SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MERCANTILE BANKSHARES CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
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 28, 1999, 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 1999 Omnibus Stock Plan, as more particularly set forth
in the enclosed Proxy Statement and Exhibit A to the Proxy Statement.
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
public accountants to audit the financial statements of Mercshares for
1999.
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 19, 1999,
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.
ALAN D. YARBRO
GENERAL COUNSEL AND SECRETARY
Dated: March 26, 1999
<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 28, 1999, and at any adjournments
thereof.
Holders of shares of Common Stock of Mercshares ("Common Stock") of record
at the close of business on March 19, 1999, 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, 1999, entitled to vote is
70,935,377 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 15 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
1999 Omnibus Stock Plan, and for the ratification of the appointment of
auditors.
ELECTION OF DIRECTORS
The Bylaws of Mercshares provide that there shall be 15 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 1998. The Executive Committee of the Board of Directors held no
meetings in 1998. 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 1998.
The Compensation Committee performs the functions described in the Report
of the Compensation Committee. It held five meetings in 1998.
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 Directors of Mercshares by
the stockholders.
The names of the nominees, their ages as of April 28, 1999, 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, 1999, 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
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by a nominee. In addition, shares subject to certain stock options are deemed
to be "beneficially owned" by the optionees.
<TABLE>
<CAPTION>
NAME AGE INFORMATION
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<S> <C> <C>
Cynthia A. Archer 45 SENIOR VICE PRESIDENT-INTERMODAL SERVICE GROUP, CONRAIL, INC. AND
CONSOLIDATED RAIL CORPORATION. Ms. Archer has occupied this
position since May, 1995. From February, 1994 until April, 1995 she
was General Manager, Harrisburg Operating Division. Prior to that
Ms. Archer was Assistant Vice President, Food and Agriculture
Marketing and Sales. She was elected a Director of Merc-Safe in
1997.
Elected Director of Mercshares: 1997
Member: Audit Committee
Owns beneficially 550 shares of Common Stock
H. Furlong Baldwin 67 CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
MERCSHARES, AND CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER, MERC-SAFE. Mr. Baldwin has been President of Mercshares
since September, 1997, Chairman of the Board 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, CSX Corp., GRC International Inc., and The St. Paul
Companies. He was elected a Director of Merc-Safe in 1968.
Elected Director of Mercshares: 1970
Member: Executive Committee
Owns beneficially 369,040 shares of Common Stock, including
59,040 shares subject to exercisable options.
Thomas M. Bancroft, Jr. 69 FORMER CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, THE
NEW YORK RACING ASSOCIATION, INC. He was elected a Director of
Merc-Safe in 1974.
Elected Director of Mercshares: 1974
Member: Audit Committee
Owns beneficially 11,250 shares of Common Stock.
Richard O. Berndt (1) 56 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 is a Director of Municipal Mortgage and Equity,
L.L.C. Mr. Berndt was elected a Director of Merc-Safe in 1976.
Elected Director of Mercshares: 1978
Member: Audit Committee
Executive Committee
Owns beneficially 28,693 shares of Common Stock.
</TABLE>
2
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<TABLE>
<CAPTION>
NAME AGE INFORMATION
- --------------------------- ----- ---------------------------------------------------------------------
<S> <C> <C>
William R. Brody, M.D. 55 PRESIDENT, JOHNS HOPKINS UNIVERSITY. Dr. Brody has occupied that
position since August, 1996. From September, 1994 through July,
1996, Dr. Brody was Provost of The University of Minnesota
Academic Health Center. From 1987 to August, 1994, he was
Martin Donner Professor and Director of Radiology, Johns Hopkins
University. Dr. Brody is a Director of Alza Corp and Medtronic, Inc.
He was elected a Director of Merc-Safe in 1996.
Elected Director of Mercshares: 1996
Owns beneficially 150 shares of Common Stock.
George L. Bunting, Jr. 58 PRESIDENT AND CHIEF EXECUTIVE OFFICER, BUNTING MANAGEMENT
GROUP, a private financial management company. Mr. Bunting has
occupied this position since 1991. Mr. Bunting is a Director of
Crown Central Petroleum Corporation and Guilford
Pharmaceuticals, Inc. He was elected a Director of Merc-Safe in
1992.
Elected Director of Mercshares: 1992
Owns beneficially 7,868 shares of Common Stock.
Martin L. Grass 45 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 Tessco
Technologies, Inc. He was elected a Director of Merc-Safe in 1995.
Elected Director of Mercshares: 1995
Member: Compensation Committee
Owns beneficially 1,500 shares of Common Stock
Freeman A. Hrabowski, III 48 PRESIDENT, UNIVERSITY OF MARYLAND BALTIMORE COUNTY. Dr. Hrabowski
has served in this capacity since September, 1993. Dr. Hrabowski
is a Director of Baltimore Gas & Electric Company and McCormick
& Company, Inc. He was elected a Director of Merc-Safe in 1996.
Elected Director of Mercshares: 1996
Owns beneficially 189 shares of Common Stock.
</TABLE>
3
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<TABLE>
<CAPTION>
NAME AGE INFORMATION
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<S> <C> <C>
Mary Junck 51 PRESIDENT, TIMES MIRROR EASTERN NEWSPAPERS and EXECUTIVE VICE
PRESIDENT, TIMES MIRROR. Ms. Junck has served in these capacities
since September, 1997. Prior thereto, she was Publisher and Chief
Executive Officer of THE BALTIMORE SUN. Ms. Junck has announced
her intention to resign her positions with the TIMES MIRROR companies
in April, 1999. She was elected a Director of Merc-Safe in 1997.
Elected Director of Mercshares: 1997
Member: Compensation Committee
Owns beneficially 1,600 shares of Common Stock.
Robert A. Kinsley 58 CHAIRMAN AND CHIEF EXECUTIVE OFFICER, KINSLEY CONSTRUCTION, INC.
Mr. Kinsley has served in this capacity since March, 1996. Prior
thereto, he was its President. Mr. Kinsley was elected a Director of
Merc-Safe in 1996.
Elected Director of Mercshares: 1996
Member: Audit Committee
Executive Committee
Owns beneficially 8,088 shares of Common Stock.
William J. McCarthy (2) 68 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 2,250 shares of Common Stock.
Morris W. Offit 62 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF OFFITBANK
since 1990 and of OFFITBANK Holdings, Inc. since January, 1999.
OFFITBANK Holdings, Inc. was formed to hold all the OFFITBANK
stock. OFFITBANK is a private New York State trust bank offering
integrated investment management services to individuals,
corporations, pensions, trusts and not-for-profit institutions. Mr. Offit
is a Director of Cantell Industries, Inc., and Hasbro, Inc. He was
elected a Director of Merc-Safe in 1984.
Elected Director of Mercshares: 1984
Member: Compensation Committee
Executive Committee
Owns beneficially 138,600 shares of Common Stock.
</TABLE>
4
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<TABLE>
<CAPTION>
NAME AGE INFORMATION
- ------------------------- ----- -------------------------------------------------------------------
<S> <C> <C>
Morton B. Plant 63 CHAIRMAN, KEYWELL CORPORATION, a recycler of stainless steel and
high temperature alloy scrap metal. He has occupied that position
since 1996. Prior thereto, Mr. Plant was also Chief Executive
Officer. He was elected a Director of Merc-Safe in December, 1997.
Elected Director of Mercshares: 1997
Owns beneficially 3,350 shares of Common Stock.
Christian H. Poindexter 60 CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
BALTIMORE GAS & ELECTRIC COMPANY, an investor-owned diversified
gas and electric utility. Mr. Poindexter has been President since
March, 1998 and Chairman of the Board and Chief Executive
Officer since 1993. He was elected a Director of Merc-Safe in
1987.
Elected Director of Mercshares: 1987
Member: Compensation Committee
Executive Committee
Owns beneficially 1,050 shares of Common Stock.
Donald J. Shepard 52 CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
AEGON USA, INC., a holding company owning insurance and
insurance related companies. Mr. Shepard has been President and
Chief Executive Officer since 1989 and became Chairman of the
Board in 1992. He is a member of the Executive Board of AEGON
N.V. Mr. Shepard was elected a Director of Merc-Safe in 1992.
Elected Director of Mercshares: 1992
Member: Compensation Committee
Executive Committee
Owns beneficially 13,500 shares of Common Stock.
