Draft -- 02/20/98
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [ X ]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
FIRST INDIANA CORPORATION
(Name of Registrant as Specified in its Charter)
FIRST INDIANA CORPORATION
(Name of Person(s) Filing Proxy Statement)
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:
...................................................................
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:
...................................................................
<PAGE>
[FIC LETTERHEAD]
March 12, 1998
Dear Shareholder:
The directors and officers of First Indiana Corporation join
me in extending to you a cordial invitation to attend the annual
meeting of our shareholders. This meeting will be held on
Thursday, April 16, 1998 at 9:00 a.m., in the First Indiana Plaza
Conference Center, Ohio and Pennsylvania Streets, Seventh Floor,
Indianapolis, Indiana.
First Indiana enjoyed record earnings in 1997 as a comprehensive
provider of financial services emphasizing local decision-making, customer
relationships, and personalized services. To share our success with our
shareholders, we recently announced a six-for-five stock dividend, resulting
in a twenty percent increase in our cash dividend. At the annual meeting,
we will review our achievements in 1997 and share our plans
for additional growth.
The formal notice of this annual meeting and the proxy
statement appear on the following pages. After reading the proxy
statement, please mark, sign, and return the enclosed proxy card
to ensure that your votes on the business matters of the meeting
will be recorded.
We hope that you will attend this meeting. Whether or not
you attend, we urge you to return your proxy promptly in the postpaid
envelope provided. After returning the proxy, you may, of course,
vote in person on all matters brought before the meeting.
We look forward to seeing you on April 16.
Sincerely,
/s/ Robert H. McKinney
Robert H. McKinney,
Chairman and Chief Executive
Officer
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204
317.269.1200 Fax 317.269.1341
<PAGE>
[IFC BLANK]
<PAGE>
FIRST INDIANA CORPORATION
INDIANAPOLIS, INDIANA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of the shareholders of First Indiana
Corporation (the "Corporation") will be held in the First Indiana
Plaza Conference Center, 135 North Pennsylvania Street, Seventh
Floor, Indianapolis, Indiana on April 16, 1998, at 9:00 a.m. EST, to
consider and to take action on the following matters:
1. The election of three (3) directors of the
Corporation;
2. The approval of an increase in the number of
authorized shares of the Corporation's common
stock;
3. The approval of the Corporation's 1998 Stock
Incentive Plan;
4. The approval of the Corporation's Long-Term
Management Performance Incentive Plan; and
5. The transaction of such other business as may
properly come before the meeting and any
adjournments thereof.
Only shareholders of record at the close of business on February 17,
1998 are entitled to notice of and to vote at this meeting and any
adjournments thereof.
By order of the Board of Directors,
/s/ David A. Butcher
David A. Butcher
Secretary
Indianapolis, Indiana
March 12, 1998
<PAGE>
[ii BLANK]
<PAGE>
FIRST INDIANA CORPORATION
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of First Indiana
Corporation (the "Corporation") of proxies to be voted at the
Annual Meeting of Shareholders to be held on Thursday, April
16, 1998, and at any adjournment thereof. The approximate
date of mailing this proxy statement is March 12, 1998. The
following is important information in a question-and-answer
format regarding the Annual Meeting and this Proxy
Statement.
Q: WHAT AM I VOTING ON?
1. Election of three directors (Robert H. McKinney, Owen B. Melton, Jr.
and Michael L. Smith)
2. Increase in the number of authorized shares of the Corporation's common
stock
3. Approval of the 1998 Stock Incentive Plan
4. Approval of the Long-Term Management Performance Incentive Plan
Q: WHO IS ENTITLED TO VOTE?
Shareholders as of the close of
business on February 17, 1998 (the "Record Date") are
entitled to vote at the Annual Meeting. Each shareholder is
entitled to one vote for each share of common stock held on
the Record Date. As of the Record Date, 10,591,070 shares
of the Corporation's common stock were issued and
outstanding.
Q: CAN SHARES I RECEIVED IN THE RECENT SIX-FOR-FIVE STOCK
DIVIDEND BE VOTED?
The Corporation recently paid a
six-for-five stock dividend to shareholders of record on
February 19, 1998. Because the record date for the stock
dividend occurred after the Record Date for the Annual
Meeting, shares you received in the stock dividend cannot be
voted at the Annual Meeting. For that reason, none of the
stock ownership and other per share information in this Proxy
Statement reflects the recent stock dividend.
Q: HOW DO I VOTE?
Sign and date each proxy card you
receive and return it in the prepaid envelope. If you return
your signed proxy card but do not indicate your voting
preferences, we will vote FOR the four proposals on your
behalf. You have the right to revoke your proxy any time
before the meeting by (1) notifying the Corporation's
Secretary, or (2) returning a later-dated proxy. You may also
revoke your proxy by voting in person at the meeting.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
It means you hold shares registered
in more than one account. Sign and return all proxy cards to
ensure that all your shares are voted.
Q: WHO WILL COUNT THE VOTE?
Representatives of Harris Trust &
Savings will tabulate the votes and act as inspectors of
election.
<PAGE> 1
Q: WHAT CONSTITUTES A QUORUM?
A majority of the outstanding shares,
present in person or represented by proxy, constitutes a
quorum for the Annual Meeting.
Q: HOW MANY VOTES ARE NEEDED FOR APPROVAL OF EACH ITEM?
There are differing vote requirements
for the various proposals. Directors will be elected by a
plurality of the votes cast at the Annual Meeting.
Consequently, the three nominees receiving the most votes
will be elected directors. Only votes cast for a nominee will
be counted, except that the accompanying proxy will be voted
for the three management nominees unless the proxy contains
instructions to the contrary. Proxies submitted by brokers that
do not indicate a vote for some of the proposals because the
holders do not have discretionary voting authority and have
not received instructions from the beneficial owners on how
to vote on those proposals are called "broker non-votes."
Broker non-votes, abstentions and instructions on the
accompanying proxy card to withhold authority to vote for one
or more of the nominees will result in those nominees
receiving fewer votes.
The approvals of the 1998 Stock
Incentive Plan and the Long-Term Management Performance
Incentive Plan each require an affirmative vote of a majority
of the shares present in person or by proxy and entitled to vote
at the Annual Meeting. For these proposals, an abstention will
have the same effect as a vote against the proposal. Broker
non-votes will not be voted for or against the proposals and
will not be counted as entitled to vote.
The amendment to the Articles of
Incorporation increasing the number of authorized shares of
the Corporation's common stock requires an affirmative vote
of a majority of the shares outstanding and entitled to vote as
of the Record Date. Abstentions and broker non-votes will
have the same effect as votes against proposal.
Q: WHO CAN ATTEND THE ANNUAL MEETING?
All shareholders as of the Record Date can attend.
Q: WHAT PERCENTAGE OF STOCK DO THE DIRECTORS AND OFFICERS OWN?
Together, they own approximately
32.6% of Corporation's common stock as of the Record Date.
(See page 3 for details.)
Q: WHO ARE THE LARGEST PRINCIPAL SHAREHOLDERS?
The Somerset Group, Inc., is the
largest single shareholder of the Corporation, owning
2,264,973 shares as of the Record Date. Robert H. McKinney
and Marni McKinney are each officers, directors and, directly
or indirectly, substantial shareholders of Somerset. Together,
Somerset, Mr. McKinney and Ms. McKinney beneficially own
2,786,635 shares (26.2%) of the Corporation's common stock
as of the Record Date. (See page 3 for details.)
Q: WHEN ARE SHAREHOLDER PROPOSALS AND NOMINATIONS FOR
THE 1999 MEETING DUE?
The Corporation's 1999 Annual
Meeting is currently scheduled for April 16, 1999. To be
considered for inclusion in next year's Proxy Statement,
shareholder proposals must be submitted in writing by
November 12, 1998 to the Corporation's Secretary, 2800 First
Indiana Plaza, 135 N. Pennsylvania Street, Indianapolis,
Indiana 46204. In addition, the Corporation's By-laws provide
that any shareholder wishing to nominate a candidate for
director or propose other business at the Annual Meeting must
give the Corporation written notice 60 days before the
meeting, and the notice must provide certain other information
as described in the By-laws. Copies of the By-laws are
available to shareholders free of charge upon request to the
Corporation's Secretary.
