<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) of THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999
Commission File Number 0-17071
First Merchants Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1544218
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
200 East Jackson Street - Muncie, IN 47305-2814
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
(765) 747-1500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days,
Yes X No
------- -------
As of July 27, 1999, there were outstanding 12,042,376 common shares,
without par value, of the registrant.
The exhibit index appears on page 2.
This report including the cover page contains a total of 22 pages.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. Financial information: ------------
<S> <C>
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet 3
Consolidated Condensed Statement of Income 4
Consolidated Condensed Statement of
Comprehensive Income 5
Consolidated Condensed Statement of Changes in
Stockholders' Equity 6
Consolidated Condensed Statement of Cash Flows 7
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports of Form 8-K 22
Signatures 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(Unaudited)
June 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 35,948 $ 35,474
Federal funds sold 32,500 45,295
---------------- ----------------
Cash and cash equivalents 68,448 80,769
Interest-bearing deposits 791 1,008
Investment securities available for sale 359,050 329,508
Investment securities held to maturity 17,055 21,709
Mortgage loans held for sale 66 776
Loans 920,824 890,356
Less: Allowance for loan losses (9,858) (9,209)
---------------- ----------------
Net loans 910,966 881,147
Premises and equipment 19,951 18,963
Federal Reserve and Federal Home Loan Bank stock 4,964 4,455
Interest receivable 11,143 10,797
Core deposit intangibles and goodwill 3,013 3,141
Others assets 12,368 10,254
----------------- ----------------
Total assets $ 1,407,815 $ 1,362,527
================= ================
LIABILITIES:
Deposits:
Noninterest-bearing $ 134,268 $ 139,469
Interest-bearing 957,221 946,483
----------------- ----------------
Total deposits 1,091,489 1,085,952
Borrowings 151,175 113,702
Interest payable 4,370 4,134
Other liabilities 5,341 4,848
----------------- ----------------
Total liabilities 1,252,375 1,208,636
STOCKHOLDERS' EQUITY:
Preferred stock, no-par value:
Authorized and unissued -- 500,000 shares
Common stock, $.125 stated value:
Authorized --- 50,000,000 shares
Issued and outstanding -- 12,013,265 and 11,975,955 shares 1,502 1,497
Additional paid-in capital 31,381 31,264
Retained earnings 123,754 118,919
Accumulated other comprehensive income (loss) (1,197) 2,211
----------------- ----------------
Total stockholders' equity 155,440 153,891
----------------- ----------------
Total liabilities and stockholders' equity $ 1,407,815 $ 1,362,527
================= ================
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable
Taxable $19,204 $18,832 $37,784 $37,215
Tax exempt 59 62 112 123
Investment securities:
Taxable 3,994 2,609 7,489 5,127
Tax exempt 1,323 1,202 2,633 2,381
Federal funds sold 198 399 426 621
Deposits with financial institutions 30 8 34 11
Federal Reserve and Federal Home Loan Bank stock 108 97 208 191
-------- -------- -------- --------
Total interest income 24,916 23,209 48,686 45,669
-------- -------- -------- --------
Interest expense:
Deposits 9,339 10,228 18,680 19,919
Borrowings 2,114 765 3,704 1,583
-------- -------- -------- --------
Total interest expense 11,453 10,993 22,384 21,502
-------- -------- -------- --------
Net Interest Income 13,463 12,216 26,302 24,167
Provision for loan losses 522 504 1,027 1,012
-------- -------- -------- --------
Net Interest Income After Provision for Loan Losses 12,941 11,712 25,275 23,155
-------- -------- -------- --------
Other Income:
Net realized gains (losses) on sales of
available-for-sale securities 142 10 157 55
Other income 3,622 3,053 7,035 5,974
-------- -------- -------- --------
Total other income 3,764 3,063 7,192 6,029
Total other expenses 9,488 7,970 18,178 15,664
-------- -------- -------- --------
Income before income tax 7,217 6,805 14,289 13,520
Income tax expense 2,568 2,391 4,997 4,713
-------- -------- -------- --------
Net Income $ 4,649 $ 4,414 $ 9,292 $ 8,807
======== ======== ======== ========
Per share:
Net Income:
Basic $ .39 $ .37 $ .78 $ .74
Diluted .39 .37 .77 .73
Dividends .20 .16 .37 .32
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 4,649 $ 4,414 $ 9,292 $ 8,807
---------- ---------- ---------- ----------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized holding losses arising during the period, net of income tax of
of $1,902, $31, $2,386, $139 (2,792) (45) (3,502) (204)
Less: Reclassification adjustment for (gains) losses included
in net income, net of income tax $57, $4, $63, $22 (85) (6) (94) (33)
----------- ------------ --------- ----------
(2,707) (39) (3,408) (171)
----------- ------------ --------- ----------
Comprehensive income $ 1,942 $ 4,375 $ 5,884 $ 8,636
=========== ============ ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
(Unaudited)
1999 1998
-------- --------
<S> <C> <C>
Balances, January 1 $153,891 $141,794
Net income 9,292 8,807
Cash dividends (4,457) (3,781)
Net change in accumulated other comprehensive income (3,408) (171)
Stock repurchased (339)
Stock issued under dividend reinvestment and
stock purchase plan 338 329
Stock options exercised 123 247
--------- ---------
Balances, June 30 $155,440 $147,225
========= =========
See notes to consolidated condensed financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
1999 1998
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $9,292 $8,807
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 1,027 1,012
Depreciation and amortization 1,379 1,256
Securities amortization, net 176 135
Securities losses (gains), net (157) (55)
Mortgage loans originated for sale (4,837) (3,551)
Proceeds from sales of mortgage loans 5,547 3,819
Change in interest receivable (346) 157
Change in interest payable 236 140
Other adjustments 589 (806)
---------- ----------
Net cash provided by operating activities 12,906 10,914
---------- ----------
Cash Flows From Investing Activities:
Net change in interest-bearing deposits 217 89
Purchases of
Securities available for sale (127,380) (58,708)
Securities held to maturity (90)
Proceeds from maturities of
Securities available for sale 78,635 39,288
Securities held to maturity 4,552 8,562
Proceeds from sales of
Securities available for sale 13,692 2,284
Net change in loans (30,846) (24,572)
Purchases of premises and equipment (2,311) (3,486)
Other investing activities (461) (1,645)
---------- ----------
Net cash provided by investing activities (63,902) (38,278)
---------- ----------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
Nine Months Ended
June 30,
1999 1998
---------- ----------
<S> <C> <C>
Cash Flows From Financing Activities:
Net change in
Demand and savings deposits $ (5,201) $ 9,449
Certificates of deposit and other time deposits 10,738 40,670
Borrowings 37,473 11,893
Cash dividends (4,457) (3,781)
Stock issued under dividend reinvestment and stock purchase plan 338 329
Stock options exercised 123 247
Stock repurchased (339)
---------- ----------
Net cash provided by financing activities 38,675 58,807
---------- ----------
Net Change in Cash and Cash Equivalents (12,321) 31,443
Cash and Cash Equivalents, January 1 80,769 43,720
---------- ----------
Cash and Cash Equivalents, June 30 $ 68,448 $ 75,163
========== ==========
See notes to consolidated condensed financial statements.
</TABLE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. General
The significant accounting policies followed by First Merchants Corporation
("Corporation") and its wholly owned subsidiaries for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting, except for the change in method of accounting or adoption
of accounting pronouncements discussed more fully in Note 2. All adjustments
which are of a normal recurring nature and are in the opinion of management
necessary for a fair statement of the results for the periods reported have been
included in the accompanying consolidated condensed financial statements.
NOTE 2. Change in Methods of Accounting or Adoption of Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities - During 1998, the
Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. This Statement requires
companies to record derivatives on the balance sheet at their fair value.
Statement No. 133 also acknowledges that the method of recording a gain or loss
depends on the use of the derivative.
The new Statement applies to all entities. If hedge accounting is elected by the
entity, the method of assessing the effectiveness of the hedging derivative and
the measurement approach of determining the hedge's ineffectiveness must be
established at the inception of the hedge.
Statement No. 133 amends Statement No. 52 and supersedes Statements No. 80, 105,
and 119. Statement No. 107 is amended to include the disclosure provisions about
the concentrations of credit risk for Statement No. 105. Several Emerging Issues
Task Force consensuses are also changed or nullified by the provisions of
Statement No. 133.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollar amounts in thousands)
(Unaudited)
Statement No. 133 will be effective for all fiscal years beginning after June
15, 1999. The Statement may not be applied retroactively to financial statements
of prior periods. The adoption of this Statement will have no material impact on
the Corporation's financial condition or result of operations.
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF
MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE -Also in 1998, the
FASB issued Statement No. 134, Accounting for Mortgage-Backed Securities
Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise. It establishes accounting standards for certain activities
of mortgage banking enterprises and for other enterprises with similar mortgage
operations. This Statement amends Statement No. 65.
Statement No. 134, as previously amended by Statements No. 115 and 125, required
a mortgage banking enterprise to classify a mortgage-backed security as a
trading security following the securitization of the mortgage loan held for
sale. This Statement further amends Statement No. 65 to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities must classify the resulting mortgage-backed security or other
retained interests based on the entity's ability and intent to sell or hold
those investments.
The determination of the appropriate classification for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise now
conforms to Statement No. 115. The only new requirement is that if an entity has
a sales commitment in place, the security must be classified into trading.
This Statement is effective for the first fiscal quarter beginning after
December 15, 1998. On the date this Statement is initially applied, an entity
may reclassify mortgage-backed securities and other beneficial interests
retained after the securitization of mortgage loans held for sale from the
trading category, except for those with sales commitments in place. Those
securities and other interests shall be classified based on the entity's present
ability and intent to hold the investments. The adoption of this Statement had
no material impact on the Corporation's financial condition and result of
operations.
REPORTING ON THE COSTS OF START-UP ACTIVITIES - During 1998, the Accounting
Standards Executive Committee (AcSEC) issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities. Statement of Position 98-5 will
affect all non-governmental entities, including not-for-profits, reporting
start-up costs in their financial statements.
Some existing industry practices result in the capitalization and amortization
of start-up costs. This Statement of Position requires that start-up activities
and organizational costs associated with both development stage and established
operating entities.
According to Statement of Position 98-5, start-up activities are "those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. Start-up activities include
activities related to organizing a new entity (commonly referred to as
organizational costs.)"
Statement of Position 98-5 is effective for fiscal years beginning on or after
December 15, 1998. Earlier application is encouraged in fiscal years during
which annual financial statements have not yet been issued. The adoption of this
Statement did not have a material impact on the Corporation's financial
condition or result of operations.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollar amounts in thousands)
(Unaudited)
NOTE 3. ACQUISITIONS
On April 1, 1999, the Corporation issued 1,098,795 shares of its common stock in
exchange for al of the outstanding shares of Jay Financial Corporation Portland,
Indiana. At December 31, 1998, Jay Financial Corporation had total assets and
shareholders' equity of $114,895,000 and $14,903,000, respectively. The
transaction will be accounted for under the pooling -of -interests method of
accounting.
