<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
FIRST MERCHANTS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Merrill Printing, as agent for First Merchants Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 14, 1999
The annual meeting of the shareholders of First Merchants Corporation (the
"Corporation") will be held at the Horizon Convention Center, 401 South High
Street, Muncie, Indiana 47305, on Wednesday, April 14, 1999, at 3:30 p.m. for
the following purposes:
(1) To elect four directors, to hold office for a term of three years and
until their successors are duly elected and qualified.
(2) To act on a proposal to approve the First Merchants Corporation 1999
Long-Term Equity Incentive Plan.
(3) To act on a proposal to approve the First Merchants Corporation 1999
Employee Stock Purchase Plan.
(4) To act on a proposal to amend First Merchants 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.
(5) To ratify the appointment of the firm of Olive LLP as independent
public accountants for 1999.
(6) To transact such other business as may properly come before the
meeting.
Only those shareholders of record at the close of business on February 17, 1999
shall be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
February 24, 1999
IMPORTANT - PLEASE MAIL YOUR PROXY PROMPTLY
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE
MEETING, YOU ARE URGED TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
February 24, 1999
FIRST MERCHANTS CORPORATION
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 14, 1999
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by and on behalf of the Board of Directors of First Merchants
Corporation (the "Corporation") for use at the annual meeting of shareholders of
the Corporation to be held April 14, 1999. The distribution of these proxy
materials is expected to commence on February 24, 1999.
Any shareholder giving a proxy has the right to revoke it any time before it is
exercised by written notice to the Secretary received prior to the meeting or in
person at the meeting. The shares represented by proxies will be voted in
accordance with the instructions on the proxies. In the absence of specific
instructions to the contrary, proxies will be voted in favor of Items 1, 2, 3, 4
and 5.
VOTING SECURITIES
Only shareholders of record at the close of business on February 17, 1999 will
be entitled to notice of and to vote at the annual meeting. The number of
shares of common stock outstanding and entitled to vote as of February 1, 1999
was 10,086,642. This reflects a 3-for-2 split of the Corporation's common stock
effective at the close of business on October 23, 1998 for shareholders of
record at the close of business on October 16, 1998.
Each share of the Corporation's common stock is entitled to one vote. The
affirmative vote of a majority of the shares present and voting at the
meeting in person or by proxy is required for approval of all items being
submitted to the shareholders for their consideration, except that the
affirmative vote of at least seventy-five percent (75%) of the Corporation's
outstanding common shares is required for approval of the proposed amendment
to the Articles of Incorporation to increase the number of common shares
which the Corporation is authorized to issue from 20,000,000 shares to
50,000,000 shares. The Secretary will count the votes and announce at the
meeting the number voting for and against each item and the number
abstaining. Abstentions will be counted for the purpose of determining
whether a quorum is present but for no other purpose. Broker non-votes will
not be counted.
ELECTION OF DIRECTORS
Four directors will be elected at the annual meeting.
The persons named below have been nominated for election to the Board of
Directors (the "Board"), with terms expiring as of the 2002 annual meeting of
shareholders. All of the nominees are currently members of the Board.
<PAGE>
Those persons nominated as directors include:
<TABLE>
<CAPTION>
NAME AND AGE PRESENT OCCUPATION DIRECTOR SINCE
- ------------ ------------------ --------------
<S> <C> <C>
CLASS II (TERMS EXPIRE 2002):
Stefan S. Anderson Chairman of the Board and Chief 1982
age 64 Executive Officer, First Merchants
Corporation and First Merchants Bank,
National Association
Thomas B. Clark; President and Chief Executive Officer, 1989
age 53 Alltrista Corporation (Alltrista
Corporation manufactures metal and
plastic products.)
David A. Galliher; President, Wm. A. Didier & Sons, Inc. 1982
age 66 (Wm. A. Didier & Sons, Inc.
manufactures credit cards.)
John E. Worthen; President, Ball State University 1987
age 65
Those persons named below continue to serve as directors:
CLASS I (TERMS EXPIRE 2001):
Michael L. Cox; President and Chief Operating Officer, 1984
age 54 First Merchants Corporation and First
Merchants Bank, National Association
Norman M. Johnson; Retired Executive Vice President, Stein 1996
age 64 Roe & Farnham, Investment Counsel
George A. Sissel; Chairman of the Board and Chief Executive 1995
age 62 Officer, Ball Corporation (Ball
Corporation manufactures metal and
plastic packaging products and technology
products and services.)
Robert M. Smitson; Chairman of the Board, Maxon Corporation 1982
age 62 (Maxon Corporation designs and
manufactures specialty industrial
combustion systems and valves.)
CLASS III (TERMS
EXPIRE 2000):
Frank A. Bracken; Of Counsel, Bingham Summers Welsh & 1994
age 64 Spilman, Attorneys
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<PAGE>
<CAPTION>
NAME AND AGE PRESENT OCCUPATION DIRECTOR SINCE
- ------------ ------------------ --------------
Ted J. Montgomery; Senior Vice President, First 1996
age 59 Merchants Corporation and
President, The Union
County National Bank of Liberty
Michael D. Wickersham; President, Wicks Pies, Inc. 1996
age 45 and Vice President, Wicks
Foods, Inc. (Wicks Pies, Inc.
is a producer and retailer of
pies and pie shells.)
</TABLE>
The occupations set forth above have been the principal occupations of the
director-nominees and continuing directors during the past 5 years except as
follows: Mr. Anderson was also President of the Corporation from 1982 to 1998,
and President of the Corporation's wholly-owned subsidiary, First Merchants
Bank, National Association ("First Merchants") from 1979 to 1996. Mr. Clark was
Senior Vice President and Chief Financial Officer of Alltrista Corporation from
1992 until 1994, when he became President and Chief Operating Officer. He
became Chief Executive Officer in 1995. Mr. Cox was Group President of Ontario
Corporation from 1989 until 1994, when he became Executive Vice President and
Chief Operating Officer of the Corporation and Executive Vice President of First
Merchants. Mr. Cox became President of First Merchants in 1996, and President
of the Corporation in 1998. Mr. Galliher was also Treasurer of Wm. A. Didier &
Sons, Inc. from 1978 to 1998. Mr. Montgomery has served as President of the
Corporation's wholly-owned subsidiary, The Union County National Bank of Liberty
("Union County") since 1983, and became a Senior Vice President of the
Corporation in 1996. Mr. Sissel was Senior Vice President, General Counsel and
Corporate Secretary of Ball Corporation from 1987 to 1994, Acting President from
1994 to 1995, and President from 1995 to 1998. He has served as Chief Executive
Officer of Ball Corporation since 1994, and Chairman of the Board of Directors
since 1996. Mr. Smitson was President of Maxon Corporation from 1979 to 1997,
Chief Executive Officer from 1985 to 1998, and Vice Chairman of the Board from
1989 to 1998.
Messrs. Bracken and Sissel are also directors of Ball Corporation. Mr. Clark is
also a director of Alltrista Corporation, and Dr. Worthen is also a director of
Indiana Energy, Inc.
CERTAIN COMMITTEES OF THE BOARD
The Corporation's Executive Committee functions as a nominating committee.
It recommends to the Board: (a) candidates to fill any vacancies on the
Board, and (b) a slate of directors to be elected each year at the annual
meeting of shareholders. The Committee will consider nominees recommended by
shareholders. Any such recommendation should be in writing and addressed to
the Secretary, First Merchants Corporation, 200 East Jackson Street, Muncie,
Indiana 47305. The members of the Executive Committee are Messrs. Smitson
(Chairman), Anderson, Bracken, Clark, Cox, and Sissel. John W. Hartmeyer,
who is a director of First Merchants, serves as a non-voting member of the
Committee. The Executive Committee met 3 times during 1998.
The Corporation has an Audit Committee whose functions are: (a) to assist the
Board in fulfilling its responsibilities related to accounting, auditing and
financial reporting functions; (b) to review or cause to be reviewed all reports
of examination made by banking authorities; (c) to meet with the internal
auditors and to make or cause to be made internal examinations and audits of the
affairs of the Corporation and its subsidiaries; (d) to meet with the external
auditors and to review the scope and results of external audits; and (e) to
consult with management on the selection of the independent public accountants
to serve as external auditors for the ensuing year. The members of the Audit
Committee are Messrs. Galliher (Chairman), Clark, Wickersham and Worthen.
Thomas K. Gardiner, Suzanne L. Gresham, and Nelson W. Heinrichs, who are
directors of First Merchants, George R. Likens, who is a director of the
Corporation's wholly-owned subsidiary, Pendleton Banking Company ("Pendleton"),
Gerald S. Paul, who is a director of Union County, and Mary Wisehart Phillips,
who is a director of the Corporation's wholly-owned subsidiary, First United
Bank ("First United"), serve as non-voting members of the Committee. The Audit
Committee met 4 times during 1998.
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<PAGE>
The Corporation has a Compensation Committee whose functions are: (a) to review
and approve the compensation and benefits to be paid to the executive officers
and senior management employees of the Corporation and the chief executive
officers of its subsidiaries, and (b) to review and approve the compensation and
benefits to be paid to the executive officers and senior management employees
and the compensation ranges and benefits for other officers and employees of the
Corporation's subsidiaries. The authority to periodically adjust the
compensation and benefits of employees, other than executive officers and senior
management of the Corporation and the chief executive officers of its
subsidiaries, has been delegated by the Compensation Committee to the chief
executive officers of the subsidiaries. The Committee is responsible for the
administration of the Corporation's incentive compensation and stock plans. The
members of the Compensation Committee are Messrs. Smitson (Chairman), Bracken,
Clark and Johnson. Mr. Hartmeyer serves as a non-voting member of the
Committee. The Compensation Committee met 3 times during 1998.
MEETINGS OF THE BOARD
The Board of Directors held 4 meetings during 1998. None of the directors of
the Corporation attended fewer than 75% of the total number of meetings of the
Board and the committees on which they served.
COMPENSATION OF DIRECTORS
Directors of the Corporation who were employees of the Corporation or one of its
subsidiaries received no separate compensation for their services as directors
in 1998. Directors of the Corporation who were not employees were paid an
annual retainer of $5,000 and $400 for each meeting of the Corporation's Board
of Directors that they attended in 1998. In addition, they were paid $250 per
meeting for attending meetings of the Executive Committee and other committees
of the Board of Directors of the Corporation or First Merchants. The Chairman
of the Executive Committee was paid an additional $150 and the chairmen of the
other committees were paid an additional $50 for each meeting over which they
presided. For his services as a director and Chairman of the Executive
Committee of Union County, Mr. Johnson was paid a retainer of $4,200 and $350
for each Board and Executive Committee meeting he attended. Union County also
paid him a bonus of $1,155 and provided him life insurance coverage in the
amount of $50,000 for these services. Mr. Wickersham was paid a retainer of
$4,200 for his services as a director and Chairman of the Board of Directors of
the Corporation's wholly-owned subsidiary, Randolph County Bank ("Randolph
County"), and Randolph County paid him $350 for each Board meeting and $50 for
each committee meeting that he attended in 1998.
Under the provisions of the 1994 Stock Option Plan, on July 1, 1998 options to
purchase shares of the Corporation's common stock were granted to the
non-employee directors of the Corporation. Taking into account the 3-for-2
common stock split which was effective at the close of business on October
23,1998 for shareholders of record at the close of business on October 16,1998,
each option is for 900 shares at an option price of $30.4375 per share, the
market price on the date of the grants.
The Corporation maintains an unfunded deferred compensation plan which gives
each director an annual election to defer the receipt of director's fees. Any
amounts reflected in a director's account under the plan are credited with
interest at a rate equal to First Merchants' 18-month variable rate IRA account
rate. Payments are made or begun when the individual ceases to be a director
of either First Merchants or the Corporation. During 1998, one (1) of the
Corporation's directors participated in the plan, deferring fees totaling
$10,100.
COMPENSATION OF EXECUTIVE OFFICERS
The tables in this section of the Proxy Statement contain information
concerning the compensation of certain named executive officers as of the
Corporation's most recent fiscal year-end, December 31, 1998. The
information in these tables concerning stock options has been adjusted to
give retroactive effect to the 3-for-2 common stock split which was effective
at the close of business on October 23, 1998 for shareholders of record at
the close of business on October 16, 1998.