<PAGE> 2
STOCK OWNERSHIP BY DIRECTORS, OFFICERS AND CERTAIN SHAREHOLDERS
The following table shows, as of
February 17, 1998, the number and percentage of shares of
common stock held by each person known to the Corporation
who owned beneficially more than five percent of the issued
and outstanding common stock of the Corporation and by the
Corporation's directors and certain executive officers:
<TABLE>
<CAPTION>
Beneficial Amount and Nature of Percent
Owner Beneficial Ownership of Class
---------- -------------------- ---------
<S> <C> <C>
H. J. Baker 51,994 1 2
Gerald L. Bepko 22,295 1, 3 2
David L. Gray 59,886 4 2
Douglas W. Huemme 16,498 5 2
Andrew Jacobs, Jr. -- -
David A. Lindsey 91,076 6 2
Marni McKinney 2,786,636 7 26.2%
Robert H. McKinney 2,786,636 7 26.2%
Owen B. Melton, Jr. 254,284 8 2.4%
Phyllis W. Minott 24,101 1, 3, 9 2
Timothy J. O'Neill 83,894 10 2
Michael L. Smith 34,224 1, 11 2
The Somerset Group, Inc. 2,786,635 7 26.2%
John W. Wynne 36,394 1, 12 2
All Executive Officers and
Directors as a Group (15 Persons) 3,506,671 13 32.6%
</TABLE>
- ------------
1 Includes 18,732 shares as to which the director has the right to
acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934 (the "Exchange
Act").
2 The number of shares represents less than one percent of the
Corporation's common stock outstanding.
3 Includes 690 shares held in trust under the First Indiana Bank
Directors' Stock Purchase Plan (the "Directors' Stock Purchase
Plan"), and 2,563 shares held in trust under the Stock Purchase
Plan.
4 Includes 957 shares held in trust under the Stock Purchase
Plan, 29,059 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under the
Exchange Act, and 1,000 shares owned of record by Mr. Gray's spouse.
5 Includes 490 shares held in trust under the Stock Purchase
Plan, 12,488 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under
the Exchange Act and 3,521 shares held in trust under the
Directors' Deferred Fee Plan.
<PAGE> 3
6 Includes 1,914 shares held in trust under the Stock Purchase Plan
and 30,559 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under
the Exchange Act.
7 These shares are beneficially owned by a group consisting of
The Somerset Group, Inc. ("Somerset"), Robert H. McKinney
and Marni McKinney. Robert H. McKinney owns 483,596
shares of the Corporation, including 3,608 shares held in trust
under the Stock Purchase Plan, 53,433 shares of the
Corporation as to which Mr. McKinney has the right to
acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Exchange Act and 15,000 shares of restricted stock
under the Company's 1997-1999 Long-Term Incentive Plan. Mr. McKinney,
his immediate family, a family limited partnership, and various
irrevocable trusts established by Mr. McKinney for the benefit of his
children together beneficially own, directly or indirectly,
approximately 45% of the outstanding capital stock of
Somerset, which owns of record 2,264,973 shares of the
Corporation. The total held by the group also includes 38,067
shares of the Corporation owned by Mr. McKinney's
daughter, Marni McKinney, including 2,686 shares held in
trust under the Stock Purchase Plan, 23,585 shares as to
which she has the right to acquire beneficial ownership as
specified in Rule 13d-3(d)(1) under the Exchange Act, 1,006
shares held on her behalf under the Bank's 401(k) Plan.
and 6,250 shares of restricted stock under the Company's
1997-1999 Long-Term Incentive Plan. Mr.
McKinney is the Chairman and a director of Somerset;
Ms. McKinney is the President and Chief Executive Officer
and a director of Somerset; and Mr. McKinney's son, Kevin
K. McKinney, is Vice President and a director of Somerset.
8 Includes 51,870 shares as to which Mr. Melton has the right
to acquire beneficial ownership as specified in Rule
13d-3(d)(1) under the Exchange Act, 8,088 shares held in
trust under the Stock Purchase Plan, 377 shares held on his behalf
under the Bank's 401(k) Plan, 89,997 shares owned of record
jointly with Mr. Melton's spouse, 51,562 owned of record
by Mr. Melton's spouse and 15,000 shares of restricted stock under
the Company's 1997-1999 Long-Term Incentive Plan.
9 Includes 3,660 shares held in trust under the Stock Purchase
Plan, 145 shares held under the Corporation's Dividend
Reinvestment and Stock Purchase Plan (the "DR Plan"), and
690 shares Directors' Stock Purchase Plan.
10 Includes 1,526 shares held in trust under the Stock Purchase
Plan and 30,559 shares as to which there is a right to acquire
beneficial ownership as specified in Rule
the Exchange Act.
11 Includes 2,200 shares held in trust under the Stock Purchase
Plan.
12 Includes 1,755 shares held in trust under the Stock Purchase
Plan, 599 shares held under the DR Plan, 2,029 shares held
under the Directors' Stock Purchase Plan, and 6,244 shares of
which there is a right to acquire beneficial ownership as specified
in Rule 13d-3(d)(1) under the Exchange Act.
13 The address of The Somerset Group, Inc. is 135 North
Pennsylvania Street, Suite 2800, Indianapolis, Indiana 46204.
This number includes 2,264,973 shares owned of record by
The Somerset Group, Inc. (see note 7), 31,620 shares held in
trust under the Stock Purchase Plan, 957 shares held under the
DR Plan, 3,409 shares held under the Directors' Stock Purchase
Plan, 3,521 shares held under the Deferred Fee Plan, 2,632 shares
held under the Bank's 401(k) Plan, and 342,644 shares as to
which there is a right to acquire beneficial ownership as
specified in Rule 13d-3(d)(1) under the Exchange Act.
- -----------
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Three directors are to be elected. Robert H.
McKinney, Owen B. Melton, Jr. and Michael L. Smith have
been nominated for a term of three years and until their
successors are elected and qualified. All nominees are
members of the present Board of Directors and have
consented to serve an additional term. The other directors
listed in the table below will continue in office until the
expiration of their terms. All of the nominees and the other
directors listed in the table below are also members of the
Board of Directors of First Indiana Bank, a wholly owned
subsidiary of the Corporation (the "Bank"). For directors of
the Corporation who were directors of the Bank before the
Corporation was formed in 1986, the table below lists the year
in which the director became a director of the Bank. If, at the
time of the annual meeting, any of the nominees is unable or
declines to serve, the discretionary authority provided in the
proxy may be exercised to vote for a substitute or substitutes.
The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required. On February
19, 1998, Douglas W. Huemme, whose term would have
expired at the annual meeting of shareholders in 2000,
tendered his resignation from the Board of Directors effective
March 26, 1998 because of increased foreign travel
responsibilities with Lilly Industries, Inc., of which he is
chairman, president and chief executive officer. While the
Corporation's Articles of Incorporation give the Board of
Directors the authority to fill this vacancy, a replacement has
not yet been selected. The Board of Directors thanks Mr.
Huemme for his years of dedicated service to the Corporation
and the Bank.
The Board of Directors unanimously
recommends the election of the following
nominees.
<PAGE> 4
<TABLE>
<CAPTION>
NOMINEES FOR TERMS EXPIRING IN 2001
Name, Age, Principal
Occupation(s) and
Business Experience Director
During Past 5 Years Since
- ------------------------------------------------------------------------------
<S> <C>
Robert H. McKinney, Age 72 1954
Chairman and Chief Executive Officer of the Corporation and
Chairman of the Bank; Chairman and Director, The Somerset Group,
Inc., an affiliate of the Corporation, financial services; Director of
Lilly Industries, Inc.; retired partner, Bose McKinney & Evans,
attorneys; Chairman, Federal Home Loan Bank Board, 1977-1979.
Owen B. Melton, Jr., Age 51 1983
President and Chief Operating Officer of the Corporation and
President and Chief Executive Officer of the Bank.
Michael L. Smith, Age 49 1985
Chief Operating Officer, American Health Network, Inc.,
a physician group practice; formerly President, Somerset Financial
Services, a division of The Somerset Group, Inc.; also formerly
Chairman, President and Chief Executive Officer, Mayflower Group,
Inc., diversified transportation services; Director of The Somerset
Group, Inc. and Acordia, Inc.
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Name, Age, Principal
Occupation(s) and
Business Experience Director
During Past 5 Years Since
- ------------------------------------------------------------------------------
<S> <C>
Gerald L. Bepko, Age 57 1988
Vice President for Long-Range Planning of Indiana University and
Chancellor, Indiana University-Purdue University at Indianapolis;
previously Dean and Professor of Law, Indiana University School of
Law, Indianapolis.
Andrew Jacobs, Jr., Age 66 1997
Adjunct Professor, Indiana University-Purdue University at
Indianapolis; Attorney; Retired Member, United States Congress.
John W. Wynne, Age 65 1991
Chairman of the Board and Director of Duke Realty Investments, Inc.,
a real estate investment trust; partner, Duke Associates, real
estate development; retired as counsel (previously partner), Bose
McKinney & Evans, attorneys.
<PAGE> 5
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Name, Age, Principal
Occupation(s) and
Business Experience Director
During Past 5 Years Since
- ----------------------------------------------------------------------------
<S> <C>
H. J. Baker, Age 70 1966
Chairman Emeritus, BMW Constructors, Inc., industrial mechanical
contractors; Director of The Somerset Group, Inc. and Lilly
Industries, Inc.
Marni McKinney, Age 41 1992
Vice Chairman of the Corporation and the Bank; Director, President,
and Chief Executive Officer, The Somerset Group, Inc., an affiliate
of the Corporation, financial services; previously Executive Vice
President of The Somerset Group, Inc., and Vice President of the
Corporation and the Bank.