On April 21, 1999, the Corporation issued 810,642 shares of its common stock in
exchange for all of the outstanding shares of Anderson Community Bank, Anderson,
Indiana. At December 31, 1998, Anderson Community Bank had total assets and
shareholders' equity of $77,984,000 and $7,740,000, respectively. The
transaction will be accounted for under the pooling -of -interests method of
accounting.
The financial information contained herein reflects the merger and reports the
financial condition and results of operations as though the Corporation had been
combined as of January 1, 1998. Separate operating results of Jay Financial
Corporation and Anderson Community Bank for the periods prior to the merger were
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net interest income:
First Merchants Corporation $13,201 $10,305 $22,912 $20,457
Jay Financial Corporation 1,138 2,250 2,250
Anderson Community Bank 262 773 1,140 1,460
------- ------- ------- -------
Combined $13,463 $12,216 $26,302 $24,167
======= ======= ======= =======
Net income:
First Merchants Corporation $ 4,548 $ 3,798 $ 8,138 $ 7,622
Jay Financial Corporation 362 703 703
Anderson Community Bank 101 254 451 482
------- ------- ------- -------
Combined $ 4,649 $ 4,414 $ 9,292 $ 8,807
======= ======= ======= =======
Diluted net incomer per share:
First Merchants Corporation $ .38 $ .32 $ .67 $ .63
Jay Financial Corporation .03 .06 .06
Anderson Community Bank .01 .02 .04 .04
------- ------- ------- -------
Combined $ .39 $ .37 $ .77 $ .73
======= ======= ======= =======
</TABLE>
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollar amounts in thousands)
(Unaudited)
NOTE 4. Investment Securities
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Available for sale at June 30, 1999:
U.S. Treasury $ 14,609 $ 25 $ 31 $ 14,603
Federal agencies 62,690 49 555 62,184
State and municipal 99,697 1,005 469 100,233
Mortgage-backed securities 150,272 160 1,384 149,048
Other asset-backed securities 22,553 1 478 22,076
Corporate obligations 9,853 33 42 9,844
Marketable equity security 1,200 138 1,062
---------- ---------- ----------- ----------
Total available for sale 360,874 1,273 3,097 359,050
---------- ---------- ----------- ----------
Held to maturity at June 30, 1999:
U.S. Treasury 250 250
Federal agencies 427 1 426
State and municipal 15,256 168 15,424
Mortgage-backed securities 486 3 489
Other asset-backed securities 636 60 576
---------- ---------- ----------- ----------
Total held to maturity 17,055 171 61 17,165
---------- ---------- ----------- ----------
Total investment securities $ 377,929 $ 1,444 $ 3,158 $ 376,215
========== ========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollar amounts in thousands)
(Unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Available for sale at December 31, 1998:
U.S. Treasury $ 22,275 $ 120 $ $ 22,395
Federal agencies 61,605 627 32 62,200
State and municipal 93,198 2,778 21 95,955
Mortgage-backed securities 128,610 440 198 128,852
Other asset-backed securities 265 1 11 255
Corporate obligations 18,624 143 8 18,759
Marketable equity securities 1,200 108 1,092
---------- ---------- ----------- ----------
Total available for sale 325,777 4,109 378 329,508
---------- ---------- ----------- ----------
Held to maturity at December 31, 1998:
U.S. Treasury 249 4 253
Federal agencies 500 1 501
State and municipal 18,335 370 1 18,704
Mortgage-backed securities 864 3 867
Other asset-backed securities 1,761 2 27 1,736
---------- ---------- ----------- ----------
Total held to maturity 21,709 380 28 22,061
---------- ---------- ----------- ----------
Total investment securities $ 347,486 $ 4,489 $ 406 $ 351,569
========= ========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollar amounts in thousands)
(Unaudited)
NOTE 5. Loans and Allowance
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Loans:
Commercial and industrial loans $ 202,120 $ 188,841
Bankers' acceptances and loans to financial institutions 375 900
Agricultural production financing and other loans to farmers 23,899 21,951
Real estate loans:
Construction 23,319 31,719
Commercial and farmland 142,516 137,671
Residential 365,804 361,611
Individuals' loans for household and other personal expenditures 156,721 143,075
Tax-exempt loans 3,360 2,652
Other loans 2,772 2,073
Unearned interest on loans (62) (137)
------------ ----------
Total $ 920,824 $ 890,356
============ ==========
Six Months Ended
June 30,
1999 1998
Allowance for loan losses: -------- ---------
<S> <C> <C>
Balances, January 1 $ 9,209 $ 8,428
Provision for losses 1,027 1,012
Recoveries on loans 223 232
Loans charged off (601) (914)
-------- ---------
Balances, June 30 $ 9,858 $ 8,758
======== =========
</TABLE>
NOTE 6. Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
-------------------------------- --------------------------------
Weighted- Weighted-
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ---------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic net income per share:
Net income available to
common stockholders $ 4,649 12,004,475 $ .39 $ 4,414 11,904,436 $ .37
====== ======
Effect of dilutive stock options 97,282 194,755
------- ---------- ------- ----------
Diluted net income per share:
Net income available to
common stockholders
and assumed conversions $ 4,649 12,101,757 $ .39 $ 4,414 12,099,191 $ .37
======= ========== ====== ======= ========== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION
FORM 10-Q
Six Months Ended June 30,
1999 1998
-------------------------------- --------------------------------
Weighted- Weighted-
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ---------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic net income per share:
Net income available to
common stockholders $ 9,292 11,989,955 $ .78 $ 8,807 11,890,044 $ .74
====== ======
Effect of dilutive stock options 108,551 190,147
------- ---------- ------- ----------
Net income available to
common stockholders
and assumed conversions $ 9,292 12,098,506 $ .77 $ 8,807 12,080,191 $ .73
======= ========== ====== ======= ========== ======
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Corporation's financial data for periods prior to mergers accounted for as
pooling of interests has been restated.
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Report Act of 1995 to
encourage corporations to provide investors with information about the company's
anticipated future financial performance, goals, and strategies. The act
anticipated future financial performance, goals, and strategies. The act
provides a safe harbor for such disclosure, or in other words, protection from
unwarranted litigation if actual results are not the same as management's
expectations.
First Merchants Corporation desires to provide its shareholders with sound
information about past performance and future trends. Consequently, this
Quarterly Report, including Management's Discussion and Analysis of financial
Condition and Results of Operations, contains forward-looking statements that
are subject to numerous assumptions, risks, and uncertainties. Actual results
could differ materially from those contained in or implied by First Merchants
Corporation's statements due to a variety of factors including: changes in
economic conditions; movements in interest rates; competitive pressures on
product pricing and services; success and timing of business strategies; the
successful integration of acquired businesses; the nature and extent of
governmental actions and reform; and extended disruption of vital
infrastructure. The management of First Merchants Corporation encourages readers
of this report to understand forward-looking statements to be strategic
objectives rather than absolute targets of future performance.
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 1999, was $4,649,000,
compared to $4,393,000 earned in the same period of 1998, an increase of 5.8
percent. Diluted net income per share was $.39 for the three months ended June
30, 1999, compared to $.37 for the three months ended June 30, 1998, an increase
of 5.4 percent.
Net income for the first six months of 1999 was $9,292,000 compared to
$8,807,000 earned in the same period of 1998, an increase of 5.5 percent.
Diluted net income per share was $.77 and $.73 for the six months ended June 30,
1999 and 1998, respectively, an increase of 5.4 percent.
The increase in earnings was primarily due to growth in earning assets and
non-interest income. Net interest income increased $2,135,000 or 8.8 percent
over the first six months of 1998 due to growth in earning assets of 12.7
percent. Noninterest income increased $1,163,000 or 19.3 percent over the first
six months of 1998 due primarily to increased revenues from fiduciary activities
and commission income.
Annualized returns on average assets and average shareholder's equity for
quarter ended June 30, 1999 were 1.34 percent and 11.94 percent, respectively,
compared with 1.43 percent and 12.08 percent for the same period of 1998. For
the six months ended June 30, 1999, annualized returns on average assets and
shareholder's equity were 1.37 percent and 11.97 percent, respectively, compared
to 1.46 percent and 12.17 percent for the same nine month period in 1998.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CAPITAL
The Corporation's capital strength continues to exceed regulatory minimums
and peer group averages. Management believes that strong capital is a distinct
advantage in the competitive environment in which the Corporation operates and
will provide a solid foundation for continued growth.
The Corporation's Tier I capital to average assets ratio was 11.9 percent
at year-end 1998 and 11.1 percent at June 30, 1999. At June 30, 1998, the
Corporation had a Tier I risk-based capital ratio of 16.4 percent, total
risk-based capital ratio of 17.2 percent, and a leverage ratio of 11.1 percent.
Regulatory capital guidelines require a Tier I risk-based capital ratio of 4.0
percent and a total risk-based capital ratio of 8.0 percent. Banks with Tier I
risk-based capital ratios of 6.0 percent and total risk-based capital ratios of
10.0 percent are considered "well capitalized."
ASSET QUALITY/PROVISION FOR LOAN LOSSES
The Corporation's asset quality and loan loss experience have consistently
been superior to that of its peer group, as summarized on the following page.
Asset quality has been a major factor in the Corporation's ability to generate
consistent profit improvement.
The allowance for loan losses is maintained through the provision for loan
losses, which is a charge against earnings.
The amount provided for loan losses and the determination of the adequacy
of the allowance are based on a continuous review of the loan portfolio,
including an internally administered loan "watch" list and an independent loan
review provided by an outside accounting firm. The evaluation takes into
consideration identified credit problems, as well as the possibility of losses
inherent in the loan portfolio that cannot be specifically identified.
<TABLE>
<CAPTION>
The following table summarizes the risk elements for the Corporation.
- ------------------------------------------------------------------------------------
(Dollars in Thousands) June 30, December 31, December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $ 1,526 $ 1,073 $ 2,777
Loans contractually past due 90 days
or more other than nonaccruing 2,723 2,334 1,699
Restructured loans 960 1,110 1,540
------- ------- -------
Total $ 5,209 $ 4,517 $ 6,016
======= ======= =======
</TABLE>
Impaired loans included in the table above, totaled $2,391,000 at December
31, 1998. An allowance for losses at December 31, 1998, was not deemed necessary
for impaired loans totaling $7,041,000, but an allowance of $795,000 was
recorded for the remaining balance of impaired loans of $1,956,000. The average
balance of impaired loans for 1997 was $4,155,000.
At June 30, 1999, the allowance for loan losses increased by $650,000, to
$9,858,000, up from year end 1998. As a percent of loans, the allowance was 1.07
percent, up from 1.03 percent at year end 1998.
