SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __________)
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Filed by a Party other than the Registrant [ ]
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14a-6(e)(2)]
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss. 240.14a-11(c) orss. 240.14a-12
FIRST MERCHANTS CORPORATION
(Name of Registrant as Specified In Its Charter)
________________________________, AS AGENT FOR FIRST MERCHANTS CORPORATION
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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previously. Identify the previous filing by registration statement number,
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FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 12, 2000
The annual meeting of the shareholders of First Merchants Corporation (the
"Corporation") will be held at the Horizon Convention Center, 401 South High
Street, Muncie, Indiana 47305, on Wednesday, April 12, 2000, at 3:30 p.m. for
the following purposes:
(1) To elect three directors, to hold office for a term of three years and
until their successors are duly elected and qualified.
(2) To ratify the appointment of the firm of Olive LLP as independent public
accountants for 2000.
(3) To transact such other business as may properly come before the meeting.
Only those shareholders of record at the close of business on February 16, 2000
shall be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
February 23, 2000
IMPORTANT - PLEASE MAIL YOUR PROXY PROMPTLY
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE
MEETING, YOU ARE URGED TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
February 23, 2000
FIRST MERCHANTS CORPORATION
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 12, 2000
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by and on behalf of the Board of Directors of First Merchants
Corporation (the "Corporation") for use at the annual meeting of shareholders of
the Corporation to be held April 12, 2000. The distribution of these proxy
materials is expected to commence on February 23, 2000.
Any shareholder giving a proxy has the right to revoke it any time before it is
exercised by written notice to the Secretary received prior to the meeting or in
person at the meeting. The shares represented by proxies will be voted in
accordance with the instructions on the proxies. In the absence of specific
instructions to the contrary, proxies will be voted in favor of Items 1 and 2.
VOTING SECURITIES
Only shareholders of record at the close of business on February 16, 2000 will
be entitled to notice of and to vote at the annual meeting. The number of shares
of common stock outstanding and entitled to vote as of February 1, 2000 was
10,943,688.
Each share of the Corporation's common stock is entitled to one vote. The
affirmative vote of a majority of the shares present and voting at the meeting
in person or by proxy is required for approval of all items being submitted to
the shareholders for their consideration. The Secretary will count the votes and
announce at the meeting the number voting for and against each item and the
number abstaining. Abstentions will be counted for the purpose of determining
whether a quorum is present but for no other purpose. Broker non-votes will not
be counted.
The Corporation's subsidiaries held 1,220,686 shares of the Corporation's common
stock as of February 1, 2000 in various fiduciary capacities, in regular,
nominee or street name accounts, consisting of 11.15% of the Corporation's
outstanding shares. Beneficial ownership of shares so held is disclaimed by the
Corporation. It is the practice of the respective subsidiaries when holding
shares as sole trustee or sole executor to vote said shares but, where shares
are held as co-executor or co-trustee, approval is obtained from the
co-fiduciary prior to voting.
ELECTION OF DIRECTORS
Three directors will be elected at the annual meeting.
The persons named below have been nominated for election to the Board of
Directors (the "Board"), with terms expiring as of the 2003 annual meeting of
shareholders. All of the nominees are currently members of the Board.
Those persons nominated as directors include:
Name and Age Present Occupation Director Since
- ------------ ------------------ --------------
Class III (Terms expire 2003):
James F. Ault;(1) Chairman of the Board, The Madison Community 1999
age 64 Bank ("Madison"), a wholly-owned subsidiary of the
Corporation, and Retired executive of General Motors
Corporation
Frank A. Bracken; Of Counsel, Bingham Summers Welsh & Spilman, 1994
age 65 Attorneys
Barry J. Hudson;(1) Chairman of the Board and Chief Executive Officer, 1999
age 59 First National Bank of Portland ("First National"), a
wholly-owned subsidiary of the Corporation
Those persons named below continue to serve as directors:
Class I (Terms expire 2001):
Michael L. Cox; President and Chief Executive Officer of the 1984
age 55 Corporation and First Merchants Bank, National
Association ("First Merchants"), a wholly-owned
subsidiary of the Corporation
Norman M. Johnson; Retired Executive Vice President, Stein Roe & 1996
age 65 Farnham, Investment Counsel
George A. Sissel; Chairman of the Board and Chief Executive Officer, 1995
age 63 Ball Corporation (Ball Corporation manufactures metal
and plastic packaging products and technology
products and services.)
Robert M. Smitson; Chairman of the Board, Maxon Corporation (Maxon 1982
age 63 Corporation designs and manufactures specialty
industrial combustion systems and valves.)
Class II (Terms expire 2002):
Stefan S. Anderson Chairman of the Board of the Corporation and First 1982
age 65 Merchants
Thomas B. Clark; President and Chief Executive Officer, Alltrista 1989
age 54 Corporation (Alltrista Corporation manufactures metal
and plastic products.)
David A. Galliher; President, Wm. A. Didier & Sons, Inc. (Wm. A. Didier 1982
age 67 & Sons, Inc. manufactures credit cards.)
John E. Worthen; President, Ball State University 1987
age 66
(1) Under Agreements of Reorganization and Merger between the Corporation and
Jay Financial Corporation, and among the Corporation, Pendleton Banking
Company ("Pendleton"), and Anderson Community Bank ("Anderson"), the Board
appointed Messrs. Hudson and Ault as members of the Board on May 11, 1999
and agreed to nominate them for election to full 3-year terms as directors
at the 2000 annual meeting of shareholders.