</TABLE>
- ----------
(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 1998 except Mr. Grass and Mr. Offit.
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,
1999. On that date, the Directors, nominees and executive officers of
Mercshares as a group owned beneficially 818,490 shares or 1.15% 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. 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 786,251 shares of Common Stock and shared voting and
investment power as to 13,501 shares of Common Stock.
Of the foregoing holdings, the executive officers named in the Summary
Compensation Table who are not Directors or nominees for election owned
beneficially on January 31, 1999, the following numbers of shares (including
shares subject to options exercisable or becoming exercisable within 60 days
after January 31, 1999), aggregating less than 1.0% of the outstanding Common
Stock: Mr. Reid, 45,105 shares including 38,125 shares subject to options; Mr.
Mohler, 55,408 shares including 41,625 shares subject to options;
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Mr. Steil, 35,171 shares including 33,000 shares subject to options; and Mr.
Yarbro, 12,750 shares including 6,750 shares subject to options.
Mr. Mohler, an executive vice president of Mercshares and Merc-Safe, has
relinquished these positions with eligibility for retirement. His 1998
compensation, and benefit arrangements to which he will be entitled thereafter,
are described in the appropriate sections of this Proxy Statement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and Directors of Mercshares to report changes in their beneficial
ownership of Mercshares Common Stock to the Securities and Exchange Commission.
For the year 1998, Mercshares believes that all executive officers and
Directors who were required to do so filed the required reports in a timely
fashion except that Robert A. Kinsley filed a late report of two October 1998
purchases totalling 3,000 shares.
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 nonemployee 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 1998.
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
"1998 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
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to Mercshares, its stockholders and its executive officers. Under an executive
employment agreement, the basic cash compensation of Mr. Baldwin 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 pre-established
mathematical formula tied directly to corporate performance and profitability.
Forty-four 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
because no 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 for 1998 is generally 33 percent of a
participant's salary (65 percent in the case of Mr. Baldwin and 50 percent in
the case of four other officers). 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 affiliate (or unit)
employing the participant. Incentive cash bonuses paid to those executive
officers named in the Summary Compensation Table are reflected in the Table
under the caption "Bonus."
STOCK BASED COMPENSATION
The Omnibus Stock Plan, approved by the stockholders in 1990, and 1997 as
to certain amendments, 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.
The Committee believes 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 Common Stock increases.
Accordingly, from March, 1995 through 1998, the Committee granted, under
the Omnibus Stock Plan, options for a total of 1,796,725 shares of Common Stock
without tandem stock appreciation rights to 322 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 1,335,750 shares ("performance-based
options") were granted to 51 senior officers of Mercshares and its affiliates,
including the Chief Executive Officer and the executive officers named in the
Summary Compensation Table. Twenty-five percent of these performance-based
options may become exercisable on and after each anniversary date of the grant,
except that if any such senior 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.
No options will become exercisable on an anniversary date unless Mercshares'
earnings per share have increased at a compounded growth rate of at least five
percent over 1994. If this test is met, then a portion (up to one-half) of the
options maturing on the anniversary date become exercisable based on a sliding
scale to the extent that the percent of increase of earnings per share of
Mercshares over the prior year earnings per share is in a range of six to ten
percent; if the percent of earnings increase is 10% or more, the entire
one-half portion of the options becomes exercisable. The remaining one-half
portion may be exercised only if the net operating income of the affiliate
employing the participant has increased 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 on the anniversary date become exercisable, based on the same sliding
scale, with respect to the percent of increase of the net operating income of
the affiliate over its prior year's net operating income.
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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 460,975 shares were granted to 271 key employees
of the affiliates of Mercshares. These options are not performance-based
options and are fully exercisable as of the date of grant.
1998 COMPENSATION
The Committee, in determining the 1998 basic cash compensation of the
executive officers of Mercshares, considered the factors described in this
Report.
H. Furlong Baldwin is Chairman of the Board, President and Chief Executive
Officer of Mercshares and Chairman of the Board and Chief Executive Officer of
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 also included the primary
responsibility for recommending to the Board of Mercshares the acquisition and
establishment of additional affiliates. In 1998, Hugh W. Mohler served as
Executive Vice President of Mercshares and Merc-Safe; J. Marshall Reid was
President and Chief Operating Officer of Merc-Safe; Jack E. Steil was Chairman
- -- Credit Policy of Merc-Safe; and Alan D. Yarbro was General Counsel and
Secretary of Mercshares and Merc-Safe. Messrs. Reid and Steil, officers of
Merc-Safe, are designated as executive officers of Mercshares because they
participate in policy making activities affecting Mercshares.
The 1998 basic cash compensation of Messrs. Baldwin, Reid, Mohler, Steil
and Yarbro was set in February, 1998. The Committee was aware that incentive
compensation payments to the executive officers of Mercshares would be made in
1998 attributable to 1997 performance under the Annual Incentive Compensation
Plan, and the extent to which outstanding performance-based options under the
Omnibus Stock Plan would become exercisable in 1998.
The Committee was aware of 1997 earnings of Mercshares. The Committee
further 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 (period-end non-performing assets to loans and
other real estate owned, net charge-offs to average loans and period-end
allowance for loan losses to non-performing loans) for the years 1992 through
1996 and the quarter ended September 30, 1997, as compared to comparable
information for 26 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 third quarter, 1997 (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 Mr. Baldwin with an
independent study published in 1997 reflecting compensation information for
1996 of the 101 commercial banking institutions participating in the study and
with the compensation of executive officers of five banking institutions, based
on proxy information covering the years 1994, 1995 and 1996 (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,
capital significantly in excess of that required by current federal
regulations, and located within a 400 mile radius of Baltimore so as to 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 26 banking companies
constituting the peer group and the 50 largest banking institutions group, and
that Mercshares' performance, overall, was strong. The Committee determined,
however, not to recommend an increase in the base compensation of Mr. Baldwin.
The Committee agreed to consider a supplemental bonus for Mr. Baldwin based on
1998 operating results, calculated as if Mr. Baldwin were eligible for a bonus
of up to an additional
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15% of his salary, under the same tests used for calculating awards under the
annual incentive compensation plan. The bonus was approved in December, 1998,
to be calculated in 1999 based on final 1998 operating results, and amounted to
11.3% of Mr. Baldwin's salary. 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 1998 base compensation of Messrs. Reid,
Mohler, Steil and Yarbro as shown in the Summary Compensation Table under the
"Salary" caption, was based on the factors described above and evaluation of
their performance and responsibilities.
In December, 1997, the Committee designated Messrs. Baldwin, Reid, Mohler,
Steil and Yarbro as participants for 1998 in the Annual Incentive Compensation
Plan. Under the formula requirements of that Plan, based on 1998 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 1999, which is included under the caption "Bonus" in the Summary
Compensation Table for 1998.
Calman J. Zamoiski, Jr. was a Director and Chairman of the Committee until
April 29, 1998, when he did not stand for reelection as a Director. Donald J.
Shepard and Mary Junck did not become members of the Committee until April 29,
1998, and therefore did not participate in the determination of 1998 basic cash
compensation for Mr. Baldwin and the other named executive officers.
Section 162(m) of the Internal Revenue Code provides for
non-deductibility, in certain cases, of compensation paid to certain executives
in excess of $1 million per year. Mercshares does not have a policy limiting
compensation to amounts deductible under Section 162(m). The annual incentive
plan and the Omnibus Stock Plan have been approved by the stockholders and are
designed to be qualified performance-based plans so that Section 162(m) limits
would not apply to plan benefits. Section 162(m) limits would apply to salary,
bonuses in excess of bonuses under the annual incentive compensation plan and
certain amounts included under "Other Annual Compensation" and "All Other
Compensation" in the Summary Compensation Table.
THE COMPENSATION COMMITTEE
<TABLE>
<S> <C>
Martin L. Grass Christian H. Poindexter
Mary Junck (since April 29, 1998) Morris W. Offit
Calman J. Zamoiski, Jr., Chairman (until April 29, 1998)
Donald J. Shepard, Chairman (since April 29, 1998)
</TABLE>
9
<PAGE>
The following line graph compares cumulative total stockholder 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, 1993,
through December 31, 1998. The graph assumes $100 invested at the closing price
on December 31, 1993, and the reinvestment of all dividends. With reference to
the Report of the Compensation Committee, 28 of the 50 largest banking
institutions whose performance ratios were reviewed, one of the five
institutions considered for compensation purposes and 18 of the 101
institutions participating in the compensation study are included in the S & P
Banks Composite Index. One of the 26 institutions considered as peer
institutions of Mercshares whose performance ratios were reviewed is so
included. The S & P Banks Composite Index consisted, as of December 31, 1998,
of five "Money Center Banks", and 24 "Major Regional Banks", each of which is
substantially larger than Mercshares.
