SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. _____________]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
GERMAN AMERICAN BANCORP
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
GERMAN AMERICAN BANCORP
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 2000
The Annual Meeting of Shareholders of German American Bancorp (the
"Corporation") will be held at the Holiday Inn, U.S. 231 South, Jasper, Indiana,
on Thursday, April 27, 2000, at 10:00 a.m., Jasper time, for the following
purposes:
1. To elect seven Directors to hold office until the Annual Meeting
of Shareholders in the year 2002 and until their successors are
elected and have qualified.
2. To transact such other business as may properly come before the
meeting.
Holders of record of Common Shares of the Corporation at the close of
business on March 1, 2000, are entitled to notice of and to vote at the Annual
Meeting.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ALL
SHAREHOLDERS, EVEN IF THEY PLAN TO ATTEND THE MEETING, ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
URBAN R. GIESLER
Secretary
March 31, 2000
Jasper, Indiana
(ANNUAL REPORT ENCLOSED)
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF
GERMAN AMERICAN BANCORP
April 27, 2000
This Proxy Statement is being furnished to shareholders on or about
March 31, 2000, in connection with the solicitation by the Board of Directors of
German American Bancorp (the "Corporation"), 711 Main Street, Jasper, Indiana
47546, of proxies to be voted at the Annual Meeting of Shareholders to be held
at 10:00 a.m., Jasper time, on Thursday, April 27, 2000, at the Holiday Inn,
U.S. 231 South, Jasper, Indiana.
At the close of business on March 1, 2000, the record date for the
Annual Meeting, there were 9,029,109 Common Shares outstanding and entitled to
vote at the Annual Meeting. On all matters, including the election of Directors,
each shareholder will have one vote for each share held.
If the enclosed form of proxy is executed and returned, it may
nevertheless be revoked at any time insofar as it has not been exercised. The
proxy may be revoked by either (a) filing with the Secretary (or other officer
or agent of the Corporation authorized to tabulate votes) (i) a written
instrument revoking the proxy or (ii) a subsequently dated proxy, or (b)
attending the Annual Meeting and voting in person. Unless revoked, the proxy
will be voted at the Annual Meeting in accordance with the instructions of the
shareholder as indicated on the proxy. If no instructions are given, the shares
will be voted as recommended by the Directors.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
--------
Seven Directors are to be elected at the Annual Meeting. The Board of
Directors is divided into two classes of equal size (or as nearly equal size as
possible) with the terms of one class expiring each year. Generally, each
Director serves until the annual meeting of the shareholders held in the year
that is two years after such Director's election and thereafter until such
Director's successor is elected and has qualified or until the earlier of the
Director's resignation, disqualification, removal or death. The terms of the
current Directors expire as follows: 2000 - Directors Mehne, Ruckriegel,
Schroeder, Seger, Steurer, Thompson and Voyles; 2001 - Directors Astrike,
Buehler, Graham, Hoffman, Lett, and McCormick.
Each Director will be elected by a plurality of the votes cast in the
election. Shares present but not voted for any nominee do not affect the
determination of whether a nominee has received a plurality of the votes cast.
It is the intention of the persons named in the accompanying form of
proxy to vote such proxy for the election to the Board of Directors of the
following nominees: Gene C. Mehne, Robert L. Ruckriegel, Mark A. Schroeder,
Larry J. Seger, Joseph F. Steurer, Chet L. Thompson and Michael J. Voyles, each
of whom is now a Director whose present term expires this year. Each nominee has
indicated that he will accept nomination and election as a Director. If,
however, any such person is unable or unwilling to accept nomination or
election, it is the intention of the Board of Directors to nominate such other
person as a Director as it may in its discretion determine, in which even the
shares subject to the proxy will be voted for that person.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE SEVEN NOMINEES
IDENTIFIED ABOVE (ITEM 1 ON THE PROXY).
<PAGE>
The following table presents certain information as of March 1, 2000,
regarding the current Directors of the Corporation, including the seven nominees
proposed by the Board of Directors for election at this year's Annual Meeting.
Unless otherwise indicated in a footnote, the principal occupation of each
Director has been the same for the last five years and such Director possesses
sole voting and investment powers with respect to the shares indicated as
beneficially owned by such Director. Unless specified otherwise, a Director is
deemed to share voting and investment powers over shares indicated as held by a
spouse, children or other family members residing with the Director. Each
Director's shares include 1,050 shares that he has the right to acquire upon
exercise of stock options. None of the persons named below beneficially owns
more than one percent of the Common Shares, except for the following: Mr.