The occupations set forth above have been the principal occupations of the
director-nominees and continuing directors during the past 5 years except as
follows: Mr. Anderson was also President of the Corporation from 1982 to 1998
and
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CEO from 1982 to 1999, and he was President of First Merchants from 1979 to 1996
and CEO from 1979 to 1999. Mr. Ault became Chairman of the Board of Anderson
when it was formed in 1995, and he became Chairman of the Board of Madison in
1999 when Anderson was merged into Pendleton to form Madison. Mr. Cox was
Executive Vice President of the Corporation and First Merchants from 1994 to
1996. He became President of First Merchants in 1996, President of the
Corporation in 1998, and CEO of both in 1999. Mr. Hudson has served as Chairman
of the Board and CEO of First National since 1982, and he was also President of
First National from 1982 to 1998. Mr. Smitson was President of Maxon Corporation
from 1979 to 1997, Chief Executive Officer from 1985 to 1998, and Vice Chairman
of the Board from 1989 to 1998.
Messrs. Bracken and Sissel are also directors of Ball Corporation. Mr. Clark is
also a director of Alltrista Corporation, and Dr. Worthen is also a director of
Indiana Energy, Inc.
CERTAIN COMMITTEES OF THE BOARD
The Corporation's Executive Committee functions as a nominating committee. It
recommends to the Board: (a) candidates to fill any vacancies on the Board, and
(b) a slate of directors to be elected each year at the annual meeting of
shareholders. The Committee will consider nominees recommended by shareholders.
Any such recommendation should be in writing and addressed to the Secretary,
First Merchants Corporation, 200 East Jackson Street, Muncie, Indiana 47305. The
members of the Executive Committee are Messrs. Smitson (Chairman), Anderson,
Bracken, Clark, Cox, and Sissel. John W. Hartmeyer, who is a director of First
Merchants, serves as a non-voting member of the Committee. The Executive
Committee met 2 times during 1999.
The Corporation has an Audit Committee whose functions are: (a) to assist the
Board in fulfilling its responsibilities related to accounting, auditing and
financial reporting functions; (b) to review or cause to be reviewed all reports
of examination made by banking authorities; (c) to meet with the internal
auditors and to make or cause to be made internal examinations and audits of the
affairs of the Corporation and its subsidiaries; (d) to meet with the external
auditors and to review the scope and results of external audits; and (e) to
consult with management on the selection of the independent public accountants
to serve as external auditors for the ensuing year. The members of the Audit
Committee are Messrs. Galliher (Chairman), Anderson, Clark, Worthen and Michael
D. Wickersham, who is retiring as a director of the Corporation as of the 2000
annual meeting. Suzanne L. Gresham and Nelson W. Heinrichs, who are directors of
First Merchants, George R. Likens, who is a director of Madison, Gerald S. Paul,
who is a director of the Corporation's wholly-owned subsidiary, The Union County
National Bank of Liberty ("Union County"), and Daniel Eichhorn, who is a
director of the Corporation's wholly-owned subsidiary, First United Bank ("First
United"), serve as non-voting members of the Committee. The Audit Committee met
4 times during 1999.
The Corporation has a Compensation Committee whose functions are: (a) to review
and approve the compensation and benefits to be paid to the executive officers
and senior management employees of the Corporation and the chief executive
officers of its subsidiaries, and (b) to review and approve the compensation and
benefits to be paid to the executive officers and senior management employees
and the compensation ranges and benefits for other officers and employees of the
Corporation's subsidiaries. The authority to periodically adjust the
compensation and benefits of employees, other than executive officers and senior
management of the Corporation and the chief executive officers of its
subsidiaries, has been delegated by the Compensation Committee to the chief
executive officers of the subsidiaries. The Committee is responsible for the
administration of the Corporation's incentive compensation and stock plans. The
members of the Compensation Committee are Messrs. Smitson (Chairman), Anderson,
Bracken, Clark and Johnson. Mr. Hartmeyer serves as a non-voting member of the
Committee. The Compensation Committee met 4 times during 1999.
MEETINGS OF THE BOARD
The Board of Directors held 4 meetings during 1999. The only director of the
Corporation who attended fewer than 75% of the total number of meetings of the
Board and the committees on which he served was Mr. Clark, who attended 10 of 14
meetings (71.4%).
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COMPENSATION OF DIRECTORS
The directors of the Corporation who were employees of the Corporation or one of
its subsidiaries received no separate compensation for their services as
directors in 1999, except as follows: Mr. Hudson's compensation included $5,292
for his services as a director of First National, of which $4,356 was deferred
compensation under an insurance-funded deferred compensation plan maintained by
First National, and he was paid $20,755 for his services as Chairman of the
Board of Directors of First National. Following his April 16, 1999 retirement as
Chief Executive Officer of the Corporation and First Merchants, Mr. Anderson was
paid a retainer based on an annual amount of $12,000 ($8,500 for the balance of
1999) for his continuing services as Chairman of the Board of Directors of the
Corporation and a retainer based on an annual amount of $8,000 ($5,667 for the
balance of 1999) for continuing to serve as Chairman of the Board of Directors
of First Merchants. The other directors of the Corporation who were not
employees were paid an annual retainer of $5,000 in 1999. The directors of the
Corporation who were not employees received $400 for each Board meeting and $250
for each committee meeting they attended, except that the Board and committee
chairmen were paid 150% of the regular meeting fee. Mr. Smitson serves as a
director of First Merchants, for which he was paid a retainer of $3,400 and $400
for each Board meeting he attended. Messrs. Anderson, Smitson and Worthen serve
on committees of First Merchants and were paid $250 for each committee meeting
they attended, except that Mr. Smitson received 150% of the regular meeting fee
for his services as Chairman of the First Merchants Executive Committee. For his
services as a director and Chairman of the Board of Directors of Madison, Mr.
