<PAGE>
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
FIRST MERCHANTS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MERRILL PRINTING, 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):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
<PAGE>
(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:
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2
<PAGE>
FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 7, 1998
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 Tuesday, April 7, 1998, at 3:30 p.m. for the
following purposes:
(1) To elect four 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 Geo. S. Olive & Co., LLC, as
independent public accountants for 1998.
(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 17, 1998
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 24, 1998
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.
<PAGE>
February 24, 1998
FIRST MERCHANTS CORPORATION
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 7, 1998
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 7, 1998. The distribution of these proxy
materials is expected to commence on February 24, 1998.
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 17, 1998
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,
1998 was 6,665,289. 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.
ELECTION OF DIRECTORS
Four 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 2001 annual meeting of
shareholders. All of the nominees are currently members of the Board.
Those persons nominated as directors include:
<TABLE>
<CAPTION>
NAME AND AGE PRESENT OCCUPATION DIRECTOR SINCE
CLASS I (TERMS EXPIRE 2001):
<S> <C> <C>
Michael L. Cox; Executive Vice 1984
age 53 President and Chief
Operating Officer,
First Merchants
Corporation and President
and Chief Operating
Officer, First Merchants
Bank, National Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRESENT OCCUPATION DIRECTOR SINCE
<S> <C> <C>
Norman M. Johnson; Retired Executive 1996
age 63 Vice President, Stein
Roe & Farnham,
Investment Counsel
George A. Sissel; Chairman of the Board 1995
age 61 and Chief Executive
Officer, Ball
Corporation (Ball
Corporation manufactures
metal and plastic
packaging products and
communications products
and services.)
Robert M. Smitson; Vice Chairman of the 1982
age 61 Board and Chief
Executive Officer,
Maxon Corporation
(Maxon Corporation
designs and manufactures
specialty industrial
combustion systems
and valves.)
Those persons named below continue to serve as directors:
CLASS II (TERMS EXPIRE 1999):
Stefan S. Anderson; Chairman of the Board, 1982
age 63 President and Chief
Executive Officer, First
Merchants Corporation and
Chairman of the Board and
Chief Executive Officer,
First Merchants Bank,
National Association
Thomas B. Clark; President and Chief 1989
age 52 Executive Officer, Alltrista
Corporation (Alltrista
Corporation manufactures
metal, plastics and
consumer products and
industrial equipment.)
David A. Galliher; President and Treasurer, 1982
age 65 Wm. A. Didier & Sons, Inc.
(Wm. A. Didier & Sons, Inc.
manufactures credit cards.)
John E. Worthen; President, Ball State 1987
age 64 University
CLASS III (TERMS EXPIRE 2000):
Frank A. Bracken; Of Counsel, Bingham 1994
age 63 Summers Welsh & Spilman,
Attorneys
Ted J. Montgomery; Senior Vice President, 1996
age 58 First Merchants Corporation
and President, The Union
County National Bank
of Liberty
Michael D. Wickersham; President, Wicks Pies, Inc. 1996
age 44 and Vice President, Wicks
Foods, Inc. (Wicks Pies,
Inc. is a producer and
retailer of pies and pie
shells.)
</TABLE>
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<PAGE>
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. Bracken was the Deputy Secretary to the United States Department
of the Interior from 1989 to 1993. He joined Bingham Summers Welsh & Spilman
in 1994. Mr. Clark was Senior Vice President and Chief Financial Officer of
Alltrista Corporation from 1992 until 1994, when he became President and
Chief Operating Officer. He became President and Chief Executive Officer in
1995. Mr. Cox was Group President of Ontario Corporation from 1989 until
1994, when he became Executive Vice President and Chief Operating Officer of
the Corporation and Executive Vice President of the Corporation's
wholly-owned subsidiary, First Merchants Bank, National Association ("First
Merchants"). Mr. Cox became President and Chief Operating Officer of First
Merchants in 1996. Mr. Johnson was Executive Vice President and a member of
the Executive Committee of Stein Roe & Farnham, investment counsel, prior to
his retirement in 1994. Mr. Montgomery has served as President of the
Corporation's wholly-owned subsidiary, The Union County National Bank of
Liberty ("Union County") since 1983. He became a Senior Vice President of
the Corporation in 1996. Mr. Sissel was Senior Vice President, General
Counsel and Corporate Secretary of Ball Corporation from 1987 until 1994. He
became Acting President and Chief Executive Officer of Ball Corporation in
1994 and President and Chief Executive Officer in 1995. Mr. Sissel became
Chairman of the Board of Directors of Ball Corporation in 1996. Since
January 1998 he is no longer President of Ball Corporation but continues to
serve as Chairman of the Board and Chief Executive Officer.