Phyllis W. Minott, Age 59 1976
Chairman and Chief Executive Officer, Minott Motion Pictures, Inc.,
commercial movie production; previously General Auditor, Eli Lilly
& Company, a pharmaceutical company; Controller, Accounting and
Chief Accounting Officer, Eli Lilly & Company.
</TABLE>
During 1997, the Boards of Directors of the
Corporation and the Bank each met 12 times. All directors
attended in excess of 75% of the aggregate of the total number
of meetings of the Boards of Directors of the Corporation and
the Bank (considered separately) and the total number of
meetings held by all Corporation and Bank committees
(considered separately) on which he or she served.
Certain Committees of the Boards of Directors
of the Corporation and the Bank
Among other committees, the Boards of Directors of
the Corporation and the Bank have a joint Audit Committee
and a joint Compensation Committee.
Audit Committee. The Audit Committee evaluates
audit performance, handles relations with the Corporation's
and the Bank's independent auditors, and evaluates policies
and procedures related to internal audit functions and controls.
The members of the Corporation's and the Bank's Audit
Committee in 1997 were Phyllis W. Minott (Chairperson),
Douglas W. Huemme, and John W. Wynne. The Audit
Committee met four times during 1997.
Compensation Committee. The Compensation
Committee reviews and makes recommendations to the Board
of Directors with respect to the compensation of directors,
officers, and employees of the Bank, and administers and grants
options and other stock awards under the Corporation's stock
option plans and administers the Bank's Employees' Stock
Purchase Plan. Because the officers and employees of the
Corporation, all of whom are officers or employees of the
Bank, received no separate cash compensation from the
Corporation, the Compensation Committee of the Board of
Directors of the Bank effectively served as the compensation
committee of the Board of Directors of the Corporation. Until
May of 1997, the Corporation and the Bank each had a Stock
Administration Committee to administer stock-based
compensation. The Stock
Administration Committees were dissolved and a
joint Compensation Committee for the Corporation and the
Bank was formally established. The members of the Compensation
Committee during 1997 were H. J. Baker (Chairman), Gerald
L. Bepko, and Phyllis W. Minott. The Committee met four
times during 1997.
<PAGE> 6
Compensation of Directors
Directors of the Corporation and the Bank, other than
Robert H. McKinney, Marni McKinney and Owen B. Melton,
Jr., received in 1997 a quarterly retainer of $2,150, plus $600
per meeting of the Board of Directors attended and an
additional $600 per committee meeting attended.
Under the First Indiana 1992 Director Stock Option
Plan, the Corporation reserved approximately 182,300 shares
of its common stock for issuance upon the exercise of options
to be granted under the plan. The plan provides for the
issuance of non-qualified options to purchase 3,122 shares to
each outside director of the Corporation on the date of each
annual meeting of shareholders. The Corporation granted
3,122 shares to each outside director on April 16, 1997, in
accordance with the plan. No option is exercisable during the
period of one year following the date of grant, and options
granted under the plan must specify an exercise price of not
less than 100% of the market price of the shares at the date of
grant.
Under the Directors' Deferred Fee Plan, directors of
the Corporation may elect to defer all or any portion of the fees
paid for attendance at a Board of Directors' or committee
meeting. The deferred fees are then contributed to a trust
which buys stock with such fees or invests such fees in an
interest-bearing account. Directors are not eligible to receive
shares or cash held under the plan until they cease to be a
director, officer, or employee of the Corporation. Amounts
deferred are not taxable to the director until the trust
distributes the cash or stock to the director. In the event of a
change in control of the Corporation, amounts held under the
plan are payable immediately in one lump sum.
Directors may also elect to contribute part of their
fees to the Bank's Employees' Stock Purchase Plan. As with
other participants, the Bank matches a certain portion of such
contributions and purchases the Corporation's common stock
on the open market at the prevailing market price. The
material features of the Stock Purchase Plan are described
under the heading "EXECUTIVE COMPENSATION."
Certain Transactions
The Bank offers its directors, officers, and employees
a loan plan involving variable-rate mortgages, lines of credit,
home equity loans, credit cards, and various installment loans
with a lower interest rate (not below the Bank's cost of funds)
and waiver of loan origination fees, and fixed-rate mortgage
loans with waiver of loan origination fees only. Except as
described above, all outstanding loans to directors, officers,
and employees have been made in the ordinary course of
business and on substantially the same terms as those
prevailing at the time for comparable transactions with
non-affiliated persons. Management believes that these loans
neither involve more than the normal risk of collectibility nor
present other unfavorable features.
In 1996, the Bank sold its insurance and non-FDIC-insured investment
business to The Somerset Group, Inc.. At
the same time, the two companies entered into a multi-year
operating agreement under which Somerset provides
insurance and non-FDIC-insured investment products and
services to the Bank's customers and pays the Bank a
commission on such sales. During the year ended December
31, 1997, Somerset paid to the Bank $219,424 in accordance
with the terms of the purchase agreement and the operating
agreement. Robert H. McKinney and Marni McKinney are
officers, directors and substantial shareholders of Somerset,
and H. J. Baker, Douglas Huemme and Michael Smith are
directors of Somerset. The sale transaction, as well as the
operating agreement, was approved by the Office of Thrift
Supervision and by a joint committee of the Board of
Directors of the Bank and the Corporation that consisted
solely of directors who were not employees, officers, directors,
or significant shareholders of Somerset. This independent
committee determined that the transaction was in the best
interests of the Bank and the Corporation, and negotiated the
transaction with a committee of the Board of Directors of
Somerset that consisted of Somerset directors who were not
employees, officers, directors or substantial shareholders of
the Bank or the Corporation. Prior to the consummation of the
transaction, the joint committee of the Corporation and the
Bank received an opinion from an independent appraiser that
the transaction was fair to the shareholders of the Bank and the
Corporation.
<PAGE> 7
EXECUTIVE COMPENSATION
The following Report of the
Compensation Committee, as well
as the following Performance
Graph, shall not be deemed
incorporated by reference by any
general statement incorporating
by reference this proxy statement
into any of the Corporation's
filings under the Securities Act of
1933, as amended, or the
Securities Exchange Act of 1934,
as amended, except to the extent
that the Corporation specifically
incorporates this information by
reference, and shall not otherwise
be deemed filed under such Acts.
Report of the Compensation Committee
Policy and Performance Measures
In determining the compensation of executive
officers, the Compensation Committee strives to maintain an
appropriate balance between executive pay and the creation of
shareholder value. Executive compensation must attract and
retain well-qualified officers while at the same time motivating
them to achieve the short-term and long-term strategic goals
of the Corporation. To achieve this balance, executive officers
receive a competitive base salary and also have the
opportunity to earn bonuses tied to the Corporation's overall
performance.
The Compensation Committee based the 1997
annual salaries of the Corporation's executive officers on the
results of surveys compiled by an independent consultant. The
compensation consultant began with an analysis of the
compensation of the executive officers of two groups of
financial institutions with assets of up to $2.3 billion. The
consultant derived the median salary of the executive officers
of the institutions contained in each of the two surveys and
then calculated an average (mean) salary. The Compensation
Committee relied on this calculation of average salaries in
setting the salaries of the Corporation's executive officers.
In order to more directly tie executive compensation
to the Corporation's overall performance, the Compensation
Committee also administers short-term and long-term bonus
plans. These plans are designed to increase the total
compensation of the Corporation's executive officers, but only
if the Corporation's performance merited such increases. The
Compensation Committee is guided by the principle that when
certain corporate goals are achieved, the compensation of the
executive officers who contributed to the Corporation's
success should increase accordingly.
The 1997 One Year Management Incentive Plan (the
"Short-Term Plan") provided for a bonus pool in an amount
equal to between 10% and 50% of the participants' aggregate
annual salaries, with bonuses to be awarded based upon both
overall corporate performance and individual contributions to
the Corporation. In the case of each of the executive officers
named in the Summary Compensation Table, at least 50% of
the amount contributed on behalf of such executive officer to
the bonus pool was allocated to overall corporate
performance. The corporate performance component of the
bonuses was paid based on the Corporation's after-tax return
on average equity for 1997. The individual performance
component of the bonuses depended on the extent to which
each participant achieved certain individual or division goals
and contributed to the Corporation's overall performance, and
whether or not the corporate performance targets were met.
Corporate and individual bonuses were paid at the 36% level
under the Short-Term Plan because the Corporation's
performance in 1997 called for such a payout in accordance
with the payout formulas pre-established under the
Short-Term Plan.
Under the Long-Term Management Performance
Incentive Plan (the "Long-Term Plan"), additional
performance-based compensation will be awarded at the end
of fiscal year 1999 if certain performance targets are achieved.