The second quarter 1999 provision of $522,000 increased from $504,000 for
the same quarter in 1998. Net charge-offs amounted to $220,000 during the
quarter. The provision of $1,027,000 for the six months ended June 30, 1999
increased $15,000 from the same period in 1998. Net charge offs amounted to
$378,000 during the first six months of 1998.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
The table below presents loan loss experience for the periods indicated and
compares the Corporation's loss experience to that of its peer group, consisting
of bank holding companies with assets between $1 billion and $3 billion.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
---------------- ------------------
1999 1998 1998 1997
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of period $9,209 $8,428 $8,428 $8,010
------ ------ ------ ------
Chargeoffs 601 914 2,230 1,949
Recoveries 223 232 639 633
------ ------ ------ ------
Net chargeoffs 378 682 1,591 1,316
Provision for loan losses 1,027 1,012 2,372 1,734
------ ------ ------ ------
Balance at end of period $9,858 $8,758 $9,209 $8,428
====== ====== ====== ======
Ratio of net chargeoffs during the
period to average loans
outstanding during the period .08%(1) .15%(1) .18% .16%
Peer Group N/A N/A .29% .26%
</TABLE>
(1) First six months annualized
LIQUIDITY, INTEREST SENSITIVITY, AND DISCLOSURES ABOUT MARKET RISK
Asset/Liability management has been an important factor in the
Corporation's ability to record consistent earnings growth through periods of
interest rate volatility and product deregulation. Management and the Board of
Directors monitor the Corporation's liquidity and interest sensitivity positions
at regular meetings to ensure that changes in interest rates will not adversely
affect earnings. Decisions regarding investment and the pricing of loan and
deposit products are made after analysis of reports designed to measure
liquidity, rate sensitivity, the Corporation's exposure to changes in net
interest income given various rate scenarios, and the economic and competitive
environments.
It is the objective of the Corporation to monitor and manage risk exposure
to net interest income caused by changes in interest rates. It is the goal of
the Corporation's Asset Liability function to provide optimum and stable net
interest income. To accomplish this, management uses two asset liability tools.
GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation
Modeling are both constructed, presented, and monitored quarterly.
The Corporation's liquidity and interest sensitivity position at June 30,
1999, remained adequate to meet the Corporation's primary goal of achieving
optimum interest margins while avoiding undue interest rate risk.
The Corporation had a cumulative negative gap of $54,972,000 in the six
month horizon at June 30, 1999, or just over 3.9 percent of total assets. Net
interest income at a financial institution with a negative gap tends to decrease
when rates rise and generally increase as interest rates decline.
The GAP/Interest Rate Sensitive Report is a tool which displays repricing
timing differences between interest sensitive assets and liabilities. The 0-180
day Sensitivity Gap Ratio depicts the institution is liability sensitive 89.2
percent.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
The Corporation places its greatest credence in net interest income
simulation modeling. The GAP/Interest Rate Sensitivity Report is known to have
two major shortfalls. The GAP/Interest Rate Sensitivity Report fails to
precisely gauge how often an interest rate sensitive product reprices nor is it
able to measure the magnitude of potential future rate movements.
The Corporation's asset liability process monitors simulated net interest
income under three separate interest rate scenarios; rising (rate shock),
falling (rate shock) and flat. Net Interest income is simulated over an 18 month
horizon. By policy, the difference between the best performing and the worst
performing rate scenarios are not allowed to show a variance greater than 5
percent.
Assumed interest rate changes are simulated to move incrementally over 18
months. The total rate movement (beginning point less ending point) to
noteworthy interest rate indexes are as follows:
<TABLE>
<CAPTION>
Rising Falling
---------------------- ------------------------
<S> <C> <C>
Prime 300 Basis Points (300) Basis Points
Federal Funds 300 (300)
90 Day T-Bill 310 (275)
One Year T-Bill 290 (270)
Three Year T-Note 290 (265)
Five Year T-Note 290 (255)
Ten Year T-Note 290 (245)
Interest Checking 100 ( 57)
MMIA Savings 150 (100)
Money Market Index 315 (220)
Regular Savings 100 ( 57)
</TABLE>
Results for the flat, rising (rate shock), and falling (rate shock)
interest rate scenarios are listed below. The net interest income shown
represents cumulative net interest income over an 18 month time horizon. Balance
sheet assumptions are the same under both scenarios:
<TABLE>
<CAPTION>
Flat/Base Rising Falling
---------------------------------
<S> <C> <C> <C>
Net Interest Income (Dollars in Thousands) $79,921 $78,145 $77,930
Change vs. Flat/Base Scenario (1,776) (1,991)
Percent Change (2.22%) (2.49%)
</TABLE>
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
EARNING ASSETS
The following table presents the earning asset mix as of June 30, 1999, and
December 31, 1998, and December 31, 1997.
Loans grew by nearly $30 million from December 31, 1998, to June 30, 1998,
while investment securities grew by $24.6 million during the same period.
Commercial and industrial loans increased by more than $13,000,000, while
individuals' loans for household and personal expenditures grew by nearly
$14,000,000.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
EARNING ASSETS
(Dollars in Millions) June 30, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Federal funds sold and interest-bearing deposits $ 32.5 $ 45.3 $ 9.5
Investment securities 376.1 351.5 266.8
Mortgage loans held for sale .1 0.8 0.5
Loans 920.8 891.1 838.7
Federal Reserve and Federal Home Loan Bank stock 5.0 4.5 4.1
------------ ------------ ------------
Total $ 1,334.5 $ 1,293.2 $ 1,079.6
============ ============ ============
- -----------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS, SECURITIES SOLD UNDER REPURCHASE AGREEMENTS, FEDERAL FUNDS SOLD AND
OTHER SHORT-TERM BORROWING
The following table presents the level of deposits and borrowed funds
(Federal funds purchased, repurchase agreements with customers, U.S. Treasury
demand notes and Federal Home Loan Bank advances) for the years ended 1998 and
1997 and at June 30, 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(Dollars in Millions) June 30, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Deposits $ 1,091.5 $ 1,086.0 $ 977.0
Securities sold under repurchase agreements 86.2 48.8 15.4
Federal funds purchased
and other short-term borrowings 10.8 17.8 13.6
Federal Home Loan Bank advances 54.3 47.1 25.5
</TABLE>
The Corporation has continued to leverage its large capital position with
Federal Home Loan Bank advances, as well as, repurchase agreements which are
pledged against acquired investment securities as collateral for the borrowings.
The interest rate risk is included as part of the Corporation's interest
simulation discussed in Management's Discussion and Analysis under the heading
Liquidity, Interest Sensitivity, and Disclosures about Market Risk. The effect
on the Corporation's capital ratios is minimal as the Corporation remains
adequately capitalized.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NET INTEREST INCOME
Net Interest Income is the primary source of the Corporation's earnings. It
is a function of net interest margin and the level of average earning assets.
The table below presents the Corporation's asset yields, interest expense,
and net interest income as a percent of average earning assets for the three
months and six months ended June 30, 1999 and 1998.
Net interest income (FTE) for the three months ended June 30, 1999
increased by $1,305,000, or 10.1 percent over the same period in 1998, due to an
increase in earning assets of over nearly $143 million. For the same period
interest income and interest expense, as a percent of average earning assets,
declined by .35 and .27 percent respectively, due to lower interest rate and
margin compression.
Net Interest income for the six months ended June 30, 1999 increased
$2,258,000, or 8.8 percent over the same period in 1998, due to an increase in
earning assets of nearly $146 million. Net interest income (FTE), as a percent
of average earning assets, during the same period declined 15 basis points due
primarily to declining interest rates and increased non-deposit funds.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Interest Income Interest Expense Net Interest Income Net Interest Income
(FTE) as a Percent as a Percent (FTE) as a Percent Average on a
of Average of Average of Average Earning Fully Taxable
Earning Assets Earning Assets Earning Assets Assets Equivalent Basis
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the three months
ended June 30,
1999 7.80% 3.48% 4.32% $1,315,932 $ 14,201
1998 8.15 3.75 4.40 1,172,957 12,896
For the six months
ended June 30,
1999 7.78 3.47 4.31 1,289,445 27,773
1998 8.22 3.76 4.46 1,143,750 25,515
Average earning assets include the average balance of securities classified as
available for sale, computed based on the average of the historical amortized
cost balances without the effects of the fair value adjustment.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
OTHER INCOME
The Corporation has placed emphasis on the growth of non-interest income in
recent years by offering a wide range of fee-based services. Fee schedules are
regularly reviewed by a pricing committee to ensure that the products and
services offered by the Corporation are priced to be competitive and profitable.
Other income in the second quarter of 1999 exceeded the same quarter in the
prior year by $703,000, or 23.0 percent.
Three major areas account for most of the increase:
1. Service charges on deposit accounts increased by $214,000 due primarily
to increased pricing.
2. Gains on the sale of investment securities is $132,000 over the second
quarter of 1998.
3. Revenues from fiduciary activities grew $94,000, or 8.7 percent, due to
strong new business activity and markets.
Other income for the six months ended June 30, 1999 exceeded the same
period in the prior year by $1,164,000, or 19.3 percent.
Five major areas account for most of the increase:
1. Commission income increased $343,000, due to the acquisition of First
Merchants Insurance Services, Inc., on April 1, 1998.
2. Revenues from fiduciary activities grew $261,000, or 12.9 percent, due
to strong new business activity and markets.
3. Other customer fees increased $182,000, or 14.2 percent, due to an
increased ATM network, increased sales volume of personal money order
agent fees, and increased pricing.
4. Service charges on deposit accounts increased $179,000, or 9.5 percent
due to increased pricing.
5. Gains on the sale of investment securities is $102,000 over the first
six months of 1998.
OTHER EXPENSE
Total "other expenses" represent non-interest operating expenses of the
Corporation. Second quarter other expense in 1999 exceeded the same quarter of
the prior year by $1,520,000, or 19.0 percent.
Two major areas account for most of the increase:
1. Merger related costs of $648,000 resulted from the acquisitions of Jay
Financial Corporation and Anderson Community Bank in April 1999.
2. Salaries and benefit expense grew $483,000, or 11.0 percent, due to
normal salary increases and staff additions.
Total "other expenses" represent non-interest operating expenses of the
Corporation. Other expenses for the six month period ended June 30, 1999
exceeded the same period of the prior year by $2,515,000, or 16.1 percent.
Five major areas account for most of the increase:
1. Salaries and benefit expense grew $1,155,000, or 13.4 percent, due to
normal salary increases and staff additions.
2. Merger related costs of $648,000 resulted from the acquisitions of Jay
Financial Corporation and Anderson Community Bank in April 1999.
3. Equipment expense increased $164,000, or 10.7 percent, reflecting the
Corporation's efforts to improve efficiency and provide electronic
service delivery to its customers.