-4-
<PAGE>
SUMMARY COMPENSATION TABLE
The following table contains information concerning the compensation paid by the
Corporation and its subsidiaries for the years 1996, 1997 and 1998 to the
Corporation's Chief Executive Officer and its 4 most highly compensated
executive officers other than the Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- ----------------------
AWARDS
----------------------
NAME AND SECURITIES
PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
($) ($) (#) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STEFAN S. ANDERSON, 1998 215,562 54,600 4,500 2,019
Chairman of the Board and 1997 197,721 53,323 5,250 2,000
Chief Executive Officer, 1996 188,543 51,270 5,250 2,294
Corporation and First
Merchants
MICHAEL L. COX, 1998 165,691 43,432 4,950 2,025
President and Chief 1997 153,461 44,985 5,250 1,875
Operating Officer, 1996 144,593 30,055 4,500 1,766
Corporation and First
Merchants
TED J. MONTGOMERY, 1998 143,674 27,440 3,600 2,520
Senior Vice President, 1997 143,674 26,684 3,900 3,077
Corporation; President, 1996 145,024 22,959 6,750 10,729
Union County (2)
LARRY R. HELMS, 1998 102,958 17,220 3,000 1,250
Senior Vice President, 1997 99,793 18,653 3,450 1,211
Corporation and First 1996 96,119 17,055 3,450 1,166
Merchants; General Counsel
and Secretary, Corporation
JAMES L. THRASH, 1998 96,974 16,307 3,000 947
Senior Vice President, 1997 93,402 17,556 3,450 912
Corporation and First 1996 89,931 16,050 3,450 878
Merchants; Chief Financial
Officer, Corporation
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents employer matching contributions for fiscal year to First
Merchants Corporation Retirement Savings Plan (a Section 401(k) plan); for
Mr. Montgomery, this amount also includes employer ESOP contributions to
Union County National Bank Employees' Stock Ownership Plan. The Plan was
terminated as of June 30, 1997.
(2) Mr. Montgomery became Senior Vice President of the Corporation on
August 13, 1996, following the Corporation's acquisition of Union
County. His 1996 compensation shown in the table includes compensation
received from Union County and the Corporation during the entire 1996
calendar year.
-5-
<PAGE>
OPTION GRANTS TABLE
The 1994 Stock Option Plan, which became effective as of July 1, 1994, provides
for the issuance of options to key employees of the Corporation or any
subsidiary to purchase the Corporation's common stock at prices not less than
the market price of the stock on the dates of grant. The following table
contains information concerning individual grants of stock options under the
plan made during 1998 to each of the executive officers named in the Summary
Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT ANNUAL RATES
SECURITIES OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME (#) FISCAL YEAR ($/Sh) DATE 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stefan S. Anderson 4,500 5.29 28.7083 July 31, 2008 81,388 205,408
Michael L. Cox 4,950 5.82 28.7083 July 31, 2008 89,527 225,949
Ted J. Montgomery 3,600 4.23 28.7083 July 31, 2008 65,110 164,326
Larry R. Helms 3,000 3.53 28.7083 July 31, 2008 54,259 136,939
James L. Thrash 3,000 3.53 28.7083 July 31, 2008 54,259 136,939
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Cox was granted an option for 4,950 shares on July 31, 1998, of which
1,725 are exercisable on or after January 31, 1999 and 3,225 are
exercisable on or after January 31, 2000. The option is not exercisable
after July 31, 2008. Each of the other options was granted on July 31,
1998 and is exercisable on or after January 31, 1999, but not after July
31, 2008.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table contains information concerning (1) each exercise of stock
options during 1998 under the 1989 Stock Option Plan or the 1994 Stock Option
Plan by each of the executive officers named in the Summary Compensation Table
above, and (2) the value as of December 31, 1998 of each of the named executive
officer's unexercised options on an aggregated basis.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISE REALIZED (#) ($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stefan S. Anderson 15,187 366,656 37,049 / 4,500 446,652 / 0
Michael L. Cox 0 0 35,737 / 7,200 398,491 / 11,578
Ted J. Montgomery 3,000 44,000 7,650 / 3,600 57,178 / 0
Larry R. Helms 3,037 58,781 17,924 / 3,000 182,972 / 0
James L. Thrash 3,450 26,450 0 / 3,000 0 / 0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
PENSION PLANS
The Corporation has a qualified defined benefit pension plan - the First
Merchants Corporation Retirement Pension Plan - covering, in general, all
full-time employees of the Corporation and its subsidiaries. The Corporation
also has a nonqualified plan - the First Merchants Corporation Supplemental
Executive Retirement Plan - which provides benefits to designated executives
that would otherwise be payable under the qualified plan if incentive
compensation were included in compensation and Internal Revenue Code Section
401(a)(17) did not limit the amount of compensation that can be considered for
purposes of calculating pension benefits accruing under the qualified plan. For
plan years beginning on or after January 1, 1998, $160,000 is the maximum amount
of compensation that can be considered for purposes of calculating pension
benefits accruing under the qualified plan.
The following table shows the estimated annual benefits payable upon retirement
at age 65 to persons born in 1941 (the average of the birth years of the
executive officers named in the Summary Compensation Table above) in specified
compensation and years of service classifications under the plans. The benefit
amounts shown in the table include amounts payable under both the qualified and
the nonqualified plans, for those executives who participate in both.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COMPENSATION YEARS OF SERVICE
---------------------------------------------------------------------------
15 20 25 30 35
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 35,857 $ 47,809 $ 59,762 $ 59,762 $ 59,762
150,000 43,732 58,309 72,887 72,887 72,887
175,000 51,607 68,809 86,012 86,012 86,012
200,000 59,482 79,309 99,137 99,137 99,137
225,000 67,357 89,809 112,262 112,262 112,262
250,000 75,232 100,309 125,387 125,387 125,387
300,000 90,982 121,309 151,637 151,637 151,637
350,000 106,732 142,309 177,887 177,887 177,887
- -----------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Participants in the qualified plan who had at least 15 credited years of service
and whose combined age and years of service totaled at least 65 as of January 1,
1991, including Messrs. Anderson and Helms, are entitled to a pension benefit
calculated under the formula that was in effect prior to 1990 if that will
produce a greater benefit. The following table shows the estimated annual
benefits payable upon retirement at age 65 under the formula that was in effect
prior to 1990 in specified compensation and years of service classifications
under the plans. The benefit amounts shown in the table include amounts payable
under both the qualified and the nonqualified plans, for those executives who
participate in both.
PENSION PLAN TABLE (PRE-1990 FORMULA)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COMPENSATION YEARS OF SERVICE
----------------------------------------------------------------------------
15 20 25 30 35
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 62,500 $ 62,500
150,000 45,000 60,000 75,000 75,000 75,000
175,000 52,500 70,000 87,500 87,500 87,500
200,000 60,000 80,000 100,000 100,000 100,000
225,000 67,500 90,000 112,500 112,500 112,500
250,000 75,000 100,000 125,000 125,000 125,000
300,000 90,000 120,000 150,500 150,500 150,500
350,000 105,000 140,000 175,000 175,000 175,000
- -----------------------------------------------------------------------------------------------
</TABLE>
Benefits under the plans are determined primarily by average final compensation
and years of service and are computed on the basis of straight-life annuity
amounts. They are not subject to any deduction for Social Security or other
offset amounts.
Compensation for purposes of the qualified plan consists of the base salary and
service award components of the salary amounts reported in the Summary
Compensation Table above. Compensation for purposes of the nonqualified plan
also includes the bonus amounts reported in the Summary Compensation Table
above. All of the executive officers named in the Summary Compensation Table
above are participating in the qualified plan, and Messrs. Anderson, Cox, and
Montgomery are also participating in the nonqualified plan. However, Mr.
Anderson's benefits under the nonqualified plan are payable at age 70 rather
than age 65. The 1998 compensation used for purposes of calculating pension
benefits under the plans, and the credited years of service as of January 1,
1999, of the executive officers named in the Summary Compensation Table are: Mr.
Anderson, $264,720 (24.2 years), Mr. Cox, $205,432 (4.7 years), Mr. Montgomery,
$167,432 (2.0 years), Mr. Helms, $100,135 (27.3 years), and Mr. Thrash, $94,805
(21.0 years).
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
The Corporation and First Merchants have entered into change-in-control
agreements on a year-to-year basis with Messrs. Anderson and Cox which
provide severance benefits in the event of both a change in control of the
Corporation or First Merchants and a termination or constructive termination
of the employment of the executive within 24 months after the change in
control, unless such termination was for cause, because of the executive's
death or disability, or by the executive other than on account of
constructive termination. In general, a "change in control" means an
acquisition by any person of 25% or more of the Corporation's or First
Merchants' voting shares, a change in the makeup of a majority of the
Corporation's or First Merchants' Board of Directors over a 24-month period,
a merger of the Corporation or First Merchants in which the shareholders
before the merger own 50% or less of the Corporation's or First Merchants'
voting shares after the merger, or approval by the Corporation's shareholders
of a plan of complete liquidation of the Corporation or First Merchants or an
agreement to sell or dispose of substantially all of the Corporation's or
First Merchants' assets. A "constructive termination" means, generally, a
significant reduction in duties, compensation or benefits or a relocation of
the executive's office outside of Muncie, Indiana unless agreed to by the
executive. The severance benefits payable, in addition to base salary and
incentive compensation accrued through the date of termination are: a lump
sum payment equal to 299% of an amount based on the executive's previous
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<PAGE>
5 calendar years' average W-2 compensation (but not more than the amount
which would cause the payment to be subject to the excise tax imposed under
Section 280G of the Internal Revenue Code), 2 years of life, disability,
accident and health insurance benefits, the bargain element value of then
outstanding stock options, outplacement services, and reasonable legal fees
and expenses incurred as a result of the termination. The agreements were
not entered into in response to any effort to acquire control of the
Corporation or First Merchants, and the Board of Directors is not aware of
any such effort.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors comprise the Compensation Committee of
the Corporation: Robert M. Smitson (Chairman), Frank A. Bracken, Thomas B.
Clark, and Norman M. Johnson. John W. Hartmeyer, who is a director of First
Merchants, serves as a non-voting member of the Compensation Committee. Mr.
Smitson is the Chairman of the Board of Maxon Corporation. Stefan S.
Anderson, the Chairman of the Board and Chief Executive Officer of the
Corporation and First Merchants, serves as a director of Maxon Corporation.
Mr. Bracken is of counsel with the firm of Bingham Summers Welsh & Spilman,
which provides legal services to the Corporation and its subsidiaries on a
transactional basis.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee administers the Corporation's executive
compensation program. It is responsible for establishing the compensation
and benefits of the Corporation's chief executive officer and chief operating
officer. The Committee also approves the compensation and benefits of the
other executive officers, after receiving recommendations from the chief
executive officer. The Corporation's incentive compensation and stock plans
are also administered by the Committee.
GENERAL POLICY ON EXECUTIVE COMPENSATION. The Board of Directors of the
Corporation has established an executive compensation program which is
designed to provide incentives to executive officers to achieve short-term
and long-term corporate strategic management goals, with the ultimate
objective of obtaining a superior return on the shareholders' investment. To
this end, the compensation program for executive officers consists of cash
and equity-based components which consider: the executive officer's
individual performance; the Corporation's performance as measured against
previously-established annual and long-term goals; the Corporation's
performance compared to industry peers; and the compensation paid by
competitors to individuals holding similar management positions.
The Compensation Committee believes that the Corporation's executive
compensation program is a significant contributor to the Corporation's
excellent short-term and long-term performance, compared to industry peers.
In 1998, the Corporation and its subsidiary banks again received national
recognition for their financial strength. The earnings of the Corporation's
lead bank, First Merchants, grew for the 23rd consecutive year in 1998. The
Corporation's earnings have increased every year since it was formed in 1982.
The annual compensation paid to the executive officers for 1998 (reported in
the "salary" and "bonus" columns of the Summary Compensation Table) averaged
approximately 3.4% more than the compensation for 1997, reflecting salary
increases which averaged about 4.8% and bonuses under the Corporation's
incentive compensation plans that were close to the same as in the previous
year for each of the executive officers.
SALARIES. The salaries paid to the Corporation's executive officers were
subjectively determined after consideration of the executive officer's
individual responsibilities, performance, and experience, the evaluation by
the chief executive officer of the executive officers other than the chief
executive officer, the Corporation's financial results compared with industry
peers, various industry salary surveys, and other factors such as budgetary
considerations and inflation rates.