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
Executive Committee. The Executive Committee met 2 times during 1997.
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),
Clark, Wickersham and Worthen. Thomas K. Gardiner, Hurley C. Goodall, and
Nelson W. Heinrichs, who are directors of First Merchants, George R. Likens,
who is a director of the Corporation's wholly-owned subsidiary, Pendleton
Banking Company ("Pendleton"), Gerald S. Paul, who is a director of Union
County, and Mary Wisehart Phillips, who is a director of the Corporation's
wholly-owned subsidiary, First United Bank ("First United"), serve as
non-voting members of the Audit Committee. The Audit Committee met 4 times
during 1997.
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 Compensation 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), Bracken, and Clark,
and Mr.
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<PAGE>
Johnson serves as an alternate. John W. Hartmeyer, who is a director of
First Merchants, serves as a non-voting member of the Compensation Committee.
The Compensation Committee met 4 times during 1997.
MEETINGS OF THE BOARD
The Board of Directors held 4 meetings during 1997. None of the directors of
the Corporation attended fewer than 75% of the total number of meetings of
the Board and the committees on which they served.
COMPENSATION OF DIRECTORS
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 1997. Directors of the Corporation who were not employees were
paid an annual retainer of $3,400 and $300 for each meeting of the
Corporation's Board of Directors that they attended in 1997. In addition,
they were paid $225 per meeting for attending meetings of the Executive
Committee and other committees of the Board of Directors of the Corporation
or First Merchants. The Chairman of the Executive Committee was paid an
additional $175 and the chairmen of the other committees were paid an
additional $75 for each meeting over which they presided. For his services
as a director and Chairman of the Executive Committee of Union County, Mr.
Johnson was paid a retainer of $4,200 during the first 6 months of 1997.
During the last 6 months, he was paid a retainer of $2,100 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. Mr. Wickersham was paid a retainer of $4,200 for
his services as a director and Chairman of the Board of Directors of the
Corporation's wholly-owned subsidiary, Randolph County Bank ("Randolph
County"), and Randolph County paid him $350 for each Board meeting and $50
for each committee meeting that he attended in 1997.
Under the provisions of the 1994 Stock Option Plan, on July 1, 1997 options
to purchase shares of the Corporation's common stock were granted to the
non-employee directors of the Corporation. Each option is for 600 shares at
an option price of $31.25 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 are made or begun when the individual ceases to be a
director of either First Merchants or the Corporation. During 1997, one (1)
of the Corporation's directors participated in the plan, deferring fees
totaling $7,300.
COMPENSATION OF EXECUTIVE OFFICERS
The tables in this section of the Proxy Statement contain information
concerning the compensation of certain named executive officers as of the
Corporation's most recent fiscal year-end, December 31, 1997. The
information in these tables concerning stock options reflects the 3-for-2
common stock split which was effective at the close of business on October
27, 1995 for shareholders of record at the close of business on October 20,
1995.
SUMMARY COMPENSATION TABLE
The following table contains information concerning the compensation paid by
the Corporation and its subsidiaries for the years 1995, 1996 and 1997 to the
Corporation's Chief Executive Officer and its 4 most highly compensated
executive officers other than the Chief Executive Officer.