This plan provides for grants of restricted shares of the
Corporation's common stock to certain executive officers and
for a bonus pool in an amount equal to 50% of the average of
the aggregate annual salary of other participants over the term
of the Long-Term Plan, with the restricted stock to vest and
bonuses to be paid if the Corporation's average after-tax
return on average equity for the three years 1997-99 compare
favorably with the aggregate reported returns on average
equity of a preselected peer group of thrifts with assets from
$1.0 billion to $2.5 billion (the "Peer Group"), and the
Corporation achieves specific financial goals, such as
interest-rate margin and asset/liability maturity mix. Tying
long-term bonuses not only to the Corporation's attainment of
its own goals, but also to the performance of the Peer Group, enables the
<PAGE> 8
Compensation Committee to establish financial
goals that are objective and ambitious when compared with
those of similarly situated institutions. The Peer Group serves
as an independent basis for assessing performance-based
compensation of the Corporation's executive officers. If the
financial goals set forth in the Long-Term Plan are achieved,
the bonus pool will be allocated among participants according
to their individual contributions to the attainment of the goals.
While recipients of bonuses under the Long Term
Plan typically have the option to receive their bonuses in cash,
the Corporation's common stock, or a combination thereof,
each recipient of a bonus under the Long Term Plan who does
not own at least three times his or her annual base salary in the
Corporation's stock as of the end of the Plan (five times in the
case of the Chairman, Vice Chairman, and President of the
Corporation) will be required to take at least one-third of his
or her bonus in stock.
The Compensation Committee believes that stock
ownership by management and stock-based performance
compensation arrangements are beneficial in aligning
management's and shareholders' interests in the enhancement
of shareholder value. Accordingly, the Bank has adopted
management stock ownership objectives to be attained by the
end of the year 2000. By the end of that year, each officer and
director of the Bank must own Corporation stock with a
market value equal to a specified multiple of such officer's or
director's compensation. These multiples range from one
times base compensation for vice presidents to three times
base compensation for senior vice presidents, and five times
base compensation for the Bank's Chairman, Vice Chairman
and President, as well as for the Bank's Board of Directors.
The Board of Directors believes that implementing these stock
ownership requirements will further align the interests of the
Bank's management with the objectives of the Corporation's
shareholders.
Additionally, the Compensation Committee typically
considers granting stock options to various executive officers,
including the executive officers named in the Summary
Compensation Table, every two years. As stock options were
awarded in 1996, no awards were made in 1997. Any
compensation derived from the stock options will be directly
related to the performance of the Corporation's stock.
To further encourage Bank officers and employees,
as well as directors, to acquire ownership of the Corporation,
such persons are eligible to contribute a portion of their
earnings to the Bank's Employees' Stock Purchase Plan after
completing six months of service. Such contributions are used
to purchase the Corporation's stock each month at the then
prevailing market price. If the Corporation attains a specified
after-tax return on average equity for a calendar year (as
determined by the Compensation Committee), the Bank will
match participant contributions during the subsequent Plan
Year (as defined in the Plan) at a ratio of one to three. If such
after-tax returns are not achieved for a calendar year,
participant contributions during the subsequent Plan Year will
be matched at a ratio of one to four. Because the Corporation
achieved the performance objectives specified in the Stock
Purchase Plan for the year ended December 31, 1996,
participant contributions for the Plan Year beginning April 1,
1997 were matched at a ratio of one to three. The Corporation
also achieved the performance objectives specified in the
Stock Purchase Plan for the year ended December 31, 1997,
and participant contributions for the Plan Year beginning
April 1, 1998 will continue to be matched at a ratio of one to
three. Contributions by the Bank to the accounts of the
executive officers named in the Summary Compensation Table
during the calendar year ended December 31, 1997 are set
forth in the column titled "All Other Compensation."
In 1993, the Internal Revenue Code of 1986 (the
"Code") was amended to generally limit to $1 million the
amount of compensation (other than qualified performance-based
compensation) that may be deducted by the Corporation in any
year with respect to certain of the Corporation's executive
officers. While annual salaries and cash bonuses of the
Corporation's executive officers have historically been
structured so that such compensation will be deductible, the
Compensation Committee recognizes that certain executive
officers may, receive compensation which cannot be deducted
in full by the Corporation. Because these situations are most
likely to arise as a result of the vesting of restricted stock
under the Long-Term Plan, the Compensation Committee has
attempted to structure the Long-Term Plan, to the extent
possible within the Corporation's compensation philosophy,
so that compensation under the Plan will be
performance-based and will not count against the $1 million
limit under the Code.
CEO Performance
Mr. McKinney serves as the chief executive officer
of the Corporation, and Mr. Melton serves as the chief
executive officer of the Corporation's principal operating unit,
the Bank. While Mr. McKinney devotes a major portion of his
time to the operations of the Corporation and the Bank, Mr.
Melton devotes all of his time to those operations.
<PAGE> 9
Like the salaries of the Corporation's other executive
officers, Mr. Melton's and Mr. McKinney's salaries are also
derived from the data compiled by the independent consultant.
Since these two individuals have the greatest impact on the
Corporation's long-term performance, their salaries are
determined based on their achievement of certain goals
relating to the Corporation's performance during the prior
year, such as return on equity, return on assets, credit quality,
and management of operating expenses. Because Mr. Melton
is the chief executive officer of the Corporation's sole
operating unit and responsible for its day-to-day activities, the
Compensation Committee gives special weight to Mr.
Melton's achievement of these objectives when determining
his salary for the coming year. In addition, the Compensation
Committee meets separately with Mr. McKinney for his
candid evaluation of Mr. Melton's performance during the
preceding year and his achievement of the objectives
described above. The Corporation's attainment of the 1996
performance goals resulted in an increase in both Mr.
McKinney's and Mr. Melton's salaries for 1997.
Along with the Corporation's other executive
officers, Mr. McKinney and Mr. Melton participate in the
Short-Term Plan and the Long-Term Plan. However, under
the Short-Term Plan, 60% of the amount contributed to the
bonus pool on behalf of Mr. McKinney and Mr. Melton was
allocated to the overall corporate performance component,
rather than the 50% contribution used for the remaining
executive officers named in the Summary Compensation
Table. The Compensation Committee believes that such
modifications emphasize Mr. McKinney's and Mr. Melton's
leadership roles and encourage them to manage the
Corporation with the shareholders' long-term interests in
mind. Additionally, under the Long-Term Plan, Mr.
McKinney and Mr. Melton received in 1997 a grant of
restricted stock in lieu of their participation in the bonus pool.
The stock will be freed from the restrictions at the end of 1999
if the Corporation attains the performance objectives set forth
in the Long-Term Plan. Further, if the stock is freed from the
restrictions, the Corporation will pay to Mr. McKinney and
Mr. Melton an amount equal to the tax liability they incurred
as a result of such vesting. The Compensation Committee
believes that such tax payments are appropriate given the
nature of the stock awards, which required Mr. McKinney and
Mr. Melton to assume for three years the risk of a decline in
the market value of the Corporation's stock, and given that
such tax payments are only made when the Corporation meets
the performance targets set forth in the Long-Term Plan.
Compensation Committee
H. J. Baker, Chairman
Gerald L. Bepko
Phyllis W. Minott
<PAGE> 10
Performance Graph
The following line graph compares
the cumulative total shareholder return on the common stock
of the Corporation over the last five fiscal years with the
cumulative total return of the NASDAQ Stock Market Index
and the cumulative total return of the NASDAQ Bank Index
over the same period.
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
FIRST INDIANA CORPORATION COMMON STOCK, NASDAQ STOCK MARKET INDEX
AND NASDAQ BANK INDEX**
TOTAL RETURN INDEX
----------------------------------------------
First Indiana Nasdaq Stock Nasdaq Bank
Period Corp. Market Index
- ------ ------------- ------------ -----------
<S> <C> <C> <C>
Dec-92 $100 $100 $100
Jun-93 $136 $104 $107
Dec-93 $136 $115 $114
Jun-94 $135 $105 $122
Dec-94 $135 $112 $114
Jun-95 $176 $140 $137
Dec-95 $234 $159 $169
Jun-96 $269 $180 $179
Dec-96 $370 $195 $223
Jun-97 $330 $218 $279
Dec-97 $452 $240 $377
* Assumes that the value of the investment in the Corporation's stock and
each index was $100 on December 31, 1992 and that all dividends were
reinvested.
