committee
Compensation Committee
Owns beneficially 51,800 shares of Common
Stock.
- ------------
(1) The firm of Gallagher, Evelius & Jones renders legal services to Merc-Safe
and certain accounts of which it is a fiduciary, and certain other
Mercshares affiliates.
(2) The firm of Venable, Baetjer and Howard, LLP renders legal services to
Mercshares, certain of its affiliates and certain accounts of which
Merc-Safe is a fiduciary. It also leases its Baltimore office space from an
affiliate of Mercshares.
All of the Directors have attended 75% or more of the total number of
meetings of the Board of Directors and Committees of Mercshares on which they
served during 1995 except Mr. Offit who attended three of five Board meetings
and three of five Committee meetings.
Hugh W. Mohler and Jay M. Wilson, executive officers named in the Summary
Compensation Table, but who are not Directors or nominees for election as
Directors, owned beneficially on January 31, 1996, 8,669 shares and 11,234
shares of Common Stock, respectively.
Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and Directors of Mercshares, and any persons owning more than 10% of
Mercshares Common Stock, to file certain reports of ownership and changes in
ownership with the SEC, and certain failures to file timely reports require
proxy statement disclosure. There was an inadvertent late reporting by James A.
Block, M.D., a Director, of the purchase of 500 shares in June, 1995. The
purchase was not reported under Section 16(a) until a Form 4 filing was made in
March, 1996.
No Director, nominee or officer of Mercshares was the "beneficial owner" of
as much as 1.0% of the outstanding shares of Common Stock, as of January 31,
1996. On that date, the Directors, nominees and executive officers of Mercshares
as a group owned beneficially 589,327 shares or 1.2% of the shares of Common
Stock outstanding. As to certain shares, the Directors, nominees and executive
officers had no voting or investment power but the shares were included above
because of ownership by family members or trusts for their benefit. As to the
shares reported above with respect to which the Directors, nominees and
executive officers had or shared voting or investment power, they had sole
voting and investment power as to 537,505 shares of Common Stock and shared
voting and investment power as to 47,867 shares of Common Stock.
PAGE 6
REPORT OF THE COMPENSATION COMMITTEE
OVERALL POLICY
The Board of Directors of Mercshares establishes the overall goals and
objectives of Mercshares, and the policies to be followed in pursuing these
goals and objectives, including the selection of necessary key management
personnel, and the auditing of the performance of those personnel. The major
responsibility for assisting in satisfying the compensatory aspect of the
overall supervisory duty of the Board rests with the Compensation Committee. The
membership of the Compensation Committees (collectively the "Committee") of
Mercshares and Merc-Safe, its leading bank affiliate, is identical, composed of
independent non-employee Directors of both institutions who do not participate
in any executive compensation plan. All executive officers of Mercshares are
officers of Merc-Safe.
In order to achieve the overall goals and objectives of Mercshares, and
recognizing the interest of the stockholders in that achievement, the Committee,
over a number of years, has developed and maintained an executive compensation
plan based on a philosophy that links executive compensation both to individual
and corporate performance, and return to stockholders. This philosophy enables
Mercshares to attract and retain highly motivated executive personnel of
outstanding ability and initiative, and to create an identity of interests
between executives and Mercshares' stockholders. Mercshares' executive
compensation plan consists of basic cash compensation, the opportunity for
annual incentive compensation based on corporate performance, and continuing
stock based compensation, geared to corporate performance.
The Committee administers the provisions of Mercshares' incentive cash bonus
plan and its stock based plan, which are applicable to all affiliates of
Mercshares. In addition, the Committee is authorized to make recommendations to
the Boards of Mercshares and its affiliates with respect to basic salaries,
supplemental pension, deferred compensation, employment and similar agreements
affecting their executive officers, and performs such other functions as may be
delegated to it by the Boards.
The Committee takes various factors into consideration when establishing and
reviewing executive compensation. There follows an explanation of general
principles governing basic cash compensation, annual incentive compensation
which is governed by a pre-existing mathematical formula, stock based
compensation which currently consists of existing awards, and the factors
considered in establishing basic cash compensation for 1995.
BASIC CASH COMPENSATION
The Committee, in determining basic cash compensation of the executive
officers of Mercshares, considers corporate profitability, financial condition,
capital adequacy, return on assets and the planned compensation budget for
Mercshares. The Committee also considers the performance and compensation levels
of other banking institutions as more fully set forth under the caption "1995
Compensation". The Committee does not consider these factors by any formula and
does not assign specific weight to any given factor. Instead, the Committee
applies its collective business judgment to reach a consensus on compensation
fair to Mercshares, its shareholders and its executive officers. Under
employment agreements, the basic cash compensation of Messrs. Baldwin, Dunn and
Topping for any year may not be less than basic cash compensation for the prior
year.
ANNUAL INCENTIVE COMPENSATION
In addition to basic cash compensation, the Committee, in 1981, developed an
annual incentive compensation plan, which is based on a preset mathematical
formula tied directly to corporate performance and profitability.
Forty-six executives of Mercshares and its affiliates who are considered by
the Committee to have responsibilities that directly affect corporate
performance and profitability currently participate in the incentive
compensation plan. Participants in the plan are chosen annually by the
Committee. The plan has both a long-term and a short-term incentive effect
inasmuch as no
PAGE 7
annual awards are made unless a compounded rate of growth in earnings per share
of Mercshares, and/or in net operating income of the affiliate (or unit)
employing the participant, in excess of five percent per annum is maintained
from the Base Year of the plan. The maximum potential annual award is subject to
attaining a 15 percent annual improvement in such earnings per share or net
operating income. As provided in the plan, the maximum potential annual award is
generally 33 percent of a participant's salary (65 percent in the case of the
Chief Executive Officer and 50 percent in the case of the next five most highly
compensated officers of Mercshares). However, because management of Mercshares'
affiliates is decentralized, not more than one half of any potential award is
based on improvement in Mercshares' earnings per share, and not more than one
half is based on improvement in net operating income of the appropriate
affiliate (or unit). Incentive cash bonuses attributable to 1993, 1994 and 1995
earnings per share and net operating income were paid to those officers named in
the Summary Compensation Table, as reflected under the caption "Bonus", and to
other participants.
STOCK BASED COMPENSATION
The Omnibus Stock Plan was approved by the stockholders in 1990. It replaces
the 1985 Executive Stock Appreciation Rights Plan and the 1985 Stock Option
Plan, both of which have terminated. No stock appreciation rights or stock
options are outstanding under those terminated plans.
The Omnibus Stock Plan is designed to create a common interest between key
employees and stockholders on a long-term basis. Its purpose is to encourage
participants to maintain and increase their proprietary interests as
stockholders in Mercshares and to benefit from the long-term performance of
Mercshares.
On February 27, 1991, stock options, without tandem stock appreciation
rights, were granted by the Committee under the Omnibus Stock Plan to 63 key
employees, including the executive officers of Mercshares. Exercisability of
these options was dependent on certain earnings tests being met. All options
granted in 1991 were forfeited because the earnings tests were not met.
The Committee continues to believe that a close linking of stockholder and
key employee interests through the grant of stock options is important to the
continuing success of Mercshares because stock options have no realizable value
unless the price of Mercshares stock increases.
Accordingly, in March, 1995, the Committee granted, under the Omnibus Stock
Plan, options for a total of 1,043,150 shares of Common Stock without tandem
stock appreciation rights to 297 key employees of Mercshares and its affiliates.
The exercise price of the stock options equals the market price of the Common
Stock on the date of grant and the options have a ten year life.
Of the total granted, options for 765,000 shares ("performance-based
options") were granted to 43 senior executive officers of Mercshares and its
affiliates, including the Chief Executive Officer and the other four most highly
compensated executive officers of Mercshares. Twenty-five percent of these
performance-based options will become exercisable on and after each anniversary
date of the grant, except that if any such senior executive officer attains his
normal retirement date during that four year period, any options that have not
become exercisable and have not been forfeited become exercisable on the
anniversary date following the normal retirement date, subject to the
satisfaction of the corporate earnings tests described in this paragraph for the
year preceding retirement. The portion of the performance-based options that
become exercisable in each of the four years may not be exercised unless
Mercshares' earnings per share increase at a compounded growth rate of at least
five percent over 1994. If this test is met, then up to one-half of the
performance-based options maturing in each of the four years become exercisable
based on a sliding scale (beginning at six percent) of the percent of increase
of earnings per share of Mercshares over the prior year earnings per share. The
remaining one-half may be exercised only if the net operating income of the
affiliate employing the participant increases at a compounded growth rate of at
least five percent over 1994. If this test is met, then up to one-half of the
options maturing in each of the four years become exercisable, based on the same
sliding scale (beginning at six percent), of the percent of increase of the net
PAGE 8
operating income of the affiliate over the prior year net operating income of
that affiliate. To the extent these tests are not met, all, or a portion, of the
performance-based options maturing each year are forfeited and become available
for further grants.