The Compensation Committee tries to set the executive officers' salaries at
or above the average of the salaries paid to executive officers with similar
responsibilities at Indiana and Midwestern banks and bank holding companies
of similar size. The salaries and percentage salary increases for 1998 paid
executive officers at peer financial organizations were determined after
consulting several salary surveys including: the Indiana Bankers Association
survey of Indiana banks; the Crowe Chizek Mid-West Bank Compensation Survey;
national surveys of all types of companies, and of those in
-9-
<PAGE>
the banking industry, prepared by the American Compensation Association, The
Conference Board, and several benefits consultants; and a survey of the
Financial Associates banks (11 Indiana banks with assets between $200,000,000
and $2,000,000,000).
INCENTIVE COMPENSATION. The Compensation Committee believes that
performance-based pay should be a significant component of the executive
officers' total compensation package. Therefore, each of the executive
officers is covered by an incentive plan. The objectives of the plans are: to
link compensation to organization and individual goal achievement, to
motivate and retain key personnel, and to attract qualified talent to the
organization. The executive officers qualified for bonuses under the plans
if the Corporation or subsidiary bank met or exceeded pre-established minimum
("threshold") performance levels in 1998. Each plan contains a schedule
setting forth the percentage of salary, if any, payable to the executive
officer as a bonus, depending on the Corporation's or subsidiary bank's
performance relative to each of the criteria. In order to avoid wide swings
in payouts and to better focus the plans on long-term results, the plans were
amended in 1997 to provide that 60% of any bonus paid to the executive
officers would be based on current year performance and 40% would be based on
the average of the 2 prior years' performance. The plans are administered by
the Compensation Committee.
Mr. Anderson's bonus for 1998 (reported in the "bonus" column of the Summary
Compensation Table) was determined under the Corporation's Management
Incentive Plan for Chief Executive Officer. This plan provides for a bonus
of up to 40% of annual base salary, if the Corporation meets specific targets
for return on assets ("ROA"), return on equity ("ROE"), income growth ("IG"),
and efficiency ratio ("ER"). These are commonly-used criteria for measuring
institutional performance in the banking industry. ER is defined in the plan
as operating expense divided by operating revenue. The threshold performance
levels which would qualify him for a bonus under the plan were exceeded for
all criteria: the Corporation's ROA, ROE, IG, and ER; the maximum levels were
not exceeded for any of the criteria.
Mr. Cox's bonus for 1998 (reported in the "bonus" column of the Summary
Compensation Table) was determined under the Corporation's Management
Incentive Plan for Chief Operating Officer. This plan provides for a bonus
of up to 40% of annual base salary, if the Corporation and First Merchants
meet specific targets for ROA, IG, and ER and the Corporation meets specific
targets for ROE. The threshold performance levels which would qualify him for
a bonus under the plan were exceeded for all criteria: the Corporation's and
First Merchants' ROA, IG, and ER, and the Corporation's ROE; the maximum
levels were not exceeded for any of the criteria.
The bonuses paid to Messrs. Helms and Thrash for 1998 (reported in the
"bonus" column of the Summary Compensation Table) were determined under the
Corporation's Management Incentive Plan for Administrative Officers. This
plan provides for a bonus of up to 25% of annual base salary, if the
Corporation and First Merchants meet specific targets for ROA, IG, and ER.
The threshold performance levels which would qualify them for a bonus under
the plan were exceeded for all criteria: the Corporation's and First
Merchants' ROA, IG, and ER; the maximum levels were not exceeded for any of
the criteria.
Mr. Montgomery's bonus for 1998 (reported in the "bonus" column of the
Summary Compensation Table) was determined under the Corporation's Management
Incentive Plan for Chief Executive Officer, The Union County National Bank.
This plan provides for a bonus of up to 25% of annual base salary, if Union
County meets specific targets for ROA, IG, ER, and achievement of annual plan
objectives ("AAPO"). The threshold performance levels which would qualify
him for a bonus under the plan were exceeded for all criteria: Union County's
ROA, IG, ER, and AAPO; the maximum level was exceeded for Union County's ER,
but not for any of the other criteria.
STOCK PLANS. Equity-based compensation, including compensation under the
Corporation's Stock Option Plan and Employee Stock Purchase Plan, is intended
to encourage ownership and retention of the Corporation's common stock by key
employees, thereby giving them a meaningful stake in the Corporation's
continued success and aligning their interests with those of other
shareholders.
The Stock Option Plan is briefly described in the paragraph above the Option
Grants Table. During 1998 the Compensation Committee awarded options under
the plan to the 5 executive officers as follows: for 4,500 shares to Mr.
Anderson, for 4,950 shares to Mr. Cox, for 3,600 shares to Mr. Montgomery,
and for 3,000 shares each to Messrs. Helms and Thrash.
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<PAGE>
The Employee Stock Purchase Plan generally provides that full-time employees
of the Corporation or a participating subsidiary with more than 6 months of
service may elect, prior to the offering period (July 1 to June 30), to
purchase common shares of the Corporation at a price equal to 85% of the
lesser of the market price of the stock at the beginning of the period and
the market price at the end of the period. For the offering period ending
June 30, 1998, Messrs. Anderson, Cox, Montgomery, Helms and Thrash, the
executive officers named in the Summary Compensation Table, purchased 73,
373, 1101, 148, and 448 shares, respectively, under the 1994 Employee Stock
Purchase Plan. The 1994 Employee Stock Purchase Plan covers 5 offering
periods, expiring on June 30, 1999.
OTHER COMPENSATION. The executive officers are also covered by medical and
retirement plans which are generally applicable to full-time employees of the
Corporation and its subsidiaries. The retirement plans covering each of the
executive officers are the First Merchants Corporation Retirement Pension
Plan, a defined benefit pension plan (described in the "Pension Plans"
section), and the First Merchants Corporation Retirement Savings Plan, an
Internal Revenue Code Section 401(k) plan (referred to in note (1) to the
Summary Compensation Table). Messrs. Anderson, Cox, and Montgomery are also
covered by the First Merchants Corporation Supplemental Executive Retirement
Plan, a nonqualified SERP plan (described in the "Pension Plans" section).
CHIEF EXECUTIVE OFFICER'S COMPENSATION. The chief executive officer's salary
is determined in the manner described in the "Salaries" section of this
report. Mr. Anderson's total compensation for 1998, as reported in the
Summary Compensation Table, was near the average of the total compensation
paid to chief executive officers with similar responsibilities at other
Indiana and Midwestern banks and bank holding companies of similar size and
corporate structure. The relationship between Mr. Anderson's compensation
and corporate performance is similar to that of all of the Corporation's
other executive officers, as described above in this report, except that his
compensation is based primarily on the Corporation's performance whereas the
other executive officers' compensation is based in part on the performance of
a subsidiary bank.
FIRST MERCHANTS CORPORATION COMPENSATION
COMMITTEE
Robert M. Smitson, Chairman
Frank A. Bracken
Thomas B. Clark
John W. Hartmeyer
Norman M. Johnson
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<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly change in the Corporation's
cumulative total shareholder return on its common stock during the last 5
years with (1) the cumulative total return of the Russell 2000 Index, and (2)
the cumulative total return of the Russell 2000 Financial Services Sector
Index. The graph assumes $100 was invested on January 1, 1994 in the
Corporation's common stock, and in each of the two indexes shown, and all
dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST MERCHANTS CORPORATION, RUSSELL 2000
AND RUSSELL 2000 FINANCIAL SERVICES SECTOR
[GRAPH]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FMC 100 . . . . .116.00 . . . . 142.32. . . . .151.41 . . . . 220.03. . . . 238.32
Russell 2000 100 . . . . . 98.18 . . . . 126.10. . . . .146.90 . . . . 179.75. . . . 175.17
Russell 2000 Finl Serv 100 . . . . .100.62 . . . . 139.72. . . . .180.00 . . . . 244.85. . . . 227.23
</TABLE>
The graph in the proxy statement for the 1998 annual meeting of shareholders
compared the Corporation's performance to that of the CRSP Indexes for NASDAQ
Stock Market (U.S. Companies) and NASDAQ Bank Stocks. However, the
Corporation considers the Russell 2000 Indexes to be more appropriate for
comparison of performance than the NASDAQ Indexes because of the wide
variance in capitalization among the companies whose stock is traded in the
NASDAQ market and the extent to which the NASDAQ Indexes are influenced by
technology stocks. The Corporation is a Russell 2000 company, one of more
than 400 companies comprising the Financial Services Sector of that Index.
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<PAGE>
The following graph compares the yearly change in the Corporation's cumulative
total shareholder return on its common stock during the last 5 years with the
cumulative total returns of the indexes used in the 1998 proxy statement - the
CRSP Indexes for NASDAQ Stock Market (U.S. Companies) and NASDAQ Bank Stocks.
The graph assumes $100 was invested on January 1, 1994 in the Corporation's
common stock, and in each of the two indexes shown, and all dividends were
reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST MERCHANTS CORPORATION, NASDAQ STOCK
MARKET (U.S. COMPANIES) AND NASDAQ BANK STOCKS
[GRAPH]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FMC 100 . . . . . 116.0 . . . . .142.3. . . . . 151.4 . . . . .220.0. . . . .238.3
NASDAQ Stock Market 100 . . . . . 97.8 . . . . .138.3. . . . . 170.0 . . . . .208.6. . . . .293.2
NASDAQ Bank Stocks 100 . . . . . 99.6 . . . . .148.4. . . . . 195.9 . . . . .328.0. . . . .324.9
</TABLE>
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Corporation is not aware of any person who is the beneficial owner of
more than 5% of the Corporation's outstanding common stock. The following is
a summary of the amount and percent of the Corporation's common stock
beneficially owned on February 1, 1999 by each director and director nominee,
by each executive officer named in the Summary Compensation Table above, and
by all directors and executive officers as a group. Unless otherwise noted,
the beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) OF CLASS
---------------- -------------------------- --------
<S> <C> <C>
Stefan S. Anderson (11) 144,486 (2) 1.43%
Frank A. Bracken (11) 126,019 (3) 1.25%
Thomas B. Clark 4,837 *
Michael L. Cox 47,263 (4) *
David A. Galliher 12,027 (5) *
Norman M. Johnson 396,884 (6) 3.93%
Ted J. Montgomery 47,504 (7) *
George A. Sissel (12) 3,937 (8) *
Robert M. Smitson (11) 13,612 (9) *
Michael D. Wickersham 2,796 *
John E. Worthen 7,125 *
Larry R. Helms 35,783 (10) *
James L. Thrash 16,306 *
Directors and Executive
Officers as a Group (13 persons)(11)(12) 858,579 8.39%
</TABLE>
(1) The information contained in this column is based upon information
furnished to the Corporation by the persons and entities named
above and shareholder records of the Corporation. The amounts have
been adjusted to reflect the 3-for-2 common stock split which was
effective at the close of business on October 23, 1998 for
shareholders of record at the close of business on October 16,
1998. The shares shown include the following shares which may be
acquired during the next 60 days under a stock option plan by the
executive officers named above: Mr. Anderson, 41,549 shares; Mr.
Cox, 39,712 shares; Mr. Montgomery, 11,250 shares; Mr. Helms,
20,924 shares; Mr. Thrash, 3,000 shares; and the following shares
which may be acquired during the next 60 days under the 1994 Stock
Option Plan by the non-employee directors named above: Messrs.
Clark, Galliher, and Worthen, 4,500 shares each; Messrs. Bracken,
Sissel and Smitson, 3,600 shares each; and Messrs. Johnson and
Wickersham, 1800 shares each. The shares shown for directors and
executive officers as a group include 144,335 shares which may be
acquired during the next 60 days under a stock option plan.
(2) Includes 1,875 shares held by his spouse, Joan Anderson, in which
he disclaims any beneficial interest.
(3) Includes 4,170 shares held by his spouse, Judy Bracken, in which he
disclaims any beneficial interest; and 58,966 shares held in trust
for family members for which Mr. Bracken, as co-trustee, has sole
voting and shared investment power.
(4) Includes 3,168 shares held jointly with his spouse, Sharon Cox.
(5) Includes 907 shares held by his spouse, Nancy Galliher, in which he
disclaims any beneficial interest.
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<PAGE>
(6) Includes 24,493 shares held by his spouse, Julia Johnson, in which
he disclaims any beneficial interest; and 104,220 shares held in
trust for family members for which Mr, Johnson, as co-trustee, has
shared voting and investment power.