4. Computer processing expense increased by $133,000, or 19.5 percent.
5. Net occupancy expense increased by $110,000, or 11.20 percent, due to
increased expansion.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
INCOME TAXES
Income tax expense, for the three months ended June 30, 1999, increased by
$177,000 over the same period in 1998, due to a $413,000 increase in pre-tax net
income, mitigated somewhat by a $119,000 increase in tax-exempt income.
Likewise, the increase of $284,000 for the six months ended June 30, 1999, as
compared to the same period in 1998, results from a $769,000 increase in pre-tax
net income, mitigated somewhat by a $242,000 increase in tax exempt income.
YEAR 2000
The Corporation has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000 Issue
and has developed an implementation plan to resolve the issue. The Year 2000
Issue is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Corporation's programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a sytem failure or
miscalculations. The Corporation is utilizing both internal and external
resources to identify, correct and test the systems for the Year 2000
compliance. The Corporation began the testing phase during the third quarter of
1998. Core application testing was completed as of June 30, 1999.
The Corporation has contacted the companies that supply or service its
material operations to certify that their respective computer systems are Year
2000 compliant. In addition to possible expenses related to the Corporation's
systems and those of the Corporation's service providers, the Corporation could
incur losses if Year 2000 problems affect any of its depositors or borrowers.
Such problems could include delayed loan payments, due to Year 2000 problems
affecting any of its significant borrowers or impairing the payroll systems of
large employers in its market area. Because the Corporation's loan portfolio to
corporate and individual borrowers is diversified and its market area does not
depend significantly upon one employer or industry, the Corporation does not
expect any such Year 2000 related difficulties that may affect its depositors
and borrowers to significantly affect its net earnings or cash flows.
The Board of Directors reviews, on a quarterly basis, the progress in
addressing Year 2000 issues. The Corporation believes that its costs related to
upgrading systems and software for Year 2000 compliance will not exceed
$1,025,000. As of June 30, 1999, the Corporation has spent approximately
$860,000 in connection with Year 2000 compliance. Of the $860,000, approximately
$650,000 has been capitalized as the Corporation replaced and upgraded
non-compliant systems. Although the Corporation believes it is taking the
necessary steps to address the Year 2000 compliance issue, no assurances can be
given that some problems will not occur or that the Corporation will not incur
significant additional expenses in future periods.
OTHER
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the
Corporation, and that address is (http://www.sec.gov).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this item is included as part of Management's
Discussion and Analysis under the heading Liquidity, Interest Sensitivity, and
Disclosures About Market Risk.
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the April 14, 1999 Annual Meeting of Shareholders, the following matters
were submitted to a vote of the shareholders.
Election of Directors - The following directors were elected for a term of
three years.
<TABLE>
<CAPTION>
Vote Count
- --------------------------------------------------------------------------------
For Against Abstained
------------- ------------- -------------
<S> <C> <C> <C>
Stefan S. Anderson 9,175,518.25 70,828.30 68,839.00
David A. Galliher 9,240,725.25 5,621.30 68,839.00
Thomas B. Clark 9,216,623.53 29,723.03 68,839.00
John E. Worthen 9,167,819.39 78,527.16 68,839.00
</TABLE>
Approval of the First Merchants Corporation 1999 Long-Term Equity Incentive
Plan described in the Proxy Statement dated February 24, 1999: Votes For -
7,593,423.19, Votes Against - 970,830.27, Votes Abstained - 56,127.10.
Selection of Independent Public Accountants - Olive, LLP, Indianapolis,
Indiana: Votes For - 9,344,772.42, Votes Against - 65,743.67, Votes Abstained -
23,690.46.
Approval of the First Merchants Corporation 1999 Employee Stock Purchase
Plan described in the Proxy Statement dated February 24, 1999: Votes For -
8,279,128.6, Votes Against - 279,540.96, Votes Abstained - 62,710.93.
Approval to amend the Corporation's Articles of Incorporation to increase
the number of shares of common stock which the corporation is authorized to
issue, from 20,000,000 shares to 50,000,000 shares: Votes For - 8,567,238.69,
Votes Against - 812,794.26, Votes Abstained - 54,173.60.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.: Description of Exhibit:
- ------------ -----------------------
3.1 Amendments to Articles of Incorporation
10.1 Change of Control Agreements
10.2 Change of Control Agreements
27 Financial Data Schedule, Period Ending June 30, 1999
(b) Reports on Form 8-K:
None
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Merchants Corporation
(Registrant)
Date August 11, 1999 by /s/ Michael L. Cox
-------------------------- -----------------------------------
Michael L. Cox
President and Director
Date August 11, 1999 by /s/ James L. Thrash
-------------------------- -----------------------------------
James L. Thrash
Chief Financial & Principal
Accounting Officer
<PAGE>
<PAGE>
ARTICLES OF INCORPORATION
OF
FIRST MERCHANTS CORPORATION
Following are the Articles of Incorporation, as amended, of First Merchants
Corporation (hereinafter referred to as the "Corporation"), a corporation
existing pursuant to the provisions of the Indiana Business Corporation Law, as
amended (hereinafter referred to as the "Act"):
ARTICLE I
NAME
The name of the Corporation is First Merchants Corporation.
ARTICLE II
PURPOSES
The purposes for which the Corporation is formed are:
SECTION 1. To acquire control of The Merchants National Bank of Muncie and
to operate as a bank holding company.
SECTION 2. GENERAL POWERS. To possess, exercise, and enjoy all rights,
powers and privileges conferred upon bank holding companies by the Bank Holding
Company Act of 1956 as amended and as hereafter amended or supplemented, and all
other rights and powers authorized by the laws of the State of Indiana, and the
laws of the United States of America applicable to bank holding companies and
the regulations of the Board of Governors of the Federal Reserve System.
SECTION 3. TO DEAL IN REAL PROPERTY. Subject to the limitations of Section
2 above, to acquire by purchase, exchange, lease or otherwise, and to hold, own,
use, construct, improve, equip, manage, occupy, mortgage, sell, lease, convey,
exchange or otherwise dispose of, alone or in conjunction with others, real
estate and leaseholds of every kind, character and description whatsoever and
wheresoever situated, and any other interests therein, including, but without
limiting the generality thereof, buildings, factories, warehouses, offices and
structures of all kinds.
SECTION 4. CAPACITY TO ACT. Subject to the limitations of Section 2 above,
to have the capacity to act possessed by natural persons and to perform such
acts as are necessary and advisable to accomplish the purposes, activities and
business of the Corporation.
SECTION 5. TO ACT AS AGENT. Subject to the limitations of Section 2 above,
to act as agent or representative for any firm, association, corporation,
partnership, government or person, public or private, with respect to any
activity or business of the Corporation.
<PAGE>
SECTION 6. TO MAKE CONTRACTS AND GUARANTEES. Subject to the limitations of
Section 2 above, to make, execute and perform, or cancel and rescind, contracts
of every kind and description, including guarantees and contracts of suretyship,
with any firm, association, corporation, partnership, government or person,
public or private.
SECTION 7. TO BORROW FUNDS. Subject to the limitations of Section 2 above,
to borrow moneys for any activity or business of the Corporation and, from time
to time, without limit as to amount, to draw, make, accept, endorse, execute and
issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures,
notes, trust receipts, and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment thereof, and the interest
thereon, by mortgage, pledge, conveyance, or assignment in trust of all or any
part of the assets of the Corporation, real, personal or mixed, including
contract rights, whether at the time owned or thereafter acquired, and to sell,
exchange or otherwise dispose of such securities or other obligations of the
Corporation.
SECTION 8. TO DEAL IN ITS OWN SECURITIES. Subject to the limitations of
Section 2 above, to purchase, take, receive or otherwise acquire, and to hold,
own, pledge, transfer or otherwise dispose of shares of its own capital stock
and other securities. Purchases of the Corporation's own shares, whether direct
or indirect, may be made without shareholder approval only to the extent of
unreserved and unrestricted earned surplus available therefor.
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
RESIDENT AGENT AND PRINCIPAL OFFICE
Section 1. Resident Agent. The name and address of the Corporation's
Resident Agent for service of process is:
Larry R. Helms
200 East Jackson Street
Muncie, IN 47305
<PAGE>
SECTION 2. PRINCIPAL OFFICE. The post office address of the principal
office of the Corporation is:
200 East Jackson Street
Muncie, IN 47305
ARTICLE V
AUTHORIZED SHARES
SECTION 1. NUMBER OF SHARES. The total number of shares of common stock
which the Corporation is to have authority to issue is 50,000,000, all with no
par value. The total number of shares of preferred stock the Corporation is to
have authority to issue is 500,000, all with no par value.
SECTION 2. TERMS OF SHARES. The authorized shares of "Common Stock" shall
be equal to every other share of Common Stock and shall participate equally with
other shares of Common Stock in all earnings and profits of the Corporation and
on distribution of assets, either on dissolution, liquidation or otherwise. The
authorized shares of "Preferred Stock" shall be equal to every other share of
Preferred Stock and shall participate equally with other shares of Preferred
Stock. The terms of the Preferred Stock and its relative rights, preferences,
limitations or restrictions shall be established by the Board of Directors prior
to issuance of any Preferred Stock.
SECTION 3. VOTING RIGHTS. Each holder of Common Stock shall have the right
to vote on all matters presented to shareholders and shall be entitled on all
matters including elections of Directors to one vote for each share of Common
Stock registered in his/her name on the books of the Corporation. The voting
rights of the Preferred Stock, if any, shall be determined by the Board of
Directors prior to issuance of the Preferred Stock.
ARTICLE VI
REQUIREMENTS PRIOR TO DOING BUSINESS
The Corporation will not commence business until consideration of the value
of at least One Thousand Dollars ($1,000.00) has been received for the issuance
of shares.
ARTICLE VII
DIRECTORS
SECTION 1. NUMBER. The number of Directors of the Corporation shall not be
less than nine (9) nor more than twenty-one (21), as may be specified from time
to time by the Bylaws. If and whenever the Bylaws do not contain a provision
specifying the number of Directors, the number shall be sixteen (16). The
Directors shall be classified, with respect to the time for which they
<PAGE>
severally hold office, into three (3) classes as nearly equal in number as
possible, as shall be specified in the Bylaws, one class to be elected for a
term expiring at each annual meeting of shareholders, with each Director to hold
office until his successor is elected and qualified. At each annual meeting of
shareholders, the successor of each Director whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
shareholders held in the third year following the year of his election, or until
his successor is elected and qualified.