The remaining options for 278,150 shares were granted to 254 key employees
of the affiliates of Mercshares. These options are not performance-based options
and are fully exercisable as of the date of grant.
1995 COMPENSATION
The Committee, in determining the 1995 basic cash compensation of the
executive officers of Mercshares, considered the factors described in this
Report.
H. Furlong Baldwin is Chairman of the Board and Chief Executive Officer of
Mercshares and Merc-Safe and, as such, has the ultimate management
responsibility for the strategic direction, performance, operating results and
financial condition of Mercshares and its affiliates, and the carrying out of
corporate policies and procedures. Since 1970, these duties have included the
primary responsibility for recommending to the Board of Mercshares the
acquisition and establishment of additional affiliates. Edward K. Dunn, Jr. is
President of Mercshares and became President and Chief Operating Officer of
Merc-Safe upon the retirement of Douglas W. Dodge on July 1, 1995. Mr. Dunn,
Brian B. Topping as Vice President of Mercshares and Vice Chairman of the Board
of Merc-Safe, and Hugh W. Mohler and Jay M. Wilson, as Executive Vice Presidents
of Mercshares and Merc-Safe, have the responsibility of assisting in carrying
out corporate policies and procedures to assure that the performance, operating
results and financial condition objectives are obtained.
The 1995 basic cash compensation of Messrs. Baldwin, Dunn and Topping was
set in February, 1995. The Committee was aware that incentive compensation
payments to the executive officers of Mercshares would be made in 1995
attributable to 1994 performance under the Annual Incentive Compensation Plan,
and that the remainder of the options granted under the Omnibus Stock Plan in
1991, potentially exercisable in 1995, were forfeited because the earnings goals
established in that Plan were not reached. In addition, no awards were made in
1994 under the 1985 Stock Option Plan or the Omnibus Stock Plan.
The Committee was aware of 1994 earnings of Mercshares. The Committee
reviewed profitability and capital strength ratios (return on assets, net
interest margin, efficiency ratio, equity to assets and return on equity) and
loan loss performance ratios (year-end non-performing assets to loans, net
charge-offs to average loans and year-end allowance for loan losses to non-
performing loans) for the years 1989 through 1993 and the quarter ended
September 30, 1994 as compared to comparable information for 20 banking
companies with assets from $5 to $10 billion, considered by an independent
analyst as Mercshares' peer group. The Committee then compared similar ratios
showing profitability, capital adequacy, reserve strength, and asset quality
with those of the 50 largest banking institutions in the United States as
prepared by that financial analyst. The Committee was aware that, for the second
quarter, 1994 (the then most recent quarter for which the following rating was
published), Mercshares was rated "superior", compared to eight selected banking
institutions in Maryland, Delaware, the District of Columbia and Virginia, based
on 39 separate financial ratios that depict financial strength and profitability
compiled by IDC Financial Publishing, Inc.
The Committee then compared the compensation of Messrs. Baldwin, Dunn and
Topping with an independent study published in 1994 reflecting compensation
information for 1993 of the 58 commercial banking institutions participating in
the study and with the compensation of executive officers of five banking
institutions, based on 1992, 1993 and 1994 proxy information (the then most
currently available), selected as generally comparable to Mercshares in terms of
criteria including the nature and quality of operations, or geographic
proximity. This latter group included financial institutions having significant
income generated by trust and investment activities, high returns on assets and
above average return on equity, capital significantly in excess of that required
by current federal regulations, and located within a 400 mile radius of
Baltimore so as to
PAGE 9
include companies operating in a comparable economic climate. No target was
established in the comparison with this group of institutions.
The Committee concluded that Mercshares' profitability and capital strength
ratios continued to be strong, and that loan loss ratios were favorable, both
standing alone and in comparison to the 20 banking companies constituting the
peer group and the 50 largest banking institutions group, and that Mershares'
performance, overall, was strong. The Committee determined, in view of these
factors, the compensation comparisons, and the fact that no increase in base
compensation had been granted for the year 1994, that an increase in base
compensation should be granted for the year 1995, and recommended to the Board
the approval of the increases reflected in the Summary Compensation Table under
the "Salary" caption as to Messrs. Baldwin, Dunn and Topping. The travel
allowance for Mr. Baldwin (as disclosed in the Summary Compensation Table),
which has been recommended by the Committee and approved by the Boards annually
since 1990 as an appropriate corporate expense, was continued. The compensation
of Mr. Mohler was reviewed in December, 1995 and, based on his performance, he
was awarded an increase. Mr. Wilson served as a Director of Mercshares and
Merc-Safe from 1989 until September, 1994, at which time he was elected an
Executive Vice President of Mercshares and Merc-Safe. His compensation was
negotiated at that time. Mr. Mohler's increase and Mr. Wilson's compensation are
reflected in the Summary Compensation Table under the "Salary" Caption. In view
of Mr. Dodge's planned retirement his basic cash compensation was not increased.
In December, 1994, the Committee designated Messrs. Baldwin, Dodge, Dunn,
Topping, Mohler and Wilson as participants for 1995 in the Annual Incentive
Compensation Plan. Under the formula requirements of that Plan, based on 1995
earnings per share and net operating income and to the extent that mathematical
Plan criteria were met, these individuals earned incentive cash compensation,
paid in 1996, which is included under the caption "Bonus" in the Summary
Compensation Table for 1995.
As stated in this Report under the caption "Stock Based Compensation", the
Committee granted to Messrs. Baldwin, Dunn, Topping, Mohler and Wilson
performance-based stock options. The amounts and the exercise price are shown in
the table captioned "Stock Option Grants In Last Fiscal Year". In determining
the number of performance-based stock options granted to these executive
officers, the Committee considered in addition to the other factors described in
this Report, the salary, responsibility, and the position and ability of the
executive to affect the future growth of Mercshares. No particular weighting was
given by the Committee to any one factor, but it exercised its collective
business judgment in making such grants.
Section 162(m) of the Internal Revenue Code provides for non-deductibility,
in certain cases, of compensation paid to an executive in excess of $1 million
per year. For the year 1995, the only Mercshares executive whose compensation
exceeded that level is Mr. Baldwin. Because various compensation plans have been
approved by Mercshares' stockholders and, in Mercshares' opinion, are qualified
performance-based plans under Section 162(m), the deductibility of Mr. Baldwin's
compensation is not limited by Section 162(m). Mercshares has not adopted a
policy as to whether or under what circumstance it would pay executive
compensation which would not be deductible under Section 162(m) but reserves the
right to make compensation payments that may not qualify for deduction.
THE COMPENSATION COMMITTEE
Robert D. Kunisch Morris W. Offit
Christian H. Poindexter Donald J. Shepard
Calman J. Zamoiski, Jr.
Chairman
PAGE 10
The following line graph compares cumulative total shareholder return on
Mercshares Common Stock with the Standard & Poor's 500 Index and the Standard &
Poor's Banks Composite Index for the period beginning December 31, 1990, through
December 31, 1995. The graph assumes $100 invested at the closing price on
December 31, 1990, and the reinvestment of all dividends. With reference to the
Report of the Compensation Committee, 31 of the 50 largest banking institutions
whose performance ratios were reviewed, two of the five institutions considered
for compensation purposes and 11 of the 58 institutions participating in the
compensation study are included in the S & P Banks Composite Index. None of the
20 institutions considered as peer institutions of Mercshares whose performance
ratios were reviewed is so included. The S & P Banks Composite Index consists,
as of December 31, 1995, of seven "Money Center Banks", and 24 "Major Regional
Banks", each of which is substantially larger than Mercshares.