(7) Includes 23,575 shares held in trust for family members for which
Mr. Montgomery, as trustee, has sole voting and investment power.
(8) Includes 337 shares held jointly with his spouse, Mary R. Sissel.
(9) Includes 5,062 shares held by his spouse, Marilyn S. Smitson, in
which he disclaims any beneficial interest.
(10) Includes 14,859 shares held jointly with his spouse, Sandra Helms.
(11) Messrs. Anderson, Bracken and Smitson serve as directors of the
George and Frances Ball Foundation, Muncie, Indiana, which owns
370,911 shares (3.68%) of the Corporation's outstanding common
stock. The Foundation's Board of Directors, which has 6 members,
has the voting and investment power over the shares held by the
Foundation. The Foundation's shares are not included in the totals
of the shares beneficially owned by Messrs. Anderson, Bracken and
Smitson or by directors and executive officers as a group.
(12) Mr. Sissel serves as a director of the Ball Brothers Foundation,
Muncie, Indiana, which owns 41,364 shares (0.41%) of the
Corporation's outstanding common stock. The Foundation's Board of
Directors, which has 9 members, has the voting and investment power
over the shares held by the Foundation. The Foundation's shares
are not included in the total of the shares beneficially owned by
Mr. Sissel or by directors and executive officers as a group.
* Percentage beneficially owned is less than 1% of the outstanding
shares.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain directors and executive officers of the Corporation and its
subsidiaries and their associates are customers of, and have had transactions
with the Corporation's subsidiary banks from time to time in the ordinary
course of business. Additional transactions may be expected to take place in
the ordinary course of business in the future. All loans and commitments
included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
Frank A. Bracken, a director of the Corporation, is of counsel with the firm
of Bingham Summers Welsh & Spilman, Indianapolis, Indiana, which provides
legal services to the Corporation and its subsidiaries on a transactional
basis.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's directors and executive officers to file reports of
ownership and changes in ownership of the Corporation's stock with the
Securities and Exchange Commission. Based on its records and the written
representations of its directors and executive officers, the Corporation
believes that during 1998 its directors and executive officers complied with
all Section 16(a) filing requirements, with the following exception: John E.
Worthen, a director of the Corporation, was a month late in filing one Form 4,
reporting one purchase of 200 shares of the Corporation's common stock.
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<PAGE>
PROPOSAL TO APPROVE THE FIRST MERCHANTS CORPORATION 1999 LONG-TERM EQUITY
INCENTIVE PLAN
On February 9, 1999, the Board of Directors adopted the First Merchants
Corporation 1999 Long-Term Equity Incentive Plan (the "1999 Equity Incentive
Plan"). The Board's adoption of the 1999 Equity Incentive Plan was subject
to approval by the holders of a majority of the Corporation's outstanding
common stock, which approval is now being sought.
The 1999 Equity Incentive Plan is intended to replace the Corporation's
previous long-term equity incentive plans for executive officers, other key
employees and non-employee directors - the 1989 and 1994 Stock Option Plans.
The Board of Directors believes that the 1989 Stock Option Plan, which was
replaced by the 1994 Stock Option Plan, and the 1994 Stock Option Plan, under
which options can no longer be granted after June 30, 1999, have been
effective in attracting, retaining, and rewarding key personnel and in
aligning their interests closely with those of the shareholders. However,
the previous Plans did not give the Compensation Committee of the Board (the
"Committee") enough flexibility in administering the Plans to respond to
changed circumstances and new opportunities by awarding restricted stock as
well as stock options and by making awards to non-employee advisory directors
and directors of the Corporation's subsidiaries. The Board recommends
approval of the 1999 Equity Incentive Plan to address this lack of
flexibility. As discussed below, the 1999 Equity Incentive Plan allows the
Committee broader discretion in designing long-term equity incentive
compensation packages by determining the types, sizes, terms and conditions
of awards to be granted (other than non-employee director stock options),
subject to the provisions of the 1999 Equity Incentive Plan. The principal
features of the 1999 Equity Incentive Plan are set forth below.
ADMINISTRATION. The 1999 Equity Incentive Plan will be administered by the
Committee, which has the authority, subject to the terms of the Plan, to (i)
select employees and advisory and subsidiary directors who will receive
awards under the Plan; (ii) grant awards; (iii) determine the types and sizes
of the awards (except non-employee director stock options which are granted
pursuant to a formula); (iv) determine the terms and conditions of the awards
(except non-employee director stock options); (v) adopt, alter, and repeal
administrative rules and practices governing the Plan; (vi) interpret the
terms and provisions of the Plan and any awards granted thereunder; (vii)
prescribe the forms of any award agreements or other instruments relating to
awards; and (viii) otherwise supervise the administration of the Plan.
COMMON STOCK AVAILABLE. The aggregate number of shares of the Corporation's
common stock available for the grant of awards under the 1999 Equity
Incentive Plan in a fiscal year is equal to the sum of (i) 1% of the number
of common shares outstanding as of the last day of the Corporation's prior
fiscal year, plus (ii) the number of common shares that were available for
the grant of awards, but were not granted, under the Plan in any previous
fiscal year. Under no circumstances, however, may the number of common
shares available for the grant of awards in any fiscal year under the Plan
exceed 1.5% of the common shares outstanding as of the last day of the prior
fiscal year. The maximum aggregate number of shares of the Corporation's
common stock that may be issued under the 1999 Equity Incentive Plan upon the
exercise of incentive stock options (as described under Section 422 of the
Internal Revenue Code of 1986, as amended) is 1,200,000, as adjusted to
reflect any changes in the Corporation's capitalization, E.G., due to a
merger, consolidation, stock split, stock dividend, or similar event. The
aggregate market value of the shares of the Corporation's common stock that
would be available for the grant of awards under the Plan is not
determinable. However, based upon the number and market value of the
Corporation's common shares outstanding as of February 1, 1999, the shares of
the Corporation's common stock that would be available for the grant of
awards in a fiscal year under the 1999 Equity Incentive Plan had an aggregate
market value of $2,288,397.
ELIGIBILITY. Employees of the Corporation and its subsidiaries, directors of
the Corporation's subsidiaries, and advisory directors of the Corporation and
its subsidiaries, who are designated as participants by the Committee, will
be eligible to receive awards under the 1999 Equity Incentive Plan. In
addition, the Plan includes an annual stock option grant for non-employee
directors of the Corporation. While the total number of employees who will
be eligible to receive awards under the Plan cannot be determined at this
time, the Corporation expects to make awards under the Plan to approximately
65 employees in 1999, including the executive officers named in the Summary
Compensation Table above. There are presently 23 subsidiary directors and 7
advisory directors who would be eligible to receive awards
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<PAGE>
under the Plan, and there are 8 non-employee directors of the Corporation who
would be eligible to receive stock options under the Plan.
TYPES OF AWARDS. The Committee will have broad discretion to establish
stock-based incentive awards designed to attract and retain key personnel and
to motivate them to maximize shareholder value by aligning their interests
with those of the shareholders. The awards may consist of restricted stock,
incentive stock options and/or non-qualified stock options. The Committee
has the authority, subject to the terms of the 1999 Equity Incentive Plan, to
select the employees and advisory and subsidiary directors who will receive
awards and to determine the types and amounts of the awards and the terms,
conditions, and restrictions applicable thereto.
Non-employee directors of the Corporation will only be eligible to receive
non-qualified stock options under a formula program. Subject to certain
limitations, the 1999 Equity Incentive Plan grants each non-employee director
an annual option to purchase 1,000 shares of common stock of the Corporation
at an exercise price equal to the fair market value of the shares on the date
of the grant. The Committee will not have the power, without further
shareholder approval, to alter the amount, price, or timing of the options
granted to the non-employee directors under the Plan. The benefits or
amounts that will be received by or allocated to all current directors who
are not executive officers as a group under the 1999 Equity Incentive Plan
are not determinable. If the 1999 Equity Incentive Plan had been in effect
for 1998, the benefits or amounts that would have been received by or
allocated to all current directors who are not executive officers as a group
under the Plan are as follows:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
FIRST MERCHANTS CORPORATION 1999 LONG-TERM EQUITY INCENTIVE PLAN
----------------------------------------------------------------
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS
- ------------------ ---------------- ---------------
<S> <C> <C>
Non-Executive Director Group $ 0(1) 8,000 Shares of Common Stock
</TABLE>
(1) If the 1999 Equity Incentive Plan had been in effect for 1998,
the stock options granted to non-employee directors would not
have been in-the-money.
The benefits or amounts that will be received by or allocated to the
executive officers named in the Summary Compensation Table above, to all
current executive officers as a group, and to all employees - including all
current officers who are not executive officers - as a group, under the 1999
Equity Incentive Plan are not determinable. If the 1999 Equity Incentive
Plan had been in effect for 1998, the benefits or amounts that would have
been received by or allocated to the executive officers named in the Summary
Compensation Table above, to all current executive officers as a group, and
to all employees - including all current officers who are not executive
officers - as a group under the Plan are also not determinable.
PAYMENT OF EXERCISE PRICE AND TAX WITHHOLDING OBLIGATIONS. In general, the
Committee may permit a participant to pay the exercise price for a stock
option and/or the participant's tax withholding obligations associated with
an award in cash, by the transfer of shares of the Corporation's common
stock, by the surrender of all or part of an award (except for incentive
stock options), or by a combination of these methods.
CHANGE OF CONTROL. In general, in the event of a change of control (as
defined in the 1999 Equity Incentive Plan) of the Corporation or First
Merchants, (i) all outstanding stock options will become fully exercisable,
and (ii) all restrictions and conditions applicable to restricted stock and
stock options will be deemed to have been satisfied as of the date of the
change of control.
AMENDMENT, EFFECTIVE DATE, AND TERMINATION OF PLAN. The Board of Directors
may amend, suspend, or terminate the 1999 Equity Incentive Plan at any time.
Shareholder approval of an amendment will be required only to the extent
necessary to satisfy applicable legal and stock exchange rules. Subject to
shareholder approval, the Plan is
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<PAGE>
effective as of April 14, 1999. No incentive stock options may be granted
under the Plan after April 14, 2009, without further shareholder approval.
FEDERAL INCOME TAX CONSEQUENCES. Generally, there are no federal income tax
consequences to the recipient or the Corporation upon the grant or exercise
of an incentive stock option. If the recipient holds the shares purchased
through the exercise of an incentive stock option for more than 1 year after
the exercise date and 2 years after the option was granted (the "holding
period"), the recipient will be eligible upon selling the shares for
long-term capital gain treatment on any excess in the amount of the sale
price over the option price. The Corporation will not receive an income tax
deduction in the event the recipient disposes of the shares after completion
of the holding period. However, if the recipient sells the shares before the
expiration of the holding period, the recipient will have made a
"disqualifying disposition" and will realize ordinary income on the date of
sale equal to the difference between the option price and the fair market
value of the shares on the exercise date. The balance of the recipient's
gain, if any, on the sale of the shares is subject to capital gains
treatment. The Corporation will receive an income tax deduction in the same
amount and at the same time as the recipient realizes ordinary income.
The recipient of a non-qualified stock option will realize ordinary income
upon exercising the option, equal to the difference between the option price
and the fair market value on the exercise date of the shares purchased. The
Corporation will receive an income tax deduction in the same amount and at
the same time as the recipient realizes ordinary income. Upon the subsequent
sale of any such shares by the recipient, any appreciation or depreciation in
the value of the shares after the exercise date will be treated as a capital
gain or loss.
With respect to restricted stock, a recipient will generally not realize
income on the date of the grant, nor would the Corporation be entitled to a
deduction at that time. The recipient will realize ordinary income in an
amount equal to the fair market value of the awarded shares at the time the
restrictions lapse on such shares, and the Corporation will be entitled to a
corresponding income tax deduction. Dividends paid to recipients prior to
the lapse of restrictions will be taxed as ordinary income to the recipient
and deductible as such by the Corporation.
SHAREHOLDER VOTE REQUIRED TO APPROVE THE 1999 EQUITY INCENTIVE PLAN. The
1999 Equity Incentive Plan will be approved if it receives the favorable vote
of a majority of the shares present and voting at the annual meeting of
shareholders. Abstentions and broker non-votes are considered neither a vote
"for" nor "against."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE FIRST MERCHANTS CORPORATION 1999 LONG-TERM EQUITY INCENTIVE PLAN.