PERFORMANCE GRAPH
[PLOT POINTS BELOW]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mercshares ............... $ 100.00 $ 106.49 $ 156.54 $ 186.14 $ 350.28 $ 352.38
S&P Banks Composite Index 100.00 94.97 151.38 214.47 309.87 331.22
S&P 500 .................. 100.00 101.36 139.42 171.42 228.59 293.94
</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 extensions of credit to Ms. Junck, to Messrs. Grass, Shepard and
Zamoiski and companies associated with them, 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 a director and member of the compensation committee of OFFITBANK
Holdings, Inc., a privately owned company, of which Mr. Offit is an executive
officer.
10
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain summary compensation information as
to the Chief Executive Officer and the other four most highly compensated
executive officers, based on total annual salary and bonus for 1998.
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 ........... 1998 850,000 510,000(2) 96,600(2) -- 65,200
Chairman of the Board, 1997 878,500 414,400 96,900(2) -- 57,700
President and Chief 1996 750,000 219,400 76,000(2) -- 54,700
Executive Officer
J. Marshall Reid (3) ......... 1998 350,000 131,300 -- -- 48,000
President of Merc-Safe 1997 284,200 116,900 -- -- 27,400
Hugh W. Mohler ............... 1998 295,000 110,600 -- -- 67,600
Executive Vice President 1997 292,400 105,700 -- -- 56,500
1996 267,800 60,400 -- -- 59,900
Jack E. Steil (3) ............ 1998 275,000 82,500 -- -- 57,300
Chairman -- Credit Policy of 1997 243,000 99,900 -- -- 34,300
Merc-Safe
Alan D. Yarbro (4) ........... 1998 230,000 86,300 -- -- 26,100
General Counsel and 1997 217,700 78,700 -- -- 20,000
Secretary 1996 137,700 58,500 -- 30,000 2,100
</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 as follows:
<TABLE>
<CAPTION>
SUPPLEMENTAL
YEAR LIFE INSURANCE THRIFT PLAN PLANS TOTAL
------ ---------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Baldwin ......... 1998 $11,300 $4,800 $49,100 $65,200
1997 11,000 4,800 41,900 57,700
1996 6,300 4,500 43,900 54,700
Mr. Reid ............ 1998 1,600 9,600 36,800 48,000
1997 1,200 9,600 16,600 27,400
Mr. Mohler .......... 1998 2,600 9,600 55,400 67,600
1997 2,600 9,600 44,300 56,500
1996 2,600 7,500 49,800 59,900
Mr. Steil ........... 1998 2,600 9,600 45,100 57,300
1997 2,300 9,600 22,400 34,300
Mr. Yarbro .......... 1998 1,600 9,600 14,900 26,100
1997 1,400 9,600 9,000 20,000
1996 700 -0- 1,400 2,100
</TABLE>
- ----------
(2) Mr. Baldwin's bonus amount includes $414,400 under the annual incentive
compensation plan and the $95,600 supplemental bonus referred to in the
Report of the Compensation Committee. Of the other annual compensation
amounts, $87,800 in 1998, $88,200 in 1997, and $69,500 in 1996 represent
travel expenses incurred by Mr. Baldwin.
(3) No information is presented for 1996 because Messrs. Reid and Steil did not
become executive officers of Mercshares until 1997.
(4) Mr. Yarbro became an executive officer of Mercshares in April, 1996.
11
<PAGE>
AGGREGATE OPTIONS TABLE
The following table sets forth certain information, on an aggregate basis,
concerning the exercise of stock options during 1998 by executive officers
named in the Summary Compensation Table and the December 31, 1998, value of
unexercised stock options. No stock appreciation rights were outstanding in
1998.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY -- END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
VALUE OPTIONS AT FY-END (#)(2) AT FY-END ($S)(1)(2)
SHARES ACQUIRED REALIZED ----------------------------- ----------------------------
NAME ON EXERCISE (#) ($S)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------------- --------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Baldwin ........ -- -- 59,040 -- 1,412,206 --
Mr. Reid ........... 3,500 72,335 26,875 11,250 642,769 269,066
Mr. Mohler ......... -- -- 30,375 11,250 726,479 269,066
Mr. Steil .......... -- -- 23,625 9,375 565,039 224,222
Mr. Yarbro ......... 6,000 72,750 6,750 15,000 143,438 318,750
</TABLE>
- ----------
(1) Share values included in the table represent the fair market value of the
shares at the exercise date for exercised options, or at December 31,
1998, for unexercised options, less the exercise price of the options. The
closing price of the Common Stock on December 31, 1998 was $38.50 per
share.
(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 the grant date, but only if and to the extent that
certain annual corporate earnings tests are met. Under the Omnibus Stock
Plan, because Mr. Baldwin attained age 65 in January, 1997, his additional
options for 90,000 shares became eligible for exercise in March, 1997, but
only to the extent the tests were met for 1996. After application of the
tests, options for 63,000 shares held by Mr. Baldwin became exercisable in
March, 1997 and his remaining options for 27,000 shares were forfeited. Of
the options for other executives shown above as unexercisable on December
31, 1998, options became exercisable in March, 1999, as follows: options
for 11,250 shares held by Mr. Reid, options for 11,250 shares held by Mr.
Mohler, and options for 9,375 shares held by Mr. Steil. Options for 7,500
shares held by Mr. Yarbro will become exercisable in April, 1999.
12
<PAGE>
RETIREMENT AGREEMENTS AND PLANS
DEFERRED COMPENSATION AND SUPPLEMENTAL PENSION AGREEMENTS
Mr. Baldwin has an arrangement with Merc-Safe pursuant to which his rate
of salary was 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. These investments serve as a funding source for the benefits
described below. Alternate provisions have been made for events such as
termination, resignation, death or disability prior to retirement, but,
assuming retirement, annual payments for a minimum of fifteen years or until
death (if later) would approximate $168,000. The salaries for 1998 and prior
periods reported under the caption "Salary" in the Summary Compensation Table
are the full salaries before the deferred compensation reductions.
Mr. Baldwin also participates in supplemental pension and thrift plan
arrangements whereby he is eligible to receive (1) benefits in the amounts he
would have received had his compensation not been reduced from current levels,
and (2) amounts to which he 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.
In connection with his retirement, Mr. Mohler will be paid a cash benefit
at an annual rate of $295,000 through February 1, 2000, and until that time he
will be eligible for employee insurance and other benefits, including
participation in the Mercshares thrift plan. He will also be eligible for the
stock options described in the Aggregate Options Table and the benefits
described below under "Cash Balance Pension Plan," "Supplemental Cash Balance
Plan" and "Supplemental Thrift Plan".
CASH BALANCE PENSION PLAN
Mercshares is sponsor of an employees' cash balance pension plan adopted
by a majority of its affiliates. Each plan participant who was employed on
January 1, 1991 (including those individuals named below except for Messrs.
Reid and Yarbro) 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 Messrs. Reid and Yarbro, 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. In March, 1998, the plan was
amended to provide all participants as of January 1, 1998, with an additional
accrued benefit at retirement.
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 base salary and
bonus for 1998. For future years, it is estimated that the executive officers'
salaries will increase through their dates of retirement at the plan's internal
salary increase assumption and that their bonuses will continue at the same
amount through their dates of retirement. Actual salary increases may differ
from the plan's internal salary increase assumption and actual bonuses may
differ significantly from the 1998 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. Reid, 18 years and $141,000; Mr. Steil 42 years and $264,000; and
Mr. Yarbro 10 years and $37,000. If Mr. Baldwin were to retire at age 69, he
would have 45 years of service and estimated annual pension benefits of
$950,000, in addition to the deferred compensation benefit described above.