SECTION 2. NAMES AND POST OFFICE ADDRESSES OF THE DIRECTORS. The names and
post office addresses of the initial Board of Directors of the Corporation are:
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
- ---- ----------------------------- ---- ----- --------
<S> <C> <C> <C> <C>
Stefan S. Anderson 2705 W. Twickingham Drive Muncie IN 47304
Thomas F. Bluemle 1900 N. Brentwood Lane Muncie IN 47304
Frank A. Bracken 1011 E. Parkway Drive Muncie IN 47304
Clell W. Douglass 305 Normandy Drive Muncie IN 47304
David A. Galliher 2500 W. Berwyn Road Muncie IN 47304
William P. Givens 1209 W. Beechwood Avenue Muncie IN 47303
John W. Hartmeyer 818 W. Riverside Avenue Muncie IN 47303
David W. Howell Rural Route #2, Box 174 Middletown IN 47358
Betty J. Kendall Rural Route #14, Box 425 Muncie IN 47302
Don E. Marsh 1250 Warwick Road Muncie IN 47304
Robert H. Mohlman 3405 N. Vienna Woods Drive Muncie IN 47304
Robert R. Park Rural Route #2, Box 126 Gaston IN 47342
Peter L. Roesner 2207 W. Wiltshire Road Muncie IN 47304
Hamer D. Shafer 3500 W. Gatewood Lane Muncie IN 47304
Robert M. Smitson 2601 W. Chelsea Drive Muncie IN 47304
Reed D. Voran 2308 W. Wiltshire Road Muncie IN 47304
</TABLE>
SECTION 3. QUALIFICATIONS OF DIRECTORS. Directors need not be shareholders
of the Corporation.
ARTICLE VIII
INCORPORATOR(S)
The name and post office address of the incorporator of the Corporation is:
Stefan S. Anderson
200 East Jackson Street
Muncie, IN 47305
<PAGE>
ARTICLE IX
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
SECTION 1. MEETINGS OF SHAREHOLDERS. Meetings of shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the notices or waivers of notice of such meetings.
SECTION 2. MEETINGS OF DIRECTORS. Meetings of Directors of the Corporation
shall be held at such place, within or without the State of Indiana, as may be
specified in the notices or waivers of notice of such meetings. A member of the
Board of Directors or of a committee designated by the Board may participate in
a meeting of the Board or committee by means of a conference telephone or
similar communications equipment by which all persons participating in the
meeting can communicate with each other, and participation by these means
constitutes presence in person at the meeting.
SECTION 3. CONSIDERATION FOR SHARES. Shares of stock of the Corporation
shall be issued or sold in such manner and for such amount of consideration as
may be fixed from time to time by the Board of Directors.
SECTION 4. BYLAWS OF THE CORPORATION. The Board of Directors, unless
otherwise provided in the Bylaws or in these Articles of Incorporation, may by a
majority vote of the actual number of Directors elected and qualified from time
to time make, alter, amend or repeal the Bylaws.
The Board of Directors may, by resolution adopted by a majority of the
actual number of Directors elected and qualified, from time to time, designate
from among its members an executive committee and one or more other committees,
each of which, to the extent provided in the resolution, the Articles of
Incorporation, or the Bylaws, may exercise all of the authority of the Board of
Directors of the Corporation, including, but not limited to, the authority to
issue and sell or approve any contract to issue and sell, securities or shares
of the Corporation or designate the terms of a series of a class of securities
or shares of the Corporation. The terms which may be affixed by each such
committee include, but are not limited to, the price, dividend rate, and
provisions of redemption, a sinking fund, conversion, voting or preferential
rights or other features of securities or class or series of a class of shares.
Each such committee may have full power to adopt a final resolution which sets
forth those terms and to authorize a statement of such terms to be filed with
the Secretary of State. However, no such committee has the authority to declare
dividends or distributions, amend the Articles of Incorporation or the Bylaws,
approve a plan of merger or consolidation even if such plan does not require
shareholder approval, reduce earned or capital surplus, authorize or approve the
reacquisition of shares unless pursuant to a general formula or method specified
by the Board of Directors, or recommend to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof. No member of any such
committee shall continue to be a member thereof after he ceases to be a Director
of the Corporation. The calling and
<PAGE>
holding of meetings of any such committee and its method of procedure shall be
determined by the Board of Directors. A member of the Board of Directors shall
not be liable for any action taken by any such committee if he is not a member
of that committee and has acted in good faith and in a manner he reasonably
believes is in the best interest of the Corporation.
SECTION 5. CONSENT ACTION BY SHAREHOLDERS. Any action required by statute
to be taken at a meeting of the shareholders, or any action which may be taken
at a meeting of the shareholders, may be taken without a meeting if, prior to
such action, a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof, and such written consent is filed with the minutes of the
proceedings of the shareholders.
SECTION 6. CONSENT ACTION BY DIRECTORS. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting, if prior to such action a written consent to such
action is signed by all members of the Board of Directors or such committee, as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
SECTION 7. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other
transaction between the Corporation or any corporation in which this Corporation
owns a majority of the capital stock shall be valid and binding, notwithstanding
that the Directors or officers of this Corporation are identical or that some or
all of the Directors or officers, or both, are also directors or officers of
such other corporation.
Any contract or other transaction between the Corporation and one or more
of its Directors or members or employees, or between the Corporation and any
firm of which one or more of its Directors are members or employees or in which
they are interested, or between the Corporation and any corporation or
association of which one or more of its Directors are stockholders, members,
directors, officers, or employees, or in which they are interested, shall be
valid for all purposes notwithstanding the presence of such Director or
Directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and notwithstanding his
or their participation in such action, if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of Directors shall
authorize, approve and ratify such contract or transaction by a vote of a
majority of the Directors present, such interested Director or Directors to be
counted in determining whether a quorum is present, but not to be counted in
calculating the majority of such quorum necessary to carry such vote. This
Section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
SECTION 8. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Every person who is or was a Director, officer, employee or agent of this
Corporation or of any other corporation for which he is or was serving in any
capacity at the request of this Corporation shall be indemnified by this
Corporation against any and all liability and expense that may be incurred by
him in connection with or resulting from or arising out of any claim, action,
suit or proceeding,
<PAGE>
provided that such person is wholly successful with respect thereto or acted in
good faith in what he reasonably believed to be in or not opposed to the best
interest of this Corporation or such other corporation, as the case may be, and,
in addition, in any criminal action or proceeding in which he had no reasonable
cause to believe that his conduct was unlawful. As used herein, "claim, action,
suit or proceeding" shall include any claim, action, suit or proceeding (whether
brought by or in the right of this Corporation or such other corporation or
otherwise), civil, criminal, administrative or investigative, whether actual or
threatened or in connection with an appeal relating thereto, in which a
Director, officer, employee or agent of this Corporation may become involved, as
a party or otherwise,
(i) by reason of his being or having been a Director, officer,
employee, or agent of this Corporation or such other corporation
or arising out of his status as such or
(ii) by reason of any past or future action taken or not taken by him
in any such capacity, whether or not he continues to be such at
the time such liability or expense is incurred.
The terms "liability" and "expense" shall include, but shall not be limited
to, attorneys' fees and disbursements, amounts of judgments, fines or penalties,
and amounts paid in settlement by or on behalf of a Director, officer, employee,
or agent, but shall not in any event include any liability or expenses on
account of profits realized by him in the purchase or sale of securities of the
Corporation in violation of the law. The termination of any claim, action, suit
or proceeding, by judgment, settlement (whether with or without court approval)
or conviction or upon a plea of guilty or of nolo contendere, or its equivalent,
shall not create a presumption that a Director, officer, employee, or agent did
not meet the standards of conduct set forth in this paragraph.
Any such Director, officer, employee, or agent who has been wholly
successful with respect to any such claim, action, suit or proceeding shall be
entitled to indemnification as a matter of right. Except as provided in the
preceding sentence, any indemnification hereunder shall be made only if (i) the
Board of Directors acting by a quorum consisting of Directors who are not
parties to or who have been wholly successful with respect to such claim,
action, suit or proceeding shall find that the Director, officer, employee, or
agent has met the standards of conduct set forth in the preceding paragraph; or
(ii) independent legal counsel shall deliver to the Corporation their written
opinion that such Director, officer, employee, or agent has met such standards
of conduct.
If several claims, issues or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though he is
not entitled as to other matters.
The Corporation may advance expenses to or, where appropriate, may at its
expense undertake the defense of any such Director, officer, employee, or agent
upon receipt of an undertaking by or on behalf of such person to repay such
expenses if it should ultimately be determined that he is not entitled to
indemnification hereunder.
<PAGE>
The provisions of this Section shall be applicable to claims, actions,
suits or proceedings made or commenced after the adoption hereof, whether
arising from acts or omissions to act during, before or after the adoption
hereof.
The rights of indemnification provided hereunder shall be in addition to
any rights to which any person concerned may otherwise be entitled by contract
or as a matter of law and shall inure to the benefit of the heirs, executors and
administrators of any such person.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a Director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation against any liability asserted against him and
incurred by him in any capacity or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such liability
under the provisions of this Section or otherwise.
SECTION 9. DISTRIBUTIONS OUT OF CAPITAL SURPLUS. The Board of Directors of
the Corporation may from time to time distribute to its shareholders out of the
capital surplus of the Corporation a portion of its assets, in cash or property,
without the assent or vote of the shareholders, provided that with respect to
such a distribution the requirements of the Act other than shareholder approval
are satisfied.
SECTION 10. POWERS OF DIRECTORS. In addition to the powers and the
authority granted by these Articles or by statute expressly conferred, the Board
of Directors of the Corporation is hereby authorized to exercise all powers and
to do all acts and things as may be exercised or done under the laws of the
State of Indiana by a corporation organized and existing under the provisions of
the Act and not specifically prohibited or limited by these Articles.
SECTION 11. REMOVAL OF DIRECTORS. Any and all members of the Board of
Directors may be removed, with or without cause, at a meeting of the
shareholders called expressly for that purpose by the affirmative vote of the
holders of not less than two-thirds (2/3) of the outstanding shares of capital
stock then entitled to vote on the election of Directors, except that if the
Board of Directors, by an affirmative vote of at least two-thirds (2/3) of the
entire Board of Directors, recommends removal of a Director to the shareholders,
such removal may be effected by the affirmative vote of the holders of not less
than a majority of the outstanding shares of capital stock then entitled to vote
on the election of Directors at a meeting of shareholders called expressly for
that purpose.
SECTION 12. FAIR PRICE, FORM OF CONSIDERATION AND PROCEDURAL SAFEGUARDS FOR
CERTAIN BUSINESS COMBINATIONS.
(A) The affirmative vote of the holders of not less than three-fourths
(3/4) of the Voting Shares (as hereinafter defined) of the Corporation shall be
required for the authorization or adoption, except as provided in subsection (D)
of this Section, of the following transactions:
<PAGE>
1. Any merger or consolidation of the Corporation or its subsidiary or
subsidiaries (as hereinafter defined) with or into either of the
following:
(a) 10% Shareholders (as hereinafter defined); or
(b) Any other corporation (whether or not itself a 10%
Shareholder) which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of a 10%
Shareholder.