-4-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- -------------
AWARDS
-------------
NAME AND SECURITIES
PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
($) ($) (#) ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STEFAN S. ANDERSON, 1997 197,721 53,323 3,500 2,000
Chairman of the Board and 1996 188,543 51,270 3,500 2,294
Chief Executive Officer, 1995 180,384 42,629 3,600 2,194
Corporation and First
Merchants; President,
Corporation
MICHAEL L. COX, 1997 153,461 44,985 3,500 1,875
Executive Vice President 1996 144,593 30,055 3,000 1,766
and Chief Operating Officer, 1995 134,401 19,708 9,975 821
Corporation; President and
Chief Operating Officer, First
Merchants
TED J. MONTGOMERY, 1997 143,674 26,684 2,600 3,077
Senior Vice President, 1996 145,024 22,959 4,500 10,729
Corporation; President,
Union County (2)
LARRY R. HELMS, 1997 99,793 18,653 2,300 1,211
Senior Vice President, 1996 96,119 17,055 2,300 1,166
Corporation and First 1995 92,733 12,488 2,475 1,129
Merchants; General Counsel
and Secretary, Corporation
JAMES L. THRASH, 1997 93,402 17,556 2,300 912
Senior Vice President, 1996 89,931 16,050 2,300 878
Corporation and First 1995 86,461 11,673 2,475 844
Merchants; Chief Financial
Officer, Corporation
</TABLE>
(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 an employer ESOP contribution for
fiscal year to Union County National Bank Employees' Stock Ownership Plan.
The Plan was terminated as of June 30, 1997. Mr. Montgomery received an
employer ESOP contribution of $8,209 for 1996 to Union County National Bank
Employees' Stock Ownership Plan which was not reported in the 1997 proxy
statement, as it had not been determined as of the statement's distribution
date. However, the contribution is reported under "All Other Compensation"
in this proxy statement.
(2) Mr. Montgomery became Senior Vice President of the Corporation on
August 13, 1996, following the Corporation's acquisition of Union
County. His 1996 compensation shown in the table includes compensation
received from Union County and the Corporation during the entire 1996
calendar year.
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<PAGE>
OPTION GRANTS TABLE
The 1994 Stock Option Plan, which became effective as of July 1, 1994,
provides for the issuance of options to key employees of the Corporation or
any subsidiary to purchase the Corporation's common stock at prices not less
than the market price of the stock on the dates of grant. The following
table contains information concerning individual grants of stock options
under the plan made during 1997 to each of the executive officers named in
the Summary Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT ANNUAL RATES
SECURITIES OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stefan S. Anderson 3,500 6.27 31.375 July 31, 2007 69,182 174,602
Michael L. Cox 3,500 6.27 31.375 July 31, 2007 69,182 174,602
Ted J. Montgomery 2,600 4.66 31.375 July 31, 2007 51,392 129,704
Larry R. Helms 2,300 4.12 31.375 July 31, 2007 45,462 114,738
James L. Thrash 2,300 4.12 31.375 July 31, 2007 45,462 114,738
</TABLE>
(1) Mr. Cox was granted an option for 3,500 shares on July 31, 1997, of which
2,000 are exercisable on or after January 31, 1998 and 1,500 are
exercisable on or after January 31, 1999. The option is not exercisable
after July 31, 2007. Each of the other options was granted on July 31,
1997 and is exercisable on or after January 31, 1998, but not after July
31, 2007.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table contains information concerning (1) each exercise of
stock options during 1997 under the 1989 Stock Option Plan or the 1994 Stock
Option Plan by each of the executive officers named in the Summary
Compensation Table above, and (2) the value as of December 31, 1997 of each
of the named executive officer's unexercised options on an aggregated basis.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stefan S. Anderson 0 0 31,325 / 3,500 656,094 / 20,563
Michael L. Cox 0 0 20,324 / 5,000 323,114 / 40,250
Ted J. Montgomery 0 0 4,500 / 2,600 58,500 / 15,275
Larry R. Helms 8,325 154,825 11,675 / 2,300 187,994 / 13,513
James L. Thrash 9,650 70,413 0 / 2,300 0 / 13,513
</TABLE>
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. On February 11,
1997, the Corporation adopted 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, 1997,
$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 1941 (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
<TABLE>
<CAPTION>
COMPENSATION YEARS OF SERVICE