Ault was paid $250 for each Board meeting and $50 for each committee meeting
that he attended. For his services as a director and Chairman of the Executive
Committee of Union County, Mr. Johnson was paid a retainer of $4,200 and $350
for each Board and Executive Committee meeting he attended. Union County also
paid him a bonus of $900 and provided him life insurance coverage in the amount
of $50,000 for these services.
On July 1, 1999, options were granted under the provisions of the Corporation's
1999 Long-term Equity Incentive Plan to each of the non-employee directors to
purchase 1,000 shares of the Corporation's common stock at an option price of
$23.8125 per share, the market price on the date of the grants.
The Corporation maintains an unfunded deferred compensation plan which gives
each director an annual election to defer the receipt of director's fees. Any
amounts reflected in a director's account under the plan are credited with
interest at a rate equal to First Merchants' 18-month variable rate IRA account
rate. Payments commence when the participant is no longer a director of the
Corporation or First Merchants. During 1999, one (1) of the Corporation's
directors participated in the plan, deferring fees totaling $10,000.
COMPENSATION OF EXECUTIVE OFFICERS
The tables in this section of the Proxy Statement contain information concerning
the compensation of the Corporation's Chief Executive Officers and its 4 most
highly compensated executive officers other than the Chief Executive Officers as
of the Corporation's most recent fiscal year-end, December 31, 1999.
Mr. Anderson served as the Corporation's Chief Executive Officer until
his retirement on April 16, 1999, when Mr. Cox became the Chief Executive
Officer; therefore, compensation information is provided with respect to both
of them. The information in these tables concerning stock options has been
adjusted to give retroactive effect to the 3-for-2 common stock split which was
effective at the close of business on October 23, 1998 for shareholders of
record at the close of business on October 16, 1998.
Summary Compensation Table
The following table contains information concerning the compensation paid by the
Corporation and its subsidiaries for the years 1997, 1998 and 1999 to the
Corporation's Chief Executive Officers and its 4 most highly compensated
executive officers other than the Chief Executive Officers.
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SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards
----------------------
Name and Securities
Principal Underlying All Other
Position Year Salary Bonus Options Compensation(1)
($) ($) (#) ($)
- ------------------------------------- ---- -------- ------ ---------------------- ----------------
Stefan S. Anderson, 1999 86,333 19,941 1,000 1,073
Chairman of the Board and Chief 1998 215,562 54,600 4,500 2,000
Executive Officer (CEO until 1997 197,721 53,323 5,250 2,000
April 16, 1999), Corporation and
First Merchants
Michael L. Cox 1999 194,105 56,772 10,000 2,375
President and Chief Executive 1998 165,691 43,432 4,950 2,000
Officer (CEO since April 16, 1997 153,461 44,985 5,250 1,875
1999), Corporation and First
Merchants
Ted J. Montgomery 1999 126,095 17,753 2,000 1,534
Senior Vice President, 1998 143,674 27,440 3,600 1,733
Corporation; (also, President, 1997 143,674 26,684 3,900 3,077
Union County, until September 3,
1999)
Charles R. Phillips 1999 129,868 24,346 5,000 427
Senior Vice President, 1998 34,463 5,381 5,250 0
Corporation and First Merchants(2)
Larry R. Helms 1999 106,654 19,898 5,000 1,298
Senior Vice President, 1998 102,958 17,220 3,000 1,250
Corporation and First Merchants; 1997 99,793 18,653 3,450 1,211
General Counsel and Secretary,
Corporation
James L. Thrash, 1999 100,421 18,787 5,000 980
Senior Vice President, Corporation 1998 96,974 16,307 3,000 947
and First Merchants; Chief Finan- 1997 93,402 17,556 3,450 912
cial Officer, Corporation
(1) Represents employer matching contributions for fiscal year to First
Merchants Corporation Retirement Savings Plan (a Section 401(k) plan); for
Mr. Montgomery, this amount also includes employer ESOP contributions to
Union County National Bank Employees' Stock Ownership Plan. The Plan was
terminated as of June 30, 1997.
(2) Mr. Phillips was employed by First Merchants as a Senior Vice President on
September 21, 1998, and he became a Senior Vice President of the
Corporation on April 14, 1999.
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Option Grants Table
The 1999 Long-term Equity Incentive Plan, which became effective as of July 1,
1999, authorizes the Compensation Committee to grant stock-based incentive
awards, including stock options, to eligible employees of the Corporation or any
subsidiary. The following table contains information concerning individual
grants of stock options under the plan made during 1999 to each of the executive
officers named in the Summary Compensation Table above. Each option was to
purchase the Corporation's common stock at a price not less than the market
price of the stock on the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR(1)
Individual Grants Potential Realizable
- ------------------------------------------------------------------------------------------ Value at Assumed an
nual Rates of Stock Price
Appreciation for Option
Term
Number of Se Percent of -------------------------
curities Under Total Options
lying Options Granted to
Granted Employees in Exercise
(#) Fiscal Year Price
Name ($/Sh) Expiration Date 5%($) 10%($)
- ---------------------- -------------- -------------- -------- --------------- ------- -------
Stefan S. Anderson (2) 0
Michael L. Cox 10,000 8.96 22.7500 July 29, 2009 143,325 361,725
Ted J. Montgomery 2,000 1.79 22.7500 July 29, 2009 28,665 72,345
Charles R. Phillips 5,000 4.48 22.7500 July 29, 2009 71,663 180,863
Larry R. Helms 5,000 4.48 22.7500 July 29, 2009 71,663 180,863
James L. Thrash 5,000 4.48 22.7500 July 29, 2009 71,663 180,863
(1) The options listed in the table were granted on July 29, 1999. They are
exercisable as follows: Mr. Cox's option is exercisable for 325 shares on
or after January 29, 2000, 4,395 shares on or after January 1, 2001, 4,395
shares on or after January 1, 2002, and 885 shares on or after January 1,
2003; Mr. Montgomery's option is exercisable for 2,000 shares on or after
January 29, 2000; Mr. Phillips' option is exercisable for 3,094 shares on
or after January 29, 2000 and 1,906 shares on or after January 1, 2001; and
Messrs. Helms' and Thrash's options are exercisable for 4,395 shares on or
after January 29, 2000 and 605 shares on or after January 1, 2001. None of
the options is exercisable after July 29, 2009.