2. Any sale, lease, exchange, transfer or other disposition
(including, without limitation, the granting of a mortgage or other
security interest) to or with any 10% Shareholder of any material
part of the assets of the Corporation or any of its subsidiaries;
and
3. A liquidation or dissolution of the Corporation or any material
subsidiary thereof or adoption of any plan with respect thereto.
4. Any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its subsidiaries or
any other transaction (whether or not with or into or otherwise
involving a 10% Shareholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Corporation or any subsidiary which is directly or
indirectly owned by any 10% Shareholder; and
5. Any agreement, contract or other arrangement providing for any one
or more of the actions specified in the foregoing clauses
(A)1. through (A)4.
(B) Prior to the approval of any of the transactions referred to in
subsection (A) of this section ("Business Combination"), the
Board of Directors of the Corporation shall make an evaluation
of all relevant factors and issues arising out of or in
connection with any such Business Combination and shall report
to the shareholders the conclusion which the Board of Directors
reaches from such evaluation. Relevant factors and issues
shall include consideration of the impact which any such
Business Combination will have on the community in which the
Corporation or its subsidiaries conducts business, the
employees of the Corporation or any of its subsidiaries, and
the suppliers and customers of the Corporation and its
subsidiaries, and shall also include any and all other factors
which the Board of Directors in its discretion deems relevant.
(C) The following definitions shall apply when used in this
Section:
1. "10% Shareholder" shall mean, in respect of any Business
Combination, any person (other than the Corporation) who
or which, as of the record date for the determination of
shareholders entitled to notice of and to vote on such
<PAGE>
Business Combination or immediately prior to the
consummation of any such Business Combination:
(a) Is the beneficial owner (as determined in accordance
with Rule 13d-3 promulgated by the Securities and
Exchange Commission) ("Beneficial Owner"), directly or
indirectly, of not less than ten percent (10%) of the
Voting Shares; or
(b) Is an Affiliate (as hereinafter defined) of the
Corporation and at any time within two years prior
thereto was the Beneficial Owner, directly or
indirectly, of not less than ten percent (10%) of the
then outstanding Voting Shares; or
(c) Any individual, corporation, partnership or other
person or entity which, together with any of its
Affiliates (as hereinafter defined), beneficially owns
in the aggregate more than ten percent (10%) of the
Voting Shares of the Corporation.
2. "Voting Shares" includes:
(a) Any securities of the Corporation which are entitled
to vote on any matter referred to in this Section;
(b) Any securities, including but not limited to,
preferred stock, bonds, debentures, or options, which
can be converted into voting securities at the time of
the vote referred to in this Section; and
(c) Security agreements of any nature for which voting
securities are pledged as collateral.
3. "Affiliate" shall include all persons who would be defined
as affiliates under Rule 12b-2 under the Securities
Exchange Act of 1934.
4. "Subsidiary" means any corporation of which a majority of
any class of equity securities (as defined in Rule 3a 11-1
of the general rules and regulations under the Securities
Exchange Act of 1934) are owned, directly or indirectly,
by the Corporation; provided, however, that for the
purposes of the definition of a 10% Shareholder set forth
above, the term "Subsidiary" shall mean only a corporation
of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
5. "Fair Market Value" means:
<PAGE>
(1) In the case of stock, in the absence of any
determination price as established on a national,
regional, or local exchange or over-the-counter
market, or in the absence of any market-maker
dealing in the stock on a regular basis, the fair
market value of such stock on the date in
question as determined by the Board in good
faith; and
(2) In the case of property other than cash or stock,
the fair market value of such property on the
date in question as determined by the Board in
good faith.
(D) The additional voting requirement set forth in subsection (A)
above shall not be applicable, and any such Business
Combination shall require the affirmative vote of two-thirds
(2/3) of the Voting Shares, if one of the following occurs:
1. The Business Combination shall have been approved by
two-thirds (2/3) of the Directors of the Corporation; or
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by holders of Common Stock in
such Business Combination shall be at least equal to
the greater of (i) and (ii), where (i) is the highest
per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by
the 10% Shareholder or any other party for any shares
of Common Stock acquired within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date") or, if higher, the per share
price paid in the transaction in which the 10%
Shareholder became a 10% Shareholder, and (ii) is the
per share book value of the Corporation reported at
the end of the fiscal quarter immediately preceding
the later of any public announcement of any proposed
Business Combination or the meeting date on which the
shareholders are to consider the proposed Business
Combination;
(b) The consideration to be received by holders of a
particular class of outstanding Voting Stock
(including Common Stock) shall be in cash or in the
same form as the 10% Shareholder has previously paid
for shares of such class of Voting Stock. If the 10%
Shareholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be
either cash or the form used to acquire the largest
number of shares of such class of Voting Stock
previously acquired by it;
<PAGE>
(c) A proxy or information statement describing the
proposed merger or consolidation and complying with
the requirements of the Securities Exchange Act of
1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or
regulations) shall be mailed to shareholders of the
Corporation at least thirty (30) days prior to the
meeting of shareholders called to consider the
proposed Business Combination or, if no meeting,
thirty (30) days prior to the consummation of such
Business Combination (whether or not such proxy or
information statement is required to be mailed
pursuant to such Act or subsequent provisions).
ARTICLE X
AMENDMENTS
These Articles of Incorporation may be amended at any time, subject to the
provisions of this Article, by the affirmative vote of a majority of the
outstanding shares of stock of the Corporation entitled to vote on such
amendment. No amendment shall be adopted which shall repeal, modify, amend,
alter or diminish in any way the provisions of Article V, Section 1 of Article
VII, Section 4 of Article IX, Section 11 of Article IX, Section 12 of Article
IX, or this Article X without the affirmative vote of three-fourths (3/4) of the
outstanding shares of stock of the Corporation entitled to vote on such
amendment.
The Bylaws of the Corporation may be amended as provided herein and therein
except that no amendment shall in any way repeal, modify, amend, alter or
diminish the provisions of this Article or the other provisions of the Articles
of Incorporation referenced in this Article.
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Agreement is made and entered into this _____ day of
______________, 1999, by and between First Merchants Corporation, an Indiana
corporation (hereinafter referred to as "Corporation"), and First Merchants
Bank, National Association (hereinafter referred to as "Bank"), a wholly-owned
subsidiary of the Corporation, both with their principal offices located at 200
East Jackson Street, Muncie, Indiana, and ______________ (hereinafter referred
to as "Executive"), of Muncie, Indiana.
WHEREAS, the Corporation and the Bank consider the continuance of
proficient and experienced management to be essential to protecting and
enhancing the best interests of the Corporation, the Bank, and the Corporation's
shareholders; and
WHEREAS, the Corporation and the Bank desire to assure the continued
services of the Executive on behalf of the Corporation and the Bank; and
WHEREAS, the Corporation and the Bank recognize that if faced with a
proposal for a Change of Control, as hereinafter defined, the Executive will
have a significant role in helping the Board of Directors assess the options and
advising the Board of Directors on what is in the best interests of the
Corporation, the Bank, and the Corporation's shareholders; and it is necessary
for the Executive to be able to provide this advice and counsel without being
influenced by the uncertainties of the Executive's own situation; and
WHEREAS, the Corporation and the Bank desire to provide fair and reasonable
benefits to the Executive on the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
herein contained and the continued employment of the Executive by the
[Corporation] [Bank] as _____________________________________, the
Corporation, the Bank, and the Executive, each intending to be legally bound,
covenant and agree as follows:
1. TERM OF AGREEMENT.
This Agreement shall continue in effect through December 31, 1999;
provided, however, that commencing on December 31, 1999 and each December 31
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than October 31, 1999 or October 31
immediately preceding any December 31 thereafter, the Corporation or the Bank
shall have given the Executive notice that it does not wish to extend this
Agreement; and provided further, that if a Change of Control of the Corporation
or the Bank, as defined in Section 2, shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of not less than twenty-four (24) months beyond the month in which such
Change of Control occurred.
<PAGE>
2. DEFINITIONS.
For purposes of this Agreement, the following definitions shall apply:
A. CAUSE: "Cause" shall mean:
(1) professional incompetence;
(2) willful misconduct;
(3) personal dishonesty;
(4) breach of fiduciary duty involving personal profit;
(5) intentional failure to perform stated duties;
(6) willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease
and desist orders; and
(7) any intentional material breach of any term, condition or
covenant of this Agreement.
B. CHANGE OF CONTROL: "Change of Control" shall mean:
(1) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 ["Exchange
Act"]), other than the Corporation, is or becomes the
Beneficial Owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the
Corporation or the Bank representing twenty-five percent
(25%) or more of the combined voting power of the
Corporation's or the Bank's then outstanding securities;
(2) persons constituting a majority of the Board of Directors
of the Corporation or the Bank were not directors of the
respective Board for at least the twenty-four (24)
preceding months;
(3) the stockholders of the Corporation or the Bank approve a
merger or consolidation of the Corporation or the Bank with
any other corporation, other than (a) a merger or
consolidation which would result in the voting securities
of the Corporation or the Bank outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the
<PAGE>
combined voting power of the voting securities of the
Corporation or the Bank or such surviving entity
outstanding immediately after such a merger or
consolidation, or (b) a merger or consolidation effected to
implement a recapitalization of the Corporation or the
Bank (or similar transaction) in which no person acquires
fifty percent (50%) or more of the combined voting power of
the Corporation's or the Bank's then outstanding
securities; or
(4) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or the Bank or an
agreement for the sale or disposition by the Corporation or
the Bank of all or substantially all of the Corporation's
or the Bank's assets.
C. DATE OF TERMINATION: "Date of Termination" shall mean the date
stated in the Notice of Termination (as hereinafter defined) or
thirty (30) days from the date of delivery of such notice, as
hereinafter defined, whichever comes first.
D. DISABILITY: "Disability" shall mean the definition of such term
as used in the disability policy then in effect for the
Corporation or the Bank, and a determination of full disability
by the Corporation or the Bank; provided that in the event
there is no disability insurance then in force, "disability"
shall mean incapacity due to physical or mental illness which
will have caused the Executive to have been unable to perform
his duties with the Corporation and/or the Bank on a full time
basis for one hundred eighty (180) consecutive calendar days.
E. NOTICE OF TERMINATION: "Notice of Termination" shall mean a
written notice, communicated to the other parties hereto, which
shall indicate the specific termination provisions of this
Agreement relied upon and set forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provisions
so indicated.
F. RETIREMENT: "Retirement" shall mean termination of employment
by the Executive in accordance with the Corporation's or the
Bank's normal retirement policy generally applicable to its
salaried employees in effect at the time of a Change of
Control.
3. Termination.
A. GENERAL. If any of the events described in Section 2
constituting a Change in Control of the Corporation or the Bank
shall have occurred, the Executive shall be entitled to the
benefits described in Section 4 upon the subsequent termination
of the Executive's employment during the term of this
<PAGE>
Agreement, unless such termination is (a) because of the death
or Disability of the Executive, (b) by the Corporation or the
Bank for Cause, or (c) by the Executive other than on account
of Constructive Termination (as hereinafter defined).