-------------------------------------------------------------
15 20 25 30 35
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 35,921 $ 47,894 $ 59,868 $ 59,868 $ 59,868
150,000 43,796 58,394 72,993 72,993 72,993
175,000 51,671 68,894 86,118 86,118 86,118
200,000 59,546 79,394 99,243 99,243 99,243
225,000 67,421 89,894 112,368 112,368 112,368
250,000 75,296 100,394 125,493 125,493 125,493
275,000 83,171 110,894 138,618 138,618 138,618
300,000 91,046 121,394 151,743 151,743 151,743
</TABLE>
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<PAGE>
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 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)
<TABLE>
<CAPTION>
COMPENSATION YEARS OF SERVICE
-------------------------------------------------------------
15 20 25 30 35
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 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
275,000 82,500 110,000 137,500 137,500 137,500
300,000 90,000 120,000 150,000 150,000 150,000
</TABLE>
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 1997 compensation used for purposes of calculating pension
benefits under the plans, and the credited years of service as of January 1,
1998, of the executive officers named in the Summary Compensation Table are:
Mr. Anderson, $245,938 (23.2 years), Mr. Cox, $194,985 (3.7 years), Mr.
Montgomery, $166,676 (1.0 years), Mr. Helms, $97,030 (26.3 years), and Mr.
Thrash, $91,300 (20.0 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. Anderson and Cox 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, in addition to base salary and
incentive compensation accrued through the date of termination are: a lump
sum payment equal to 299% of an amount based on the executive's previous 5
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<PAGE>
calendar years' average W-2 compensation (but not more than the amount which
would cause the payment to be subject to the excise tax imposed under Section
280G of the Internal Revenue Code), 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 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), Frank A. Bracken, and Thomas
B. Clark. Norman M. Johnson is an alternate member of the Committee. John
W. Hartmeyer, who is a director of First Merchants, serves as a non-voting
member of the Compensation Committee. Mr. Smitson is the Vice Chairman of
the Board and Chief Executive Officer of Maxon Corporation. Stefan S.
Anderson, the Chairman of the Board, President and Chief Executive Officer of
the Corporation and the Chairman of the Board and Chief Executive Officer of
First Merchants, 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 1997, 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 22nd consecutive year in 1997. The
Corporation's earnings have increased every year since it was formed in 1982.
The annual compensation paid to the executive officers for 1997 (reported in
the "salary" and "bonus" columns of the Summary Compensation Table) was
greater than the compensation for 1996, reflecting salary increases which
averaged about 4% and larger bonuses under the Corporation's incentive
compensation plans due to the Corporation's and subsidiary banks' improved
performance. Mr. Cox's 1997 compensation increased more than the other
executive officers, mostly due to changes in the schedules under his
incentive compensation plan. These changes reflected his increased
management responsibilities as Executive Vice President and Chief Operating
Officer of the Corporation and President of First Merchants.
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.
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<PAGE>
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 paid executive officers at peer financial
organizations were determined by 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 (11 Indiana banks
with assets between $200,000,000 and $1,500,000,000).
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 1997. 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 1997 performance and 40% would be based on the
average of the 2 prior years' performance. The plans are administered by the
Compensation Committee.
Mr. Anderson's bonus was determined under the Corporation's Management
Incentive Plan for Chief Executive Officer. This plan provides for a bonus
of up to 40% 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. Mr. Anderson received a
bonus of 27.70% of base salary for 1997. The threshold performance levels
which would qualify him 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.