PERFORMANCE GRAPH
Value of $100 Invested
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mercshares.................. $100.00 $143.86 $173.81 $156.15 $166.28 $244.43
S&P Banks Composite
Index..................... 100.00 161.54 214.61 238.26 226.27 360.66
S&P 500..................... 100.00 130.37 140.30 154.46 156.56 215.41
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Merc-Safe has banking and other relationships, in the ordinary course of
business, with a number of its Directors and companies associated with them,
including loans to Mr. Kunisch, to Mr. Zamoiski and companies associated with
him and to companies associated with Mr. Poindexter. Such loans were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others, and did not
involve more than the normal risk of collectibility or present other unfavorable
features. Mr. Baldwin is a director of Baltimore Gas & Electric Company of which
Mr. Poindexter is an executive officer, and of OFFITBANK of which Mr. Offit is
an executive officer, and Mr. Dunn is a director and member of the compensation
committee of Aegon USA, Inc. of which Mr. Shepard is an executive officer.
PAGE 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain summary compensation information as
to the Chief Executive Officer of Mercshares, the other four most highly
compensated executive officers of Mercshares and a former executive officer who
retired in 1995, based on total annual salary and bonus in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
----------------
AWARDS
ANNUAL COMPENSATION ----------------
---------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS# COMPENSATION($)(1)
- ---------------------------- ---- --------- -------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
H. Furlong Baldwin.......... 1995 747,300 487,500 63,000(2) 80,000 44,800
Chairman of the Board 1994 650,000 211,300 66,400(2) -- 39,100
and Chief Executive Officer 1993 648,900 253,100 55,200(2) -- 30,200
Edward K. Dunn, Jr.......... 1995 398,700 200,000 -- 45,000 78,800
President 1994 350,000 87,500 -- -- 71,300
1993 348,800 105,200 -- -- 12,800
Brian B. Topping............ 1995 379,200 95,000 -- 35,000 25,600
Vice President 1994 350,000 78,800 -- -- 20,500
1993 348,800 32,000 -- -- 19,900
Hugh W. Mohler(3)........... 1995 250,000 125,000 -- 30,000 46,800
Executive Vice President 1994 235,500 41,300 -- -- 36,600
Jay M. Wilson(3)............ 1995 250,000 82,500 -- 30,000 14,200
Executive Vice President 1994 69,200 -- -- -- 200
Douglas W. Dodge(4)......... 1995 235,600 112,500 -- -- 14,900
Former Vice Chairman 1994 450,000 163,400 -- -- 24,400
of the Board 1993 448,000 12,200 -- -- 22,600
</TABLE>
- ------------
(1) Represents cost of group-term life insurance deemed to be employee income
under the Internal Revenue Code and contributions made on behalf of the
executive officer by Merc-Safe to the Mercshares Thrift Plan and to
supplemental thrift and cash balance pension plan arrangements and, as to
Mr. Mohler, fees for services as a director of an affiliate bank as follows:
<TABLE>
<CAPTION>
SUPPLEMENTAL
YEAR LIFE INSURANCE THRIFT PLAN PLANS FEES TOTAL
---- -------------- ----------- ------------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Baldwin................... 1995 $6,300 $ 4,500 $ 34,000 -- $44,800
1994 6,300 4,500 28,300 -- 39,100
1993 6,300 7,100 16,800 -- 30,200
Mr. Dunn...................... 1995 4,100 7,500 67,200 -- 78,800
1994 2,700 7,500 61,100 -- 71,300
1993 2,700 10,100 -- -- 12,800
Mr. Topping................... 1995 6,300 7,500 11,800 -- 25,600
1994 4,600 7,500 8,400 -- 20,500
1993 4,000 10,100 5,800 -- 19,900
Mr. Mohler(3)................. 1995 1,800 7,500 29,000 8,500 46,800
1994 1,500 7,500 21,100 6,500 36,600
Mr. Wilson(3)................. 1995 700 3,500 10,000 -- 14,200
1994 200 -- -- -- 200
Mr. Dodge (4)................. 1995 3,200 4,500 7,200 -- 14,900
1994 6,300 7,500 15,400 -- 29,200
1993 6,300 10,100 8,000 -- 24,400
</TABLE>
(2) Of these amounts, $57,500 in 1995, $60,000 in 1994 and $47,900 in 1993
represent travel expenses incurred by Mr. Baldwin.
(3) Because Messrs. Mohler and Wilson did not become executive officers until
March and September, 1994, respectively, amounts received in 1993, if any,
are not included.
(4) Mr. Dodge retired July 1, 1995. Because he was the fifth highest paid
executive officer in 1995 in terms of salary and bonus, the rules of the
Securities and Exchange Commission require the reporting of Mr. Dodge's
compensation for that six-month period.
PAGE 12
OPTION GRANTS
The following table shows, as to each person named, options to purchase
Common Stock granted by Mercshares in 1995. Certain information as to the terms
of these options, including those with respect to exercisability and forfeiture,
is set forth in footnote (2) below:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
--------------------------------------------- POTENTIAL
% OF REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION GRANT
OPTIONS EMPLOYEES OR BASE EXPIRA- FOR OPTION TERM (2)(3) DATE
GRANTED IN FISCAL PRICE TION --------------------------- VALUE
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($) $(2)(4)
- ----------------------- ---------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Baldwin............ 80,000 7.69 21.875 3/14/05 1,100,800 2,788,800 424,800
Mr. Dunn............... 45,000 4.31 21.875 3/14/05 619,200 1,568,700 239,000
Mr. Topping............ 35,000 3.36 21.875 3/14/05 481,600 1,220,100 186,900
Mr. Mohler............. 30,000 2.88 21.875 3/14/05 412,800 1,045,800 159,300
Mr. Wilson............. 30,000 2.88 21.875 3/14/05 412,800 1,045,800 159,300
All Stockholders(5).... N/A N/A N/A N/A 655,716,963 1,661,718,434 N/A
</TABLE>
- --------------
(1) All of these options were granted pursuant to the Omnibus Stock Plan, are
intended to be incentive stock options to the extent permitted by law and
regulations, were granted at market value on the date of grant and have a
term of ten years.
(2) Caution is recommended in interpreting the financial significance of the
figures. The potential realizable value and the grant date value have been
calculated in conformity with Securities and Exchange Commission
regulations, and are not intended to forecast possible future appreciation
and do not necessarily provide a true assessment of present option values.
Further, the figures do not reflect the following terms of these options
which are more fully described in the Report of the Compensation Committee
under the caption "Stock Based Compensation": (a) only 25% of the options
granted to the named executive officers will become exercisable on and after
each anniversary date of the grant (except that, since Mr. Baldwin's normal
retirement date is February 1, 1997, 75% of his options become exercisable
on March 14, 1997); (b) the exercise of the options is subject to the
attainment of certain growth targets with respect to growth in earnings per
share and net after tax operating income on both a compounded basis from the
base year of 1994 and on a year-to-year basis; and (c) if the growth targets
are not met, all or a portion of the percent of options that will become
exercisable are forfeited. No gain to the named executive officers is
possible without stock price appreciation and the attainment of the targets
as described above and in the Report of the Compensation Committee.
(3) The potential realizable value is calculated by multiplying the number of
options granted by the difference between a future hypothetical stock price
and the option exercise price. It assumes the value of Mercshares stock
appreciates 5% to 10% each year, compounded annually for ten years, or an
assumed value of $35.632 per share and $56.738 per share, respectively.
(4) The grant date present value of options granted ($5.31 per share) is
reported using the Black-Scholes option pricing model and assumes: (a) the
grant date of March 14, 1995; (b) the exercise price of $21.875; (c) an
expected option term of 5 years; (d) a risk-free interest rate of 7.6% based
on a 5 year exercise period; (e) a dividend yield of 3.5%; and (f)
volatility of 23.3%.
(5) Based on 47,664,241 shares outstanding on March 14, 1995.