</TABLE>
<PAGE> 11
Summary
The following table sets forth the compensation awarded
to, earned by, or paid to the chief executive officer and the four most
highly compensated executive officers other than the chief executive
officer (collectively, the "Named Executive Officers") during the last
three fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
----------------------
Annual Compensation Awards (1) Payouts
---------------------------- ------------------------ -------
Name and Restricted Securities
Principal Other Annual Stock Awards Underlying All Other
Position Year Salary Bonus Compensation Options (#) LTIP Payouts Compensation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. McKinney 1997 $210,000 $ 37,800 $ -- $357,000 (2) -- $ -- $6,404(3)
Chairman and Chief 1996 200,000 -- 395,910 -- 15,000 -- 6,055
Executive Officer 1995 190,000 95,000 -- -- -- -- 3,319
of the Corporation;
Chairman of the Bank
- --------------------------------------------------------------------------------------------------------------------------
Owen B. Melton, Jr. 1997 280,000 50,400 -- 357,000 (2) -- -- 4,550 (4)
President and Chief 1996 265,000 -- 398,818 -- 15,000 -- 3,905
Operating Officer of 1995 248,000 126,157 -- -- -- -- 1,350
the Corporation;
President and Chief
Executive Officer of
the Bank
- --------------------------------------------------------------------------------------------------------------------------
David L. Gray 1997 152,500 25,940 -- -- -- -- 9,065 (5)
Vice President and 1996 145,000 -- -- -- 7,500 69,167 8,131
Treasurer of the Corpor- 1995 138,000 65,000 -- -- -- -- 4,540
ation; Senior Vice
President-Internal
Support Services Group,
and Chief Financial Officer
and Treasurer of the Bank
- --------------------------------------------------------------------------------------------------------------------------
Timothy J. O'Neill 1997 145,500 19,528 -- -- -- -- 7,561 (6)
Senior Vice President 1996 140,000 -- -- -- 7,500 68,667 6,394
Correspondent Banking 1995 137,000 63,705 -- -- -- -- 3,459
Services Group
- --------------------------------------------------------------------------------------------------------------------------
David A. Lindsey 1997 140,000 23,349 -- -- -- -- 8,309 (7)
Senior Vice President- 1996 132,000 -- -- -- 7,500 60,417 7,424
Consumer Finance Group 1995 120,000 60,850 -- -- -- -- 4,142
of the Bank
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Adjusted for all stock splits through December 31, 1997
2 Represents the market value on the date of grant of 15,000 shares of
restricted stock granted to each of Mr. McKinney and Mr. Melton under the
Long-Term Plan. The restricted stock (i) had a market value of $453,750 on
December 31, 1997, (ii) will vest on December 31, 1999 if the
Corporation attains the performance targets described in the Joint Report
of the Compensation Committee and the Stock Administration Committee, and
(iii) earns dividends while restricted.
3 Consists of a $4,261 contribution by the Bank to the Stock Purchase Plan, a
$2,143 contribution by the Bank to Mr. McKinney's account in the Bank's
401 (k) Plan.
4 Consists of a $1,733 contribution by the Bank to the Stock Purchase Plan, a
$2,817 contribution by the Bank to Mr. Melton's account in the Bank's 401(k)
Plan.
5 Consists of a $5,083 contribution by the Bank to the Stock Purchase Plan, the
payment by the Bank of $1,618 for term life insurance premiums, a $2,364
contribution by the Bank to Mr. Gray's account in the Bank's 401(k) Plan.
6 Consists of a $3,760 contribution by the Bank to the Stock Purchase Plan, the
payment by the Bank of $1,562 for term life insurance premiums, a $2,239
contribution by the Bank to Mr. O'Neill's account in the Bank's 401(k) Plan.
<PAGE> 7
7 Consists of a $4,666 contribution by the Bank to the Stock Purchase Plan, the
payment by the Bank of $1,473 for term life insurance premiums, a $2,170
contribution by the Bank to Mr. Lindsey's account in the Bank's 401(k) Plan.
Stock Options
The following table sets forth on an
aggregate basis each exercise of stock options during fiscal
year 1997 by each of the Named Executive Officers and the
1997 year-end value of the unexercised options of each such
executive officer.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options at FY-End In-the-Money Options
at FY-End
------------------------------- ---------------------------
Shares
Acquired on
Name Exercise (#) Value Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. McKinney 46,872 $660,192 53,433 -- $1,083,026 $ --
Owen B. Melton, Jr. 18,750 235,969 51,870 -- 1,042,747 --
Timothy J. O'Neill -- -- 30,559 -- 634,328 --
David L. Gray 18,750 355,500 29,059 -- 601,883 --
David A. Lindsey 16,500 299,640 30,559 -- 634,328 --
</TABLE>
Pension Plans
The following table sets forth, in
specified compensation and years of service classifications,
the estimated annual benefits payable upon retirement at age
65 under the Bank's non-contributory, qualified defined
benefit pension plan (the "Qualified Plan"), as supplemented
by the supplemental benefit plan adopted by the Bank on
January 17, 1992 (the "Supplemental Plan") (the Qualified
Plan and the Supplemental Plan are collectively referred to as
the "Plans"). While the table shows the annual benefit
payable, participants may elect to receive the present value of
the entire benefit in one lump sum.
<PAGE> 13
<TABLE>
<CAPTION>
PENSION PLAN TABLE 1
Covered 10 Years' Benefit 20 Years' Benefit 30 Years' Benefit 40 Years' Benefit
Compensation Service Service Service Service
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
<PAGE> 12
$100,000 $ 18,900 $ 37,700 $ 56,600 $ 76,000
120,000 22,900 45,700 68,600 92,000
140,000 26,900 53,700 80,600 108,000
160,000 30,900 61,700 92,600 124,000
180,000 34,900 69,700 104,600 140,000
200,000 38,900 77,700 116,600 156,000
220,000 42,900 85,700 128,600 172,000
240,000 46,900 93,700 140,600 188,000
260,000 50,900 101,700 152,600 204,000
280,000 54,900 109,700 164,600 220,000
300,000 58,900 117,700 176,600 236,000
320,000 62,900 126,700 188,600 252,000
340,000 66,900 133,700 200,600 268,000
360,000 70,900 141,700 212,600 284,000
380,000 74,900 149,700 224,600 300,000
400,000 78,900 157,700 236,600 316,000
500,000 98,900 197,700 296,600 396,000
600,000 118,900 237,700 356,600 476,000
700,000 138,900 277,700 416,600 556,000
800,000 158,900 317,700 476,600 636,000
- ------------------------------------------------------------------------------------------
</TABLE>
1 Amounts shown are based on an assumed Social Security integration base of
$22,716 and are not subject to any deduction for Social Security or other
offset amounts.
The annual retirement benefit
displayed in the Pension Plan Table is the product of (i) the
participant's number of years of credited benefit service,
multiplied by (ii) the sum of 1.5% of that portion of the
participant's covered compensation that does not exceed the
Social Security integration base for the participant plus 2% of
the participant's covered compensation that exceeds such
integration base. Compensation covered by the Plans is the
sum of the average of a participant's annualized rate of base
salary (as reported in the Salary column of the Summary
Compensation Table) for the five consecutive years of
employment which produce the highest such average, plus the
annual average of all bonuses (including both the Bonus and
the LTIP Payouts columns as reported in the Summary
Compensation Table, and the market value on the date of
vesting of any restricted stock awards made pursuant to the
Long-Term Plan) paid to the participant for the three years
preceding the participant's retirement.
As of January 1, 1998, the number of
years of credited benefit service and the compensation covered
by the Plans (based on average annual salaries for 1993-1997
and average annual bonuses for 1995-1997) for each of the
Named Executive Officers were as follows: Robert H.
McKinney, 42 years - $409,467; Owen B. Melton, Jr., 18
years - $485,252; David L. Gray, 16 years - $192,069;
Timothy J. O'Neill, 25 years - $187,993; David A. Lindsey,
13 years - $169,250.
Employment Agreements and Other
Arrangements
Special retirement benefits are
provided under the Supplemental Plan to Mr. McKinney. His
retirement benefit under the Supplemental Plan is payable for
life and 15 years certain. In accordance with law, retirement
benefits began to be paid to Mr. McKinney when he reached
the age of 72 1/2. The monthly amount of his benefit is the
higher of two calculated amounts. The first is his monthly
retirement benefit that would be payable to him under the
Supplemental Plan if such benefit were determined in the
normal way and were payable for life only. The second is a
monthly retirement benefit equal to the excess of (i) 80% of
his adjusted monthly compensation over (ii) the sum of (a) his
monthly retirement benefit under the Qualified Plan
(determined as though such benefit were payable in the form
of a straight-line annuity) plus (b) his primary Social Security
benefit payable at age 65. For purposes of the foregoing, Mr.
McKinney's adjusted monthly compensation is one-twelfth of
the sum of (i) his highest annual rate of salary from the Bank
plus (ii) the greater of (a) 37.5% of his highest annual rate of
salary from the Bank or (b) the annual average of all bonuses
paid to him by the Bank for the three years next preceding his
retirement. In the last fiscal year, Mr. McKinney received
$101,169 in payments under the Plans.
Special death benefits are provided
under the Supplemental Plan to Mr. McKinney and Mr.