(2) Mr. Anderson was not awarded any options during 1999 while serving as the
Corporation's Chief Executive Officer prior to his retirement on April 16,
1999. However, as a non-employee director of the Corporation on July 1,
1999, he was automatically awarded an option under the 1999 Long-term
Equity Incentive Plan, exercisable after January 1, 2000 but not after July
1, 2009, to purchase 1,000 shares of the Corporation's common stock at an
option price of $23.8125 per share, the market price on the date of the
grant.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table contains information concerning (1) each exercise of stock
options during 1999 under the 1989 Stock Option Plan, the 1994 Stock Option
Plan, or the 1999 Long-term Equity Incentive Plan by each of the executive
officers named in the Summary Compensation Table above, and (2) the value as of
December 31, 1999 of each of the named executive officer's unexercised options
on an aggregated basis.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options
on Value Options at Fiscal Year-End at Fiscal Year-End
Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------- -------- -------- --------------------------- -------------------------
Stefan S. Anderson 14,849 209,272 26,700 / 1,000 213,700 / 2,438
Michael L. Cox 0 0 39,712 / 13,225 417,192 / 35,000
Ted J. Montgomery 0 0 11,250 / 2,000 58,612 / 7,000
Charles R. Phillips 0 0 4,050 / 6,200 6,412 / 19,400
Larry R. Helms 0 0 20,924 / 5,000 186,332 / 17,500
James L. Thrash 0 0 3,000 / 5,000 0 / 17,500
Pension Plans
The Corporation has a qualified defined benefit pension plan - the First
Merchants Corporation Retirement Pension Plan - covering, in general, all
full-time employees of the Corporation and its subsidiaries. The Corporation
also has a nonqualified plan - the First Merchants Corporation Supplemental
Executive Retirement Plan - which provides benefits to designated executives
that would otherwise be payable under the qualified plan if incentive
compensation were included in compensation and Internal Revenue Code Section
401(a)(17) did not limit the amount of compensation that can be considered for
purposes of calculating pension benefits accruing under the qualified plan. For
plan years beginning on or after January 1, 1998, $160,000 is the maximum amount
of compensation that can be considered for purposes of calculating pension
benefits accruing under the qualified plan.
The following table shows the estimated annual benefits payable upon retirement
at age 65 to persons born in 1942 (the average of the birth years of the
executive officers named in the Summary Compensation Table above) in specified
compensation and years of service classifications under the plans. The benefit
amounts shown in the table include amounts payable under both the qualified and
the nonqualified plans, for those executives who participate in both.
PENSION PLAN TABLE
- -------------------------------------------------------------------------------------------------------------------
Compensation Years of Service
- -------------------------------------------------------------------------------------------------------------------
15 20 25 30 35
- -------------------------------------------------------------------------------------------------------------------
$ 125,000 $ 35,644 $ 47,525 $ 59,406 $ 59,406 $ 59,406
150,000 43,519 58,025 72,531 72,531 72,531
175,000 51,394 68,525 85,656 85,656 85,656
200,000 59,269 79,025 98,781 98,781 98,781
225,000 67,144 89,525 111,906 111,906 111,906
250,000 75,019 100,025 125,031 125,031 125,031
300,000 90,769 121,025 151,281 151,281 151,281
350,000 106,519 142,025 177,531 177,531 177,531
Participants in the qualified plan who had at least 15 credited years of service
and whose combined age and years of service totaled at least 65 as of January 1,
1991, including Messrs. Anderson and Helms, are entitled to a pension benefit
calculated under the formula that was in effect prior to 1990 if that will
produce a greater benefit. The following table shows the estimated annual
benefits payable upon retirement at age 65 under the formula that was in effect
prior to 1990
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in specified compensation and years of service classifications under the plans.
The benefit amounts shown in the table include amounts payable under both the
qualified and the nonqualified plans, for those executives who participate in
both.
PENSION PLAN TABLE (Pre-1990 Formula)
- -------------------------------------------------------------------------------------------------------------------
Compensation Years of Service
- -------------------------------------------------------------------------------------------------------------------
15 20 25 30 35
- -------------------------------------------------------------------------------------------------------------------
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 62,500 $ 62,500
150,000 45,000 60,000 75,000 75,000 75,000
175,000 52,500 70,000 87,500 87,500 87,500
200,000 60,000 80,000 100,000 100,000 100,000
225,000 67,500 90,000 112,500 112,500 112,500
250,000 75,000 100,000 125,000 125,000 125,000
300,000 90,000 120,000 150,500 150,500 150,500
350,000 105,000 140,000 175,000 175,000 175,000
Benefits under the plans are determined primarily by average final compensation
and years of service and are computed on the basis of straight-life annuity
amounts. They are not subject to any deduction for Social Security or other
offset amounts.