PAGE 13
AGGREGATE OPTIONS/SAR TABLE
The following table sets forth certain information, on an aggregate basis,
concerning the exercise of stock appreciation rights during 1995 by executive
officers named in the Summary Compensation Table and the December 31, 1995 value
of unexercised stock options.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY--END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT FY--END (#) AT FY-END ($S)(1)
SHARES ACQUIRED VALUE REALIZED ------------------ --------------------
NAME ON EXERCISE (#) ($S)(1) UNEXERCISABLE(2) UNEXERCISABLE(2)
- ---------------------------- --------------- ---------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Mr. Baldwin(2)(3)........... 16,742 771,900 80,000 480,000
Mr. Dodge(4)................ -- 172,575 --
Mr. Dunn(5)................. 7,523 308,760 45,000 270,000
Mr. Topping(6).............. 6,130 256,320 35,000 210,000
Mr. Mohler.................. -- -- 30,000 180,000
Mr. Wilson.................. -- -- 30,000 180,000
</TABLE>
- ------------
(1) Share values included in the table represent the fair market value of the
shares at the exercise date for exercised SARs, or at December 31, 1995 for
unexercised options, less the base price of the SARs or the exercise price
of the options.
(2) As explained in the Report of the Compensation Committee, and except for Mr.
Baldwin, these options become exercisable in four equal annual installments
following March, 1995, but only if and to the extent that certain annual
corporate earnings tests have been met. Such tests were met for 1995 and 25%
of the options become exercisable in March, 1996. Since Mr. Baldwin's normal
retirement date is February 1, 1997, 75% of the options granted to him
become exercisable on March 14, 1997, but only if and to the extent that the
required annual corporate earnings tests for 1996 have been met.
(3) Mr. Baldwin, in 1995, exercised SARs having a value realized of $771,900,
which he received in the form of 16,742 shares of common stock and $359,628
in cash.
(4) Mr. Dodge, in 1995, exercised SARs having a value realized of $172,575 which
was paid in cash.
(5) Mr. Dunn, in 1995, exercised SARs having a value realized of $308,760, which
he received in the form of 7,523 shares of common stock and $123,506 in
cash.
(6) Mr. Topping, in 1995, exercised SARs having a value realized of $256,320,
which he received in the form of 6,130 shares of common stock and $115,331
in cash.
STOCK PLAN
OMNIBUS STOCK PLAN
The Omnibus Stock Plan was approved by the stockholders in 1990. The Plan
permits the Compensation Committee from time to time to grant incentive stock
options, non-qualified stock options, stock appreciation rights, restricted
stock and phantom stock units ("Stock Incentives") to key employees of
Mercshares and its affiliates as determined by the Compensation Committee. The
Compensation Committee has broad authority to determine the terms and conditions
upon which such Stock Incentives may be granted, including, among other things,
when they may be granted, their duration and conditions for their exercise and
forfeiture.
Stock Incentives in the form of stock options were granted in March, 1995,
the amounts and terms of which are described in the Report of the Compensation
Committee under the caption "Stock Based Compensation".
PAGE 14
RETIREMENT AGREEMENTS AND PLANS
DEFERRED COMPENSATION AND SUPPLEMENTAL PENSION AGREEMENTS
Messrs. Baldwin, Dodge and Topping entered into arrangements with Merc-Safe
pursuant to which their rates of salary were reduced. In exchange, Merc-Safe
from time to time invests, in life insurance and annuity policies, amounts equal
to the salary reduction amounts and a portion of the cumulative cash surrender
values of those policies. The future payments to these executives will
approximate the amounts realized from these investments but will vary as to
amount and term depending on the executives' ages at termination of service.
Alternate provisions have been made for events such as termination, resignation,
death or disability prior to retirement, but, assuming retirement at age 65,
annual payments for a minimum of fifteen years or until death would approximate
$168,000 to Mr. Baldwin and $176,000 to Mr. Topping (which payments are expected
to be funded by the insurance and annuity plan arrangements). Mr. Dodge receives
an annual payment of $126,000 under his agreement. The full salaries of Messrs.
Baldwin, Dodge and Topping before reduction are included under the caption
"Salary" in the Summary Compensation Table.
The executives who are parties to the above arrangements also participate in
supplemental pension and thrift plan arrangements whereby they are eligible to
receive (1) benefits in the amounts they would have received had their
compensation not been reduced from current levels, and (2) amounts to which they
would have been entitled under the Mercshares cash balance pension plan and
thrift plan but for the maximum salary, benefit and contribution limitations on
defined benefit and contribution plans under the Internal Revenue Code.
Mercshares has entered into a Supplemental Pension Agreement with Mr. Dunn,
pursuant to which, assuming retirement at age 65, Mr. Dunn will receive $5,000
per month in addition to any pension received under the Mercshares cash balance
pension plans. Alternate provisions are made for events such as termination,
resignation, death or disability prior to retirement at age 65. At the time of
Mr. Mohler's first employment with a Mercshares' affiliate, a Supplemental
Pension Agreement was entered into with him pursuant to which he was granted
credit for years of service for time worked for his prior employer.
CASH BALANCE PENSION PLAN
Mercshares is sponsor of an employees' cash balance pension plan which a
majority of its affiliates have adopted. Each plan participant who was employed
on January 1, 1991 (including those individuals named below) was credited under
the cash balance pension plan with a frozen accrued benefit representing the
benefit he had earned under the plan, determined as of December 31, 1990, and
based generally on past service and career average annual compensation. For
service on and after January 1, 1991, the cash balance pension plan is designed
to maintain separate participant accounts for each eligible employee. These cash
balance accounts are credited with annual contribution allocations equal to
various percentages of compensation based on years of credited service and age.
Interest allocations, tied to a Treasury Bill rate, are also credited annually
to these cash balance accounts. Plan benefits paid at retirement to those
individuals named below, all of whom, except Mr. Wilson, were employed on
December 31, 1990, will be paid in annuity form and will consist of the sum of
their frozen accrued benefits and their cash balance accounts. The Plan does not
determine benefits primarily by final average compensation.
Estimated annual pension benefits shown below are presented as straight life
annuities, even though retirees may elect to receive a form of benefit other
than a straight life annuity. The benefits are based on actual salary and bonus
for 1995 as shown in the Summary Compensation Table. For future years, it is
estimated that the executive officers' salaries will increase through their
dates of normal retirement at the plan's internal salary increase assumption and
that their bonuses will continue at the same amount through their dates of
normal retirement. Actual salary
PAGE 15
increases may differ from the plan's internal salary increase assumption and
actual bonuses may differ significantly from the 1995 bonuses; and in some years
it is possible, based on the formula in the Annual Incentive Compensation Plan,
that no bonuses will be earned. Accordingly, the actual pension benefits at
retirement may differ significantly from the amounts stated below.
At the plan's normal retirement age of 65, the individuals named below would
have the following years of service and estimated annual pension benefits: Mr.
Baldwin, 40 years and $455,000; Mr. Dunn, 12 years and $178,000; Mr. Topping, 24
years and $186,000; Mr. Mohler 42 years and $360,000 and Mr. Wilson 18 years and
$131,000. The amounts shown are the total of estimated payments from the plan
and under the supplemental pension arrangements described above and, with
respect to Messrs. Dunn, Mohler and Wilson, under the following section entitled
"Supplemental Cash Balance Pension Plan". Mr. Dodge's aggregate annual payments,
under the plan and supplemental pension arrangement described above are
$167,000.
All other officers of Mercshares participate in the cash balance pension
plan. Directors who are not also officers of Mercshares or an affiliate do not
participate in the cash balance pension plan.
SUPPLEMENTAL CASH BALANCE PENSION PLAN
Mercshares is sponsor of an unfunded, nonqualified, supplemental cash
balance pension plan. All employees of Mercshares and its affiliates having
compensation for a calendar year in excess of $150,000 (as adjusted under the
Internal Revenue Code) and who are approved for participation by the Employee
Benefit Committee of Mercshares are eligible participants under this plan except
individuals who, on or prior to January 1, 1994, entered into individual
deferred compensation agreements under which they may elect to defer a portion
of their current compensation. Messrs. Baldwin and Topping are not participants
in the plan. Messrs. Dunn, Mohler and Wilson, as well as 13 other employees of
Mercshares and its affiliates, participate in the plan. At the end of a calendar
year, the account of each participant is credited with an amount equal to the
difference between the amount with which the participant's account under the
cash balance pension plan would have been credited but for the compensation
limitation imposed by the Internal Revenue Code and the amount actually credited
to the participant's account under the cash balance pension plan. In addition,
if a participant's benefit under the cash balance pension plan is limited by
Section 415 of the Internal Revenue Code and is not already provided for under
this plan, an amount equal to the shortfall will be added to the participant's
account. At the end of a calendar year (but prior to the above credit), each
participant's account is credited with interest equal to the average value of
interest rates on 52 week U. S. Treasury Bills, determined pursuant to a fixed
formula, but no less than four percent nor more than 12 percent, until the
participant's account is fully distributed. As of December 31, 1995, Mr. Dunn's
account was credited with $57,100, Mr. Mohler's with $24,700 and Mr. Wilson's
with $7,000. These amounts are included under the caption "All Other
Compensation" in the Summary Compensation Table. Generally, an account is
distributed after the participant's termination or death, either in a single-sum
payment, or in equal annual installments over a period not to exceed ten years.