Melton. The death benefit provided to Mr. McKinney equals
three times his highest annual rate of salary, grossed up for
income taxes at the
<PAGE> 15
highest applicable marginal rate in effect
at the time of his death, and is payable whether he dies before
or after separation from service and, because he has already
attained age 65, without regard to when he separates from
service. The death benefit provided to Mr. Melton equals
three times his highest annual rate of salary, grossed up for
income taxes at the highest applicable marginal rate in effect
at the time of his death, unless his employment terminates
prior to age 65 other than by reason of his death, disability or
vesting requirements, or after a change of control, in which
case the death benefit provided to him is $100,000, grossed up
for income taxes.
The Board of Directors unanimously recommends
that shareholders vote in favor of this Proposal.
PROPOSAL NO. 2: AMENDMENT OF THE
CORPORATION'S ARTICLES OF
INCORPORATION TO INCREASE THE AMOUNT
OF AUTHORIZED COMMON STOCK TO
33,000,000
The Board of Directors of the
Corporation has proposed an increase in the number of
authorized shares of the Corporation's common stock to
33,000,000 shares from 16,000,000 shares. The proposed
increase would result in 35,000,000 total authorized shares of
Corporation stock, consisting solely of 33,000,000 shares of
common stock, without par value and 2,000,000 shares of
preferred stock, without par value.
The terms of the additional
authorized shares will be the same as those that apply to the
Corporation's currently authorized common stock. There are
10,591,070 shares of common stock outstanding as of the date
of this Proxy Statement. During the last seven years, the
Corporation has declared six stock dividends (including the
six-for-five share dividend that was recently announced),
resulting in a 275% increase in the number of shares of
common stock outstanding. The increase in the authorized
number of shares of common stock will provide flexibility for
corporate planning and result in shares being available for
future stock dividends or splits, as well as future equity
financing through issuances to the general public, future
acquisitions (such as mergers), and for other corporate
purposes for which the issuance of common stock may be
advisable. The Corporation has no current plans to undertake
any of these issuances, but the Board of Directors believes it
is appropriate to provide the Corporation with this flexibility
at this time.
As stated above, the Corporation has
no immediate plans, arrangements, commitments, or
understandings with respect to the issuance of any additional
shares of common stock which would be authorized by the
proposed amendment. However, the increased authorized
shares could also be used to make a takeover attempt more
difficult such as by using the shares to make a counter-offer
for the shares of the bidder or by selling shares to dilute the
voting power of the bidder. The additional shares could also
be used, in part, to effectuate the Shareholder Rights Plan
adopted by the Corporation on November 14, 1997. As of
this date, the Board is unaware of any effort to accumulate the
Corporation's shares or to obtain control of the Corporation by
means of a merger, tender offer, solicitation in opposition to
management or otherwise.
The current Articles of Incorporation
contain other provisions that may be viewed as having
possible anti-takeover effects. Under these provisions the
Corporation's Board of Directors is divided into three classes,
with approximately one-third of the members of the Board
nominated for election each year. Thus, two Annual Meetings
are necessary for a majority shareholder to replace a majority
of incumbent directors. In addition, directors may be removed
only for cause and only upon the affirmative vote of either the
holders of two-thirds of the outstanding voting stock of the
Corporation or two-thirds of the entire Board of Directors.
The current Articles of Incorporation further provide that, in
certain situations, the affirmative vote of the holders of
two-thirds of the Corporation's outstanding voting stock is
required to approve certain business transactions (such as
mergers or sales of assets) involving another entity that
beneficially owns 10% or more of the voting stock of the
Corporation. The current Articles of Incorporation also
provide that the Board, when evaluating such transactions,
shall, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and
its shareholders, give due consideration to all relevant factors
including the social and economic effects on employees,
customers, suppliers, and other constituents of the Corporation
and on the communities in which the Corporation operates or
is located. As a result of the adoption of the Shareholder
Rights Plan, the current Articles of Incorporation also contain
provisions for the issuance of Series A Junior Participating
Preferred Stock which could have a deterrent effect against the
takeover of the Corporation.
<PAGE> 15
The Corporation is not proposing any
increase in the number of shares of authorized preferred stock
of which 2,000,000 shares are authorized but have not been
issued. A total of 1,000,000 shares of the preferred stock have
been designated as Series A Junior Participating Preferred
Stock and reserved for issuance pursuant to the Shareholder
Rights Plan. The Board (subject to applicable law or rules of
regulatory agencies and requirements of national securities
markets) has the power to issue the existing preferred stock
without further shareholder approval, with such rights as the
Board deems advisable, including conversion rights,
redemption rights, voting rights, and liquidation rights. The
preferred stock could be issued to deter a takeover by
establishing the terms of the preferred stock so as to make the
takeover substantially more expensive. The preferred stock
could also be issued with voting rights intended to make
acquisition of the Corporation more difficult.
Shareholders have no preemptive
rights with respect to the issuance of additional shares of
common stock. Accordingly, any issuance of authorized but
unissued shares of common stock (which will not require
shareholder approval) could have the effect of diluting the
earnings per share and book value per share of currently
outstanding shares of common stock. However, the
Corporation has no current plans to issue any shares of its
common stock in a transaction which is expected to have such
a dilutive effect.
The Board of Directors unanimously recommends
that shareholders vote in favor of this Proposal.
PROPOSAL NO. 3: APPROVAL OF THE
1998 STOCK INCENTIVE PLAN
There will be presented to the 1998
Annual Meeting a proposal to approve the First Indiana
Corporation 1998 Stock Incentive Plan (the "1998 Plan").
The 1998 Plan was adopted by the Board of Directors on
January 22, 1998, subject to shareholder approval. The
purpose of the 1998 Plan is to attract and retain qualified
persons as employees and members of management to the
Corporation so as to maintain and enhance the Corporation's
long-term performance.
The Corporation currently maintains
four stock option plans: the 1989 Stock Option Plan, the
1991 Stock Option and Incentive Plan, the 1992 Directors
Stock Option Plan (the "Directors' Plan"), and the 1992 Stock
Option Plan. In addition, options are outstanding under a fifth
plan, the 1987 Stock and Incentive Plan, which terminated last
year. As of February 12, 1998, grants for __________
options and ________shares of restricted stock were
outstanding under these five plans. This includes grants for
________ options that were made on January 22, 1998. If the
1998 Plan is approved, no further grants will be made under
the prior plans, except for the Directors' Plan. Grants will
continue to be made under the Directors' Plan until its
expiration in 2002. As of February 12, 1998, __________
options remained available for grants under the Directors'
Plan.
GENERAL
The 1998 Plan provides for the
issuance of a total of up to 525,000 shares of common stock,
which may be authorized and unissued shares, treasury shares
or reacquired shares. This is equivalent to slightly less than
five percent (5%) of the shares of Common Stock outstanding (excluding
treasury stock) outstanding on the Record Date. As of the
Record Date, __________ shares of common stock remained
available for issuance under the three plans that are being
replaced by the 1998 Plan. Accordingly, the 525,000 shares
authorized under the 1998 Plan represents an increase of only
_________ shares over the number of shares previously
authorized by the shareholders.
Awards under the 1998 Plan may be
made in the form of (i) incentive stock options, (ii) non-qualified stock
options, (iii) stock appreciation rights, (iv)
dividend equivalent rights,(v) restricted stock, (vi) restricted
stock units and (vii) other stock-based awards. Awards may
be made to any director, officer or employee of the
Corporation and its subsidiaries, and to such consultants to the
Corporation as the Compensation Committee may select.
Awards with respect to no more than
50,000 shares of common stock may be granted to any one
eligible person during any one-year period. In the event of a
stock dividend, stock split, recapitalization or the like
(including, but not limited to, the recently announced
six-for-five share stock dividend, the effect of which has not
been reflected in the per share numbers set forth in this
description of the 1998 Plan), the Compensation Committee
will equitably adjust the aggregate
<PAGE> 16
number of shares subject
to the 1998 Plan, the number of shares subject to each
outstanding award, the exercise price of each outstanding
option and any other share-based limits under the 1998 Plan.
In general, the 1998 Plan will be
administered by the Compensation Committee, composed of
not less than two directors, but the Board of Directors may
grant awards and assume all of the powers of the
Compensation Committee. To the extent required for
compliance with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), all
actions relating to awards to persons subject to Section 16 of
the Exchange Act will be taken by the Board of Directors
unless each person who serves on the Compensation
Committee is a "non-employee director" within the meaning
of Rule 16b-3 promulgated under the Exchange Act. To the
extent required for compensation realized from awards under
the 1998 Plan to be deductible by the Corporation pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the"Code"), the members of the Compensation
Committee will be "outside directors"within the meaning of
Section 162(m) of the Code. The Board of Directors,
however, reserves the right to grant awards that might fail to
satisfy the requirements for deductibility under Section
162(m) of the Code. The Compensation Committee is
authorized to construe, interpret and implement the 1998 Plan,
to select the eligible persons to whom awards will be granted,
to determine the terms and provisions of such awards, and to
amend outstanding awards. The determinations of the
Compensation Committee are made in its sole discretion and
are conclusive. The Compensation Committee presently
consists H.J. Baker, Gerald L. Bepko and Phyllis W. Minott.