PROPOSAL TO APPROVE THE FIRST MERCHANTS CORPORATION 1999 EMPLOYEE STOCK
PURCHASE PLAN
On February 9, 1999, the Board of Directors adopted the First Merchants
Corporation 1999 Employee Stock Purchase Plan (the "1999 Stock Purchase
Plan"). The Board's adoption of the 1999 Stock Purchase Plan was subject to
approval by the holders of a majority of the Corporation's outstanding common
stock, which approval is now being sought.
The 1999 Stock Purchase Plan is intended to replace the Corporation's
previous employee stock purchase plans - the 1989 and 1994 Stock Purchase
Plans. The Board of Directors believes that the 1989 Stock Purchase Plan,
which was replaced by the 1994 Plan, and the 1994 Stock Purchase Plan, under
which no more offerings can be made after the offering period ending June 30,
1999, have provided eligible employees of the Corporation and its
participating subsidiaries a convenient way to purchase shares of the common
stock of the Corporation at a favorable price through payroll deductions.
The opportunity to purchase the Corporation's common shares has provided a
significant incentive to these employees who contribute and are expected to
contribute materially to the continued success of the Corporation. A
substantial majority of these employees have become shareholders and/or
increased their shareholdings through the Stock Purchase Plans, thus aligning
their interests closely with those of other shareholders. Therefore, the
Board recommends approval of the 1999 Stock Purchase Plan, which contains
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essentially the same provisions as were in the 1989 and 1994 Plans. The
principal features of the 1999 Stock Purchase Plan are set forth below.
OFFERINGS. The 1999 Stock Purchase Plan provides for purchase of the
Corporation's common stock by eligible employees through a maximum of 5
offerings, each of 12 months' duration. A total of 250,000 shares of the
Corporation's common stock are to be reserved for issuance pursuant to the
Plan. The fair market value of 250,000 shares as of February 1, 1999 was
$5,671,875.
ELIGIBILITY. The employees eligible to participate in the Plan are all
employees of the Corporation or a participating subsidiary who customarily
work more than 20 hours per week and who have been employed for at least 6
months as of the first day of the offering. At the present time, there are
approximately 449 employees who would be eligible to participate in the Plan.
PURCHASE OF SHARES. Prior to each offering period (July 1 to June 30),
eligible employees will be entitled to elect to have up to 20% of their base
salary or wages, excluding bonuses, overtime, incentive or other similar
extraordinary remuneration, deducted from their pay and accumulated with
interest until the end of that offering period, but not to exceed $25,000 per
offering period. Participants may increase, decrease or suspend their payroll
deductions one time each offering period and may withdraw the balance of
their payroll deduction account at any time during each offering period. At
the end of each offering period, the balance of each participant's payroll
deduction account will be applied towards the purchase of the largest number
of full shares of the Corporation's common stock possible, and each
participant will receive a certificate evidencing such shares.
The benefits or amounts that will be received by or allocated to the
participants under the 1999 Stock Purchase Plan, including the executive
officers named in the Summary Compensation Table above, are not determinable.
If the 1999 Stock Purchase Plan had been in effect for 1998, the benefits or
amounts that would have been received by or allocated to the participants
under the Plan, including the executive officers named in the Summary
Compensation Table above, are also not determinable.
PRICE. The price at which the shares will be deemed to have been purchased
(the "option price") will be determined by the Compensation Committee of the
Board (the "Committee"), and will be equal to the lesser of (i) 85% of the
fair market value of the common stock at the time the option is granted (the
"grant date"), or (ii) 85% of the fair market value of the common stock on
the last day of the offering period (the "exercise date"). In general, for
purposes of the 1999 Stock Purchase Plan "fair market value" means the
average of the highest "bid" and lowest "offered" quotations of the stock as
reported by NASDAQ for the particular date.
ADMINISTRATION. The Committee will administer the 1999 Stock Purchase Plan.
The Committee has the authority, subject to the terms of the Plan, to (i)
adopt, alter, and repeal administrative rules and practices governing the
Plan; (ii) interpret the terms and provisions of the Plan; and (iii)
otherwise supervise the administration of the Plan.
FEDERAL INCOME TAX CONSEQUENCES. The 1999 Stock Purchase Plan is intended to
qualify as an employee stock purchase plan under Section 423 of the Internal
Revenue Code of 1986, as amended. Consequently, the Committee's purchase of
stock on behalf of a participant pursuant to the Plan will not cause any
federal income tax consequences to the participant or the Corporation. If
the participant holds the shares purchased pursuant to the Plan for more than
1 year after the exercise date and 2 years after the grant date (the "holding
period"), upon selling the shares the participant's gain will be subject to
capital gains treatment. The Corporation will not receive an income tax
deduction in the event the participant disposes of the shares after
completion of the holding period. However, if the participant sells the
shares before the expiration of the holding period, the participant will have
made a "disqualifying disposition" and will realize ordinary income on the
date of sale equal to the difference between the option price and the fair
market value of the shares on the exercise date. Upon the subsequent sale of
any such shares, any appreciation or depreciation in the value of the shares
after the date the option was exercised is treated as a capital gain or loss.
The Corporation will receive an income tax deduction in the same amount and
at the same time as the participant realizes ordinary income, but not as to
any amount which is subject to capital gains treatment.
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SHAREHOLDER VOTE REQUIRED TO APPROVE THE 1999 STOCK PURCHASE PLAN. The 1999
Stock Purchase Plan will be approved if it receives the favorable vote of a
majority of the shares present and voting at the annual meeting of
shareholders. Abstentions and broker non-votes are considered neither a vote
"for" nor "against."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE FIRST MERCHANTS CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL TO AMEND ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED SHARES OF
THE CORPORATION'S COMMON STOCK
On February 9, 1999, the Corporation's Board of Directors unanimously
approved and agreed to recommend to the Corporation's shareholders that
Article V, Section 1 of the Articles of Incorporation of the Corporation be
amended to increase the authorized shares of common stock of the Corporation
from 20,000,000 shares to 50,000,000 shares. Approval of this amendment by
the shareholders is now being sought. The full text of Article Vof the
Corporation's Articles of Incorporation, with the proposed amendment to
Section 1, would read as follows:
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.
As of February 1, 1999, there were 10,086,642 shares of common stock
outstanding, so a balance of 9,913,358 shares remained available for issuance
without further action by the shareholders. Of these shares, approximately
1,909,495 will be used in two pending acquisitions of financial institutions
that are expected to close in March or April 1999. None of the 500,000
authorized shares of preferred stock has been issued. The additional shares
of common stock authorized under the proposed amendment would be part of the
existing class of common stock and, if and when issued, would have the same
rights and privileges as the shares of common stock presently outstanding.
The Board of Directors believes that it is in the Corporation's best interest
to have additional authorized shares of common stock available for possible
stock splits, stock dividends, future financing, acquisitions, employee
benefit programs, and other corporate purposes. Although there is no
specific transaction contemplated at the present time, the Board considers it
desirable to increase the authorized number of shares of common stock to
provide the Corporation greater flexibility and enable it to take advantage
of favorable opportunities in which the issuance of common stock might be
appropriate without the expense and delay of a special shareholder's meeting.
If this amendment is approved, no further action or authorization by the
Corporation's shareholders would be necessary prior
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to the issuance of additional shares of authorized common stock, except as
may be required for a particular transaction or issuance by applicable law or
by the rules of any stock exchange on which the Corporation's securities may
then be listed. The Corporation's common stock is presently traded
over-the-counter on the NASDAQ National Market System. A possible
disadvantage of authorizing additional shares of common stock might be that a
shareholder's equity interest in the Corporation could be reduced by the
issuance of additional common shares. Shareholders of the Corporation have
no preemptive rights or any other form of guaranty that they will have the
opportunity to participate in any future stock issuances.
The amendment to Article V, Section 1 of the Articles of Incorporation to
increase the authorized shares of the Corporation's common stock from
20,000,000 to 50,000,000 shares will be approved if it receives the favorable
vote of at least 75% of the Corporation's outstanding common shares.
Abstentions and broker non-votes are considered neither a vote "for" nor
"against."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL 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.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board, subject to the approval of the shareholders, has selected Olive
LLP, Certified Public Accountants, as its independent public accountants for
1999. Representatives of the firm are expected to be present at the annual
shareholder's meeting. They will have an opportunity to make a statement, if
they desire, and are expected to be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
THE APPOINTMENT OF THE FIRM OF OLIVE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR 1999.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2000 annual meeting
of the shareholders must be received by the Secretary of the Corporation at
the Corporation's principal office by October 27, 1999, for inclusion in the
Corporation's 2000 proxy statement and form of proxy relating to that
meeting.
Shareholder proposals, if any, intended to be presented at the 1999 annual
meeting that were not submitted for inclusion in this proxy statement will be
considered untimely unless they were received by the Secretary of the
Corporation at the Corporation's principal office by January 10, 1999.
OTHER MATTERS
The cost of soliciting proxies will be borne by the Corporation. In addition
to solicitations by mail, proxies may be solicited personally or by
telephone or telegraph, but no solicitation will be made by specially engaged
employees or paid solicitors.
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The Board and management are not aware of any matters to be presented at the
annual meeting of the shareholders other than the election of the directors,
the proposals to approve the 1999 Long-Term Equity Incentive Plan and the
1999 Employee Stock Purchase Plan, the proposal to amend the Articles of
Incorporation to increase the authorized shares of the Corporation's common
stock, and the ratification of the appointment of the independent public
accountants. However, if any other matters properly come before such meeting
or any adjournment thereof, the holders of the proxies are authorized to vote
thereon at their discretion, provided the Corporation did not have notice of
any such matter on or before January 10, 1999.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
February 24, 1999
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FIRST MERCHANTS CORPORATION
1999 LONG-TERM EQUITY INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
Section 1.01. ESTABLISHMENT AND TERM OF PLAN. First Merchants
Corporation, an Indiana corporation (the "Company"), hereby establishes the
First Merchants Corporation 1999 Long-Term Equity Incentive Plan (the
"Plan"), effective as of April 14, 1999, subject to the approval of the Plan
at the Company's 1999 annual meeting of shareholders by the holders of a
majority of the shares of the Company's common stock present and voting at
that meeting in person or by proxy.
Section 1.02. PURPOSE. The Plan is designed to promote the interests
of the Company, its subsidiaries, and its shareholders by providing
stock-based incentives to selected Employees, Non-Employee Directors,
Subsidiary Directors and Advisory Directors who are expected to contribute
materially to the success of the Company and its subsidiaries. The purpose
of the Plan is to provide a means of rewarding performance and to provide an
opportunity to increase the personal ownership interest of Employees,
Non-Employee Directors, Subsidiary Directors and Advisory Directors in the
continued success of the Company. The Company believes that the Plan will
assist its efforts to attract and retain quality Employees, Non-Employee
Directors, Subsidiary Directors and Advisory Directors.
ARTICLE II
ADMINISTRATION
Section 2.01. ADMINISTRATIVE COMMITTEE. The Plan shall be administered
by the Committee, which shall serve at the pleasure of the Board of
Directors. The Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and
to adopt such rules and regulations for administering the Plan as it may deem
necessary to comply with the requirements of the Plan or any applicable law.
Section 2.02. POWERS OF THE COMMITTEE. The Committee shall, subject to
the terms of this Plan, have the authority to: (i) select the eligible
Employees, Subsidiary Directors and Advisory Directors who shall receive
Awards, (ii) grant Awards, (iii) determine the types and sizes of Awards to
be granted to Employees, Subsidiary Directors and Advisory Directors under
the Plan (but not to Non-Employee Directors, who shall receive Director
Options in accordance with Article VI of this Plan), (iv) determine the
terms, conditions, vesting periods, and restrictions applicable to Awards
(other than Director Options), (v) adopt, alter, and repeal administrative
rules and practices governing this Plan, (vi) interpret the terms and
provisions of this Plan and any Awards granted
<PAGE>
under this Plan, (vii) prescribe the forms of any Award Agreements or other
instruments relating to Awards, and (viii) otherwise supervise the
administration of this Plan. The Committee may delegate any of its authority
to any other person or persons that it deems appropriate with respect to
Awards granted to Employees who are not officers of the Company.
Section 2.03. ACTIONS OF THE COMMITTEE. All actions taken and all
interpretations and determinations made in good faith by the Committee, or
made by any other person or persons to whom the Committee has delegated
authority, shall be final and binding upon all Participants, the Company, and
all other interested persons. All decisions by the Committee shall be made
with the approval of not less than a majority of its members. Members of the
Committee who are eligible for Awards may vote on any matters affecting the
administration of the Plan or the grant of any Awards pursuant to the Plan,
except that no such member shall act upon the granting of an Award to himself
or herself; but any such member may be counted in determining the existence
of a quorum of the Committee.