These amounts are the total of estimated payments from the plan and under
13
<PAGE>
the supplemental pension arrangements described above and, with respect to
Messrs. Reid, Steil and Yarbro under the following section entitled
"Supplemental Cash Balance Pension Plan". Upon his retirement, Mr. Mohler's
annual benefit under the plan is expected to be $60,100.
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 $160,000 (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 for Mr. Baldwin. Messrs. Reid, Mohler, Steil and Yarbro, as well as 35
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. For 1998, Mr.
Reid's account was credited with $27,600, Mr. Mohler's with $48,100, Mr.
Steil's with $38,700, and Mr. Yarbro's with $10,400. 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 of
employment or death, either in a single-sum payment, or in equal annual
installments over a period not to exceed ten years. Mr. Mohler has been paid
his vested benefit of $186,800 under the plan.
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. 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 15% 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 1998 are included under
the caption "All Other Compensation" in the Summary Compensation Table. Messrs.
Reid, Mohler, Steil and Yarbro elected to defer a percentage of their salaries
during 1998. 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 $160,000 (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 for Mr. Baldwin. Messrs. Reid, Mohler, Steil and Yarbro, as well as
35 other employees of Mercshares and its affiliates, 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 midyear. For 1998, Mr. Reid's account
was credited with $9,200, Mr. Mohler's with $7,200, Mr. Steil's with
14
<PAGE>
$6,400 and Mr. Yarbro's with $4,500. 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 of employment or death. Mr. Mohler has been paid his vested benefit
of $30,000 under the plan.
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. Messrs.
Baldwin, Mohler and Steil participated in the plan in 1998. The plan provides
that employees may reduce their salaries on a pre-tax basis, in amounts
determined in advance by them, and direct 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 directed to
the MRA for Messrs. Baldwin, Mohler and Steil are included under the caption
"Salary" in the Summary Compensation Table.
OTHER ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Mercshares and Merc-Safe have entered into an employment agreement with
Mr. Baldwin, pursuant to which Mr. Baldwin serves in his executive positions.
His base salary for 1998 is disclosed in the Summary Compensation Table. The
agreement provides that base salary will not be less in any year than in the
preceding year. Mr. Baldwin's agreement has been extended to continue until
February 1, 2000.
CHANGE OF CONTROL TERMINATION AGREEMENTS
Mercshares has entered into Change of Control Termination Agreements with
Messrs. Baldwin and Yarbro. In the event that during the effective period of
the agreements, following a "change of control" of Mercshares, the officer is
terminated (prior to his 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 five
years. Mr. Baldwin's Agreement continues until February 1, 2000. 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 the 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.
15
<PAGE>
DIRECTOR FEES
Directors of Mercshares, who are not also officers of Mercshares or its
affiliates, are paid a retainer at the annual rate of $15,500 in addition to
fees of $750 for each Board meeting and $500 for each Committee meeting
attended. The annual retainer is paid each December. All or a portion of the
annual retainer may be paid in the form of Mercshares Common Stock, valued at
the time the retainer is payable. In 1998, two Directors received an aggregate
of 850 shares of Common Stock in lieu of cash retainer fees. 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. In March, 1996, Mercshares amended and restated the Directors
Deferred Compensation Plan. Prior to the amendment, deferred amounts were
invested by MercSafe, 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 units by dividing such sum by the
closing market price of Mercshares stock and the units are 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.
PROPOSAL TO APPROVE 1999 OMNIBUS STOCK PLAN
The Board of Directors of Mercshares has approved, and recommends that the
stockholders approve, the 1999 Omnibus Stock Plan described below ("1999
Plan"). The 1999 Plan will replace the prior Omnibus Stock Plan ("1989 Plan")
which is scheduled to terminate in December, 1999. The 1999 Plan, which is very
similar to the 1989 Plan, is structured so that grants of stock incentives may
qualify as "performance-based" grants under Section 162(m) of the Internal
Revenue Code (the "Code"). Section 162(m) limits the amount of compensation
paid to each executive officer named in the Summary Compensation Table that may
be deducted for federal tax purposes in any year to $1 million, unless the
compensation qualifies as "performance-based" compensation.
The 1999 Plan is set forth in its entirety as Exhibit A to this Proxy
Statement. An aggregate of 3,000,000 shares of authorized but unissued Common
Stock of Mercshares will be authorized for issuance under the 1999 Plan. The
maximum number of shares of Common Stock which may be covered by grants to any
employee in any fiscal year is 450,000 shares. The 1999 Plan will be
administered by the Compensation Committee of the Board of Directors of
Mercshares. If not sooner terminated by the Board of Directors, it will
terminate on April 27, 2009. The amount and timing of future awards are not now
determinable, but certain information concerning prior grants under the 1989
Plan is given below.
An aggregate of 2,902,500 shares of Mercshares Common Stock was authorized
for issuance under the 1989 Plan, which was first approved by the stockholders
in 1990. For stock options held by the five most
16
<PAGE>
highly compensated executive officers of Mercshares in 1998, reference is made
to the Aggregate Options Table. At December 31, 1998, options for 262,914
shares were held by 8 executive officers of Mercshares, at exercise prices
ranging from $14.583 to $18.417 per share. Options for a total of 921,515
shares were then held by other employees at exercise prices ranging from
$14,583 to $35.25 per share. Options were granted from 1995 through 1998 under
the 1989 Plan to a total of 322 key employees. Grants in 1998 were limited to
options for 22,500 shares to six employees who are not executive officers at
exercise prices ranging from $30.375 to $35.25 per share. In each case, the
exercise price equals the fair market value at the date of the grant, and the
options have a ten year life. The only awards outstanding are stock options. At
December 31, 1998, 1,352,041 shares of Common Stock remained available for
grants under the 1989 Plan. No options have been granted in 1999. No further
options will be granted under the 1989 Plan if the 1999 Plan is approved by the
stockholders.
The Committee may, from time to time, grant incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock, and
phantom stock units (hereinafter collectively referred to as "Stock
Incentives") under the 1999 Plan. Grants of Stock Incentives may be made by the
Committee to employees of Mercshares or its affiliates who are "key employees"
taking into account, among other things, their potential contributions to the
long term success of Mercshares and its affiliates and the services rendered or
to be rendered by such individuals. Subject to restrictions noted herein, the
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.
The Committee may condition any grant or award, or the vesting or
exercisability of the grant or award, on one or more pre-established, objective
performance goals. Such goals may include (without limitation) performance
criteria such as earnings per share, return on equity, return on assets, income
or net income, operating income or net operating income, sub-categories or
combinations of the foregoing, and any other performance criteria contemplated
by Section 162(m) of the Code and regulations.
Stock options give the optionee the right to purchase a number of shares
of Common Stock at future dates and at an established price, all as determined
by the Committee on the date of the grant. The price may be not less than the
fair market value of the stock on the date of grant. The definition of "fair
market value" under the 1999 Plan is the closing price per share of Common
Stock on the Nasdaq National Market (or alternative market in which the stock
is then traded) on the date the stock is valued pursuant to the Stock Incentive
being issued. The term of options granted under the 1999 Plan may not exceed
ten years.
A stock appreciation right under the 1999 Plan gives the holder the right
to receive, subject to the terms of the grant, stock, cash, or both stock and
cash, in an amount equal to the appreciation (between the time of grant and the
time of exercise of the right) in the fair market value of one share of Common
Stock. The Committee determines what portion of the appreciation is paid in
cash or stock and the fair market value of any shares issued in payment.
Restricted stock issued under the 1999 Plan is Common Stock issued subject
to such conditions for forfeiture and transfer restrictions as the Committee
determines. Employees to whom restricted stock is granted are entitled to all
other benefits of stockholders, including receipt of dividends and voting
rights.
Phantom stock units ("PSUs") are equivalent to but not actual shares of
Common Stock which, upon exercise, entitle the holder to receive the fair
market value of the underlying stock as of a date determined by the Committee.
The Committee determines the specific terms of the grant, including any vesting
schedule and any payment to the grantee to parallel dividends on the Common
Stock.
Under the 1999 Plan, the Committee may permit Stock Incentives to be
exercised with Common Stock, including shares of Common Stock previously
acquired pursuant to a Stock Incentive under the Plan or pursuant to another
Mercshares plan, or shares acquired pursuant to the pyramiding of shares
received upon the simultaneous surrender and exercise of a Stock Incentive.