THRIFT PLAN
Mercshares is sponsor of a thrift plan, of the type described in Section
401(k) of the Internal Revenue Code, which a majority of its affiliates have
adopted for the benefit of all eligible employees. Those executive officers of
Mercshares who are also officers of Merc-Safe participate in the plan. The plan
provides that corporate contributions, based on a percentage of an employee's
salary, are paid to the employee's thrift plan account. Additionally, employees
may elect to defer up to ten percent of their salaries by redirecting the
deferred amount to their thrift plan accounts, in which case their employers
match a portion of the amount deferred. The corporate contributions for 1995 are
included under the caption "All Other Compensation" in the
PAGE 16
Summary Compensation Table. Messrs. Dunn, Topping, Mohler and Wilson elected to
defer a percentage of their salaries during 1995. The amounts so deferred are
included under the caption "Salary" and the matching contributions are included
under the caption "All Other Compensation" in the Summary Compensation Table.
SUPPLEMENTAL THRIFT PLAN
Mercshares is sponsor of an unfunded, nonqualified supplemental thrift plan.
All vice presidents and above who participate in the thrift plan, who have
compensation for a calendar year in excess of $150,000 (as adjusted under the
Internal Revenue Code) and who are approved for participation by the Employee
Benefit Committee of Mercshares are eligible participants under this plan except
individuals who, on or prior to January 1, 1994, entered into individual
deferred compensation agreements under which they may elect to defer a portion
of their current compensation. Messrs. Baldwin and Topping are not participants
in the plan. Messrs. Dunn, Mohler and Wilson, as well as 13 other participants
in the thrift plan, participate in this plan. At the end of a calendar year, the
account of each participant is credited with an amount equal to 3% of the
portion of the participant's compensation for that calendar year that exceeds
the above limit. At the end of a calendar year (but prior to the above credit),
each participant's account is credited with interest at the per annum rate of
five percent except that interest is pro-rated for accounts that terminate in
mid-year. As of January 1, 1996, Mr. Dunn's account was credited with $10,000,
Mr. Mohler's with $4,200 and Mr. Wilson's with $3,000. These amounts are
included under the caption "All Other Compensation" in the Summary Compensation
Table. Generally, an account is distributed in a lump sum payment after a
participant's termination or death.
MEDICAL REIMBURSEMENT PLAN
Mercshares is sponsor of a medical reimbursement plan, of the type described
in Section 105 of the Internal Revenue Code, which a majority of its affiliates
have adopted for the benefit of all eligible employees. Those executive officers
of Mercshares who are also officers of Merc-Safe, except Messrs. Dunn and
Topping, participate in the plan. The plan provides that employees may reduce
their salaries on a pre-tax basis, in amounts determined in advance by them, and
redirect those amounts to a medical reimbursement account (MRA). Funds in the
MRA then become available to reimburse the employee for certain uninsured
medical expenses. Any balance left in an employee's MRA at year end reverts to
his employer. Amounts redirected to the MRA for Messrs. Baldwin, Mohler and
Wilson are included under the caption "Salary" in the Summary Compensation
Table.
OTHER ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Mercshares and Merc-Safe have entered into employment agreements with
Messrs. Baldwin, Dunn and Topping. Pursuant to these agreements, Mr. Baldwin
serves as Chairman of the Board and Chief Executive Officer of Mercshares and
Merc-Safe at a base salary of not less than $750,000 per year; Mr. Dunn serves
as President of Mercshares and President and Chief Operating Officer of
Merc-Safe at a base salary of not less than $400,000 per year, and Mr. Topping
serves as Vice President of Mercshares and a Vice Chairman of the Board of
Merc-Safe at a base salary of not less than $380,000 per year. The agreements
provide that these base salaries will not be less in any year than in the
preceding year. The current terms of the agreements are until February 1, 1997,
for Mr. Baldwin, December 31, 1998, for Mr. Dunn, and March 31, 1998, for Mr.
Topping. These agreements will extend for periods of three years following each
annual anniversary date (but not beyond the normal retirement date of the
PAGE 17
employee) unless such extension is declined by Mercshares or Merc-Safe or by
Messrs. Baldwin, Dunn or Topping, respectively. Messrs. Baldwin, Dunn and
Topping will also be entitled to such other benefits as they may receive under
various employee benefit plans including the plans described in this Proxy
Statement.
CHANGE OF CONTROL TERMINATION AGREEMENTS
Mercshares has entered into Change of Control Termination Agreements with
Messrs. Baldwin, Dunn and Topping and one other executive officer of Mercshares.
In the event that during the effective period of the agreement, following a
"change of control" of Mercshares, the officer is terminated (prior to his
normal retirement date) within three years of a change of control without
"cause" or if the officer resigns for "good reason", then such officer is
entitled to receive certain cash payments from Mercshares. Payments which may be
made under the agreements are limited to the maximum amount (when combined with
amounts otherwise payable upon termination) which is deductible by Mercshares
under Section 280G of the Internal Revenue Code. Generally, the maximum amount
deductible is three times average base annual compensation (including salary,
bonus, fringe benefits and deferred compensation) over the last five years. The
Change of Control Termination Agreements now have a three year effective period
following December 31, 1995, and are renewed automatically each year for an
additional one year period (or until the officer's normal retirement if earlier)
unless Mercshares refuses such extension. For the purposes of the agreements, a
"change of control" means any of the following occurrences: (a) a person or
group becomes the beneficial owner of at least 20% of Mercshares Common Stock;
(b) there occur certain specified changes in the composition of the Mercshares
Board of Directors; (c) Mercshares' stockholders approve a reorganization,
merger, consolidation or statutory share exchange of Mercshares unless after
such transaction, holders of the previously outstanding Mercshares Common Stock
own more than 50% of the combined voting power of the surviving entity, or (d) a
liquidation or dissolution of Mercshares or sale of all or substantially all of
the assets of Mercshares. For purposes of these Agreements, termination by
Mercshares for "cause" means termination upon (i) an act of personal dishonesty
taken by the officer intended to result in substantial personal enrichment of
the officer at the expense of Mercshares, (ii) the officer's willful, deliberate
and continued failure to perform substantially his duties, which is not remedied
after receipt of written notice, or (iii) conviction of a felony. "Good reason"
includes the assignment to the officer of any duties inconsistent with his
status and position as they exist immediately prior to the change of control, a
substantial failure by Mercshares to comply with its obligations to the officer
under its employment arrangement with such officer, relocation of the officer's
place of employment outside of the Mercshares principal office located in the
City of Baltimore, a purported termination of the officer not otherwise
permitted under his employment arrangement with Mercshares or the failure of any
successor to Mercshares to assume expressly the obligations of the agreement.
DIRECTOR FEES
Directors of Mercshares, who are not also officers of Mercshares or its
affiliates, are paid a retainer at the annual rate of $15,000 in addition to
fees of $750 for each Board meeting and $500 for each Committee meeting
attended. Directors who are also officers of Mercshares or its affiliates
receive no retainer or compensation for attendance at Board or Committee
meetings of Mercshares.