Mr. Cox's bonus was determined under the Corporation's Management Incentive
Plan for Executive Vice President and Chief Operating Officer. This plan
provides for a bonus of up to 40% of annual base salary, if the Corporation
and First Merchants meet specific targets for ROA, IG, and ER and the
Corporation meets specific targets for ROE. Mr. Cox received a bonus of
29.99% of base salary for 1997. The threshold performance levels which would
qualify him for a bonus under the plan were exceeded for all criteria: the
Corporation's and First Merchants' ROA, IG, and ER, and the Corporation's
ROE; the maximum level was exceeded for First Merchants' ROA, but not for the
Corporation's ROA or any of the other criteria.
The bonuses paid to Messrs. Helms and Thrash in 1997 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.
Messrs. Helms and Thrash each received a bonus of 19.25% of base salary for
1997. 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 level was exceeded for First
Merchants' ROA, but not for the Corporation's ROA or any of the other
criteria.
Mr. Montgomery's bonus 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"). Mr. Montgomery received a bonus of 19.06% of base
salary for 1997. 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 levels were not exceeded for any of the
criteria.
STOCK PLANS. Equity-based compensation, including compensation under the
Corporation's Stock Option 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.
-10-
<PAGE>
The Stock Option Plan is briefly described in the paragraph above the Option
Grants Table. During 1997 the Compensation Committee awarded options under
the plan to the 5 executive officers as follows: for 3,500 shares to Mr.
Anderson, for 3,500 shares to Mr. Cox, for 2,600 shares to Mr. Montgomery,
and for 2,300 shares each to Messrs. Helms 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, 1997, Messrs. Anderson, Cox, Montgomery, Helms and Thrash, the
executive officers named in the Summary Compensation Table, purchased 62,
311, 0, 124, and 330 shares, respectively, under the 1994 Employee Stock
Purchase Plan. The 1994 Employee Stock Purchase Plan covers 5 offering
periods, expiring on June 30, 1999.
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. 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).
During the first 6 months of 1997, Mr. Montgomery was also covered by the
Union County National Bank Employees' Stock Ownership Plan, an ESOP (referred
to in note (1) to the Summary Compensation Table). The Union County National
Bank Employees' Stock Ownership Plan was terminated as of June 30, 1997.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. The chief executive officer's salary
is determined in the manner described in the "Salaries" section of this
report. Mr. Anderson's total compensation for 1997, including salary and
bonus, was approximately 4.68% higher than his 1996 compensation, reflecting
a 4.87% increase in salary and a 4.00% increase in incentive 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
Frank A. Bracken
Thomas B. Clark
John W. Hartmeyer
Norman M. Johnson, alternate
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<PAGE>
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 CRSP Index for NASDAQ Stock
Market (U.S. Companies), and (2) the cumulative total return of the CRSP
Index for NASDAQ Bank Stocks. The graph assumes $100 was invested on January
1, 1993 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, NASDAQ STOCK
MARKET (U.S. COMPANIES) AND NASDAQ BANK STOCKS
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
FMC 100 99.8 115.8 142.1 151.2 219.7
NASDAQ Stock Market 100 114.8 112.2 158.7 195.2 239.5
NASDAQ Bank Stocks 100 114.0 113.6 169.2 223.4 377.4
</TABLE>
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<PAGE>
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, 1998 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.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) OF CLASS
- ---------------------- ------------------------- --------
<S> <C> <C>
Stefan S. Anderson (11) 97,562 (2) 1.46%
Frank A. Bracken (11) 121,191 (3) 1.82%
Thomas B. Clark 2,625 *
Michael L. Cox 28,609 (4) *
David A. Galliher 7,106 (5) *
Norman M. Johnson 194,510 (6) 2.92%
Ted J. Montgomery 32,884 (7) *
George A. Sissel (12) 2,025 (8) *
Robert M. Smitson (11) 8,475 (9) *
Michael D. Wickersham 1,245 *
John E. Worthen 3,450 *
Larry R. Helms 22,511 (10) *
James L. Thrash 10,255 *
Directors and Executive
Officers as a Group (13 persons)(11)(12) 532,448 7.88%
</TABLE>
(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, 34,825 shares; Mr. Cox, 23,824 shares; Mr. Montgomery, 7,100
shares; Mr. Helms, 13,975 shares; Mr. Thrash, 2,300 shares; and the
following shares which may be acquired during the next 60 days under
the 1994 Stock Option Plan by the non-employee directors named above:
Messrs. Clark, Galliher, and Worthen, 2,400 shares each; Messrs.