GRANTS UNDER THE 1998 PLAN
Stock Options. Each stock option
granted under the 1998 Plan will be exercisable during the
period fixed by the Compensation Committee; however, no
incentive stock option will be exercisable more than ten years
after the date of grant. The purchase price per share payable
upon the exercise of an option (the "option purchase price")
will be established by the Compensation Committee, provided
that the option exercise price of an incentive stock option will
not be less than 100% of the fair market value of a share of the
common stock on the date of grant. The option exercise price
is payable in cash, or by surrender of shares of common stock
acquired at least six months prior to the option exercise date
and having a fair market value on the date of the exercise
equal to part or all of the option exercise price, or by such
other payment method as the Compensation Committee may
prescribe.
Stock Appreciation Rights. Stock
appreciation rights may be granted in connection with all or
any part of, or independently of, any option granted under the
1998 Plan. Generally, no stock appreciation right will be
exercisable at a time when any option to which it relates is not
exercisable. The grantee of a stock appreciation right has the
right to surrender the stock appreciation right and to receive
from the Corporation an amount equal to the aggregate
appreciation (over the exercise price of such right, or over the
option exercise price if the stock appreciation right is granted
in connection with an option) in the shares of common stock
in respect of which such stock appreciation right is being
exercised. Payment due upon exercise of a stock appreciation
right may be in cash, in common stock, or partly in each, as
determined by the Compensation Committee in its discretion.
Dividend Equivalent Rights. The
Compensation Committee may include in any award a
dividend equivalent right entitling the grantee to receive
amounts equal to the ordinary dividends that would be paid,
during the time such award is outstanding and unexercised, on
the shares of common stock covered by such award if the such
shares were then outstanding. The Compensation Committee
will determine whether such payments may be made in cash,
in shares of common stock or in another form, whether they
will be conditioned upon the exercise of the award to which
they relate, and such other terms and conditions as the
Compensation Committee deems appropriate.
Restricted Stock. The Compensation
Committee may grant restricted shares of common stock to
such eligible persons, in such amounts, and subject to such
terms and conditions (which may depend upon or be related to
performance goals and other conditions) as the Compensation
Committee determines in its discretion. Certificates for the
shares of common stock covered by a restricted stock award
will remain in the possession of the Corporation until such
shares are free of restrictions. Subject to the applicable
restrictions, the grantee has the rights of a shareholder with
respect to the restricted stock.
<PAGE> 17
Restricted Stock Units. The
Compensation Committee may grant restricted stock units to
such eligible persons, in such amounts, and subject to such
terms and conditions as the Compensation Committee
determines in its discretion. At the time of grant, the
Compensation Committee will specify the date or dates on
which the restricted stock units will become fully vested and
nonforfeitable. On the maturity date, the grantee will be
entitled to one unrestricted, fully transferable share of common
stock for each restricted stock unit scheduled to be paid out on
such date. The purchase price, if any, to be paid by the grantee
for such shares of common stock will be determined by the
Compensation Committee.
Other Stock-Based Awards. The
Board may authorize other types of stock-based awards, which
the Compensation Committee may grant to such eligible
persons, in such amounts and subject to such terms and
conditions as the Compensation Committee determines in its
sole discretion.
Except as otherwise specified in the
applicable grant agreement, no award or right granted to any
person under the 1998 Plan will be assignable or transferable
other than by will or by laws of descent and distribution.
OTHER FEATURES OF THE 1998 PLAN
Unless sooner terminated by the
Board of Directors, the provisions of the 1998 Plan with
respect to the grant of incentive stock options will terminate
on January 21, 2008. All awards made under the 1998 Plan
prior to its termination will remain in effect until they are
satisfied or terminated. The Board of Directors may, without
shareholder approval, suspend, discontinue, revise or amend
the 1998 Plan at any time or from time to time; provided,
however, that shareholder approval will be obtained for any
amendment for which such approval is required by Section
422 of the Code or under other applicable law.
In the event of a Change of Control
(as defined in the 1998 Plan), any previously granted option
or stock appreciation right will continue in effect or be
replaced by an equivalent substituted option or right relating
to the stock of successor entity or its parent. Similarly, any
previously granted award of restricted stock will continue in
effect or, if there is a successor employer, be replaced with an
equivalent award of restricted stock of such successor or its
parent. If the grantee's service is terminated by the employer
without cause or by the grantee for good reason prior to the
close of the employment term provided in any applicable
employment agreement, the grantee's options and rights will
become and remain exercisable for the remainder of the terms
thereof, and the grantee's restricted stock will become and
remain fully vested and transferable, notwithstanding such
termination.
RIGHT OF RECAPTURE
If at any time within one year after
the date on which a grantee exercises an option or stock
appreciation right, or on which restricted stock vests, or which
is the maturity date of a restricted stock unit, or on which
income is realized by a grantee in connection with any other
stock-based award (each of which event is a "Realization
Event"), the grantee is terminated for cause or engages in any
activity which is deliberate and which results and is intended
to result in demonstrable material harm to the Corporation or
any Subsidiary, then any gain realized by the grantee from the
Realization Event will be paid by the grantee to the
Corporation.
FEDERAL INCOME TAX CONSEQUENCES OF THE
1998 PLAN
The description of Federal tax
consequences set forth below is necessarily general in nature
and does not purport to be complete.
There are generally no Federal tax
consequences either to the optionee or the Corporation upon
the grant of a stock option. On exercise of an incentive stock
option, the optionee will not recognize any income, and the
Corporation will not be entitled to a deduction for tax
purposes, although such exercise may give rise to liability for
the optionee under the alternative minimum tax provisions of
the Code. However, if the optionee disposes of shares
acquired upon exercise of an incentive stock option within two
years of the date of grant or one year of the date of exercise,
the optionee will recognize compensation income, and the
Corporation will be entitled to a deduction for tax purposes in
the same amount, equal to the excess of the fair market value
of the shares of common stock on the date of exercise over the
option exercise price (or the
<PAGE> 18
gain on sale, if less); the
remainder of the gain to the optionee will be treated as capital
gain. Otherwise, the Corporation will not be entitled to any
deduction for tax purposes upon disposition of such shares,
and the entire gain for the optionee will be treated as a capital
gain. On the exercise of a non-qualified stock option, the
amount by which the fair market value of the common stock
on the date of exercise exceeds the option exercise price will
generally be taxable to the optionee as compensation income,
and will generally be deductible for tax purposes by the
Corporation. The disposition of shares of common stock
acquired upon exercise of a non-qualified stock option will
generally result in a capital gain or loss for the optionee, but
will have no tax consequences for the Corporation.
The grant of a stock appreciation
right, a dividend equivalent right, restricted stock or a
restricted stock unit generally will not result in income for the
grantee or in a tax deduction for the Corporation. Upon the
settlement of such a right or unit and upon the vesting of
restricted stock, the grantee will recognize ordinary income
equal to the fair market value of any shares of common stock
and/or any cash received, and the Corporation will be entitled
to a tax deduction in the same amount. With respect to an
award of restricted stock the grantee may elect to recognize
ordinary income equal to the fair market value of the shares
less any amount paid for them at the time of grant, and the
Corporation will be entitled to a tax deduction in the same
amount. Dividends paid on forfeitable restricted shares are
treated as compensation for Federal tax purposes. A grant of
unrestricted shares of common stock will result in income for
the grantee, and a tax deduction for the Corporation, generally
equal to the fair market value of such shares less any amount
paid for them.
Limitations on the Corporation's
Compensation Deduction. Section 162(m) of the Code limits
the deduction which the Corporation may take for otherwise
deductible compensation payable to certain executive officers
to the extent that compensation paid to such officers for a year
exceeds $1 million, unless such compensation meets certain
criteria. Although it is contemplated that most awards granted
under the 1998 Plan will satisfy the requirements of Section
162(m) of the Code, there is no assurance such awards will
satisfy such requirements. In addition, the Compensation
Committee has authority to make grants under the 1998 Plan
that will not meet the requirements of Section 162(m) of the
Code. Accordingly, the deduction attributable to any
compensation realized by an affected executive officers may
be limited under Section 162(m) of the Code.
The benefits and amounts that may
be received or allocated in the future under the 1998 Plan are
not generally determinable because they are within the
discretion of the Compensation Committee. To date, no grants
have been made under the 1998 Plan.
Any shareholder may request and
receive a copy of the 1998 Plan from the Corporation's
Secretary, 2800 First Indiana Plaza, 135 North Pennsylvania
Street, Indianapolis, Indiana 46204
The Board of Directors unanimously recommends
that shareholders vote in favor of this Proposal.
<PAGE> 19
PROPOSAL NO. 4: APPROVAL OF THE LONG-TERM MANAGEMENT PERFORMANCE
INCENTIVE PLAN
The Board adopted the of the Long-Term Management Performance
Incentive Plan (the "Long-Term Plan") on January 23, 1997, subject to share-
holder approval at the Annual Meeting. The Long-Term Plan
authorizes the Corporation to continue its practice of
providing incentive compensation to key executives based on
three-year performance period. The first performance period
commenced on January 1, 1997, and will end on December
31, 1999. Subsequent performance periods will begin on
January 1, 2000, and January 1 of each third year thereafter.