Mercshares is sponsor of a Directors Deferred Compensation Plan which gives
Directors of Mercshares and participating affiliates, who are not also officers
of Mercshares or its affiliates, the option to defer the retainer and other
fees. Mercshares has amended and restated the Directors Deferred Compensation
Plan. Prior to the amendment, deferred amounts were invested by Merc-Safe, as
agent, in various securities. Under the amendment and restatement, at the close
of each calendar quarter the sum of cash deferred in that quarter by a Director
is converted to
PAGE 18
units by dividing such sum by the closing market price of Mercshares stock and
cumulatively credited to the Director's account. At the close of each calendar
quarter, the sum of the dividends attributable to the Director's account at the
beginning of the quarter is similarly converted to additional units and
cumulatively credited. When a participating Director ceases to serve as a
Director, a cash sum is computed by multiplying the number of units in his
account by the closing market price of Mercshares stock at a time specified in
the Plan. This sum is paid in cash to the Director (or a designated beneficiary)
over the period of years (one to ten) specified by the Director. Any unpaid
balance is credited with interest at five percent. Any Director having a
deferred account at the time of the amendment and restatement could elect to
have such account converted to units as described above. Failing such election,
interest at five percent will be paid on the sum until fully paid out in
accordance with the Director's existing deferral agreement.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Certain affiliated banks have had, and expect to have in the future, banking
and trust transactions in the ordinary course of business with many of the
Directors and officers of Mercshares, and certain of their associates and
immediate family members, on substantially the same terms, including interest
rates and collateral on loans, and commissions on fiduciary business, as those
prevailing at the time for comparable transactions with others. Loans to such
persons were made in the ordinary course of business and did not involve more
than the normal risk of collectibility or present other unfavorable features.
MERCANTILE BANKSHARES CORPORATION
RETAINER STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS
The Board of Directors of Mercshares, on March 12, 1996, approved for
submission to the Stockholders for their approval, the Mercantile Bankshares
Corporation Retainer Stock Plan For Non-Employee Directors (the "Retainer Stock
Plan"). The Retainer Stock Plan is described below.
As is described in this Proxy Statement under the caption "Director Fees,"
each non-employee Director of Mercshares is paid an annual retainer in addition
to fees for attending meetings of the Board of Directors or of Committees of the
Board of Directors. Unless deferred, this annual retainer is paid in December of
each year.
The Retainer Stock Plan gives a non-employee Director of Mercshares, who is
serving as such on a specified date in December of a calendar year (the
"Election Date"), a non-transferable right to elect to have all or a portion of
such Director's retainer, which has not been deferred under the Directors
Deferred Compensation Plan (the "Elected Amount"), paid in the form of Common
Stock, in lieu of cash, provided that the elected amount is not less than
$3,000. The number of shares of such Common Stock is equal to the Elected Amount
divided by the fair market value of a share of Common Stock on the Election
Date, adjusted down to avoid issuance of fractional shares. The shares are
deemed issued at the close of business on the Election Date.
The Retainer Stock Plan will be administered by a Committee appointed by the
Board of Directors consisting of at least two Directors who shall satisfy
certain requirements of "disinterested" status to the extent necessary to
satisfy the conditions of Rule 16b-3 under the Securities Exchange Act of 1934
as in effect on December 31, 1995, or any successor provision. Participation in
the Retainer Stock Plan will not preclude a Director from serving on the
Committee. Except as otherwise required by Rule 16b-3, the Plan may be amended
by the Board of Directors without stockholder approval. Rule 16b-3 currently
requires stockholder approval for material increases in benefits or in the
number of shares issuable under the Plan, and for material changes in the Plan's
eligibility provisions.
PAGE 19
The value of the Common Stock paid to a Director is taxable to the same
extent as if paid in cash.
The term of the Retainer Stock Plan is 10 years. The maximum number of
shares issuable under the Retainer Stock Plan is 300,000, subject to adjustment
for stock dividends, stock splits, reverse stock splits or similar transactions.
The number of shares payable to each non-employee Director or to all
non-employee Directors as a group is not currently determinable. The table below
shows the maximum number of shares that would have been payable in 1995 for each
non-employee Director and for all non-employee Directors as a group if the
Retainer Stock Plan had been in effect during 1995 assuming that each
non-employee Director had elected to receive Common Stock for a total retainer
of $15,000 and using the fair market value of Mercshares Common Stock on
December 12, 1995:
NON-EMPLOYEE DIRECTOR(S) DOLLAR VALUE NUMBER OF SHARES
- ------------------------ ------------ ----------------
Each Director............................. $ 15,000 515
All Directors (14)........................ $210,000 7,210
If stockholder approval is not obtained, retainer fees will continue to be
paid entirely in cash.
The Board of Directors recommends a vote FOR the approval of the Retainer
Stock Plan.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, acting upon the recommendation of the Audit
Committee, has appointed Coopers & Lybrand, L.L.P., certified public
accountants, as the principal auditors for Mercshares for 1996. The stockholders
are asked to ratify that appointment.
A representative of Coopers & Lybrand, L.L.P. is expected to be present at
the Annual Meeting of Stockholders, with the opportunity to make a statement if
the representative desires to do so, and will respond to appropriate questions
from stockholders.
If the stockholders do not ratify the appointment of Coopers & Lybrand,
L.L.P., other independent certified public accountants will be selected by the
Board upon recommendation of the Audit Committee.
The Board of Directors recommends a vote FOR the proposal to ratify the
appointment of Coopers & Lybrand, L.L.P. as independent certified public
accountants to audit the financial statements of Mercshares for 1996.
REPORT OF AMENDMENTS TO BYLAWS
Article XII of the Bylaws provides that the Bylaws may be added to, altered,
amended, repealed or suspended by a majority vote of the entire Board of
Directors at any regular meeting of the Board or at any special meeting called
for that purpose. Any action of the Board of Directors in adding to, altering,
amending, repealing, or suspending the Bylaws must be reported to the
stockholders at the next annual meeting and may be changed or rescinded by
holders of the stock then outstanding and entitled to vote, by a majority of the
votes cast on the question. In no event shall the Board of Directors have any
power to amend Article XII.
Since the last Annual Meeting of Stockholders, the Board of Directors
amended the Bylaws, the net effect of which fixed the number of Directors to be
elected at 17.
The practical effect of Article XII of the Bylaws is to vest in the
Directors the power to amend the Bylaws, subject to the right of the
stockholders upon their own initiative to change or overrule
PAGE 20
the action of the Board after receipt of notice. Accordingly, the provisions of
the amended Bylaws are summarized above to provide such notice, and no action is
required by the stockholders unless a motion is made at the meeting to change or
overrule the action of the Board. If such motion were made, a majority of the
votes cast on the question would be required for its approval. It may be
expected that the holders of the proxies would vote to sustain the action of the
Directors.
VOTING INFORMATION
The election of Directors requires a plurality of votes cast at the meeting.
The approval of the Retainer Stock Plan requires the affirmative vote of the
holders of a majority of the shares represented in person or by proxy at the
meeting.
The ratification of the appointment of Coopers & Lybrand, L.L.P. as the
independent certified public accountants requires the affirmative vote of a
majority of the votes cast at the meeting.
The following principles of Maryland law apply to the voting of shares of
Common Stock at the meeting. The presence in person or by proxy of stockholders
entitled to vote a majority of the outstanding shares of Common Stock will
constitute a quorum. Shares represented by proxy or in person at the meeting,
including shares represented by proxies that reflect abstentions, will be
counted as present in the determination of a quorum. An abstention as to any
particular matter, however, does not constitute a vote "for" or "against" and
will be disregarded in calculating the votes cast as to such matter. With
respect to approval of the Retainer Stock Plan, however, which requires a
majority vote of all shares represented at the meeting, an abstention will have
the same effect as a negative vote. "Broker non-votes" (i.e., where a broker or
nominee submits a proxy specifically indicating the lack of discretionary
authority to vote on a matter) will be treated in the same manner as
abstentions.
The Bylaws of Mercshares provide that any stockholder proposing to bring
business, including any nomination for election of a Director, before a meeting
of stockholders must give prior written notice thereof. The notice must be given
to and received by the Secretary of Mercshares (at the address set forth in the
notice of meeting accompanying this proxy statement) not less than 20 days nor
more than 30 days prior to the meeting (or, with respect to notice of a proposal
required to be included in the Mercshares proxy materials pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, the earlier date such proposal was
received.) If less than 30 days' notice or prior disclosure of the date of
meeting is given, the stockholder notice must be received by the Secretary
within 10 days following notice or publication of the date of the meeting.