Buehler (3.9%); Mr. Ruckriegel (3.0%); Mr. Hoffman (1.1%); Mr. Astrike (1.0%);
and Mr. Graham (1.0%). The Directors and executive officers as a group
beneficially owned 12.5% of the Corporation's Common Shares as of March 1, 2000
Shares
Name, Present Principal Director Beneficially
Occupation and Age Since(1) Owned
- ------------------ ----- ------------
Directors:
George W. Astrike 1982 94,205(3)
Chairman of the Board of the Corporation(2)
Age 64
David G. Buehler 1984 354,921(4)
CEO of Buehler Foods, Inc.
Age 60
David B. Graham 1997 91,425(5)
Past Chairman of the Board, Graham
Farms, Inc. and Graham Cheese Corporation
Age 73
William R. Hoffman 1986 97,760(6)
Farmer; Director of Patoka Valley Feeds, Inc.
Age 62
Michael B. Lett 1993 7,853(8)
Attorney, Lett & Jones7
Age 55
C. James McCormick 1999 14,122(9)
Chairman, McCormick, Inc., and
President, JAMAC Corp. (trucking)
Age 74
Gene C. Mehne* 1979 22,479(10)
President and Manager, Mehne
Farms, Inc.
Age 55
Robert L. Ruckriegel* 1983 275,789(11)
President, B. R. Associates, Inc.
(restaurants)
Age 64
2
<PAGE>
Mark A. Schroeder* 1991 25,432(13)
President and Chief Executive Officer
of the Corporation12
Age 46
Larry J. Seger* 1990 61,582(14)
Sales Manager and Secretary/Treasurer,
Wabash Valley Produce, Inc.
(egg and turkey production)
Age 49
Joseph F. Steurer* 1983 34,434(15)
Chairman of the Board,
JOFCO, Inc. (office furniture)
Age 63
Chet L. Thompson* 1997 16,268(16)
President, Thompson Insurance, Inc.
Age 63
Michael J. Voyles* 1998 14,575(17)
President, Voyles Supermarket, Inc.,
and M.J.V. Inc.
Age 51
Named Executive Officers Who Are Not Directors:
Clay W. Ewing ---- 2,286
Executive Vice President, Retail
Banking, of the Corporation; President
and Chief Executive Officer of First State Bank,
Southwest Indiana
Age 44
Stan J. Ruhe ---- 12,184(18)
Executive Vice President, Credit
Administration, of the
Corporation
Age 48
All Directors of the Corporation and 1,131,033(19)
Executive Officers as a Group
(18 persons)
- ----------------
*Nominee
1 Includes service on the Board of German American Bank prior to the
organization of the Corporation. Does not include prior service on the Board
of Directors of any other bank subsidiary acquired by the Corporation.
2 Mr. Astrike served as Chief Executive Officer of the Corporation through
December 31, 1998.
3 Includes 75,434 shares that Mr. Astrike has the right to purchase upon the
exercise of stock options.
4 Includes 304,299 shares owned by Buehler Foods, Inc., of which Mr. Buehler is
Chief Executive Officer and majority shareholder and with respect to which
Mr. Buehler shares voting and investment powers; 7,063 shares held jointly by
Mr. Buehler and his wife; and 41,674 shares held by the David G. Buehler
Charitable Trust.
5 Includes 16,931 shares owned by Mr. Graham's wife.
6 Includes 28,911 shares owned by Mr. Hoffman's wife.
3
<PAGE>
7 Mr. Lett and his brother and law partner, J. David Lett, also serve as
Directors of Peoples. Lett & Jones represents the Union Banking Division of
Peoples as legal counsel.
8 Includes 687 shares owned jointly by Mr. Lett and his wife, and 555 shares
held by Mr. Lett's wife, who also holds 394 shares as custodian for their
son.
9 Includes 105 shares owned by Mr. McCormicks' wife.
10 Includes 15,564 shares held by the estate of Mr. Mehne's mother, 2,200 shares
owned by Mr. Mehne's wife; and 1,408 shares held by German American as
trustee for the Mehne Farms, Inc. Qualified Plan.
11 Includes 81 shares owned jointly by Mr. Ruckriegel and his wife, 45,585
shares owned by Mr. Ruckriegel's wife; and 180,151 shares held by Ruckriegel
Associates I, LP, for which Mr. Ruckriegel and his wife serve as the
partners.
12 Mr. Schroeder was named Chief Executive Officer of the Corporation effective
January 1, 1999, after having served as its President and Chief Operating
Officer since July 1, 1995, and prior thereto having served as President of
German American Bank.
13 Includes 9,530 shares that Mr. Schroeder has the right to purchase upon the
exercise of stock options. 14 Includes 7,085 shares Mr. Seger owns jointly
with his wife and 28,129 shares owned by certain corporations of which Mr.