Should any stock option granted under the 1999 Plan expire, be cancelled
or otherwise terminate prior to its exercise, or should any restricted stock be
forfeited, the shares subject to such option or forfeited restricted stock
shall be available for further grants.
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Stock Incentives, other than restricted stock, may not be transferred
other than by will or the laws of descent and distribution or as otherwise
permitted by the Committee. In the event of a tender offer for Mercshares stock
or any share exchange, merger, consolidation or similar transaction, the
Committee or the Mercshares Board of Directors may take action to effectuate
the purposes of the 1999 Plan, including, among other things, acceleration or
change of exercise dates.
TAX INFORMATION
Some of the stock options issuable under the 1999 Plan may be "incentive
stock options" within the meaning of Section 422 of the Code, while others may
be "non-qualified stock options." The aggregate fair market value (as of the
grant date of an incentive stock option) of the stock with respect to which
incentive stock options become exercisable for the first time in any calendar
year may not exceed $100,000. Generally, upon the exercise of an incentive
stock option, the optionee will recognize no income for federal income tax
purposes. The difference between the exercise price of the incentive stock
option and the fair market value of the shares subject to the option at the
time of exercise is an item of tax preference which may require payment of an
alternative minimum tax. On the sale of shares acquired by exercise of an
incentive stock option (assuming that the sale does not occur within two years
of the date of grant of the option or within one year from the date of
exercise), any gain will be taxed to the optionee as long-term capital gain. In
contrast, upon the exercise of a non-qualified option, the optionee recognizes
taxable income (subject to withholding) in an amount equal to the difference
between the then fair market value of the shares on the date of exercise and
the exercise price. Upon any subsequent sale of such shares by the optionee,
any difference between the sale price and the optionee's tax basis in the
shares will be treated generally as capital gain or loss.
Mercshares will not be entitled to a tax deduction upon the grant or
exercise of an incentive stock option, or upon the sale of any shares acquired
pursuant to such exercise, except that a tax deduction may be available to
Mercshares if the employee sells the shares so acquired within two years of the
date the option was granted or one year of the date of exercise. Upon the
exercise of a non-qualified stock option, Mercshares generally is entitled to a
deduction for federal income tax purposes in an amount equal to the income
recognized by the optionee.
Upon the exercise of a stock appreciation right, the grantee recognizes
taxable income (subject to withholding) in an amount equal to any cash received
plus an amount equal to the fair market value of any stock received. Mercshares
is entitled to a deduction for federal tax purposes in an amount equal to the
income recognized by the grantee.
At the time restricted stock granted under the Omnibus Stock Plan is
either transferable or no longer subject to a substantial risk of forfeiture,
the grantee recognizes taxable income (subject to withholding) in an amount
equal to the difference between the then fair market value of the stock and the
amount paid for the stock (if any). However, the grantee may make an election
to be taxed as of the date that restricted stock is granted, in which case the
grantee recognizes taxable income (subject to withholding) in an amount equal
to the difference between the fair market value of the stock as of the grant
date and the amount paid for stock (if any). Mercshares is entitled to a
deduction for federal income tax purposes in an amount equal to the income
recognized by the grantee.
The grantee of a PSU recognizes taxable income (subject to withholding) at
the time the PSU becomes exercisable in an amount equal to the then fair market
value of Mercshares Common Stock, unless the terms under which the PSU was
granted require forfeiture of the restricted stock to which it is related upon
exercise of the PSU. If the terms under which the PSU was granted do require
forfeiture of the restricted stock to which it is related, the grantee does not
recognize income until the PSU is actually exercised. Mercshares is entitled to
a deduction for federal tax purposes with respect to a PSU in an amount equal
to the income recognized by the grantee.
The Board of Directors recommends a vote FOR the approval of the 1999
Omnibus Stock Plan.
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INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, acting upon the recommendation of the Audit
Committee, has appointed PricewaterhouseCoopers LLP, certified public
accountants, as the principal auditors for Mercshares for 1999. The
stockholders are asked to ratify that appointment.
A representative of PricewaterhouseCoopers LLP 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
PricewaterhouseCoopers LLP, 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 PricewaterhouseCoopers LLP as independent certified public
accountants to audit the financial statements of Mercshares for 1999.
REPORT OF AMENDMENTS TO BYLAWS
Article Xll 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. Article XII further provides that any action of the
Board of Directors in adding to, altering, amending, repealing, or suspending
the Bylaws must be reported to the stockholders and may be changed or rescinded
at the next annual meeting by holders of the stock then outstanding and
entitled to vote, by a majority vote of all the stock then outstanding and
entitled to vote.
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 15. The amendment was publicly disclosed in a Form 8-K filing with
the Securities and Exchange Commission on March 10, 1999. Under notice
provisions of the Bylaws (discussed below under "Voting and Procedural
Information"), any stockholder proposing a vote to change or rescind the
amendment was required to notify the Secretary of Mercshares on or before March
20, 1999 (the 10th day following the public disclosure).
VOTING AND PROCEDURAL INFORMATION
The election of Directors requires a plurality of votes cast at the
meeting.
The approval of the 1999 Omnibus Stock Plan and the ratification of the
appointment of PricewaterhouseCoopers LLP as the independent certified public
accountants each 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. "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 no business shall be conducted at a
special meeting of stockholders except that stated in the notice of meeting and
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 requirements apply to any annual meeting and
to any special meeting as to which the notice of meeting provides for the
election of Directors. 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) no earlier than 90 days (or, with respect to
notice of a proposal for inclusion in the Mercshares' proxy materials pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, the earlier date such
proposal is received pursuant to Rule 14a-8) and no later than 60 days prior to
the date of the meeting. If less than 70 days' prior public disclosure of the
meeting date is made by Mercshares, any notice of business by a
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stockholder must be received by the Secretary on or before the 10th day
following the date of such public disclosure. If the action proposed by a
stockholder is to change or rescind action by the Board of Directors to add to,
alter, amend, repeal or suspend the Bylaws under Article XII, the notice of
business by the stockholder must be received by the Secretary no earlier than
the time prescribed above for stockholder notices and not after the later of
the 10th day following public disclosure by Mercshares of the action of the
Board of Directors or the 60th day prior to the meeting date. Public disclosure
of a meeting date or action by Mercshares may be made by any general mailing to
stockholders of record, by any filing with the Securities and Exchange
Commission, or by public announcement or by other means reasonably calculated
to constitute public disclosure.
Each notice by a stockholder must provide the name and address of the
stockholder and the 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 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.
Public disclosure of the date of the 1999 Annual Meeting was given on
February 8, 1999, in the Quarterly Report to stockholders for the period ended
December 31, 1998 and in prior reports. There were no notices of business
proposed by stockholders for the Annual Meeting. Accordingly, no such proposals
will be entertained at the Annual Meeting.
ANNUAL REPORT OF MERCSHARES
Copies of the Annual Report of Mercshares, for the year ended December 31,
1998, were mailed on or about March 26, 1999, to those persons who were record
holders of stock of Mercshares on March 19, 1999, the record date referred to
above.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any proposals of stockholders to be presented for inclusion in Mercshares
proxy materials for the 2000 Annual Meeting of Stockholders must be received by
the Secretary of Mercshares at Two Hopkins Plaza, Baltimore, Maryland 21201 on
or before November 27, 1999. Such proposals are subject to and must be made in
accordance with Rule 14a-8 under the Securities Exchange Act of 1934.
Rule 14a-4(c) under the Securities Exchange Act of 1934 would permit
Mercshares to exercise discretionary proxy voting authority on any stockholder
proposal made outside the process of Rule 14a-8 at the 2000 Annual Meeting
unless the stockholder submits a notice of such proposal on or before February
9, 2000, in compliance with Rule 14a-4(c). The stockholder would also be
required to comply with the notice provisions of the Bylaws described above
under "Voting and Procedural Information."
OTHER MATTERS
Management knows of no other matters which will be presented at the Annual
Meeting. However, if any other matter requires a vote, it is intended that the
persons named in the enclosed proxy will have discretion to vote the shares
represented thereby pursuant to Rule 14a-4(c) under the Securities Exchange Act
of 1934.
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
solicitation 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.
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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.