ARTICLE III
ELIGIBILITY
Section 3.01. EMPLOYEES, SUBSIDIARY DIRECTORS AND ADVISORY DIRECTORS.
Any Employee of the Company or any of its Subsidiaries who is selected by the
Committee to be a Participant under the Plan, and any Subsidiary Director or
Advisory Director, shall be eligible for the grant of Awards (other than
Director Options). The selection of the Employees, Subsidiary Directors and
Advisory Directors to receive Awards (other than Director Options) shall be
within the discretion of the Committee. More than one Award may be granted to
the same Employee, Subsidiary Director or Advisory Director.
Section 3.02. NON-EMPLOYEE DIRECTORS. All Non-Employee Directors are
eligible for the grant of Director Options, as provided in Article VI of this
Plan. Non-Employee Directors are not, however, eligible for the grant of any
Awards other than Director Options.
ARTICLE IV
SHARES SUBJECT TO AWARDS
Section 4.01. NUMBER OF COMMON SHARES. The shares subject to the
Awards and other provisions of the Plan shall be the Company's authorized but
unissued, or reacquired Common Shares. The aggregate number of Common Shares
that may be subject to Awards granted under this Plan in any fiscal year
shall be equal to the sum of (i) one percent (1%) of the number of Common
Shares Outstanding as of the last day of the Company's prior fiscal year,
plus (ii) the number of Common Shares that were available for the grant of
Awards, but not granted, under this Plan in any
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previous fiscal year; provided that in no event will the number of Common
Shares available for the grant of Awards in any fiscal year exceed
one-and-one-half percent (1 1/2%) of the Common Shares Outstanding as of the
last day of the prior fiscal year. The aggregate number of Common Shares
that may be issued under the Plan upon the exercise of Incentive Stock
Options is 1,200,000, as adjusted pursuant to Section 4.02. No fractional
shares shall be issued under this Plan; if necessary, the Committee shall
determine the manner in which the value of fractional shares will be treated.
The assumption of awards granted by an organization acquired by the
Company, or the grant of Awards under this Plan in substitution for any such
awards, shall not reduce the number of Common Shares available for the grant
of Awards under this Plan. Common Shares subject to an Award that is
forfeited, terminated or canceled without having been exercised shall again
be available for grant under this Plan, subject to the limitations noted in
the foregoing paragraph of this Section 4.01.
Section 4.02. ADJUSTMENT. In the event of any change in the Common
Shares by reason of a merger, consolidation, reorganization, recapitalization
or similar transaction, or in the event of a stock split, stock dividend or
distribution to shareholders (other than normal cash dividends), spin-off or
any other change in the corporate structure of the Company, the Committee
shall adjust the number and class of shares that may be issued under this
Plan, the aggregate number of Common Shares that may be issued under the Plan
upon the exercise of Incentive Stock Options, the number and class of shares
subject to outstanding Awards, the exercise price applicable to outstanding
Awards, and the Fair Market Value of the Common Shares and other value
determinations applicable to outstanding Awards, as appropriate. All
determinations made by the Committee with respect to adjustments under this
Section 4.02 shall be conclusive and binding for all purposes of the Plan.
ARTICLE V
AWARDS
Section 5.01. GRANT OF AWARDS. Awards authorized under this Article V
may be granted pursuant to another incentive program which incorporates by
reference the terms and conditions of this Plan. Awards may be granted
singly or in combination or tandem with other Awards. Awards may also be
granted in replacement of, or in substitution for, other awards granted by
the Company whether or not such other awards were granted under this Plan;
without limiting the foregoing, if a Participant pays all or part of the
exercise price or taxes associated with an Award by the transfer of Common
Shares or the surrender of all or part of an Award (including the Award being
exercised), the Committee may, in its discretion, grant a new Award to
replace the Common Shares that were transferred or the Award that was
surrendered. The Company may assume awards granted by an organization
acquired by the Company or may grant Awards in replacement of, or in
substitution for, any such awards.
Section 5.02. TYPES OF AWARDS. Awards may include, but are not limited
to, the following:
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(a) DIRECTOR OPTION. A right to purchase Common Shares granted to a
Non-Employee Director pursuant to Article VI of this Plan.
(b) STOCK AWARD. An Award that is made in Common Shares or
Restricted Stock or that is otherwise based on, or valued in whole or
in part by reference to, the Common Shares. All or part of any Stock
Award may be subject to conditions, restrictions and risks of
forfeiture, as and to the extent established by the Committee. Stock
Awards may be based on the Fair Market Value of the Common Shares, or on
other specified values or methods of valuation, as determined by the
Committee.
(c) STOCK OPTION. A right to purchase a specified number of
Common Shares, during a specified period and at a specified exercise
price, all as determined by the Committee. A Stock Option may be an
Incentive Stock Option or a Non-Qualified Stock Option. Incentive Stock
Options may only be issued to Employees. In addition to the terms,
conditions, vesting periods, and restrictions established by the
Committee in the Award Agreement, Incentive Stock Options must comply
with the requirements of Section 422 of the Code, Section 5.03(f), and
this Article V.
Section 5.03. TERMS AND CONDITIONS OF AWARDS; AGREEMENTS. Awards
granted under the Plan shall be evidenced by an Award Agreement executed by
the Company and the Participant, which shall contain such terms and be in
such form as the Committee may from time to time approve, subject to the
following limitations and conditions:
(a) NUMBER OF SHARES. The Award Agreement shall state, as
appropriate, the type and total number of shares granted, and/or the
type and total number of shares with respect to which Stock Options are
granted.
(b) AWARD PRICES. The Award Agreement shall state, as applicable,
the price per share of the Common Shares with respect to which Stock
Options are issued. The price or other value shall be determined by the
Committee. For Incentive Stock Options, the exercise price shall
satisfy all of the requirements of the Code and of Section 5.03(f) of
this Plan.
(c) PAYMENT OF EXERCISE PRICE; DEFERRAL. The exercise price of a
Stock Option (other than an Incentive Stock Option), Director Option,
and any Stock Award for which the Committee has established an exercise
price, may be paid in cash, by the transfer of Common Shares, by the
surrender of all or part of an Award (including the Award being
exercised), or by a combination of these methods, as and to the extent
permitted by the Committee. The exercise price of an Incentive Stock
Option may be paid in cash, by the transfer of Common Shares, or by a
combination of these methods, as and to the extent permitted by the
Committee at the time of grant, but may not be paid by the surrender of
all or part of an Award. The Committee may prescribe any other method of
paying the exercise price that it determines to be consistent with
applicable law and the purpose of this Plan.
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With the approval of the Committee, the delivery of the Common
Shares, cash, or any combination thereof subject to an Award (other than
Director Options) may be deferred, either in the form of installments or
a single future delivery. The Committee may also permit selected
Participants to defer the payment of some or all of their Awards, as
well as other compensation, in accordance with procedures established by
the Committee to assure that the recognition of taxable income is
deferred under the Code. The Committee may also establish rules and
procedures for the crediting of interest on deferred cash payments and
dividend equivalents on Awards.
(d) ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES LAWS. The
Company may postpone the issuance and delivery of certificates
representing shares until (a) the admission of such shares to listing on
any stock exchange on which shares of the Company of the same class are
then listed, and (b) the completion of such registration or other
qualification of such shares under any state or federal law, rule or
regulation as the Company shall determine to be necessary or advisable,
which registration or other qualification the Company shall use it best
efforts to complete; provided, however, a person purchasing shares
pursuant to the Plan has no right to require the Company to register the
Common Shares under federal or state securities laws at any time. Any
person purchasing shares pursuant to the Plan may be required to make
such representations and furnish such information as may, in the opinion
of counsel for the Company, be appropriate to permit the Company, in
light of the existence or non-existence with respect to such shares of
an effective registration under the Securities Act of 1933, as amended,
or any similar state statute, to issue the shares in compliance with the
provisions of those or any comparable acts.
(e) RIGHTS AS A SHAREHOLDER. Unless otherwise provided by the
Board of Directors or the Committee, a Participant shall have rights as
a shareholder with respect to shares covered by an Award, including
voting rights or rights to dividends, only upon the date of issuance of
a certificate to him or her, and, if payment is required, only after
such shares are fully paid.
(f) INCENTIVE STOCK OPTIONS. To the extent any Award granted
pursuant to this Plan contains an Incentive Stock Option, the following
limitations and conditions shall apply to such Incentive Stock Option
and the Award Agreement relating thereto in addition to the terms and
conditions provided herein:
(i) PRICE. The price of an Incentive Stock Option shall be
an amount per share not less than the Fair Market Value
per share of the Common Shares on the date of granting
of the option. In the case of Incentive Stock Options
granted to an Employee of the Company who is a 10%
shareholder, the option price shall be an amount per
share not less than one hundred ten percent (110%) of
the Fair Market Value per share of the Common Shares on
the date of the granting of the Incentive Stock Option.
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(ii) EXERCISE PERIOD. Unless terminated earlier pursuant to
other terms and provisions of the Award Agreement, the
term of each Incentive Stock Option shall expire within
the period prescribed in the Agreement relating thereto,
which shall not be more than five (5) years from the
date the Incentive Stock Option is granted if the
Participant is a ten percent (10%) shareholder, and not
more than ten (10) years from the date the Incentive
Stock Option is granted if the Participant is not a ten
percent (10%) shareholder.
(iii) LIMITATION ON GRANTS. No Incentive Stock Option shall
be granted under this Plan after April 14, 2009.
(iv) LIMITATION ON TRANSFERABILITY. No Incentive Stock
Option shall be assignable or transferable except by
will or under the laws of descent and distribution.
During the lifetime of a Participant, the Incentive
Stock Option shall be exercisable only by the
Participant and may not be transferred or assigned
pursuant to a qualified domestic relations order.
(v) MAXIMUM EXERCISE RULE. The aggregate Fair Market Value
(determined at the time the option is granted) of the
shares with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any
calendar year under all such plans of the Company and
any parent or Subsidiary of the Company shall not
exceed One Hundred Thousand Dollars ($100,000).
(g) TERMINATION OF AWARDS UNDER CERTAIN CONDITIONS. The Committee
may cancel any unexpired, unpaid or deferred Awards at any time, if the
Participant is not in compliance with all applicable provisions of this
Plan or with any Award Agreement, or if the Participant, whether or not
he or she is currently employed by the Company, engages in any of the
following activities without the prior written consent of the Company:
(i) Directly or indirectly renders services to or for an
organization, or engages in a business that is, in the
judgment of the Committee, in competition with the
Company.
(ii) Discloses to anyone outside of the Company, or uses for
any purpose other than the Company's business, any
confidential or proprietary information or material
relating to the Company, whether acquired by the
Participant during or after employment with the Company.
The Committee may, in its discretion and as a condition to the
exercise of an Award, require a Participant to acknowledge in writing
that he or she is in compliance with all
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applicable provisions of this Plan and of any Award Agreement and has
not engaged in any activities referred to in clauses (i) and (ii) above.
(h) NONTRANSFERABILITY. Unless otherwise determined by the
Committee and provided in the Award Agreement, (i) no Award granted
under this Plan may be transferred or assigned by the Participant to
whom it is granted other than by will, pursuant to the laws of descent
and distribution, or pursuant to a qualified domestic relations order,
and (ii) an Award granted under this Plan may be exercised, during the
Participant's lifetime, only by the Participant or by the Participant's
guardian or legal representative.
Section 5.04. ELECTION TO DEFER GRANT OR RECEIPT OF AWARD.
Notwithstanding any provision herein to the contrary, the Committee may
provide, in any Award Agreement or in any program granting Awards under this
Plan, that the Participant may elect to defer receipt of the Award as
provided in the Award Agreement or program.
ARTICLE VI
DIRECTOR OPTIONS
Section 6.01. GRANT OF DIRECTOR OPTIONS.
(a) ADMINISTRATION. A committee formed by only those Directors
other than Non-Employee Directors shall have full authority to
administer Director Options, including authority to require that any
Non-Employee Director sign an Award Agreement as a condition of
receiving a Director Option.
(b) GRANTING OF DIRECTOR OPTIONS. Until this Plan is terminated,
each individual serving as a Non-Employee Director on July 1 in any year
after 1998 shall automatically receive a Director Option, effective on
such date.