Seger is an executive officer and a shareholder.
15 Includes 4,781 shares owned by Mr. Steurer's wife.
16 Includes 5,745 shares owned jointly by Mr. Thompson and his wife, and 8,179
shares owned by Mr. Thompson's wife.
17 Includes 1,975 shares owned jointly by Mr. Voyles and his wife, and 2,541
shares owned jointly by Mr. Voyles and his children.
18 Includes 294 owned by Mr. Ruhe's children and 4,666 shares that Mr. Ruhe has
the right to acquire upon the exercise of stock options.
19 Includes 103,280 shares that Directors and Executive Officers have the right
to acquire upon the exercise of stock options and 698,429 shares as to which
voting and investment powers are shared by members of the group with spouses
or others.
Certain members of the Corporation's Board of Directors also serve on
the Board of Directors of one or more of the subsidiaries of the Corporation as
follows: Mr. Astrike, all subsidiary boards except Citizens State Bank and First
American Bank; Mr. Schroeder, all subsidiary boards; Messrs. Buehler, Hoffman,
Mehne, Ruckriegel, Seger and Steurer, German American Bank; Mr. Voyles, Citizens
State Bank; Mr. McCormick, First American Bank; and Mr. Lett, Peoples National
Bank.
Committees and Attendance
-------------------------
The Board of Directors of the Corporation held seven meetings during
1999. The Corporation has standing audit and compensation committees but does
not have a nominating committee. The Audit Committee, consisting of Directors
Hoffman (Chairman), Lett, Mehne and Seger, met three times in 1999. The Audit
Committee reviews with the Corporation's independent auditors the scope of the
audit to be undertaken and the results of the audit and also reviews the results
of internal audits. The Corporation's Human Resources Committee (previously
named the Compensation Committee), consisting of Directors Steurer (Chairman),
Astrike, Buehler, Graham, Ruckriegel and Schroeder, met four times during 1999.
The Human Resources Committee makes salary and bonus recommendations to the
Board of Directors and administers the grant of options and other awards under
the Corporation's stock option and equity incentive plans. Each of the Directors
attended at least 75 percent of the aggregate number of meetings of the Board of
Directors of the Corporation and the committee on which he served during 1999.
Compensation of Directors
-------------------------
During 1999, the Corporation adopted a new system of compensating
members of the Board of Directors of the Corporation and of its subsidiary
banks. For the first two quarters of 1999, (a) each Director of the Corporation,
including salaried officers of the Corporation, received $1,000 per quarter for
service on the Corporation's Board of Directors, regardless of attendance at
meetings, (b) Directors who were not salaried officers of the Corporation or any
of its subsidiaries received $100 for each committee meeting attended, and (c)
all Directors received an additional $100 for attending a special meeting of the
Corporation's Board of Directors.
4
<PAGE>
On June 1, 1999, but as compensation for the annual terms that
commenced on the dates of the respective annual meetings of the Corporation and
of each of its subsidiary banks that were held in 1999 and which will expire at
their respective annual meetings in 2000, the Corporation instituted a new
program of annual retainers for Directors of the Corporation and each of the
banks. These retainers are earned regardless of the number of meetings held or
attended, and regardless of committee membership or attendance. Under this
annual retainer program, the Corporation on June 1, 1999 (a) awarded each of its
Directors, including Mr. Schroeder, (i) shares of common stock with a value on
the date of award of $2,000, and (ii) an option to purchase 1,050 shares of the
Corporation's common stock exercisable for ten years (five years in the case of
Messrs. Graham and McCormick) at an exercise price of $17.26 per share, which
was not less than the market value of the stock at the date of grant, and (b)
granted each Director the right to acquire additional shares of the
Corporation's common stock with a value of $5,200, or in lieu thereof and at the
Director's election, a cash payment or deferred compensation award.
Except for Mr. Graham, all of the members of the Corporation's Board of
Directors served on the Board of one of the subsidiary banks during 1999, as
disclosed above under the table of "Nominees." Each of such Directors (other
than Mr. Schroeder, who as a salaried employee of the Corporation was
ineligible) received additional compensation for his service to such
subsidiaries during 1999. For service as Directors to the subsidiaries through
May 1999, each bank subsidiary paid each of its Directors (other than Mr.
Schroeder) a monthly retainer of $500, and German American Bank (but not the
other subsidiaries) paid an additional $100 for every regular and special Board
meeting and committee meeting attended. Under the Corporation's annual retainer
program adopted June 1, 1999, described above, the members of the Board of
Directors of each subsidiary (including members who are also are Directors of
the Corporation, except Mr. Schroeder) were awarded the same package of stock of
the Corporation offered by the Corporation to the Corporation's Directors,
except that members of the subsidiary boards of directors were not granted stock
options for their service on those boards.