ALAN D. YARBRO
GENERAL COUNSEL AND SECRETARY
March 26, 1999
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EXHIBIT A
MERCANTILE BANKSHARES CORPORATION
1999 OMNIBUS STOCK PLAN
ARTICLE 1
1999 OMNIBUS STOCK PLAN
For the purposes of this Plan, the definitions set forth in Sections 1.1
through 1.21 shall be applicable.
SECTION 1.1 AFFILIATE. "Affiliate" shall mean: (i) any corporation in
which MBC owns, directly or indirectly, within the meaning of Section 424(f) of
the Code, 50% or more of the total combined voting power of all classes of
stock of such corporation on a Grant Date; and (ii) any parent corporation of
MBC, within the meaning of Section 424(e) of the Code.
SECTION 1.2 BOARD. "Board" shall mean the Board of Directors of MBC.
SECTION 1.3 CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations issued thereunder.
SECTION 1.4 COMMITTEE. "Committee" shall mean the Committee appointed,
pursuant to Section 3.3 of the Plan, to administer the Plan.
SECTION 1.5 EXERCISE DATE. "Exercise Date" shall mean the date on which an
Option, SAR, or PSU is exercised, determined in accordance with the provisions
of an Option Agreement, Restricted Stock Agreement, agreement granting a SAR or
PSU, or such rules and regulations as the Committee may adopt.
SECTION 1.6 FAIR MARKET VALUE. "Fair Market Value" of a share of Stock on
a date shares of Stock are to be valued ("valuation date") in accordance with
the provisions of an Option Agreement, Restricted Stock Agreement or other
grant agreement made pursuant to this Plan shall mean:
(i) the last reported sale price per share of Stock, regular way, on the
valuation date, or in case no such sale takes place, the average of the
closing bid and asked prices, regular way, on such date, in either case as
reported in the principal consolidated transaction reporting system for
securities listed or admitted to trading on a national securities exchange
or included for quotation on the Nasdaq National Market ("NNM"); or
(ii) if the Stock is not so listed or admitted to trading or included for
quotation on the valuation date, the last quoted price, or if the Stock is
not quoted the average of the high bid and low asked prices, regular way,
on such date, in the over-the-counter market, as reported by the NASD
Automated Quotations System, or if such system is no longer in use, the
principal other automated quotation system then in use; or
(iii) if the Stock is not quoted by any such organization, the average of
the closing bid and asked prices, regular way, on the valuation date, as
furnished by a professional market maker making a market in the Stock as
selected in good faith by the Committee; provided, however, that the
determination of fair market value shall be made in good faith in
accordance with the Code. If a valuation date is not a trading day, the
determination shall be made as of the next preceding trading day. "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 Stock is not listed or admitted to trading on a national
securities exchange or included for quotation on the NNM, any day other
than a Saturday, a Sunday or a day on which banking institutions in the
State of New York are closed.
SECTION 1.7 GRANTEE. "Grantee" shall mean a Key Employee who has been
granted an Option, SAR, PSU, or Restricted Stock pursuant to the provisions of
the Plan.
SECTION 1.8 GRANT DATE. "Grant Date" means the date on which the Committee
formally acts to grant an Option, SAR, PSU, or Restricted Stock to a Grantee.
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SECTION 1.9 ISO. "ISO" shall mean an option to acquire Stock that is an
incentive stock option as defined in Section 422(b) of the Code.
SECTION 1.10 KEY EMPLOYEE. "Key Employee" shall mean any employee of MBC
or an Affiliate whom the Committee determines to be a Key Employee, taking into
account the nature of the services rendered or to be rendered by the particular
employee, the employee's potential contribution to the long-term success of MBC
or an Affiliate, and such other factors as the Committee shall deem relevant.
SECTION 1.11 MBC. "MBC" shall mean Mercantile Bankshares Corporation.
SECTION 1.12 NON-ISO. "Non-ISO" shall mean an option to acquire Stock that
is not an ISO.
SECTION 1.13 OPTION. "Option" shall mean an ISO and/or a Non-ISO.
SECTION 1.14 OPTION AGREEMENT. "Option Agreement" shall mean an agreement
between MBC (or an Affiliate) and a Grantee memorializing the terms and
conditions of an Option granted under Section 4.1 of the Plan, and any SAR
granted in tandem therewith.
SECTION 1.15 OPTION PRICE. "Option Price" shall mean the price per share
of Stock at which an option may be exercised.
SECTION 1.16 PLAN. "Plan" shall mean this Mercantile Bankshares
Corporation 1999 Omnibus Stock Plan.
SECTION 1.17 PSU. "PSU" shall mean a phantom stock unit, which, upon
exercise thereof, shall entitle Grantee to the Fair Market Value of a share of
Stock determined as of such date as the Committee shall specify.
SECTION 1.18 RESTRICTED STOCK. "Restricted Stock" shall mean Stock granted
to and registered in the name of a Grantee pursuant to Section 5.1 of the Plan,
but that is non-transferable and subject to forfeiture in accordance with the
provisions of Article 5 of the Plan.
SECTION 1.19 RESTRICTED STOCK AGREEMENT. "Restricted Stock Agreement"
shall mean an agreement between MBC (or an Affiliate) and a Grantee
memorializing the terms and conditions imposed on Restricted Stock issued
pursuant to the provisions of Section 5.1 of the Plan, and any PSUs granted in
tandem therewith.
SECTION 1.20 SAR. "SAR" shall mean a stock appreciation right, which, upon
exercise thereof, shall entitle Grantee to the amount by which the Fair Market
Value of a share of Stock on the Exercise Date exceeds the Fair Market Value of
a share of Stock on the Grant Date.
SECTION 1.21 STOCK. "Stock" shall mean shares of MBC's authorized but
unissued common stock.
ARTICLE 2
PURPOSE AND SCOPE
SECTION 2.1 PURPOSE. The purpose of the Plan is to further the long-term
success of MBC and its Affiliates by attracting and retaining Key Employees of
MBC and its Affiliates through the use of stock-based incentives. It is
believed that the awards granted to eligible persons under this Plan will
motivate those persons to further the profitable growth of MBC and will help
strengthen their desire to remain with MBC and its Affiliates and will further
the identification of those persons' interests with those of MBC' stockholders.
The Plan applies only to Options, SARs, Restricted Stock, and PSUs granted
under the Plan and shall not apply to any Option, SAR, Restricted Stock, or PSU
granted under any other plan of MBC or its Affiliates.
SECTION 2.2 SCOPE. The aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 3,000,000 shares, unless such number of
shares is adjusted as provided in Section 7.1 hereof. If an Option expires, is
cancelled, or terminates for any reason without having been exercised in full,
or if the number of shares of Stock subject to the Option is reduced by reason
of the exercise of a SAR granted in tandem therewith, or Restricted Stock is
forfeited, the shares of Stock as to which the Option was not exercised and the
Restricted Stock forfeited shall become available for issuance under the Plan.
No employee may, in any fiscal year, be awarded grants covering more than an
aggregate of 450,000 shares of
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Stock (the "Limit"), provided, however, that (i) Stock underlying a tandem
grant of Options and SARs, or (ii) Restricted Stock and tandem PSUs shall, in
either case, be counted only once in calculating the Limit. The Limit shall be
adjusted to reflect any adjustment of shares of Stock under Section 7.1.
SECTION 2.3 ELIGIBILITY AS GRANTEE; NO GUARANTEE OF EMPLOYMENT. Only a Key
Employee may be a Grantee, provided that no member of the Committee may be a
Grantee. The grant of an award under this Plan shall not be construed as a
guarantee of continued employment by the recipient.
SECTION 2.4 EFFECTIVE DATE AND DURATION OF PLAN. The Plan shall become
effective upon its approval by the stockholders of MBC. Unless previously
terminated by the Board, the Plan shall terminate on the tenth anniversary of
its adoption by the Board. Awards may be granted only during the term of the
Plan, but each award granted during the term of the Plan will remain in effect
after the termination of the Plan until such award has been exercised,
terminated or expired in accordance with its terms and the terms of the Plan.
ARTICLE 3
ADMINISTRATION OF PLAN
SECTION 3.1 ADMINISTRATION BY COMMITTEE. The Plan shall be administered by
a committee of the Board appointed pursuant to the provisions of Section 3.3 of
the Plan.