Compensation for purposes of the qualified plan consists of the base salary and
service award components of the salary amounts reported in the Summary
Compensation Table above. Compensation for purposes of the nonqualified plan
also includes the bonus amounts reported in the Summary Compensation Table
above. All of the executive officers named in the Summary Compensation Table
above are participating in the qualified plan, and Messrs. Anderson, Cox, and
Montgomery are also participating in the nonqualified plan. However, Mr.
Anderson's benefits under the nonqualified plan are payable at age 70 rather
than age 65. The 1999 compensation used for purposes of calculating pension
benefits under the plans, and the credited years of service as of January 1,
2000, of the executive officers named in the Summary Compensation Table are: Mr.
Anderson, $105,806 (24.5 years), Mr. Cox, $246,797 (5.7 years), Mr. Montgomery,
$140,591 (3.0 years), Mr. Phillips, $127,000 (1.3 years), Mr. Helms, $103,940
(28.3 years), and Mr. Thrash, $98,110 (22.0 years).
Termination of Employment and Change-in-Control Arrangements
The Corporation and First Merchants have entered into change-in-control
agreements on a year-to-year basis with Messrs. Cox, Phillips, Helms and Thrash
which provide severance benefits in the event of both a change in control of the
Corporation or First Merchants and a termination or constructive termination of
the employment of the executive within 24 months after the change in control,
unless such termination was for cause, because of the executive's death or
disability, or by the executive other than on account of constructive
termination. In general, a "change in control" means an acquisition by any
person of 25% or more of the Corporation's or First Merchants' voting shares, a
change in the makeup of a majority of the Corporation's or First Merchants'
Board of Directors over a 24-month period, a merger of the Corporation or First
Merchants in which the shareholders before the merger own 50% or less of the
Corporation's or First Merchants' voting shares after the merger, or approval by
the Corporation's shareholders of a plan of complete liquidation of the
Corporation or First Merchants or an agreement to sell or dispose of
substantially all of the Corporation's or First Merchants' assets. A
"constructive termination" means, generally, a significant reduction in duties,
compensation or benefits or a relocation of the executive's office outside of
Muncie, Indiana unless agreed to by the executive. The severance benefits
payable to Mr. Cox, in addition to base salary and incentive compensation
accrued through the date of termination would be: a lump sum payment equal to
299% of the sum of (1) his annual base salary and (2) his largest bonus under
the Corporation's Management Incentive Plan during the 2 years preceding
termination. The benefits payable to Messrs. Phillips, Helms and Thrash would be
determined in a similar manner, except that the percentage would be 150% instead
of 299%. The executives would also be paid an amount equal to any excise tax
imposed under Section 4999 of the Internal Revenue Code on any "excess parachute
payment,"and they would be entitled to 2 years of life, disability, accident and
health insurance benefits, the bargain element value of then outstanding stock
options, outplacement services, and reasonable legal fees and expenses incurred
-8-
as a result of the termination. The agreements were not entered into in response
to any effort to acquire control of the Corporation or First Merchants, and the
Board of Directors is not aware of any such effort.
Compensation Committee Interlocks and Insider Participation
The following non-employee directors comprise the Compensation Committee of the
Corporation: Robert M. Smitson (Chairman), Stefan S. Anderson, Frank A. Bracken,
Thomas B. Clark, and Norman M. Johnson. John W. Hartmeyer, who is a director of
First Merchants, serves as a non-voting member of the Compensation Committee.
Mr. Smitson is the Chairman of the Board of Maxon Corporation. Mr. Anderson, the
Chairman of the Board of the Corporation and First Merchants and the Chief
Executive Officer of the Corporation and First Merchants until his retirement on
April 16, 1999, serves as a director of Maxon Corporation. Mr. Bracken is of
counsel with the firm of Bingham Summers Welsh & Spilman, which provides legal
services to the Corporation and its subsidiaries on a transactional basis.
Compensation Committee Report on Executive Compensation
The Compensation Committee administers the Corporation's executive compensation
program. It is responsible for establishing the compensation and benefits of the
Corporation's chief executive officer and chief operating officer. The Committee
also approves the compensation and benefits of the other executive officers,
after receiving recommendations from the chief executive officer. The
Corporation's incentive compensation and stock plans are also administered by
the Committee.
General Policy on Executive Compensation. The Board of Directors of the
Corporation has established an executive compensation program which is designed
to provide incentives to executive officers to achieve short-term and long-term
corporate strategic management goals, with the ultimate objective of obtaining a
superior return on the shareholders' investment. To this end, the compensation
program for executive officers consists of cash and equity-based components
which consider: the executive officer's individual performance; the
Corporation's performance as measured against previously-established annual and
long-term goals; the Corporation's performance compared to industry peers; and
the compensation paid by competitors to individuals holding similar management
positions.
The Compensation Committee believes that the Corporation's executive
compensation program is a significant contributor to the Corporation's excellent
short-term and long-term performance, compared to industry peers. In 1999, the
Corporation and its subsidiary banks again received national recognition for
their financial strength. The earnings of the Corporation's lead bank, First
Merchants, grew for the 24th consecutive year in 1999. The Corporation's
earnings have increased every year since it was formed in 1982.
The salaries paid to the executive officers (other than the chief executive
officers) named in the Summary Compensation Table above for 1999, averaged
approximately 4% more than their 1998 salaries. In addition, these executive
officers' bonuses for 1999 under the Corporation's incentive compensation plans
averaged approximately 15% more than their bonuses for the previous year, due to
the Corporation's and First Merchants' improved performance measured by the
criteria set forth in the Management Incentive Plans described below.
Salaries. The salaries paid to the Corporation's executive officers were
subjectively determined after consideration of the executive officer's
individual responsibilities, performance, and experience, the evaluation by the
chief executive officer of the executive officers other than the chief executive
officer, the Corporation's financial results compared with industry peers,
various industry salary surveys, and other factors such as budgetary
considerations and inflation rates.