Bracken, Sissel and Smitson, 1,800 shares each; and Messrs. Johnson
and Wickersham, 600 shares each. The shares shown for directors and
executive officers as a group include 95,824 shares which may be
acquired during the next 60 days under a stock option plan.
(2) Includes 2,295 shares held by his spouse, Joan Anderson, in which he
disclaims any beneficial interest.
(3) Includes 2,780 shares held by his spouse, Judy Bracken, in which he
disclaims any beneficial interest; and 75,127 shares held in trust for
another family member for which Mr. Bracken, as co-trustee, has sole
voting and shared investment power.
(4) Includes 1,863 shares held jointly with his spouse, Sharon Cox.
(5) Includes 605 shares held by his spouse, Nancy Galliher, in which he
disclaims any beneficial interest.
(6) Includes 16,329 shares held by his spouse, Julia Johnson, in which he
disclaims any beneficial interest.
(7) Includes 4,318 shares held jointly with his spouse, Barbara
Montgomery.
(8) Includes 225 shares held jointly with his spouse, Mary R. Sissel.
-13-
<PAGE>
(9) Includes 3,375 shares held by his spouse, Marilyn S. Smitson, in which
he disclaims any beneficial interest.
(10) Includes 8,536 shares held jointly with his spouse, Sandra Helms.
(11) Messrs. Anderson, Bracken and Smitson serve as directors of the George
and Frances Ball Foundation, Muncie, Indiana, which owns 265,920
shares (3.99%) 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.
(12) Mr. Sissel serves as a director of the Ball Brothers Foundation,
Muncie, Indiana, which owns 27,576 shares (0.41%) of the Corporation's
outstanding common stock. The Foundation's Board of Directors, which
has 9 members, has the voting and investment power over the shares
held by the Foundation. The Foundation's shares are not included in
the total of the shares beneficially owned by Mr. Sissel 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.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board, subject to the approval of the shareholders, has selected Geo. S.
Olive & Co., LLC, Certified Public Accountants, as its independent public
accountants for 1998. 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.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1999 annual meeting of
the shareholders must be received by the Secretary of the Corporation at the
Corporation's principal office by October 27, 1998, for inclusion in the
Corporation's 1999 proxy statement and form of proxy relating to that meeting.
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.
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<PAGE>
The Board and management are not aware of any matters to be presented at the
annual meeting 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.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
February 24, 1998
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<PAGE>
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 on April 7, 1998, 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.
Dated: , 1998.
---------------------------------------------
(Please sign exactly as your name appears hereon)
--------------------------------------------------------------
(Signature of Shareholder)
--------------------------------------------------------------
(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 SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE.
(SEE REVERSE SIDE FOR IMPORTANT INFORMATION)
<PAGE>
(CONTINUED FROM OTHER SIDE)
I do / / do not / / plan to attend the Annual Meeting. Number
attending:
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 THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.
1. Election of Directors: / / FOR all nominees listed / / WITHHOLD VOTE
below (except as withheld (do NOT vote for
in the space below) any of the
nominees listed
below)
Michael L. Cox, Norman M. Johnson, George A. Sissel, Robert M. Smitson
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
-----------------------------------------------------------------------
2. Ratification of the appointment of the firm of Geo. S. Olive & Co., LLC, as
independent public accountants for 1998.
FOR / / AGAINST / / ABSTAIN / /
3. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting.
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.