5
<PAGE>
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
The following table sets forth information regarding compensation paid
for the fiscal years indicated to the Corporation's Chief Executive Officer and
the Corporation's other most highly compensated executive officers, based on
salary and bonus earned during fiscal 1999.
Summary Compensation Table
--------------------------
Long Term Compensation
----------------------
Annual Compensation Awards
------------------- ------
Name and Principal Securities Underlying All Other
Position Year Salary Bonus Options/SARs(1) Compensation
- ------------------ ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Mark A. Schroeder, 1999 $160,000 $35,866 2,919 $ 30,591(2)
President and C.E.O.(3) 1998 $135,000 $35,284 0 $ 30,505
1997 $125,000 $32,506 6,498 $ 26,296
George W. Astrike, 1999 $ 81,005 $34,413 1,050 $ 209,561(4)
Chairman of the Board(5) 1998 $209,348 $55,089 63,945 $ 47,763
1997 $178,000 $46,280 11,486 $ 44,402
Stan J. Ruhe, 1999 $100,000 $17,942 604 $ 11,794(6)
Executive Vice President, 1998 $ 99,500 $21,622 337 $ 12,112
Credit Administration 1997 $ 98,000 $21,070 3,720 $ 11,907
Clay W. Ewing, 1999 $ 81,640 $23,891 --- $ 10,570(7)
Executive Vice President, 1998 $ 72,000 $10,927 --- $ 8,378
Retail Banking(8) 1997 $ 69,000 $10,539 --- $ 8,034
- --------
<FN>
1 The numbers of shares underlying options have been retroactively adjusted to
reflect subsequent stock splits and stock dividends and are rounded to the
nearest whole share.
2 Represents contributions of $8,000 under the Profit Sharing Plan, matching
contributions of $8,000 under the 401(k) Plan, Director fees in the amount of
$5,200, Director compensation in the form of common shares of the Corporation
valued at $7,200, and $2,191 in above-market interest credited on deferred
Director fees.
3 Mr. Schroeder became Chief Executive Officer of the Corporation effective
January 1, 1999.
4 Represents $162,000 paid under the consulting agreement described below,
contributions of $5,427 under the Profit Sharing Plan, matching contributions
of $5,427 under the 401(k) Plan, Director fees in the amount of $5,100,
$15,057 in above-market interest credited on deferred salary and Director
fees, Director compensation in the form of common shares of the Corporation
valued at $14,400, and $2,150 in premiums paid for the term portion of a
split dollar life insurance policy purchased by the Corporation under the
consulting agreement described below. Pursuant to a 1998 consulting agreement
between the Corporation and Mr. Astrike, Mr. Astrike receives a monthly
payment of $20,250 from the date of his retirement from full-time employment
effective May 31, 1999, until August 31, 2000, and thereafter a monthly
payment of $1,250 until August 31, 2003; is entitled to receive a lifetime
supplemental retirement benefit of approximately $50,000 annually commencing
September 1, 2003; is entitled to designate a beneficiary for a $1,000,000
death benefit payable upon Mr. Astrike's death under a split-dollar life
insurance policy purchased by the Corporation in 1998; and was awarded in
1998 a non-qualified stock option entitling him to purchase 63,945 shares of
the Corporation's common stock at an exercise price equal to the market price
at the date of grant.
5 Mr. Astrike also served as Chief Executive Officer through December 31, 1998.
6 Represents contributions of $5,897 under the Profit Sharing Plan and matching
contributions of $5,897 under the 401(k) Plan.
7 Represents contributions of $5,285 under the Profit Sharing Plan and matching
contributions of $5,285 under the 401(k) Plan.
8 Mr. Ewing also served as President and Chief Executive Officer of First State
Bank, Southwest Indiana, during all periods presented.
</FN>
</TABLE>
6
<PAGE>
Option/SAR Grants In Last Fiscal Year
-------------------------------------
The following table presents information on the stock option grants
that were made during 1999 pursuant to the German American Bancorp 1992 Stock
Option Plan and 1999 Long-Term Equity Incentive Plan (the "Option Plans").
Except for stock options granted to Mr. Astrike and Mr. Schroeder as members of
the Board of Directors of the Corporation as part of the annual retainer
program, the only stock options granted during the year were replacement options
that were granted to optionees who tendered already - owned Common Shares of the
Corporation in payment of the exercise price for prior option grants. (Numbers
of options and per share exercise prices have been retroactively adjusted to
reflect subsequent stock splits and dividends and fractional shares have been
ignored.)