The Compensation Committee tries to set the executive officers' salaries at or
above the average of the salaries paid to executive officers with similar
responsibilities at Indiana and Midwestern banks and bank holding companies of
similar size. The salaries and percentage salary increases for 1999 paid
executive officers at peer financial organizations were determined after
consulting several salary surveys including: the Indiana Bankers Association
survey of Indiana banks; the Crowe Chizek Mid-West Bank Compensation Survey;
national surveys of all types of companies, and of those in the banking
industry, prepared by the American Compensation Association, The Conference
Board, and several benefits consultants; and a survey of the Financial
Associates banks (10 Indiana banks and one Michigan bank with assets between
$200,000,000 and $1,500,000,000).
-9-
Incentive Compensation. The Compensation Committee believes that
performance-based pay should be a significant component of the executive
officers' total compensation package. Therefore, each of the executive officers
is covered by an incentive plan. The objectives of the plans are: to link
compensation to organization and individual goal achievement, to motivate and
retain key personnel, and to attract qualified talent to the organization. The
executive officers qualified for bonuses under the plans if the Corporation or
subsidiary bank met or exceeded pre-established minimum ("threshold")
performance levels in 1999. Each plan contains a schedule setting forth the
percentage of salary, if any, payable to the executive officer as a bonus,
depending on the Corporation's or subsidiary bank's performance relative to each
of the criteria. In order to avoid wide swings in payouts and to better focus
the plans on long-term results, the plans were amended in 1997 to provide that
60% of any bonus paid to the executive officers would be based on current year
performance and 40% would be based on the average of the 2 prior years'
performance. The plans are administered by the Compensation Committee.
The bonuses paid to Messrs. Anderson and Cox for 1999 (reported in the "bonus"
column of the Summary Compensation Table) were determined under the
Corporation's Management Incentive Plan for Chief Executive Officer. This plan
provides for a bonus of up to 45% of annual base salary, if the Corporation
meets specific targets for return on assets ("ROA"), return on equity ("ROE"),
income growth ("IG"), and efficiency ratio ("ER"). These are commonly- used
criteria for measuring institutional performance in the banking industry. ER is
defined in the plan as operating expense divided by operating revenue. The
threshold performance levels which would qualify them for a bonus under the plan
were exceeded for all criteria: the Corporation's ROA, ROE, IG, and ER; the
maximum levels were not exceeded for any of the criteria.
The bonuses paid to Messrs. Helms, Phillips and Thrash for 1999 (reported in the
"bonus" column of the Summary Compensation Table) were determined under the
Corporation's Management Incentive Plan for Administrative Officers. This plan
provides for a bonus of up to 25% of annual base salary, if the Corporation and
First Merchants meet specific targets for ROA, IG, and ER. The threshold
performance levels which would qualify them for a bonus under the plan were
exceeded for all criteria: the Corporation's and First Merchants' ROA, IG, and
ER; the maximum levels were not exceeded for any of the criteria.
Mr. Montgomery's bonus for 1999 (reported in the "bonus" column of the Summary
Compensation Table) was determined under the Corporation's Management Incentive
Plan for Chief Executive Officer, The Union County National Bank. This plan
provides for a bonus of up to 25% of annual base salary, if Union County meets
specific targets for ROA, IG, ER, and achievement of annual plan objectives
("AAPO"). The threshold performance levels which would qualify him for a bonus
under the plan were exceeded for all criteria: Union County's ROA, IG, ER, and
AAPO; the maximum level was equaled or exceeded for Union County's ER and AAPO,
but not for either of the other criteria.
Stock Plans. Equity-based compensation, including compensation under the
Corporation's Long-term Equity Incentive Plan and Employee Stock Purchase Plan,
is intended to encourage ownership and retention of the Corporation's common
stock by key employees, thereby giving them a meaningful stake in the
Corporation's continued success and aligning their interests with those of other
shareholders.
The Long-term Equity Incentive Plan is briefly described in the paragraph above
the Option Grants Table. During 1999 the Compensation Committee awarded options
under the plan to the executive officers named in the Summary Compensation Table
as follows: for 1,000 shares to Mr. Anderson, for 10,000 shares to Mr. Cox, for
2,000 shares to Mr. Montgomery, and for 5,000 shares each to Messrs. Helms,
Phillips and Thrash.
The Employee Stock Purchase Plan generally provides that full-time employees of
the Corporation or a participating subsidiary with more than 6 months of service
may elect, prior to the offering period (July 1 to June 30), to purchase common
shares of the Corporation at a price equal to 85% of the lesser of the market
price of the stock at the beginning of the period and the market price at the
end of the period. For the offering period ending June 30, 1999, Messrs.
Anderson, Cox, Montgomery, Phillips, Helms and Thrash, the executive officers
named in the Summary Compensation Table, purchased 0, 458, 966, 0, 131 and 393
shares, respectively, under the 1994 Employee Stock Purchase Plan. The 1994
Employee Stock Purchase Plan covered 5 offering periods expiring on June 30,
1999. The shareholders approved
-10-
the 1999 Employee Stock Purchase Plan, containing similar provisions and
covering 5 offering periods expiring on June 30, 2004, at the 1999 annual
shareholders' meeting.