SECTION 3.2 POWERS OF COMMITTEE. The Committee shall have full and final
authority, consistent with the exercise of the maximum discretion permitted by
law:
(i) to identify, from time to time, Key Employees;
(ii) to grant Options, SARs, PSUs, and Restricted Stock, from time to
time, to Key Employees;
(iii) to determine the time or times at which Options, SARs, PSUs, and
Restricted Stock shall be granted;
(iv) to determine the duration, terms and provisions of Options, Option
Agreements, SARs, Restricted Stock Agreements, and PSUs, including but not
limited to, any vesting or other restrictions;
(v) to condition the exercise of any Option, SAR, PSU, or the issuance of
any shares of Restricted Stock, on the attainment of specified performance
goals by the Key Employee or by MBC or an Affiliate;
(vi) to restrict the sale or otherwise provide for the repurchase of
Stock acquired pursuant to the exercise of an Option or SAR or in
accordance with the provisions of a Restricted Stock Agreement;
(vii) to determine the Fair Market Value of Stock;
(viii) subject to the provisions of Section 4.2, to determine the Option
Price;
(ix) to interpret the Plan, Options, Option Agreements, SARs, PSUs and
Restricted Stock Agreements;
(x) to prescribe, amend and rescind rules and regulations relating to the
Plan; and
(xi) to make all other determinations, orders and decisions which the
Committee deems necessary or advisable for the administration of the Plan.
With respect to any grant or award under the Plan, the Committee may
condition the grant, award, or the vesting or exercisability of the grant or
award, on one or more pre-established, objective performance goals. Such goals
may include (without limitation) performance criteria such as earnings per
share, return on equity, return on assets, income or net income, operating
income or net operating income, sub-categories or combinations of the
foregoing, and any other performance criteria contemplated by Section 162(m) of
the Code and regulations thereunder.
All determinations made, interpretations rendered, rules and regulations
adopted, and other actions taken by the Committee, pursuant to this Section
3.2, shall be conclusively binding upon MBC, an Affiliate, a Grantee, and upon
all other persons for all purposes.
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SECTION 3.3 COMMITTEE.
(a) APPOINTMENT OF COMMITTEE. The Board shall appoint a committee
consisting of at least three members of the Board to administer the Plan. The
Committee may be the Compensation Committee of the Board, or a subcommittee of
the Compensation Committee, or such other committee as the Board may designate.
The Board shall designate one member of the Committee to serve as Chairman of
the Committee, and may, from time to time, in its sole and exclusive
discretion, rescind its prior designation of Chairman and designate a different
member of the Committee as Chairman. The Board may require that members of the
Committee be "outside directors" within the meaning of Section 162(m) of the
Code and "non-employee directors" as defined in Rule 16b-3 of the Securities
and Exchange Commission, as amended from time to time. The Board may from time
to time remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, may be filled by the Board.
(b) REPORTS OF COMMITTEE. The Committee shall file with the Board, at
least annually, a report that shall state the total number of shares of Stock
subject to Options; the total number of SARs and PSUs granted; the total number
of shares of Restricted Stock granted under the Plan; the total number of
shares of Stock issued pursuant to the exercise of any Option or SAR; the total
number of shares of Stock as to which there has been delivery of share
certificates under the Plan; and the amount of cash paid, if any, upon the
exercise of a PSU or SAR; all from the inception of the Plan and from the date
of the last report of the Committee.
SECTION 3.4 LIABILITY LIMITED. To the maximum extent permitted by law, no
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan and/or any Option,
SAR, or PSU granted, Stock or Restricted Stock issued under the Plan.
SECTION 3.5 INDEMNIFICATION. To the maximum extent permitted by law, the
members of the Board and Committee shall be indemnified by MBC in respect of
all their activities under the Plan.
ARTICLE 4
OPTIONS
SECTION 4.1 GRANT OF OPTIONS TO KEY EMPLOYEES. The Committee may grant
Options to Key Employees for such number of shares of Stock as the Committee
may determine.
SECTION 4.2 OPTION PRICE. The Option Price of Stock shall be determined by
the Committee and shall not be less than the Fair Market Value of the Stock on
the Grant Date. If, immediately before an ISO is granted, a Key Employee owns
(within the meaning of Section 422(b)(6) of the Code, after the application of
the attribution rules contained in Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of either MBC or an
Affiliate, the Option Price of Stock subject to an ISO shall not be less than
110% of the Fair Market Value of the Stock on the Grant date.
SECTION 4.3 EXERCISE OF OPTIONS. Except as provided herein, each Option
shall be exercisable in accordance with the provisions of the Option Agreement,
and/or such rules and regulations as the Committee may have prescribed, and /or
such determinations, orders, or decisions as the Committee may have made. If an
Option is not immediately exercisable in full, the Committee may, in its
discretion, accelerate the time when such Option may be exercised. MBC or an
Affiliate may make or guarantee a loan to the Grantee to assist in the payment
of the Option Price. The term of any Option shall not exceed ten years from the
Grant Date.
SECTION 4.4 OPTION AGREEMENT. As a condition of the grant of an Option,
MBC and the Key Employee shall execute an Option Agreement that shall
incorporate the terms of the Plan, specify the Option Price, the number of
shares of Stock subject to the Option, and contain such other terms and
conditions as the Committee may determine. If the Option granted is an ISO, the
Option Agreement shall also contain such provisions as are required by the
Code.
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ARTICLE 5
RESTRICTED STOCK
SECTION 5.1 ISSUANCE OF RESTRICTED STOCK. The Committee may grant such
number of shares of Restricted Stock to a Key Employee as the Committee may
determine. The grant of Restricted Stock shall be subject to the provisions of
the Plan and such other terms and conditions as the Committee may prescribe.
Each certificate for Restricted Stock shall be registered in the name of the
Grantee and deposited by him, together with a stock power endorsed in blank,
with MBC.
SECTION 5.2 RESTRICTED STOCK AGREEMENT. As a condition of the grant of
Restricted Stock, the Key Employee and MBC shall execute a Restricted Stock
Agreement that shall incorporate the provisions of the Plan, specify the number
of shares of Restricted Stock granted, and contain such other terms and
conditions as the Committee may determine. Except for such restrictions as are
imposed by the Restricted Stock Agreement, the Grantee shall have all the
rights of a shareholder of Stock. At such time as shares of Restricted Stock
are no longer subject to forfeiture in accordance with the provisions of a
Restricted Stock Agreement, Grantee may require delivery by MBC of share
certificates representing the number of shares of Stock that are not subject to
forfeiture.
ARTICLE 6
SARs and PSUs
SECTION 6.1 GRANT OF SARS and PSUS. The Committee may grant SARs and PSUs.
SARs may be granted in tandem (or not) with either ISOs or Non-ISOs and, if
granted in tandem with an ISO, shall conform to the requirements of Section 422
of the Code with respect to the grant and exercise of alternative rights issued
in connection with ISOs.
SECTION 6.2 EXERCISE OF SARS and PSUS. SARs and PSUs shall be exercisable
as provided in the Agreement to which they are subject, and such other rules
and regulations as the Committee may have adopted. A SAR may not be exercised
or be deemed to have been exercised when the Fair Market Value of a share of
Stock on the Grant Date exceeds the current Fair Market Value of the Stock.
ARTICLE 7
STOCK ADJUSTMENTS
SECTION 7.1 CHANGES IN CAPITAL STRUCTURE. In the event of a
reclassification, recapitalization, combination, or exchange of stock, stock
split, reverse stock split, stock dividend, or other similar event affecting
Stock, the number and class of shares of Stock issued, the number of SARs or
PSUs, the number and class of shares of stock which may be issued upon exercise
of Options or SARs previously granted, and the price per share payable upon
exercise of Options, SARs, or PSUs, or the delivery of Restricted Stock shall
be equitably adjusted by the Committee to reflect the change. No fractional
shares of stock shall be issued under the Plan on account of such adjustments.
SECTION 7.2 SALE, MERGER OR TENDER OFFER. In the event of any proposed
merger, consolidation, share exchange, or similar transaction to which MBC
would be a party, or in the case of a tender or exchange offer for stock of
MBC, the Committee or the Board may take such action as is deemed appropriate
to effectuate the purposes of this Plan and to protect the Grantees of Options,
SARs, PSUs, and Restricted Stock, which action may include, but without
limitation, any one or more of the following: acceleration or change of the
Exercise Dates of any Option, SAR or PSU, or the date of delivery of Restricted
Stock; arrangements with Grantees for the payment of appropriate consideration
to them for the cancellation and surrender of any Option, SAR, PSU, or
Restricted Stock; and in any case where equity securities other than Stock of
MBC are proposed to be delivered in exchange for or with respect to Stock of
MBC, arrangements providing that any Option, SAR or PSU shall become one or
more Options, SARs, or PSUs with respect to such other equity securities.