<TABLE>
<CAPTION>
Individual Grants
-----------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Exercise Appreciation for
Underlying Granted to or Base Option Term(1)
Options/SARs Employees in Price Expiration ------------------
Name Granted Fiscal Year ($/Sh) Date 5% 10%
- ---- ------- ----------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C>
Mark A. Schroeder 1,869(2) 41.7% $17.38 April 19, 2003 $4,225 $ 8,787
Mark A. Schroeder 1,050(3) 22.4% $17.26 May 31, 2009 $9,322 $ 22,668
George W. Astrike 1,050(3) 22.4% $17.26 May 31, 2009 $9,322 $ 22,668
Stan J. Ruhe 603(2) 13.5% $17.38 April 19, 2003 $1,365 $ 2,838
<FN>
1 The amounts in the table are not intended to forcast possible future
appreciation, if any, of the Corporation's Common Shares and there can be no
assurance that the amounts reflected in this table will be achieved.
2 These grants were issued as replacement incentive stock options in connection
with the exercises by Mr. Schroeder and Mr. Ruhe of other incentive stock
options as indicated in the following table. The Option Plans provide that if
an optionee tenders Common Shares of the Corporation already owned by the
optionee as payment, in whole or in part, of the exercise price for the
shares the optionee has elected to purchase under the option, then the
Corporation is obligated to use its best efforts to issue a replacement
option of the same type (incentive or non-qualified option), with the same
expiration date as the option that was exercised, and covering a number of
Common Shares equal to the number of Common Shares tendered. The per share
exercise price of the replacement option equals the fair market value of a
Common Share of the Corporation on the date of exercise of the original
option. Replacement options are not exercisable for a period of twelve months
following their date of grant and are subject to cancellation if during such
twelve-month period the optionee sells any Common Shares of the Corporation
other than in payment of the exercise price of another option under the
Option Plans. The Option Plans also provide that if a corporate
reorganization would result in the termination of the Plan and unexercised
options, then all unexercised options will become immediately exercisable
regardless of any vesting requirements.
3 On June 1, 1999, Messrs. Astrike and Schroeder, as members of the Board of
Directors of the Corporation, each received, as part of their annual Director
retainers, these stock options.
</FN>
</TABLE>
7
<PAGE>
Aggregated Option/SAR Exercises In
----------------------------------
Last Fiscal Year and Fiscal Year-End
------------------------------------
Option/SAR Values
-----------------
The following table sets forth information with respect to options
exercised during 1999 by Messrs. Schroeder and Ruhe pursuant to the Option Plans
and the December 31, 1999 values of the holdings of Messrs. Schroeder, Astrike
and Ruhe of "in-the-money" options. An option is considered to be "in-the-money"
if and to the extent that the December 31, 1999 market value of the
Corporation's Common Shares exceeded the applicable option exercise price.
(Numbers of options and per share exercise prices have been retroactively
adjusted to reflect subsequent stock splits and dividends.)
<TABLE>
<CAPTION>
Value of
Unexercised
In-the-money
Number of Unexercised Options
Options/SARs at Fiscal SARs at Fiscal
Shares Year-End (#) Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Mark A. Schroeder 3,828 $34,034 9,530 / 1,869 $24,108 / $4,074
George W. Astrike --- --- 75,434 / 0 $39,608 / $ --
Stan J. Ruhe 1,238 $11,005 4,666 / 604 $10,914 / $1,316
</TABLE>
Committee Report
----------------
on Executive Compensation
-------------------------
Overall Compensation Policy
The Human Resources Committee (the "Committee") of the Board of
Directors of the Corporation (formerly called the Compensation Committee) has
the responsibility for recommending the salaries, bonuses and other compensation
to be paid to the executive officers of the Corporation. The Committee's
recommendations as to compensation are submitted to the full Board of Directors
for approval. The Committee is currently composed of six members, consisting of
four non-employee directors who are not executive officers, one non-employee
director (Mr. Astrike) who is an executive officer of the Corporation, and Mr.
Schroeder. Mr. Schroeder absents himself from, and does not participate in, any
Committee proceedings relating to the determination of his own compensation. Mr.
Astrike's compensation for 1999 and future years was fixed in 1998 by the entire
Board of Directors as part of a comprehensive retirement package in recognition
of his past service to the Corporation and expected future contributions, and
not as part of the annual compensation program.