Other Compensation. The executive officers are also covered by medical and
retirement plans which are generally applicable to full-time employees of the
Corporation and its subsidiaries, except that Mr. Anderson is no longer covered
by the medical plan since his retirement on April 16, 1999. The retirement plans
covering each of the executive officers are the First Merchants Corporation
Retirement Pension Plan, a defined benefit pension plan (described in the
"Pension Plans" section), and the First Merchants Corporation Retirement Savings
Plan, an Internal Revenue Code Section 401(k) plan (referred to in note (1) to
the Summary Compensation Table). Messrs. Anderson, Cox, and Montgomery are also
covered by the First Merchants Corporation Supplemental Executive Retirement
Plan, a nonqualified SERP plan (described in the "Pension Plans" section).
Chief Executive Officer's Compensation. The chief executive officer's salary is
determined in the manner described in the "Salaries" section of this report. In
recognition of his succession of Mr. Anderson as chief executive officer of the
Corporation and First Merchants on April 16, 1999, the Compensation Committee
increased Mr. Cox's salary in 1999 by approximately 17% over his 1998 salary.
Mr. Cox's salary is below the average of the salaries paid to chief executive
officers with similar responsibilities at other Indiana and Midwestern banks and
bank holding companies of similar size and corporate structure, but the
Committee expects to increase his salary relative to these individuals in the
future. Mr. Cox's total compensation for 1999, including his bonus under the
Management Incentive Plan described above, increased by approximately 20% over
his total 1998 compensation. The relationship between Mr. Anderson's
compensation and corporate performance is similar to that of all of the
Corporation's other executive officers, as described above in this report,
except that his compensation is based primarily on the Corporation's performance
whereas the other executive officers' compensation is based in part on the
performance of a subsidiary bank.
FIRST MERCHANTS CORPORATION COMPENSATION
COMMITTEE
Robert M. Smitson, Chairman
Stefan S. Anderson
Frank A. Bracken
Thomas B. Clark
John W. Hartmeyer
Norman M. Johnson
-11-
Performance Graph
The following graph compares the yearly change in the Corporation's cumulative
total shareholder return on its common stock during the last 5 years with (1)
the cumulative total return of the Russell 2000 Index, and (2) the cumulative
total return of the Russell 2000 Financial Services Sector Index. The graph
assumes $100 was invested on January 1, 1995 in the Corporation's common stock,
and in each of the two indexes shown, and all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST MERCHANTS CORPORATION, RUSSELL 2000
AND RUSSELL 2000 FINANCIAL SERVICES SECTOR
[GRAPH]
FMC 100..............122.69............130.53...........189.69............205.46...........215.65
Russell 2000 100..............128.44............149.63...........183.08............178.42...........216.35
Russell 2000 Finl Serv 100..............138.86............178.89...........243.34............225.84...........212.58
-12-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Corporation is not aware of any person who is the beneficial owner of more
than 5% of the Corporation's outstanding common stock. The following is a
summary of the amount and percent of the Corporation's common stock beneficially
owned on February 1, 2000 by each director and director nominee, by each
executive officer named in the Summary Compensation Table above, and by all
directors and executive officers as a group. Unless otherwise noted, the
beneficial owner has sole voting and investment power.
Amount and Nature Percent
Beneficial Owner of Beneficial Ownership(1) of Class
---------------- -------------------------- --------
Stefan S. Anderson (13) 97,792 (2) *
James F. Ault 21,938 (3) *
Frank A. Bracken (13) 80,640 (4) *
Thomas B. Clark 6,817 *
Michael L. Cox 51,271 (5) *
David A. Galliher 22,715 (6) *
Barry J. Hudson 518,266 (7) 4.73%
Norman M. Johnson 367,884 (8) 3.36%
Ted J. Montgomery 39,504 (9) *
George A. Sissel 4,937 (10) *
Robert M. Smitson (13) 14,812 (11) *
Michael D. Wickersham 3,832 *
John E. Worthen 7,225 *
Larry R. Helms 40,309 (12) *
Charles R. Phillips 8,344 *
James L. Thrash 21,094 *
Directors and Executive
Officers as a Group (16 persons)(13) 1,307,380 11.77%
(1) The information contained in this column is based upon
information furnished to the Corporation by the persons and
entities named above and shareholder records of the Corporation.
The shares shown include the following shares which may be
acquired during the next 60 days under a stock option plan by the
executive officers named above: Mr. Anderson, 27,700 shares; Mr.
Cox, 43,262 shares; Mr. Montgomery, 13,250 shares; Mr. Phillips,
8,344 shares; Mr. Helms, 25,319 shares; and Mr. Thrash, 7,395
shares; and the following shares which may be acquired during the
next 60 days under a stock option plan by the directors named
above: Messrs. Clark, Galliher, and Worthen, 5,500 shares each;
Messrs. Bracken, Sissel and Smitson, 4,600 shares each; Messrs.
Johnson and Wickersham, 2,800 shares each; Mr. Hudson, 3,000
shares; and Mr. Ault, 1,000 shares. The shares shown for
directors and executive officers as a group include 165,170
shares which may be acquired during the next 60 days under a
stock option plan.
(2) Includes 1,875 shares held by his spouse, Joan Anderson, in which
he disclaims any beneficial interest.
(3) Includes 12,420 shares held by his spouse, Marilyn Ault, in which
he disclaims any beneficial interest.
(4) Includes 4,170 shares held by his spouse, Judy Bracken, in which
he disclaims any beneficial interest; and 966 shares held in
trust for family members for which Mr. Bracken, as co-trustee,
has sole voting and shared investment power.
(5) Includes 3,626 shares held jointly with his spouse, Sharon Cox.
-13-
(6) Includes 907 shares held by his spouse, Nancy Galliher, in which
he disclaims any beneficial interest.
(7) Includes 283,130 shares owned by Mutual Security, Inc.; 180,109
shares held jointly with his spouse, Elizabeth Hudson; and 6,992
shares held by his spouse as custodian for his children, in which
he disclaims any beneficial interest.