B. If, following a Change of Control, the Executive's employment
shall be terminated for Cause, the Corporation and/or the Bank
shall pay him his salary through the Date of Termination at the
rate in effect on the date of the Notice of Termination, and
the Corporation and the Bank shall have no further obligations
under this Agreement. If, following a Change of Control, the
Executive's employment shall be terminated as a result of death
or Disability, compensation to the Executive shall be made
pursuant to the Corporation's and the Bank's then existing
policies on death or Disability, and the Corporation and the
Bank shall have no further obligations under this Agreement.
If, following a Change of Control, the Executive's employment
is terminated by and at the request of the Executive as a
result of Retirement, compensation to the Executive shall be
made pursuant to the Corporation's and the Bank's normal
retirement policy generally applicable to its salaried
employees at the time of the Change of Control, and the
Corporation and the Bank shall have no further obligations
under this Agreement.
C. CONSTRUCTIVE TERMINATION. The Executive shall be entitled to
terminate his employment upon the occurrence of Constructive
Termination. For purposes of this Agreement, "Constructive
Termination" shall mean, without the Executive's express
written consent, the occurrence, after a Change of Control of
the Corporation or the Bank, of any of the following
circumstances:
(1) the assignment to the Executive of any duties inconsistent
(unless in the nature of a promotion) with the position in
the Corporation or the Bank that the Executive held
immediately prior to the Change of Control of the
Corporation or the Bank, or a significant adverse reduction
or alteration in the nature or status of the Executive's
position, duties or responsibilities or the conditions of
the Executive's employment from those in effect immediately
prior to such Change of Control;
(2) a reduction in the Executive's annual base salary, as in
effect immediately prior to the Change of Control of the
Corporation or the Bank or as the same may be adjusted from
time to time, except for across-the-board salary reductions
similarly affecting all management personnel of the
Corporation or the Bank;
<PAGE>
(3) the Bank and/or the Corporation requires the Executive to
e relocated anywhere other than their offices in
Muncie, Indiana;
(4) the taking of any action to deprive the Executive of any
material fringe benefit enjoyed by him at the time of the
Change of Control, or the failure to provide him with the
number of paid vacation days to which he is entitled on the
basis of years of service with the Corporation and/or the
Bank and in accordance with the Corporation's or the Bank's
normal vacation policy in effect at the time of the Change
of Control;
(5) the failure to continue to provide the Executive with
benefits substantially similar to those enjoyed by the
Executive under any of the Corporation's or the Bank's life
insurance, medical, health and accident, or disability
plans in which the Executive was participating at the time
of the Change of Control of the Corporation or the Bank, or
the taking of any action which would directly or indirectly
materially reduce any of such benefits; or
(6) the failure of the Corporation or the Bank to continue this
Agreement in effect, or to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof.
4. COMPENSATION UPON TERMINATION.
Following a Change of Control, if his employment by the Corporation
or the Bank shall be terminated by the Executive on account of
Constructive Termination or by the Corporation or the Bank other than
for Cause, death, Disability, or Retirement (by and at the request of
the Executive), then the Executive shall be entitled to the benefits
provided below:
A. No later than the fifth day following the Date of Termination,
the Corporation or the Bank shall pay to the Executive his full
base salary through the Date of Termination, at the rate in
effect at the time Notice of Termination is given, plus all
other amounts to which the Executive is entitled under any
incentive, bonus or other compensation plan of the Corporation
or the Bank in effect at the time such payments are due;
B. In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination, no later than
the fifth day following the Date of Termination, the
Corporation or the Bank shall pay to the Executive a lump sum
severance payment, in cash, equal to ________ (____) times the
sum of (a) the Executive's annual base salary rate as in effect
on the date of the
<PAGE>
Notice of Termination, and (b) the largest bonus received by
he Executive during the two (2) years immediately preceding the
Date of Termination under the Corporation's Management
Incentive Plan covering the Executive;
C. During the period beginning with the Executive's Date of
Termination and continuing until the earlier of (a) the second
anniversary of such Date of Termination, or (b) Executive's
sixty-fifth (65th) birthday, the Corporation or the Bank shall
arrange to provide the Executive with life, disability,
accident and health insurance benefits substantially similar to
those which the Executive was receiving immediately prior to
he Notice of Termination and shall pay the same percentage of
the cost of such benefits as the Corporation or the Bank was
paying on the Executive's behalf on the date of such Notice;
D. In lieu of shares of common stock of the Corporation
("Corporation Shares") issuable upon the exercise of
outstanding options ("Options"), if any, granted to the
Executive under any Corporation stock option plan (which
Options shall be cancelled upon the making of the payment
referred to below), the Executive shall receive an amount in
cash equal to the product of (a) the excess of the higher of
the closing price of Corporation Shares as reported on the
NASDAQ National Market System, the American Stock Exchange or
the New York Stock Exchange, wherever listed, on or nearest the
Date of Termination or the highest per share price for
Corporation Shares actually paid in connection with any Change
of Control of the Corporation, over the per share exercise
price of each Option held by the Executive (whether or not then
fully exercisable), times (b) the number of Corporation Shares
covered by each such Option;
E. If the payments or benefits, if any, received or to be received
by the Executive (whether under this Agreement or under any
other plan, arrangement, or agreement between the Executive and
the Corporation or the Bank), in connection with termination or
Constructive Termination of the Executive's employment
following a Change of Control, constitute an "excess parachute
payment" within the meaning ofss.280G of the Internal Revenue
Code ("Code"), the Corporation or the Bank shall pay to the
Executive, no later than the fifth day following the Date of
Termination, an additional amount (as determined by the
Corporation's independent public accountants) equal to the
excise tax, if any, imposed on the "excess parachute payment"
underss.4999 of the Code; provided, however, if the amount of
such excise tax is finally determined to be more or less than
the amount paid to the Executive hereunder, the Corporation or
the Bank (or the Executive if the finally determined amount is
less than the original amount paid) shall pay the difference
between the amount originally paid and the finally determined
<PAGE>
amount to the other party no later than the fifth day following
the date such final determination is made;
F. The Corporation or the Bank shall pay to the Executive all
reasonable legal fees and expenses incurred by the Executive
as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement), unless the decision-maker
in any proceeding, contest, or dispute arising hereunder makes
a formal finding that the Executive did not have a reasonable
basis for instituting such proceeding, contest, or dispute;
G. The Corporation or the Bank shall provide the Executive with
individual out- placement services in accordance with the
general custom and practice generally accorded to an executive
of the Executive's position.
5. SUCCESSORS; BINDING AGREEMENT.
A. The Corporation or the Bank shall require any successor
(whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business
and/or assets of the Corporation or the Bank to expressly
assume and agree to perform this Agreement in the same manner
and to the same extent that the Corporation or the Bank would
be required to perform it if no such succession had taken
place. Failure of the Corporation or the Bank to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall
entitle the Executive to compensation from the Corporation or
the Bank in the same amount and on the same terms to which the
Executive would be entitled hereunder if the Executive
terminates his employment on account of Constructive
Termination following a Change of Control of the Corporation or
the Bank, except that for the purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in
this Agreement, "the Corporation or the Bank" shall mean the
Corporation or the Bank and any successor to their business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement, by operation of law or otherwise.
B. This Agreement shall inure to the benefit of and be enforceable
by the Executive and his personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder had
the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the
<PAGE>
devisee, legatee or other designee or, if there is no such
designee, to his estate.
6. GUARANTEE BY CORPORATION AND BANK.
In consideration of the value of the continued employment of the
Executive by the Corporation or the Bank, and the benefits derived by
the Corporation and the Bank from the Executive's employment by the
Corporation or the Bank, the Corporation and the Bank hereby
unconditionally and fully guarantee and endorse the obligations of the
other hereunder, and agree to be fully bound by the terms of this
Agreement in the event that the other fails to perform, honor, or
otherwise complete fully its obligations hereunder.
7. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be
specifically designated by the Corporation. No waiver by either party
hereto at the time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar of
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Indiana
without regard to its conflicts of law principles. All references to a
section of the Exchange Act or the Code shall be deemed also to refer to
any successor provisions to such section. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law. The obligations of the Corporation and the
Bank under Section 4 shall survive the expiration of the term of this
Agreement.
8. VALIDITY.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and
effect.
9. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
10. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before
a panel of three (3) arbitrators in Muncie, Indiana in accordance with
the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to
seek specific performance of his right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising
under or in connection with this Agreement.
11. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein
is hereby terminated and cancelled.
IN WITNESS WHEREOF, the Corporation and the Bank have caused this Agreement
to be executed by their duly authorized officers, and the Executive has
hereunder subscribed his name, this _______ day of ______________________, 1999.
"CORPORATION" "EXECUTIVE"
FIRST MERCHANTS CORPORATION
By ______________________________ By ______________________________
Stefan S. Anderson, __________________
Chairman of the Board
"BANK"
FIRST MERCHANTS BANK, NATIONAL ASSOCIATION
By ______________________________
Stefan S. Anderson,
Chairman of the Board
SCHEDULE A TO FIRST MERCHANTS CORPORATION
CHANGE OF CONTROL AGREEMENT
The Corporation's Change of Control Agreement covering Michael L. Cox,
Roger W. Gilcrest, Larry R. Helms, Thomas E. Buczek, Jack L. Demaree,
James L. Thrash, and Charles R. Phillips are all in the form of Exhibit 10.1 and
are substantially identical, with the exception of Section 4 Part B. The
multiples of the executives' annual base salaries are as follows:
Michael L. Cox 299 percent, Roger W. Gilcrest 200 percent, Thomas E. Buczek 150
percent, Jack L. Demaree 150 percent, Larry R. Helms 150 percent,
James L. Thrash 150 percent, and Chuck R. Phillips 150 percent.
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Agreement is made and entered into this _____ day of
_______________, 1999, by and between First Merchants Corporation, an Indiana
corporation (hereinafter referred to as "Corporation"), with its principal
office located at 200 East Jackson Street, Muncie, Indiana, and ____________
(hereinafter referred to as "Executive"), of Portland, Indiana.