The primary goals of the Committee in determining compensation policy
are to provide a level of compensation that will attract, motivate and help
retain well-qualified executive officers and to further enhance shareholder
return by more closely aligning the interests of executive officers with the
interests of the Corporation's shareholders. The Committee attempts to attain
these goals by setting total compensation at competitive levels considering an
executive officer's individual performance while also providing effective
incentives tied to the Corporation's overall financial performance. The
executive compensation program consists of three basic elements: (1) base
salary, (2) annual incentive bonus awards, and (3) stock option awards.
Base Salary
The Corporation attempts to provide Mr. Schroeder and the other
executive officers with a base salary that is competitive with the salaries
offered by the other bank holding companies of comparable size in Indiana and
the surrounding states. Each year the Committee reviews salary surveys provided
by trade associations and accounting firms. Increases in base compensation are
not automatically based on increased compensation at comparable institutions,
however, but also reflect the performance of the individual executive officer
and of the Corporation.
8
<PAGE>
Based on an evaluation of individual performance, the performance of
the Corporation in 1998, the increase in Mr. Schroeder's responsibilities
effective January 1, 1999 from Chief Operating Officer to Chief Executive
Officer, and information provided by salary surveys, the Committee recommended,
and the Board approved the recommendation, that Mr. Schroeder's annual base
salary for 1999 be increased to $160,000.
Annual Incentive Bonus Awards
Annual bonuses are awarded based on the extent that the Committee
believes that they are merited based on the attainment of certain goals relating
to the Corporation's return on equity. Based on these criteria and the increased
responsibilities of Mr. Schroeder in 1999, the bonus awarded for 1999 to Mr.
Schroeder exceeded the bonus he received for 1998.
Stock Option Awards
In 1992 the Corporation adopted a Stock Option Plan that provides for
the award of incentive stock options and non-qualified stock options, and in
1999 the Corporation adopted the 1999 Long Term Equity Incentive Plan which also
provides for the award of incentive and non-qualified stock options and other
equity-based awards (the "Option Plans"). The purpose of granting options is to
provide long-term incentive compensation to complement the short-term focus of
annual incentive bonus awards. The size of stock option awards depends upon the
executive officer's level of responsibility and individual performance. Stock
options are granted at the estimated fair market value of a Common Share of the
Corporation on the date of grant.
The four non-officer directors on the Committee also serve as the Stock
Option Committee of the Corporation, which administers the Option Plans. Except
for options granted by the entire Board of Directors to the members of the
Corporation's Board of Directors pursuant to the annual retainer program, the
only options granted under the Stock Option Plans during 1999 were replacement
options. The Stock Option Plan provides that if an optionee tenders Common
Shares of the Corporation already owned by the optionee in whole or partial
payment of the exercise price of an option, the Corporation will use its best
efforts to grant the optionee an option covering a number of shares equal to the
number of already owned shares tendered to "replace" the optionee's position in
such tendered shares. A replacement option is of the same type (incentive or
non-qualified option) and has the same expiration date as the option exercised.
The per share exercise price of a replacement option is the fair market value of
a Common Shares of the Corporation on the date of exercise of the original
option. A replacement option was granted to two of the named executive officers
on May 5, 1999.
The Omnibus Budget Reconciliation Act enacted by the United States
Congress in August 1993 amended the Internal Revenue Code of 1986 to disallow a
public company's compensation deduction with respect to certain highly-paid
executives in excess of $1 million unless certain conditions are satisfied. The
Corporation presently believes that this provision is unlikely to become
applicable in the near future to the Corporation because (a) the levels of base
salary and annual incentive bonus awards of the Corporation's executive officers
are substantially less than $1 million per annum, and (b) the law generally does
not apply to stock option plans that require that options be granted at not less
than fair market value, subject to certain conditions. Therefore, the
Corporation has not taken any action to adjust its compensation plans or
policies in response to the adoption of this law.
SUBMITTED BY THE MEMBERS OF THE COMMITTEE:
George W. Astrike Robert L. Ruckriegel
David Buehler Mark A. Schroeder
David B. Graham Joseph F. Steurer
9
<PAGE>
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
Two of the persons who served during 1999 on the Human Resources
Committee of the Corporation's Board of Directors, Messrs. Astrike and
Schroeder, were executive officers of the Corporation. Mr. Astrike's
compensation for 1999 and future years as an executive officer were determined
by the entire Board of Directors of the Corporation in 1998 as part of his
long-term retirement program and was not determined by the Committee. Mr.
Schroeder was not present for, and did not participate in, any Committee
proceedings relating to the determination of his own compensation. None of the
other four members of the Committee is, or previously was, an officer or
employee of the Corporation. Mr. Buehler, a member of the Committee, is a
principal shareholder, officer and director of Buehler Foods, Inc., which
subleases space for three branch banking facilities to two of the bank
subsidiaries of the Corporation.