(8) Includes 24,493 shares held by his spouse, Julia Johnson, in
which he disclaims any beneficial interest; and 74,220 shares
held in trust for family members for which Mr, Johnson, as
co-trustee, has shared voting and investment power.
(9) Includes 23,575 shares held in trust for family members for which
Mr. Montgomery, as trustee, has sole voting and investment power.
(10) Includes 337 shares held jointly with his spouse, Mary R. Sissel.
(11) Includes 5,062 shares held by his spouse, Marilyn S. Smitson, in
which he disclaims any beneficial interest.
(12) Includes 14,990 shares held jointly with his spouse, Sandra
Helms.
(13) Messrs. Anderson, Bracken and Smitson serve as directors of the
George and Frances Ball Foundation, Muncie, Indiana, which owns
251,100 shares (2.29%) of the Corporation's outstanding common
stock. The Foundation's Board of Directors, which has 6 members,
has the voting and investment power over the shares held by the
Foundation. The Foundation's shares are not included in the
totals of the shares beneficially owned by Messrs. Anderson,
Bracken and Smitson or by directors and executive officers as a
group.
* Percentage beneficially owned is less than 1% of the outstanding
shares.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain directors and executive officers of the Corporation and its subsidiaries
and their associates are customers of, and have had transactions with the
Corporation's subsidiary banks from time to time in the ordinary course of
business. Additional transactions may be expected to take place in the ordinary
course of business in the future. All loans and commitments included in such
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
Frank A. Bracken, a director of the Corporation, is of counsel with the firm of
Bingham Summers Welsh & Spilman, Indianapolis, Indiana, which provides legal
services to the Corporation and its subsidiaries on a transactional basis.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's directors and executive officers to file reports of ownership and
changes in ownership of the Corporation's stock with the Securities and Exchange
Commission. Based on its records and the written representations of its
directors and executive officers, the Corporation believes that during 1999 its
directors and executive officers complied with all Section 16(a) filing
requirements.
-14-
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board, subject to the approval of the shareholders, has selected Olive LLP,
Certified Public Accountants, as its independent public accountants for 2000.
Representatives of the firm are expected to be present at the annual
shareholder's meeting. They will have an opportunity to make a statement, if
they desire, and are expected to be available to respond to appropriate
questions.
The Board of Directors unanimously recommends a vote "FOR" ratification of the
appointment of the firm of Olive LLP as independent public accountants for 2000.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2001 annual meeting of
the shareholders must be received by the Secretary of the Corporation at the
Corporation's principal office by October 26, 2000, for inclusion in the
Corporation's 2001 proxy statement and form of proxy relating to that meeting.
Shareholder proposals, if any, intended to be presented at the 2000 annual
meeting that were not submitted for inclusion in this proxy statement will be
considered untimely unless they were received by the Secretary of the
Corporation at the Corporation's principal office by January 10, 2000.
OTHER MATTERS
The cost of soliciting proxies will be borne by the Corporation. In addition to
solicitations by mail, proxies may be solicited personally or by telephone or
telegraph, but no solicitation will be made by specially engaged employees or
paid solicitors.
The Board and management are not aware of any matters to be presented at the
annual meeting of the shareholders other than the election of the directors and
the ratification of the appointment of the independent public accountants.
However, if any other matters properly come before such meeting or any
adjournment thereof, the holders of the proxies are authorized to vote thereon
at their discretion, provided the Corporation did not have notice of any such
matter on or before January 10, 2000.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
February 23, 2000
-15-
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF FIRST MERCHANTS
CORPORATION
MUNCIE, INDIANA
The undersigned hereby appoints Clell W.
Douglass and Hamer D. Shafer, and each of
them, as proxies with power of substitution,
to represent and to vote all shares of common
stock of First Merchants Corporation which the
undersigned would be entitled to vote at the
Annual Meeting of Shareholders of First
Merchants Corporation to be held at the
Horizon Convention Center, 401 South High
Street, Muncie, Indiana 47305 on April 12,
2000, and at any adjournment thereof, with all
of the powers the undersigned would possess if
personally present. If any of the nominees for
election as Directors are unable to serve for
any reason, the persons listed above have the
authority to vote as directed for any
substitute nominee.
Proxy Vote Instruction: FIRST MERCHANTS CORPORATION
Annual meeting to be held on April 12, 2000 at the Horizon Convention Center at
3:30 PM EST
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION RECOMMEND A
VOTE "FOR" THE PROPOSALS LISTED.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
1. Election of Directors: |_| FOR all nominees listed to the left (except
James F. Ault as specified in the space below)
Frank A. Bracken |_| WITHHOLD VOTE (do not vote for any
Barry J. Hudson of the nominees listed to the left)
(Instruction: To withhold authority to vote for
any individual nominee, write that nominee's
name in the space provided to the right.) ________________________________
2. Ratification of the appointment of the firm of Olive LLP as independent
public accountants for 2000.
FOR |_| AGAINST |_| ABSTAIN |_|
3. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting, provided the Corporation
did not have notice of any such matter on or before January 10, 2000.
This proxy will be voted as directed, but if
not otherwise directed this proxy will be
voted "FOR" approval of the matters described
in Items 1 and 2 above.
Dated
---------------------------- -------------
(Signature of Shareholder)
John Q. Public
PO BOX 00000 Dated
Anytown, USA 00000-0000 ---------------------------- -------------
(Signature of Shareholder)
(Joint owners should each sign personally.
Trustees and others signing in a
representative capacity should indicate the
capacity in which they sign.)
|_| Please check this box if you plan to attend the Annual Meeting. Number
attending:________