WHEREAS, the Corporation is the parent corporation of The First National
Bank of Portland, a national banking association (hereinafter referred to as
"Bank"), with its principal office located at 112 West Main Street, Portland,
Indiana; and
WHEREAS, Executive is the _______________________ of the Bank; and
WHEREAS, the Corporation considers the continuance of proficient and
experienced management to be essential to protecting and enhancing the best
interests of the Bank, the Corporation, and the Corporation's shareholders; and
WHEREAS, the Corporation desires to assure the continued services of
Executive on behalf of the Bank and the Corporation; and
WHEREAS, the Corporation recognizes that if a proposal for a Change of
Control, as hereinafter defined, should occur, the uncertainty and questions
which may be raised among management may result in the departure or distraction
of key management personnel, to the detriment of the Bank, the Corporation, and
the Corporation's shareholders; and
WHEREAS, the Corporation desires to provide fair and reasonable benefits to
Executive on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
herein contained and the continued employment of Executive by the Bank as its
Chief Executive Officer, the Corporation and the Executive, each intending to be
legally bound, covenant and agree as follows:
1. TERM OF AGREEMENT.
The Agreement shall continue in effect until
________________________________; provided, however, if a Change of Control of
the Corporation, as defined in Section 2, shall have occurred during the term of
this Agreement, this Agreement shall continue in effect until the earlier of (a)
the second anniversary of the Executive's Date of Termination, as defined in
Section 2, or (b) Executive's sixty-fifth (65th) birthday.
<PAGE>
2. DEFINITIONS.
For purposes of this Agreement, the following definitions shall apply:
A. CAUSE: "Cause" shall mean:
(1) professional incompetence;
(2) willful misconduct;
(3) personal dishonesty;
(4) breach of fiduciary duty involving personal profit;
(5) intentional failure to perform stated duties;
(6) willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease and
desist orders; and
(7) any intentional material breach of any term, condition or
covenant of this Agreement.
B. CHANGE OF CONTROL: "Change of Control" shall mean:
(1) any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 ["Exchange Act"]),
other than the Corporation, is or becomes the Beneficial
Owner (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly of securities of the Corporation
representing twenty-five percent (25%) or more of the
combined voting power of the Corporation's then outstanding
securities;
(2) persons constituting a majority of the Board of Directors of
the Corporation were not directors of the Corporation for at
least the twenty-four (24) preceding months;
(3) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation,
other than (a) a merger or consolidation which would result
in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent
(50%) of the combined voting power of the voting
<PAGE>
securities of the Corporation or such surviving entity
outstanding immediately after such a merger or
consolidation, or (b) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar
transaction) in which no person acquires fifty percent (50%)
or more of the combined voting power of the Corporation's
then outstanding securities; or
(4) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation of all or
substantially all of the Corporation's assets.
C. DATE OF TERMINATION: "Date of Termination" shall mean the date
stated in the Notice of Termination (as hereinafter defined) or
thirty (30) days from the date of delivery of such notice, as
hereinafter defined, whichever comes first.
D. DISABILITY: "Disability" shall mean the definition of such term
as used in the disability policy then in effect for the Bank,
and a determination of full disability by the Bank; provided
that in the event there is no disability insurance then in
force, "disability" shall mean incapacity due to physical or
mental illness which will have caused Executive to have been
unable to perform his duties with the Bank on a full time basis
for one hundred eighty (180) consecutive calendar days.
E. NOTICE OF TERMINATION: "Notice of Termination" shall mean a
written notice, communicated to the other party hereto, which
shall indicate the specific termination provisions of this
Agreement relied upon and set forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provisions so
indicated.
F. RETIREMENT: "Retirement" shall mean termination of employment by
Executive in accordance with Bank's normal retirement policy
generally applicable to its salaried employees in effect at the
time of a Change of Control.
3. TERMINATION.
A. General. If any of the events described in Section 2
constituting a Change in Control of the Corporation shall have
occurred, Executive shall be entitled to the benefits described
in Section 4 upon the subsequent termination of the Executive's
employment during the term of this Agreement, unless such
termination is (a) because of the death or Disability of
Executive, (b) by the
<PAGE>
Bank or the Corporation for Cause, or (c) by Executive other
than on account of Constructive Termination (as hereinafter
defined).
B. If, following a Change of Control, Executive's employment shall
be terminated for Cause, the Bank shall pay him his salary
through the Date of Termination at the rate in effect on the
date of the Notice of Termination, and the Bank and the
Corporation shall have no further obligations under this
Agreement. If, following a Change of Control, Executive's
employment shall be terminated as a result of death or
Disability, compensation to Executive shall be made pursuant to
the Bank's then existing policies on death or Disability, and
the Bank and the Corporation shall have no further obligations
under this Agreement. If, following a Change of Control,
Executive's employment is terminated by and at the request of
Executive as a result of Retirement, compensation to the
Executive shall be made pursuant to the Bank's normal retirement
policy generally applicable to its salaried employees at the
time of the Change of Control, and the Bank and the Corporation
shall have no further obligations under this Agreement.
C. CONSTRUCTIVE TERMINATION. Executive shall be entitled to
terminate his employment upon the occurrence of Constructive
Termination. For purposes of this Agreement, "Constructive
Termination" shall mean, without Executive's express written
consent, the occurrence, after a Change in Control of the
Corporation, of any of the following circumstances:
(1) the assignment to Executive of any duties inconsistent
(unless in the nature of a promotion) with the position in
the Bank that Executive held immediately prior to the Change
in Control of the Corporation, or a significant adverse
reduction or alteration in the nature or status of
Executive's position, duties or responsibilities or the
conditions of Executive's employment from those in effect
immediately prior to such Change in Control;
(2) a reduction in Executive's annual base salary, as in effect
immediately prior to the Change in Control of the
Corporation or as the same may be adjusted from time to
time, except for across-the-board salary reductions
similarly affecting all management personnel of the Bank;
(3) the Bank and/or the Corporation requires Executive to be
relocated anywhere other than the Bank's offices in
Portland, Indiana;
(4) the taking of any action to deprive Executive of any
material fringe benefit enjoyed by him at the time of the
Change of Control, or the
<PAGE>
failure to provide him with the number of paid vacation days
to which he is entitled on the basis of years of service
with the Bank and in accordance with the Bank's normal
vacation policy in effect at the time of the Change of
Control;
(5) the failure to continue to provide Executive with benefits
substantially similar to those enjoyed by Executive under
any of the Bank's life insurance, medical, health and
accident, or disability plans in which Executive was
participating at the time of the Change of Control of the
Corporation, or the taking of any action which would
directly or indirectly materially reduce any of such
benefits; or
(6) the failure of the Corporation to continue this Agreement in
effect, or to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as
contemplated in Section 5 hereof.
4. COMPENSATION UPON TERMINATION.
Following a Change of Control, if his employment by the Bank shall
be terminated by Executive on account of Constructive Termination or by
the Bank or the Corporation other than for Cause, death, Disability, or
Retirement (by and at the request of Executive), then Executive shall be
entitled to the benefits provided below:
A. No later than the fifth day following the Date of Termination,
the Bank or the Corporation shall pay to Executive his full base
salary through the Date of Termination, at the rate in effect at
the time Notice of Termination is given, plus all other amounts
to which Executive is entitled under any incentive, bonus or
other compensation plan of the Bank in effect at the time such
payments are due;
B. The Bank or the Corporation shall pay to Executive an amount in
cash, in a lump sum, which, when added to the present value of
all other compensation, benefits and payments required to be
included in the calculation under ss.280G of the Internal
Revenue Code and regulations thereunder, shall equal two hundred
ninety-nine percent (299%) of the "base amount," as defined
under ss.280G of the Internal Revenue Code; provided, however:
(1) the amount payable under this Section 4(B) shall be reduced
to the extent necessary to prevent it from constituting a
"parachute payment" within the meaning of ss.280G of the
Internal Revenue Code; except that the reduction, if any,
<PAGE>
(2) the reduction, if any, made pursuant to clause (1) of this
Section 4(B) shall not include any benefits payable to
Executive under certain benefit plans which were established
by the Bank through Bank Compensation Strategies Group prior
to March 31, 1999, and previously disclosed to the
Corporation, even if such non-inclusion causes the amount
payable under this Section 4(B) to constitute a "parachute
payment"within the meaning of ss.280G of the Internal
Revenue Code;
C. During the period beginning with Executive's Date of Termination
and continuing until the earlier of (a) the second anniversary
of such Date of Termination, or (b) Executive's sixty-fifth
(65th) birthday, the Bank or the Corporation shall arrange to
provide Executive with life, disability, accident and health
insurance benefits substantially similar to those which
Executive was receiving immediately prior to the Notice of
Termination.
5. Successors; Binding Agreement.
A. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain
such assumption and agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement and shall
entitle Executive to compensation from the Corporation in the
same amount and on the same terms to which Executive would be
entitled hereunder if Executive terminates his employment on
account of Constructive Termination following a Change of
Control of the Corporation, except that for the purposes of
implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Corporation" shall mean
the Corporation and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
B. This Agreement shall inure to the benefit of and be enforceable
by Executive and his personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amount
would still be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this
Agreement to the
<PAGE>
devisee, legatee or other designee or, if there is no such
designee, to his estate.
6. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive and such officer as may be specifically
designated by the Corporation. No waiver by either party hereto at the
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar of dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement
or representations, oral or otherwise, express or implied, with respect
to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
laws of the State of Indiana without regard to its conflicts of law
principles. All references to a section of the Exchange Act or the
Internal Revenue Code shall be deemed also to refer to any successor
provisions to such section. Any payments provided for hereunder shall be
paid net of any applicable withholding required under federal, state or
local law. The obligations of the Corporation under Section 4 shall
survive the expiration of the term of this Agreement.
7. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and
effect.
8. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Muncie, Indiana in
accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction; provided, however, that Executive shall be
entitled to seek specific performance of his right to be paid until the
date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
9. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written,
by any officer, employee or representative of any party hereto; and any
prior agreement of the parties hereto in respect of the subject matter
contained herein is hereby terminated and canceled.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer, and Executive has hereunder subscribed
his name, this _______ day of ______________________, 1999.
"CORPORATION" "EXECUTIVE"
FIRST MERCHANTS CORPORATION
By ______________________________ By ______________________________
Michael L. Cox, President __________________
SCHEDULE A TO FIRST MERCHANTS CORPORATION
CHANGE OF CONTROL AGREEMENT
The Corporation's Change of Control Agreement covering Barry Hudson and
James A. Meinerding are all in the form of Exhibit 10.2 and are substantially
identical with the exception of Section 1. The term of Barry Hudson's agreement
is as follows:
The Agreement shall continue in effect until Executive is no longer
the Chief Executive Officer of the Bank; provided, however, if a Change of
Control of the Corporation, as defined in Section 2, shall have occurred
during the term of this Agreement, this Agreement shall continue in effect
until the earlier of (a) the second anniversary of the Executive's Date of
Termination, as defined in Section 2, or (b) Executive's sixty-fifth (65th)
birthday.
The term of James Meinerding's agreement is as follows:
The Agreement shall continue in effect until March 31, 2002, unless
Executive's employment with the Bank terminates before that date; provided,
however, if a Change of Control of the Corporation, as defined in Section
2, shall have occurred during the term of this Agreement, this Agreement
shall continue in effect until the earlier of (a) the second anniversary of
the Executive's Date of Termination, as defined in Section 2, or (b)
Executive's sixty-fifth (65th) birthday.
<PAGE>
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