Certain Business Relationships and Transactions
-----------------------------------------------
During 1999, the bank subsidiaries of the Corporation had (and expect
to continue to have in the future) banking transactions in the ordinary course
of business with Directors, officers and principal shareholders of the
Corporation and their associates. These transactions have been made on
substantially the same terms, including interest rates, collateral and repayment
terms on extensions of credit, as those prevailing at the same time for
comparable transactions with others and did not involve more than the normal
risk of collectibility or present other unfavorable features.
Stock Performance Graph
-----------------------
The SEC requires the Corporation to include in this proxy statement a
line-graph presentation comparing the Corporation's cumulative five-year
shareholder returns with market and industry returns. The following graph
compares the Corporation's performance with the performance of the Russell 2000
Stock Index and the NASDAQ Stock Market (US Companies). The Corporation will
discontinue comparison to the NASDAQ Stock Market after this year, due to the
significant influence of large capitalization technology and Internet stocks
that are included in this market. Management believes that the Russell 2000
Index of small capitalization companies is a more suitable comparison to the
profile of the Corporation.
The performance graph also includes two peer groups of bank holding
companies headquartered in Indiana. The Southern Indiana Bank Peer Group
includes the following: First Financial Corporation; Indiana United Bancorp;
National City Bancshares, Inc. and Old National Bancorp. CNB Bancshares, Inc.
was included in this peer group in the Corporation's proxy statement for its
annual meeting in 1999, but is not included in the peer group in this year's
proxy statement because it ceased to exist in 1999. Due to the impact of mergers
and acquisitions within the Southern Indiana Peer Group, the Corporation is
replacing after this year the Southern Indiana Bank Peer Group with another peer
group that includes all Indiana-based bank holding companies. This Indiana Bank
Peer Group includes all Indiana-based bank holding companies that have been in
existence for the five-year period ended December 1999, the stocks of which has
been traded on an established securities market (NYSE, AMEX, NASDAQ) throughout
that five-year period. The returns of each company in each peer group have been
weighted to reflect the company's market capitalization.
[GRAPHIC OMITTED]
NASDAQ Southern
German Stock Indiana Indiana
American Market (US Russell Bank Peer Bank
Bancorp Companies 2000 Index Group Peer Group
---------------------------------------------------------
12/31/1993 $ 100.0 $ 100.0 $ 100.0 $ 100.0 $ 100.0
12/31/1994 $ 103.9 $ 141.3 $ 126.2 $ 105.8 $ 116.4
12/31/1995 $ 135.9 $ 173.9 $ 144.8 $ 131.2 $ 141.1
12/31/1996 $ 246.0 $ 213.1 $ 174.6 $ 189.0 $ 210.9
12/31/1997 $ 187.7 $ 300.2 $ 168.5 $ 203.4 $ 235.0
12/31/1998 $ 154.2 $ 545.7 $ 201.6 $ 178.0 $ 205.0
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion supplements the information provided in the
Corporation's Annual Report to Shareholders for 1999 ("Shareholders' Report")
that is being mailed to shareholders on or about March 31, 2000 with this Proxy
Statement. This discussion should be read in conjunction with the Corporation's
consolidated financial statements and notes thereto, and the section headed
"Management's Discussion and Analysis," that are included in the Shareholders'
Report.
The Corporation's exposure to market risk is reviewed on a regular basis
by the Asset/Liability Committees and Boards of Directors of the Corporation and
its affiliate banks. Primary market risks that impact the Corporation's
operations are liquidity risk and interest rate risk.
10
<PAGE>
The liquidity of the Corporation is dependent upon the receipt of
dividends from its bank subsidiaries, which are subject to certain regulatory
limitations explained in Note 9 to the consolidated financial statements in the
Corporation's Shareholders' Report. The affiliate banks' source of funding is
predominately core deposits, maturities of securities, repayments of loan
principal and interest, federal funds purchased, securities sold under
agreements to repurchase and long-term borrowings from the Federal Home Loan
Bank. Further detail is provided in the sections entitled "Sources Of Funds" and
"Uses Of Funds" contained in "Management's Discussion and Analysis" in the
Corporation's Shareholders' Report.
The Corporation monitors interest rate risk by the use of computer
simulation modeling to estimate the potential impact on its net interest income
under various interest rate scenarios, and by estimating its static interest
rate sensitivity position. Management's approach to monitoring and mitigating
these risks is explained in the "Liquidity And Interest Rate Risk Management"
section of "Management's Discussion and Analysis" in the Corporation's
Shareholders' Report.