Public disclosure of the date of the 1996 Annual Meeting was given on
February 15, 1996, in the Quarterly Report to stockholders for the period ended
December 31, 1995. There were no proposals submitted for inclusion in the
Mercshares proxy materials for the Annual Meeting. Accordingly, any stockholder
notice of proposed business at the Annual Meeting must be received by the
Secretary between March 24, 1996, and April 4, 1996. Each notice must provide
the name and address of the stockholder and the class and number of shares of
Common Stock of Mercshares which are beneficially owned by the stockholder. For
matters other than proposals to nominate any person for election as a Director,
the notice must include a brief description of the business desired to be
brought before the meeting and any material interest of the stockholder in such
business. With respect to any stockholder proposal to nominate any person for
election as a Director, the notice must include (i) the name, age, business
address and residence address of the nominee, (ii) the nominee's principal
occupation or employment, (iii) the class and number of shares of Common Stock
of Mercshares which are beneficially owned by the nominee, and (iv) any other
information relating to the nominee that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the proxy
regulations under the Securities Exchange Act of 1934.
PAGE 21
ANNUAL REPORT OF MERCSHARES
Copies of the Annual Report of Mercshares, for the year ended December 31,
1995, were mailed on or about March 22, 1996, to those persons who were record
holders of stock of Mercshares on March 15, 1996, the record date referred to
above.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Any proposals of stockholders to be presented for inclusion in Mercshares
proxy materials for the 1997 Annual Meeting of Stockholders must be received by
the Secretary of Mercshares at Two Hopkins Plaza, Baltimore, Maryland 21201 on
or before November 22, 1996. Such proposals are subject to and must be made in
accordance with the proxy regulations under the Securities Exchange Act of 1934.
OTHER MATTERS
Management knows of no other matters which will be presented at the Annual
Meeting. However, if other matters are presented, it is intended that the
persons named in the enclosed proxy will vote the shares represented thereby in
accordance with their best judgment in the interest of Mercshares.
Mercshares will bear the cost of solicitation of proxies and may reimburse
persons holding stock in their names, or in the names of their nominees, or
otherwise, for reasonable expenses incurred in sending proxies and proxy
soliciting materials to their principals. In addition to the solicitation of
proxies by mail, proxies may also be solicited personally, or by telephone, or
telegram, by the officers and employees of Mercshares, without additional
compensation to them.
Mercshares has retained the firm of Hill and Knowlton to assist in the
solicitation activities referred to above for a fee of $5,500 plus expenses.
ANY STOCKHOLDER EXECUTING THE ENCLOSED PROXY MAY REVOKE SUCH PROXY AT ANY
TIME BEFORE IT IS EXERCISED.
JOHN A. O'CONNOR, JR.
Senior Vice President and Secretary
March 22, 1996
PAGE 22
(The information below appears on the front of the Proxy Voting Card.)
MERCANTILE BANKSHARES CORPORATION
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints H. Furlong Baldwin and Edward K. Dunn, Jr.,
and each of them, the proxies of the undersigned, with several powers of
substitution, to act and vote at the Annual Meeting of Stockholders of
Mercantile Bankshares Corporation, Two Hopkins Plaza, Baltimore, MD 21201 to
be held on Wednesday, April 24, 1996, at 10:30 a.m., and at any and all
adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF
DIRECTIONS ARE NOT INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS,
FOR THE APPROVAL OF THE RETAINER STOCK PLAN FOR NON-EMPLOYEE DIRECTORS, AND
FOR RATIFICATION OF THE APPOINTMENT OF AUDITORS. If a Director nominee is
unable to serve, the within Proxy may be voted for a substitute nominee.
Receipt of notice of the meeting and Proxy Statement is hereby acknowledged,
and the terms of the notice and statement are hereby incorporated by reference
into this Proxy. The undersigned hereby revokes all proxies heretofore given
for said meeting and any adjournment thereof.
(Continued, and to be signed and dated, on reverse side.)
MERCANTILE BANKSHARES CORPORATION
P.O. BOX 11023
NEW YORK, N.Y. 10203-0023
PAGE
(The information below appears on the back of the Proxy Voting Card.)
/ /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<S> <C> <C> <C>
1. Election of Directors FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below
</TABLE>
Nominees: H. Baldwin, T. Bancroft, R. Berndt, J. Block, G. Bunting, E. Dunn,
M. Grass, B. Jenkins, R. Kunisch, W. McCarthy, M. Offit, C. Poindexter,
W. Richardson, B. Robinson, D. Shepard, B. Topping, C. Zamoiski
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name on the space provided below.)
*Exceptions_____________________________________________________________________
2. Approval of the Mercantile Bankshares Corporation Retainer Stock Plan for
Non-Employee Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Ratification of appointment of Coopers & Lybrand, L.L.P. as the independent
certified public accountants for Mercshares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Upon such other matters as may properly come before the meeting.
Address Change
and/or Comments [ ]
Signature(s) should follow exactly the name(s) on the stock certificate.
All co-owners should sign. Executors and Administrators may sign as
such. Attorneys-in-fact should sign both names. Witness the hand and
seal of the undersigned.
Dated: , 1996
------------------------------
-------------------------------------------
Signature
-------------------------------------------
VOTES MUST BE INDICATED X
[X] IN BLACK OR BLUE INK.
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
PAGE
(The following two notices are filed pursuant to Rule 14a-6 as possible
additional soliciting material.)
MERCANTILE BANKSHARES CORPORATION
Two Hopkins Plaza
Baltimore, Maryland 21201
To The Stockholders:
AN IMPORTANT REMINDER...
The Annual Meeting of Stockholders of Mercantile Bankshares Corporation
will be held on April 24, 1996.
Unless you return a proxy card, or attend the meeting and vote in
person, your shares will not be voted at this meeting. If your proxy is
in the mail, thank you for responding. If not, would you please take
the time now to complete and mail the enclosed duplicate proxy card. A
postage-paid envelope has been provided for your convenience.
YOUR VOTE IS IMPORTANT!
PLEASE ACT IMMEDIATELY!
PAGE
MERCANTILE BANKSHARES CORPORATION
Two Hopkins Plaza
Baltimore, Maryland 21201
To The Stockholders:
AN IMPORTANT REMINDER...
The Annual Meeting of Stockholders of Mercantile Bankshares Corporation will
be held on April 24, 1996.
Your shares are held in the name of a bank or nominee. Unless we receive a
proxy card, your shares will not be voted at this meeting.
If your proxy is in the mail, thank you for responding. If not, would you
please take the time NOW to sign, date and mail your proxy in the enclosed
postage-paid envelope.
YOUR VOTE IS IMPORTANT!
PLEASE ACT IMMEDIATELY!
PAGE
APPENDIX
MERCANTILE BANKSHARES CORPORATION
RETAINER STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
This plan (the "Plan") has been adopted on March 12, 1996 by the
Board of Directors of Mercantile Bankshares Corporation (the "Corporation"),
subject to approval by the stockholders of the Corporation, for the purpose of
allowing Directors of the Corporation (who are not officers of the Corporation
or of Affiliates of the Corporation) to elect that all or a portion of their
annual retainer for services as Directors be paid to them in the form of
Common Stock, par value $2.00 per share ("Common Stock") of the Corporation
instead of cash, thereby permitting further alignment of their interests with
those of the Stockholders of the Corporation.
1. Definitions.
Under the Plan, except where the context indicates otherwise, the
following definitions apply:
(a) "Affiliate" shall mean any corporation in which the
Corporation owns, directly or indirectly, at least 80% of the outstanding
voting stock.
(b) "Annual Retainer Fee" shall mean the annual fee as
established from time to time by the Corporation and payable to Eligible
Directors for their services as Directors of the Corporation for any calendar
year, excluding other compensation such as fees paid for attending meetings of
the Board of Directors or of committees of the Board of Directors. Annual
Retainer Fees may be reduced in proportion to any period of time in a calendar
year during which a Director has not served as a Director of the Corporation.
"Undeferred Annual Retainer Fee" shall mean all or any portion of an Annual
Retainer Fee the receipt of which shall not, on an Election Date, have been
deferred pursuant to the Mercantile Bankshares Corporation Unfunded Deferred
Compensation Plan For Directors.
(c) "Board of Directors" shall mean the Board of Directors
of the Corporation, "Director" shall mean a member of the Board of Directors,
and "Committee" shall mean the committee appointed by the Board of Directors
pursuant to Section 4 to administer the Plan.