Section 6.02. NUMBER OF COMMON SHARES SUBJECT TO EACH DIRECTOR OPTION.
Each Director Option shall entitle the Non-Employee Director the right to
purchase one thousand (1,000) Common Shares on the terms and conditions
specified herein.
Section 6.03. EXERCISE PRICE. The exercise price of the Common Shares
subject to each Director Option shall be the Fair Market Value of the Common
Shares at the date of grant.
Section 6.04. DATE DIRECTOR OPTIONS BECOME EXERCISABLE. Unless
otherwise established by the Board of Directors, each Director Option shall
become exercisable in full six (6) months after the date of grant; provided,
however, all Director Options shall become exercisable in full (i) upon a
Change of Control, (ii) in accordance with the terms of Section 6.06, or
(iii) upon attainment by the Non-Employee Director of age 70.
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Section 6.05. EXPIRATION DATE. Unless terminated earlier pursuant to
the terms of this Plan, each Director Option shall terminate, and the right
of the holder to purchase Common Shares upon exercise of the Director Option
shall expire, at the close of business on the tenth anniversary date of the
date of grant.
Section 6.06. CONTINUOUS SERVICE AS A DIRECTOR. No Director Option may
be exercised unless the Non-Employee Director to whom the Director Option was
granted has continued to be a Non-Employee Director from the time of grant
through the time of exercise, except as provided in Section 6.04 and this
Section 6.06.
(a) RETIREMENT OR DISABILITY. If the service in office of a
Non-Employee Director is terminated due to the retirement or Disability
of the Non-Employee Director, the Non-Employee Director, or his legal
representative if he or she becomes incapacitated, shall have the right
to exercise the Director Option in full prior to the earlier of (i) five
(5) years after the date of his or her retirement or Disability, and
(ii) the expiration of the Director Option.
(b) DEATH. If the service in office of a Non-Employee Director is
terminated due to the death of the Non-Employee Director, the
Non-Employee Director's estate, executor, administrator, personal
representative or beneficiary shall have the right to exercise the
Director Option in full prior to the earlier of (i) one (1) year after
the date of his or her death, and (ii) the expiration of the Director
Option.
(c) EMPLOYED BY COMPANY. If a Non-Employee Director ceases to be
a Non-Employee Director by reason of his or her employment by the
Company or his or her appointment as a Subsidiary Director or Advisory
Director, the Director Option granted to that Non-Employee Director
shall be treated the same as Non-Qualified Stock Options held by
Employees, Subsidiary Directors or Advisory Directors, whichever is
applicable, and shall continue to be exercisable prior to the expiration
of the Director Option, subject to the limitations on exercise following
termination of employment, or termination of service as a Subsidiary
Director or Advisory Director, established by the Committee pursuant to
Article VIII of this Plan.
ARTICLE VII
TAX WITHHOLDING OBLIGATIONS
Prior to the payment of an Award, the Company may withhold, or require a
Participant to remit to the Company, an amount sufficient to pay any federal,
state and local withholding taxes associated with the Award. The Committee
may, in its discretion and subject to such rules as the Committee may adopt,
permit a Participant to pay any or all withholding taxes associated with the
Award in cash, by the transfer of Common Shares, by the surrender of all or
part of an Award (including the Award being exercised), or by a combination
of these methods.
-8-
<PAGE>
ARTICLE VIII
TERMINATION OF EMPLOYMENT OR TERMINATION OF SERVICE AS
SUBSIDIARY DIRECTOR OR ADVISORY DIRECTOR
Section 8.01. TERMINATION OF EMPLOYMENT. Unless the Committee provides
otherwise in the Award Agreement, if a Participant's employment with the Company
or a Subsidiary terminates for any reason other than Retirement, Disability or
death of the Participant, he or she may, but only within the thirty (30)-day
period immediately following such termination of employment, and in no event
later than the expiration date specified in the Award Agreement, exercise his or
her Award to the extent that he or she was entitled to exercise it at the date
of such termination; provided, however, if a Participant's employment is
terminated for deliberate, willful or gross misconduct, as determined by the
Board of Directors, all rights under the Award shall expire upon receipt of the
notice of such termination. The transfer of an Employee from the employ of the
Company to a Subsidiary, or vice versa, or from one Subsidiary to another
Subsidiary, shall not be deemed a termination of employment for purposes of the
Plan.
Section 8.02. RETIREMENT OR DISABILITY. Unless the Committee provides
otherwise in the Award Agreement, if a Participant's employment with the
Company or any Subsidiary, or his or her service as a Subsidiary Director or
Advisory Director, terminates due to Retirement or Disability, the
Participant (or if he or she becomes incapacitated, the Participant's legal
representative) may, but only within the five (5)-year period immediately
following such termination of employment or termination of service, and in no
event later than the expiration date specified in the Award Agreement,
exercise his or her Award to the extent that he or she was entitled to
exercise it at the date of such termination; provided, however, if the Award
being exercised under this paragraph is an Incentive Stock Option, it may be
exercised as such only during the three (3)-month period immediately
following such Retirement or Disability, and in no event later than the
expiration date specified in the Award Agreement. During the remainder of
the five (5)-year period (or, if shorter, the exercise period specified in
the Award Agreement), the option may be exercised as a Non-Qualified Stock
Option.
Section 8.03. DEATH. Unless the Committee provides otherwise in the
Award Agreement, if a Participant dies (whether prior to or after termination
of employment or termination of service as a Subsidiary Director or Advisory
Director) while he or she is entitled to exercise an Award, it may be
exercised within the one (1) year period immediately following the
Participant's death, but in no event later than the expiration date specified
in the Award Agreement, by the person or persons to whom his or her rights to
it shall pass by his or her will or by the applicable laws of descent and
distribution; provided, however, if the Award being exercised under this
paragraph is an Incentive Stock Option, it may be exercised as such only
during the three (3)-month period immediately following the Participant's
death and in no event later than the expiration date specified in the Award
Agreement. During the remainder of such one (1) year period (or, if shorter,
the exercise period specified in the Award Agreement), the option may be
exercised as a Non-Qualified Stock Option.
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<PAGE>
ARTICLE IX
CHANGE OF CONTROL
Unless and to the extent the terms and conditions of a Change of
Control agreement between the Company and a Participant provide otherwise, in
the event of a Change of Control of the Company, (i) all Stock Options then
outstanding will become fully exercisable as of the date of the Change of
Control, and (ii) all restrictions and conditions applicable to Restricted
Stock and other Stock Awards will be deemed to have been satisfied as of the
date of the Change of Control. Any such determination by the Board of
Directors that is made after the occurrence of a Change of Control will not
be effective unless a majority of the Directors then in office were in office
at the beginning of a period of twenty-four (24) consecutive months and the
determination is approved by a majority of such Directors.
ARTICLE X
AMENDMENT OF PLAN OR AWARDS
Section 10.01. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN. The Board
of Directors may, from time to time, amend, suspend or terminate this Plan at
any time, and, in accordance with such amendments, may thereupon change terms
and conditions of any Awards not theretofore issued. Shareholder approval for
any such amendment will be required only to the extent necessary to satisfy the
rules of NASDAQ or any national exchange on which the Common Shares are listed,
or to satisfy any applicable federal or state law or regulation.
Section 10.02. AMENDMENT OF OUTSTANDING AWARDS. The Committee may, in
its discretion, amend the terms of any Award (other than a Director Option),
prospectively or retroactively, but no such amendment may impair the rights of
any Participant without his or her consent. Shareholder approval for any such
amendment will be required only to the extent necessary to satisfy the rules of
NASDAQ or any national exchange on which the Common Shares are listed, or to
satisfy any applicable federal or state law or regulation. The Committee may, in
whole or in part, waive any restrictions or conditions applicable to, or
accelerate the vesting of, any Award (other than a Director Option).
ARTICLE XI
MISCELLANEOUS
Section 11.01. GOVERNING LAW. The interpretation, validity and
enforcement of this Plan will, to the extent not otherwise governed by the Code
or the securities laws of the United States, be governed by the laws of the
State of Indiana.
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<PAGE>
Section 11.02. RIGHTS OF EMPLOYEES. Nothing in this Plan will confer
upon any Participant the right to continued employment by the Company or limit
in any way the Company's right to terminate any Participant's employment at
will.
ARTICLE XII
DEFINITIONS
Section 12.01. DEFINITIONS. When capitalized in this Plan, unless the
context otherwise requires:
(a) "Advisory Director" means an advisory director of the Company or
any of its Subsidiaries, who is not an Employee or Director of the Company or
any of its Subsidiaries.
(b) "Award" means a grant made to a Participant pursuant to Article V
of this Plan.
(c) "Award Agreement" means a written instrument between the Company
and a Participant evidencing an Award and prescribing the terms, conditions, and
restrictions applicable to the Award.
(d) "Board of Directors" means the Board of Directors of the Company,
as constituted at any time.
(e) "Change of Control" means the first to occur of the following
events:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") other than the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of
the Company or First Merchants Bank, National Association
(the "Bank") representing twenty-five percent (25%) or
more of the combined voting power of the Company's or
Bank's then outstanding securities;
(ii) persons constituting a majority of the Board of Directors
of the Company or the Bank were not directors of the
Company or the Bank for at least the twenty-four (24)
months preceding months;
(iii) the shareholders of the Company or the Bank approve a
merger or consolidation of the Company or the Bank with
any other company, other than (1) a merger or
consolidation which would result in the
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<PAGE>
voting securities of the Company 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 combined voting power of the voting
securities of the Company or the Bank or such surviving
entity outstanding immediately after such merger or
consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company or the Bank
(or similar transaction) in which no person acquires fifty
percent (50%) or more of the combined voting power of the
Company's or the Bank's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or the Bank or an agreement for
the sale or disposition by the Company or the Bank of all
or substantially all of the Company's assets.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Compensation and Human Resources Committee of
the Board of Directors, consisting of two or more Non-Employee Directors who are
"non-employee directors" as defined in paragraph (b)(3) of Rule 16b-3.
(h) "Common Share" means a share of common stock of First Merchants
Corporation.
(i) "Common Shares Outstanding" means the total number of Common Shares
outstanding as reflected in the Company's financial statements as of the most
recent fiscal year-end.
(j) "Company" means First Merchants Corporation.
(k) "Director" means a director of the Company.
(l) "Director Option" means a right to purchase Common Shares granted to a
Non-Employee Director pursuant to Article VI.
(m) "Disabled" or "Disability" means a permanent disability as defined in
the applicable long-term disability plan of the Company; except that "Disabled"
or "Disability" with respect to Director Options or Awards made to Subsidiary
Directors or Advisory Directors shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code.
(n) "Employee" means any individual employed by the Company or any of its
Subsidiaries, including officers and Employees who are members of the Board of
Directors of the Company or any of its Subsidiaries.
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<PAGE>
(o) "Fair Market Value" of a Common Share means the value of the share on
a particular date, determined as follows:
(i) if the stock is not listed on such date on any national
securities exchange, the average between the highest "bid" and
lowest "offered" quotations of a share on such date (or, if
none, on the most recent date on which there were bid and
offered quotations of a share), as reported by NASDAQ, or
other similar service selected by the Committee;
(ii) if the stock is listed on such date on one (1) or more
national securities exchanges, the last reported sale price of
a share on such date as recorded on the composite tape system,
or, if such system does not cover the stock, the last reported
sale price of a share on such date on the principal national
securities exchange on which the stock is listed, or, if no
sale of the stock took place on such date, the last reported
sale price of a share on the most recent day on which a sale
of a share took place as recorded by such system or on such
exchange, as the case may be; or
(iii) if the stock is neither listed on such date on a national
securities exchange nor traded in the over-the-counter market,
the fair market value of a share on such date as determined in
good faith by the Committee, on a basis consistent with
regulations under the Code.
(p) "Incentive Stock Options" means stock options issued to Employees
which qualify under and meet the requirements of Section 422 of the Code.
(q) "Non-Employee Director" means any Director of the Company who is not
an Employee of the Company or any of its Subsidiaries.
(r) "Non-Qualified Stock Options" means stock options which do not qualify
under or meet the requirements of Section 422 of the Code.
(s) "Participant" means any person to whom an Award has been granted under
this Plan.
(t) "Plan" means this First Merchants Corporation 1999 Long-Term Equity
Incentive Plan authorized by the Board of Directors at its meeting held on
February 9, 1999, as such Plan from time to time may be amended as herein
provided.