Another method by which the Corporation's interest rate risk position can
be estimated is by computing estimated changes in its net portfolio value
("NPV"). This method estimates interest rate risk exposure from movements in
interest rates by using interest rate sensitivity analysis to determine the
change in the NPV of discounted cash flows from assets and liabilities. NPV
represents the market value of portfolio equity and is equal to the estimated
market value of assets minus the estimated market value of liabilities.
Computations are based on a number of assumptions, including the relative levels
of market interest rates and prepayments in mortgage loans and certain types of
investments. These computations do not contemplate any actions management may
undertake in response to changes in interest rates, and should not be relied
upon as indicative of actual results. In addition, certain shortcomings are
inherent in the method of computing NPV. Should interest rates remain or
decrease below current levels, the proportion of adjustable rate loans could
decrease in future periods due to refinancing activity. In the event of an
interest rate change, prepayment levels would likely be different from those
assumed in the table. Lastly, the ability of many borrowers to repay their
adjustable rate debt may decline during a rising interest rate environment.
The table below provides an assessment of the risk to NPV in the event of
sudden and sustained 1% and 2% increases and decreases in prevailing interest
rates. The table indicates that as of December 31, 1999 the Corporation's
estimated NPV might be expected to decrease in the event of an increase in
prevailing interest rates, and might be expected to increase in the event of a
decrease in prevailing interest rates (dollars in thousands).
<TABLE>
<CAPTION>
Interest Rate Sensitivity as of December 31, 1999
-------------------------------------------------
Net Portfolio Value
Net Portfolio as a % of Present Value
Value of Assets
----- ---------
Changes
In Rates $ Amount $ Change NPV Ratio Change
-------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
+2% $62,795 (23.0)% 6.66% 161 b.p.
+1% 73,014 (10.5) 7.57 70 b.p.
Base 81,584 --- 8.27 ---
-1% 90,506 10.9 8.95 68 b.p.
-2% 87,989 7.9 8.65 38 b.p.
</TABLE>
The above discussion, and the segments of "Management's Discussion and
Analysis" referred to in the above discussion, contain statements relating to
future results of the Corporation that are considered "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements relate to, among other things, simulation of changes
in interest rates. Actual results may differ materially from those expressed or
implied therein as a result of certain risks and uncertainties, including those
risks and uncertainties expressed above, those that are described in the
specified sections of "Management's Discussion and Analysis" in the accompanying
Shareholders' Report, and those that are described on the Table of Contents page
of the accompanying Shareholders' Report under the caption "Forward-Looking
Statements."
11
<PAGE>
APPOINTMENT OF AUDITORS
Crowe, Chizek and Company LLP ("Crowe Chizek") served as auditors for
the Corporation in 1999. Although it is anticipated that Crowe Chizek will be
selected, the Audit Committee has not yet considered the appointment of auditors
for 2000. The Audit Committee expects to make a recommendation to the Board
following the Audit Committee's April 2000 meeting. Representatives of Crowe
Chizek will be present at the Annual Meeting, will have the opportunity to make
a statement if they desire to do so and will be available to respond to
appropriate questions.
PRINCIPAL OWNERS OF COMMON SHARES
As of March 1, 2000, the Corporation had no knowledge of any
shareholder or group of shareholders who beneficially owned more than five
percent of the Corporation's outstanding Common Shares.
SECTION 16(a): BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's Directors and executive officers and persons who beneficially own
more than ten percent of the Corporation's Common Shares to file with the
Securities and Exchange Commission reports showing ownership of and changes in
ownership of the Corporation's Common Shares and other equity securities. On the
basis of information submitted by the Corporation's Directors, executive
officers, and greater-than-ten-percent owners, the Corporation believes that all
required Section 16(a) filings for fiscal 1999 were timely made.
OTHER MATTERS
The Board of Directors knows of no matters, other than those reported
above, that are to be brought before the Annual Meeting. However, if other
matters properly come before the Annual Meeting, it is the intention of the
persons named in the enclosed form of proxy to vote such proxy in accordance
with their judgment on such matters.
EXPENSES
The Corporation will pay all expenses in connection with this
solicitation of proxies.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
A shareholder desiring to submit a proposal for inclusion in the
Corporation's proxy statement for the Annual Meeting of Shareholders to be held
in the year 2001 must deliver the proposal so that it is received by the
Corporation no later than November 26, 2000. Proposals should be mailed to the
Shareholder Information and Corporate Office, attention: Terri A. Eckerle,
German American Bancorp, 711 Main Street, Jasper, Indiana 47547-0810, by
certified mail, return-receipt requested.