(d) "Election Date" shall mean, as to each calendar year,
the date of the regularly scheduled December meeting of the Board of
Directors; if no such meeting is held, the Election Date shall be December 10
of such calendar year.
(e) "Eligible Director" or "Participant" shall mean a
Director who is eligible to receive an Annual Retainer Fee for service as a
Director during all or part of a calendar year and who has not been an officer
of the Corporation or of any Affiliate during such period of service.
PAGE 1
(f) "Fair Market Value" of a share of Common Stock on an
Election Date shall mean the last reported sale price per share of Common
Stock, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on a national securities
exchange or included for quotation on the Nasdaq Stock Market, or if the
Common Stock is not so listed or admitted to trading or included for
quotation, the last quoted price, or if the Common Stock is not so quoted, the
average of the high bid and low asked prices, regular way, in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or, if such system is no longer in
use, the principal other automated quotations system that may then be in use
or, if the Common Stock is not quoted by any such organization, the average of
the closing bid and asked prices, regular way, as furnished by a professional
market maker making a market in the Common Stock as selected in good faith by
the Committee. If an Election Date is not a trading day, the determination
shall be made as of the next preceding trading day. As used herein, the term
"trading day" shall mean a day on which public trading of securities occurs
and is reported in the principal consolidated reporting system referred to
above, or if the Common Stock is not listed or admitted to trading on a
national securities exchange or included for quotation on the Nasdaq Stock
Market, any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are closed.
(g) "Rule 16b-3" shall mean Rule 16b-3 as in effect under
the Securities Exchange Act of 1934 ("1934 Act") on December 31, 1995, or any
successor provision prescribing conditions which, in the judgment of the
Committee, shall be necessary or desirable to exempt the issuance of
securities under the Plan (and, where permissible, the further disposition of
such securities) from Section 16(b) of the 1934 Act.
2. Elections Under the Plan. Each person who is an Eligible
Director on an Election Date in any calendar year shall have the right to
elect, within a ten-day period ending on the Election Date, to have all or a
portion (the "Elected Amount") of such Director's Undeferred Annual Retainer
Fee paid in the form of Common Stock in lieu of cash, provided that the
Elected Amount shall not be less than $3,000. The number of shares of such
Common Stock shall equal the Elected Amount divided by the Fair Market Value
of a share of Common Stock on the Election Date. Such Elected Amount and the
number of shares of Common Stock so issuable shall be adjusted by a reduction
if and to the extent necessary to avoid issuance of any fractional shares.
The shares shall be deemed issued at the close of business on the Election
Date and certificates therefor shall be delivered as soon as practicable
thereafter. Any election by an Eligible Director to receive Common Stock
under the Plan shall be made by the execution and delivery of a Director's
Election Agreement in the form of Exhibit A attached hereto, pursuant to which
the Director shall agree, to the extent required to meet the condition of
Rule 16b-3(c)(1), not to sell, transfer or otherwise dispose of said shares of
Common Stock until the expiration of six months after the applicable Election
Date.
PAGE 2
3. Consideration for Common Stock. Shares issued under the
Plan shall be issued by the Corporation from its previously authorized but
unissued Common Stock.
For purposes of the Maryland General Corporation Law, the consideration
received by the Corporation for such shares shall in each case be deemed to be
cash equal to the Elected Amount.
4. Administration. The Committee administering the Plan shall
be appointed by the Board of Directors, and shall consist of not less than two
Directors who, for so long as may be necessary to satisfy the conditions of
Rule 16b-3(c), shall be "disinterested persons" within the meaning of Rule
16b-3(c)(2). The Committee shall have the authority, in its sole and absolute
discretion, to interpret the Plan and adopt, amend, or rescind such rules and
procedures for carrying out the Plan, and to take all other action necessary
or advisable for the implementation and administration of the Plan, as the
Committee may deem appropriate. Once appointed, the Committee shall continue
to serve until otherwise directed by the Board of Directors. From time to
time, the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor and fill vacancies, however
caused.
The Committee shall be fully protected in any action or omission
taken by it in good faith, including actions or omissions in reliance upon the
advice or opinions of any persons, firms, or agents retained by it or the
Corporation, including but not limited to accountants, actuaries, counsel,
other specialists or officers of the Corporation. Nothing herein contained
shall preclude the Corporation from indemnifying any Committee members for all
actions under the Plan, or from purchasing liability insurance to protect such
persons with respect to their duties pursuant to the Plan.
5. Non-Transferability. No right of a Participant to elect
Common Stock under Section 2 shall be exercisable by any other person or shall
be assignable or subject to anticipation, encumbrance, sale, pledge,
alienation, execution, levy, attachment, charge or any other form of transfer
whatsoever.
6. Term of Plan, Amendment, Limitations, Adjustments. The Plan
will continue in effect until the tenth anniversary of its approval by the
stockholders of the Corporation, subject to the right of the Board of
Directors to terminate the Plan at any earlier time. The Plan may be amended
by the Board of Directors at any time, except that (subject to section 7) for
so long as may be required to satisfy the conditions of Rule 16b-3(c)(2)(ii)
(including any successor provision limiting Plan amendments as set forth
below), the Plan provisions applicable to the timing of elections to receive
Common Stock or the amount of Common Stock issuable pursuant to such elections
may not be amended more than once every six months except as otherwise
permitted by Rule 16b-3(c)(2)(ii). No Plan amendment shall require approval
by the Stockholders of the Corporation except to the extent necessary to
maintain the Rule 16b-3 exemption from Section 16(b) of the 1934 Act.
PAGE 3
The aggregate number of shares of Common Stock issuable pursuant
to the Plan shall be limited to 300,000 shares, which number shall be subject
to adjustment to reflect any stock dividend, stock split, recapitalization,
combination or reclassification of shares ("Adjustment Transaction"). In the
event of an Adjustment Transaction, the number
of shares issuable to an Eligible Director electing to receive Common Stock as
of an Election Date shall be appropriately adjusted if the determination of
Fair Market Value per share on the Election Date shall have been based on the
number of shares of Common Stock outstanding before giving effect to the
Adjustment Transaction.
7. Rule 16b-3. The Plan is intended to comply with the
exemptive provisions of Rule 16b-3(c), including both of clauses (i) and (ii)
of Rule 16b-3(c)(2). If and to the extent that the Committee determines, upon
advice of counsel, that related requirements of any one or more of Section 2
(holding period for Common Stock issued under the Plan), Section 4 (Plan
administration by disinterested persons), Section 5 (non-transferability of
election rights) or Section 6 (limitations on Plan amendments) of the Plan are
not required (whether because of amendments to Rule 16b-3 or adoption or
amendment of other Rules under the 1934 Act, or because of interpretive advice
or other cause) to exempt or exclude Plan transactions or transactions in
securities acquired by Participants under the Plan from Section 16(b) of the
1934 Act, then the Committee may suspend the applicability of any such
requirement in whole or in part without the necessity of any amendment to the
Plan.
8. Continuation as Director, Fees. The Plan or the payment of
any benefits hereunder shall not be construed as giving to any Participant any
right to be retained as a member of the Board of Directors or to receive any
fees, including any Annual Retainer Fee, for service as a Director.
9. Governing Law. To the extent not governed by the laws of
the Untied States, the Plan shall be construed and applied in accordance with
the laws of the State of Maryland other than its conflict of laws principles.
PAGE 4
Exhibit A
DIRECTOR'S ELECTION AGREEMENT
To: The Committee of the Mercantile Bankshares Corporation
Retainer Stock Plan For Directors
I, the undersigned, a Director of Mercantile
Bankshares Corporation (the "Corporation") hereby acknowledge
receipt of a copy of the Mercantile Bankshares Corporation
Retainer Stock Plan for Directors (the "Plan").
Pursuant to the terms of the Plan, I hereby elect
to receive, in lieu of $ payable to me as all or a
portion of my Annual Retainer Fee for the year , shares
of Common Stock of the Corporation valued as of the Election
Date, in accordance with the formula set forth in the Plan.
To the extent required to meet the condition of
Rule 16b-3(c)(1), I agree not to sell, transfer or otherwise
dispose of such shares until six months have expired from and
after the Election Date.
WITNESS: DIRECTOR
Date:
ACCEPTED COMMITTEE
Date: By:
PAGE 5