(u) "Restricted Stock" means an Award of Common Shares that are
nontransferable and are subject to a substantial risk of forfeiture.
-13-
<PAGE>
(v) "Retirement", in the case of an Employee, means the termination of all
employment with the Company and its Subsidiaries for any reason other than death
or Disability after the day on which the Employee has attained age 55.
(w) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission, under the Securities Exchange Age of 1934, as amended.
(x) "Stock Options" means the Incentive Stock Options and the
Non-Qualified Stock Options issued pursuant to the Plan.
(y) "Subsidiary" means a corporation or other form of business association
of which shares (or other ownership interests) having fifty percent (50%) or
more of the voting power are, or in the future become, owned or controlled,
directly or indirectly, by the Company.
(z) "Subsidiary Director" means a director of a Subsidiary of the Company,
who is not a Director of the Company or an Employee of the Company or any of its
Subsidiaries.
-14-
<PAGE>
FIRST MERCHANTS CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
The First Merchants Corporation Employee Stock Purchase Plan (the "PLAN") was
adopted by the Board of Directors (the "BOARD") of First Merchants Corporation
(the "COMPANY") on February 9, 1999, subject to approval of the Company's
shareholders at their annual meeting on April 14, 1999. The effective date of
the Plan shall be July 1, 1999, if it is approved by the shareholders. The
purpose of the Plan is to provide eligible employees of the Company and its
subsidiaries a convenient opportunity to purchase shares of common stock of the
Company through annual offerings financed by payroll deductions. As used in
this Plan, "SUBSIDIARY" means a corporation or other form of business
association of which shares (or other ownership interests) having 50% or more of
the voting power are, or in the future become, owned or controlled, directly or
indirectly, by the Company.
The Plan may continue until all the stock allocated to it has been purchased or
until after the fifth offering is completed, whichever is earlier. The Board
may terminate the Plan at any time, or make such amendment of the Plan as it may
deem advisable, but no amendment may be made without the approval of the
Company's shareholders if it would materially: (i) increase the benefits
accruing to participants under the Plan; (ii) modify the requirements as to
eligibility for participation in the Plan; (iii) increase the number of shares
which may be issued under the Plan, (iv) increase the cost of the Plan to the
Company; or (v) alter the allocation of Plan benefits among participating
employees.
The Plan is not qualified under Section 401(a) of the Internal Revenue Code of
1986 (the "CODE") and is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). It is the Company's intention
to have the Plan qualify as an "employee stock purchase plan" under Section 423
of the Code, and the provisions of the Plan shall be construed so as to extend
and limit participation in a manner consistent with the requirements of that
Section of the Code.
ADMINISTRATION
The Plan is administered by the Compensation and Human Resources Committee (the
"COMMITTEE"), which consists of two or more members of the Board, none of whom
are eligible to participate in the Plan and all of whom are "NON-EMPLOYEE
DIRECTORS," as such term is defined in Rule 16b-3(b)(3) of the Securities and
Exchange Commission, under the Securities Exchange Act of 1934, as amended (the
"1934 ACT"). The Committee shall prescribe rules and regulations for the
administration of the Plan and interpret its provisions. The Committee may
correct any defect, reconcile any inconsistency or resolve any ambiguity in the
Plan. The actions and determinations of the Committee on matters relating to
the Plan are conclusive. The Committee and its members may be addressed in care
of the Company at its principal office. The members of the Committee do not
serve for fixed periods but may be appointed or removed at any time by the
Board.
<PAGE>
STOCK SUBJECT TO THE PLAN
An aggregate of 250,000 shares of common stock, without par value, of the
Company (the "COMMON STOCK") is available for purchase under the Plan. Shares
of Common Stock which are to be delivered under the Plan may be obtained by the
Company by authorized purchases on the open market or from private sources, or
by issuing authorized but unissued shares of Common Stock. In the event of any
change in the Common Stock through recapitalization, merger, consolidation,
stock dividend or split, combination or exchanges of shares or otherwise, the
Committee may make such equitable adjustments in the Plan and the then
outstanding offering as it deems necessary and appropriate including, but not
limited to, changing the number of shares of Common Stock reserved under the
Plan and the price of the current offering. If the number of shares of Common
Stock that participating employees become entitled to purchase is greater than
the number of shares of Common Stock available, the available shares shall be
allocated by the Committee among such participating employees in such manner as
it deems fair and equitable. No fractional shares of Common Stock shall be
issued or sold under the Plan.
ELIGIBILITY
All employees of the Company and such of its subsidiaries as shall be designated
by the Committee will be eligible to participate in the Plan. No employee shall
be eligible to participate in the Plan if his or her customary employment is
less than 20 hours per week. No employee shall be eligible to participate in an
offering unless he or she has been continuously employed by the Company or
subsidiary for at least six months as of the first day of such offering. No
employee shall be eligible to participate in the Plan if, immediately after an
option is granted under the Plan, the employee owns more than five percent (5%)
of the total combined voting power or value of all classes of shares of the
Company or of any parent or subsidiary of the Company.
OFFERINGS, PARTICIPATING, DEDUCTIONS
The Company may make up to five offerings of 12 months' duration each to
eligible employees to purchase Common Stock under the Plan. An eligible
employee may participate in such offering by authorizing at any time prior to
the first day of such offering a payroll deduction for such purpose in whole
dollar amounts, up to a maximum of twenty percent (20%) of his or her basic
salary or wages, excluding any bonus, overtime, incentive or other similar
extraordinary remuneration received by such employee. The Committee may at any
time suspend an offering if required by law or if determined by the Committee to
be in the best interests of the Company.
The Company will maintain or cause to be maintained payroll deduction accounts
for all participating employees. All funds received or held by the Company or
its subsidiaries under the Plan may be, but need not be, segregated from other
corporate funds. Payroll deduction accounts will be credited with interest at
such rates and intervals as the Committee shall determine from time
2.
<PAGE>
to time. Any balance remaining in any employee's payroll deduction account at
the end of an offering period will be refunded to the employee.
Each participating employee will receive a statement of his or her payroll
deduction account and the number of shares of Common Stock purchased therewith
following the end of each offering period.
Subject to rules, procedures and forms adopted by the Committee, a participating
employee may at any time during the offering period increase, decrease or
suspend his or her payroll deduction, or may withdraw the entire balance of his
or her payroll deduction account and thereby withdraw from participation in an
offering. Under the initial rules established by the Committee, payroll
deductions may not be altered more than once in each offering period and
withdrawal requests may be received on or before the last day of such offering.
In the event of a participating employee's retirement, death or termination of
employment, his or her participation in any offering under the Plan shall cease,
no further amounts shall be deducted pursuant to the Plan, and the balance in
the employee's account shall be paid to the employee, or, in the event of the
employee's death, to the employee's beneficiary designated on a form approved by
the Committee (or, if the employee has not designated a beneficiary, to his or
her estate).
PURCHASE, LIMITATIONS, PRICE
Each employee participating in any offering under the Plan will be granted an
option, upon the effective date of such offering, for as many full shares of
Common Stock as the amount of his or her payroll deduction account at the end of
any offering period can purchase. No employee may be granted an option under
the Plan which permits his or her rights to purchase Common Stock under the
Plan, and any other stock purchase plan of the Company or a parent or subsidiary
of the Company qualified under Section 423 of the Code, to accrue at a rate
which exceeds $25,000 of Fair Market Value of such Common Stock (determined at
the time the option is granted) for each calendar year in which the option is
outstanding at any time. As of the last day of the offering period, the payroll
deduction account of each participating employee shall be totaled. If such
account contains sufficient funds to purchase one or more full shares of Common
Stock as of that date, the employee shall be deemed to have exercised an option
to purchase the largest number of full shares of Common Stock at the offering
price. Such employee's account will be charged for the amount of the purchase
and a stock certificate representing such shares will be issued.
The Committee shall determine the purchase price of the shares of Common
Stock which are to be sold under each offering, which price shall be the
lesser of (i) an amount equal to 85 percent of the Fair Market Value of the
Common Stock at the time such option is granted, or (ii) an amount equal to
85 percent of the Fair Market Value of the Common Stock at the time such
option is exercised. "FAIR MARKET VALUE" of a share of Common Stock on a
given date is defined as the average price between the highest "bid" and
lowest "offered" quotations of a share on such date (or, if none, on the most
recent date on which there were bid and offered quotations of a share), as
reported by the National Association of Securities Dealers Automated
Quotation System, or other similar service selected by the Committee.
However, if the Common Stock is listed on a national securities
3.
<PAGE>
exchange, "FAIR MARKET VALUE" is defined as the last reported sale price of a
share on such date, or if no sale took place, the last reported sale price of
a share of stock on the most recent day on which a sale of a share of stock
took place as recorded on such exchange. If the Common Stock is neither
listed on such date on a national securities exchange nor traded in the
over-the-counter market, "FAIR MARKET VALUE" is defined as the fair market
value of a share on such date as determined in good faith by the Committee.
TRANSFER OF INTERESTS, STOCK CERTIFICATES
No option, right or benefit under the Plan may be transferred by a
participating employee other than by will or the laws of descent and
distribution, and all options, rights and benefits under the Plan may be
exercised during the participating employee's lifetime only by such employee
or the employee's guardian or legal representative. There are no
restrictions imposed by or under the Plan upon the resale of shares of Common
Stock issued under the Plan.
Certain officers of the Company are subject to restrictions under Section
16(b) of the 1934 Act. With respect to such officers, transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the 1934 Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void
if permitted by law and deemed advisable by the Committee.
Certificates for Common Stock purchased under the Plan may be registered only
in the name of the participating employee, or, if such employee so indicates
on his or her authorization form, in his or her name jointly with a member of
his or her family, with right of survivorship. An employee who is a resident
of a jurisdiction which does not recognize such a joint tenancy may have
certificates registered in the employee's name as tenant in common with a
member of the employee's family, without right of survivorship.
4.
<PAGE>
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF FIRST MERCHANTS CORPORATION
MUNCIE, INDIANA
The undersigned hereby appoints Clell W. Douglass and Hamer D. Shafer, and each
of them, as proxies with power of substitution, to represent and to vote all
shares of common stock of First Merchants Corporation which the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of First
Merchants Corporation to be held on April 14, 1999, and at any adjournment
thereof, with all of the powers the undersigned would possess if personally
present. If any of the nominees for election as Directors are unable to serve
for any reason, the persons listed above have the authority to vote as directed
for any substitute nominee.
Dated: , 1999.
-----------------------------
(Please sign exactly as your name appears hereon)
------------------------------------------
(Signature of Shareholder)
------------------------------------------
(Signature of Shareholder)
(Joint owners should each sign personally.
Trustees and others signing in a representative
capacity should indicate the capacity in which
they sign.)
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE.
(SEE REVERSE SIDE FOR IMPORTANT INFORMATION)
<PAGE>
(CONTINUED FROM OTHER SIDE)
/ / Please check this box if you plan to attend the Annual Meeting. Number
attending:
-------------
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION RECOMMEND A
VOTE "FOR" THE PROPOSALS LISTED.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.
1. Election of Directors: Stefan S. Anderson / / FOR all nominees listed
Thomas B. Clark to the left (except
David A. Galliher as specified in the
John E. Worthen space below)
/ / WITHHOLD VOTE (do not
vote for any of the
nominees listed to the
left)
(Instruction: To withhold authority to vote
for any individual nominee, write that
nominee's name in the space provided to the
right.) -----------------------------
2. Proposal to approve the First Merchants Corporation 1999 Long-Term Equity
Incentive Plan described in the Proxy Statement dated February 24, 1999.
FOR / / AGAINST / / ABSTAIN / /
3. Proposal to approve the First Merchants Corporation 1999 Employee Stock
Purchase Plan described in the Proxy Statement dated February 24, 1999.
FOR / / AGAINST / / ABSTAIN / /
4. Proposal 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.
FOR / / AGAINST / / ABSTAIN / /
5. Ratification of the appointment of the firm of Olive LLP as independent
public accountants for 1999.
FOR / / AGAINST / / ABSTAIN / /
6. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting, provided the Corporation
did not have notice of any such matter on or before January 10, 1999.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NOT OTHERWISE DIRECTED THIS
PROXY WILL BE VOTED "FOR" APPROVAL OF THE MATTERS DESCRIBED IN ITEMS 1, 2, 3,
4 AND 5 ABOVE.