SECTION 7.3 LIQUIDATION OR DISSOLUTION. If MBC dissolves and liquidates
(other than pursuant to a plan of merger or reorganization), then
notwithstanding any restrictions on exercise set forth in this Plan
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or any Option Agreement or Restricted Stock Agreement; (i) each Grantee of an
Option, SAR or PSU shall have the right to exercise his Option, SAR, or PSU,
and each Grantee of Restricted Stock shall have the right to require delivery
of share certificates representing such Stock, at any time up to ten days prior
to the effective date of such liquidation and dissolution; and (ii) the
Committee or the Board may make arrangements with Grantees for the payment of
appropriate consideration to them for the cancellation and surrender of any
Option, SAR, PSU, or Restricted Stock that is so cancelled or surrendered at
any time up to ten days prior to the effective date of such liquidation and
dissolution. The Committee or the Board may establish a different period for
such exercise, delivery, cancellation, or surrender by notice to the Grantee,
and it may establish limitations on exercise, delivery, cancellation, or
surrender to avoid subjecting the Grantee to liability under Section 16(b) of
the Securities Exchange Act of 1934. Any Option, SAR, or PSU not so exercised,
cancelled, or surrendered shall terminate on the last day for exercise prior to
such effective date; and any Restricted Stock as to which there has not been
such delivery of share certificates or that has not been so cancelled or
surrendered, shall be forfeited on the last day prior to such effective date.
SECTION 7.4 LIMITATION ON RIGHTS OF GRANTEE. Except as expressly provided
in this Plan or in an agreement granting the Option, Restricted Stock, SAR or
PSU pursuant to this Plan, the Grantee of an Option, Restricted Stock, SAR or
PSU shall have no rights by reason of the issuance or grant of (i) shares of
Stock or Restricted Stock of MBC pursuant to the Plan, (ii) additional shares
of stock of MBC (regardless of class or whether issued pursuant to the Plan),
(iii) any other security or debenture convertible into stock of MBC, or (iv)
any other equity security, including issuance pursuant to a plan of merger,
consolidation, or statutory share exchange, and no adjustment by reason thereof
shall be made with respect to the number of shares of Stock subject to an
Option or SAR, or with respect to the number of shares of Restricted Stock or
PSUs granted, or an Option Price or the consideration to be received upon the
exercise of a SAR or PSU.
SECTION 7.5 RIGHTS OF MBC. Neither the grant of an Option, SAR, PSU, or
Restricted Stock, nor the issuance of Stock pursuant to the exercise of an
Option or SAR, nor the delivery of share certificates pursuant to the Plan
shall affect in any way the right or power of MBC to issue additional shares of
Stock; to make adjustments, reclassifications, reorganizations or changes in
its capital or business structure; to participate in a merger, consolidation,
or share exchange with another corporation; or to dissolve, liquidate, or sell
or transfer all or any part of its business or assets. In making any adjustment
or taking any action under this Article 7, or in determining that no such
adjustment or action is appropriate, the Committee and the Board may rely upon
the advice of counsel and accountants of MBC and the determination shall be
conclusive.
ARTICLE 8
AMENDMENT OF THE PLAN
The Board may at any time terminate, suspend, or amend the Plan. The Board
may require any Plan amendments to be submitted for approval by the
stockholders of MBC in its discretion, including but not limited to cases in
which such approval is deemed appropriate for compliance with Section 162(m) or
other provisions of the Code, or to secure exemption from Section 16(b) of the
Securities Exchange Act of 1934.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 NON-TRANSFERABILITY OF OPTIONS, SARS AND PSUS. Except as
otherwise determined by the Committee, no Option, SAR, or PSU granted hereunder
shall be transferable otherwise than by will or the laws of descent and
distribution and during the lifetime of the Grantee, an Option, SAR, or PSU may
be exercised only by him or, during the period he is under a legal disability,
by his guardian or legal representative.
SECTION 9.2 LEGAL RESTRICTIONS. MBC will not be obligated to issue shares
of Stock or to undertake delivery of share certificates if counsel to MBC
determines that such issuance or delivery would violate any law or regulation
of any governmental authority or any agreement between MBC and any securities
association or exchange upon which the Stock is traded. In connection with any
Stock issuance or delivery
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of share certificates, the person acquiring the shares shall, if requested by
MBC, give assurances satisfactory to counsel to MBC regarding such matters as
MBC may deem desirable to assure compliance with all legal requirements. MBC
shall in no event be obliged to take any action in order to cause the exercise
of any Option, SAR, or PSU.
SECTION 9.3 MODIFICATION, EXTENSION, AND RENEWAL OF RIGHTS. Subject to the
terms and conditions of the Plan and any Option Agreement or agreement granting
a SAR or PSU, the Committee may modify, extend or renew outstanding Options,
SARs, or PSUs; provided, however, that the Committee shall not, without
approval of the stockholders of MBC, reduce the Option Price of any outstanding
Option or increase the amount payable on exercise of any outstanding SAR or PSU
(except as expressly permitted by Article 7), or permit the surrender and
cancellation of any outstanding Option and the grant of a replacement Option,
or permit the surrender and cancellation of any outstanding SAR or PSU and the
grant of a replacement SAR or PSU. The Committee may not change the terms or
conditions attached to any outstanding Option, SAR, PSU, or share of Restricted
Stock in a manner that would adversely affect the rights of the Grantee without
the express written consent of the Grantee unless so permitted by the terms of
the Option Agreement or Restricted Stock Agreement.
SECTION 9.4 PLAN SUBJECT TO CHARTER AND BY-LAWS. This Plan is subject to
the Charter and By-laws of MBC, and any applicable federal or state laws, rules
or regulations.
SECTION 9.5 GENDER. As used herein the masculine gender shall include the
feminine as the identity of an employee may require.
SECTION 9.6 GOVERNING LAW. The validity, interpretation and administration
of the Plan, Option Agreements, Restricted Stock Agreements, and of any rules,
regulations, determinations or decisions made thereunder, and the rights of any
and all persons having or claiming to have any interest therein or thereunder,
shall be determined exclusively in accordance with the laws of the State of
Maryland, without regard to its conflict of laws rules and principles. Without
limiting the generality of the foregoing, the period within which any action in
connection with the Plan must be commenced shall be governed by the laws of the
State of Maryland without regard to the place where the act or omission
complained of took place, the residence of any party to such action or the
place where the action may be brought.
SECTION 9.7 HEADINGS. The headings in this Plan are for reference purposes
only and shall not affect the meaning or interpretation of the Plan.
SECTION 9.8 NOTICES. All notices and other communications made or given
pursuant to this Plan shall be in writing and shall be sufficiently made or
given if hand delivered, faxed, or mailed by certified mail, addressed to the
employee at the address contained in the records of MBC or an Affiliate, or to
MBC for the attention of its Secretary at its principal office.
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The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Election of Directors FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below. for all nominees listed below
Nominees: C. Archer, H. Baldwin, T. Bancroft, R. Berndt, W. Brody, G. Bunting, M. Grass, F. Hrabowski, M. Junck,
R. Kinsley, W. McCarthy, M. Offit, M. Plant, C. Poindexter, D. Shepard
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and strike a
line through that nominee's name.)
2. Approval of the 1999 Omnibus Stock Plan. 3. Ratification of appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for Mercshares.
FOR [ ] AGAINST [ ] ABSTAIN [ ] FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
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:__________________________________, 1999
______________________________________________
Signature
______________________________________________
Sign, Date, and Return the Proxy Card Promptly Using the Enclosed Envelope.
Votes MUST be indicated
(x) in Black or Blue Ink. [ ]
- --------------------------------------------------------------------------------
MERCANTILE BANKSHARES CORPORATION
PROXY
This Proxy is Solicited on behalf of the Board of Directors
The undersigned hereby appoints H. Furlong Baldwin and Alan D. Yarbro, 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 28, 1999, 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 1999 Omnibus Stock Plan 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>
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 28, 1999.
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>
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 28, 1999.
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!