In order for payment of certain incentive awards to be fully
deductible by the Corporation for federal income tax purposes,
they now must be paid under a plan such as the Long-Term
Plan that is approved by the shareholders. The key provisions
of the Long-Term Plan are summarized below.
PURPOSES
The purposes of the Long-Term Plan
are to attract, retain and motivate executives and key
employees of the highest caliber and quality by providing them
with the opportunity to earn incentive compensation directly
linked to the Corporation's long-term performance. In this
respect, the Long-Term Plan supplements the Annual
Management Incentive Plans of the Corporation by
encouraging senior executive officers to focus on long-term
growth and prosperity and not only on annual target
requirements.
ADMINISTRATION
The Long-Term Plan will be
administered by the Compensation Committee, composed of
not less than two directors. To the extent required for
compensation realized from awards under the Long-Term Plan
to be fully deductible by the Corporation pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended
(the"Code"), the members of the Compensation Committee
will be "outside directors"within the meaning of Section
162(m) of the Code. The Board of Directors, however,
reserves the right to grant awards that might fail to satisfy the
requirements for deductibility under Section 162(m) of the
Code. The Compensation Committee's powers include
authority, within the limitations set forth in the Long-Term
Plan, to construe, interpret and implement the Long-Term
Plan, to prescribe, amend and rescind rules and procedures
relating to the Long-Term Plan, to select the senior executive
officers who will be permitted to participate, to determine the
amount of cash or stock which may be earned and the
performance goals which must be achieved in order for such
amount to be earned, to determine at the end of each
performance period whether the performance goals
established for that period were achieved and the extent to
which the incentive amount for each participant was earned,
to determine whether a participant's incentive amount,
although earned, should be reduced or eliminated, and to
determine whether payment of a participant's incentive
amount will be made at the end of the performance period or
deferred. The determinations of the Compensation Committee
are made in its sole discretion and are conclusive. The
Compensation Committee presently consists of H.J. Baker,
Gerald L. Bepko and Phyllis W. Minott.
ELIGIBILITY
Participation in the Long-Term Plan
is limited to senior executive officers of the Corporation or the
Bank. Such officers may participate in the Long-Term Plan
either as Group A participants or as Group B participants. An
executive cannot participate both as a Group A participant and
as a Group B participant for the same performance period.
The Committee will select
participants for the Long-Term Plan at the start of each three-year
performance period. For the 1997-99 performance
period, the Committee has designated three Group A
participants and five Group B participants. The Group A
participants are: Robert H. McKinney, Chairman and CEO of
the Corporation and Chairman of the Bank; Owen B. Melton,
Jr., President of the Corporation and President and CEO of the
Bank; and Marni McKinney, Vice-Chairman of the
Corporation and the Bank. The Group B participants are:
David L. Gray, Vice President and Treasurer of the Corporation and Senior
Vice President in charge of the Bank's Internal Support
Services Group and Chief Financial Officer of the Bank; David A. Lindsey,
Senior Vice President in charge of the Bank's Consumer Finance Group;
Merrill E. Matlock, Senior Vice President in charge of the
Bank's Commercial Banking Group; Timothy J. O'Neill,
Senior Vice President in charge of the Bank's Correspondent
<PAGE> 20
Banking Services Group; and Kenneth L. Turchi,, Senior
Vice President in charge of the Bank's Marketing and
Strategic Planning Group.
SETTING PERFORMANCE TARGETS
The executives selected by the
Committee for a performance period will be eligible to earn an
incentive amount for that performance period. Payment will
be conditioned upon attaining performance targets selected by
the Committee from among the following criteria: net income,
net income growth rate, return on equity, fair market value of
common stock, economic value added, level of non-performing loans,
expense management, deposits, loan
originations, market share, industry leadership and
organizational development.
At the beginning of each
performance period, the Committee will establish the
performance targets and specify the relationship between
performance targets and the award. The Committee also will
determine the maximum award which may be earned by each
executive. In the case of Group B participants, the Committee
will determine whether, as part of the award, the participant
will receive a tax gross-up right.
Following the completion of a
performance period, the Committee must certify in writing
whether the applicable performance targets have been
achieved and specify the incentive amounts, if any, payable to
executives. The Committee may reduce (but may not increase)
the incentive amount payable to take into account additional
factors that the Committee deems relevant to assess individual
or corporate performance.
PAYING AWARDS
Awards to Group A participants will
be made in the form of restricted stock grants under a stock
option plan of the Corporation (the 1991 Plan in the case of
awards for the 1997-99 performance period or, subject to its
approval by the shareholders, the 1998 Plan in the case of
grants for subsequent performance periods). In the event
stock gross-up rights are included as part of such awards,
payment of a portion of the award will be made in restricted
stock and payment of the balance will be made in cash, it
being intended that the cash portion will approximate the
aggregate amount of federal, state and local income taxes that
will be payable by the participant on both the restricted stock
and cash portions of the award. Awards to Group B
participants will be made in cash or stock, or a combination
thereof, at the election of the Committee.
MAXIMUM AWARD LIMITS
The maximum incentive amount that
may be earned under the Long-Term Plan by a Group A
participant during a three-year performance period is the sum
of (i) such number of such shares of common stock of the
Corporation as shall have a value at the beginning of such
performance period of $1 million, rounded down to the nearest
whole number of shares, plus (ii) a cash amount equal to the
federal, state and local income taxes for which the participant
may be liable, assuming taxation at the highest marginal rate,
both with respect to the stock and with respect to such cash
amount. The maximum incentive amount that may be earned
under the Long-Term Plan by a Group B participant during a
three-year performance period is the lesser of $250,000 or
100% of the participant's annual salary in effect at the
beginning of the performance period.
TERMINATION OF EMPLOYMENT
If an executive's employment
terminates during a performance period by reason of death,
disability or retirement (or with the approval of the
Committee), and if the performance goals for such period
ultimately are met, the executive will receive a pro rata
payment based upon the amount of time the executive was
employed during the performance period. If an executive's
employment terminates during a performance period for any
other reason, the executive will not be entitled to an award.
However, in certain events involving a Change of Control, an
executive may receive a pro rata payment, or in some cases
full payment, of his or her incentive amount, notwithstanding
termination or his or her employment.
AMENDMENT AND TERMINATION
<PAGE> 21
The Board or the Committee may
amend or terminate the Long-Term Plan at any time. However,
no action will be effective without shareholder approval to the
extent necessary to continue to qualify the amounts payable to
covered employees as performance-based compensation under
Section 162(m) of the Internal Revenue Code.
TERM
The Long-Term Plan became
effective upon its adoption by the Board, subject to
shareholder approval at the Annual Meeting.
NEW PLAN BENEFITS
It is not possible to determine the
benefits or amounts that will be received by any executive for
the current performance period because the amount, if any,
payable will depend upon the extent to which the executive
satisfies the performance targets determined by the Committee
at the beginning of the period. As to benefits or amounts that
will be received by any executive for future performance
periods, such determination cannot be made for the additional
reason that the performance targets for such future periods
will not be determined by the Committee until the beginning
of each period.
In establishing the Long-Term Plan
for the 1997-99 performance period, the Committee
established the following maximum number of shares of
common stock (adjusted for the 1997 stock split) which may
be earned by Group A participants for such period: Mr.
McKinney, 15,000 shares; Mr. Melton, 15,000 shares; and
Ms. McKinney, 6,250 shares. (The maximums are subject to
further adjustment for stock splits and occurring after
February 12, 1998, including the recently announced
six-for-five share stock dividend.) In addition, it included tax
gross-up rights with respect to the full amount of the shares so
allocated. The Committee established the maximum incentive
amount which may be earned by any Group B participant for
such period as an amount equal to 50% of the participant's
annual rate of base salary in effect as of January 1, 1997. As
adopted for the 1997-99 performance period, the Long-Term
Plan has interim performance goals which must be attained
during each of the years 1997 through 1999, inclusive, as well
as overall goals which must be attained for the entire period.
The Committee has determined that the interim performance
goals for 1997 were satisfied and, accordingly, that the
incentive amounts for the 1997-99 performance period still
may be earned, provided the performance goals for 1998 and
1999 and the overall goals for the entire period are met.
The Board of Directors unanimously recommends
that shareholders vote in favor of this Proposal.
APPOINTMENT OF AUDITORS
The Corporation's financial
statements for the year ended December 31, 1997 were
audited by KPMG Peat Marwick LLP ("Peat Marwick"). The
Corporation has selected Peat Marwick as its independent
auditors for the fiscal year ending December 31, 1998.
Representatives of Peat Marwick are expected to attend 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.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires the
Corporation's officers and directors, and persons who own
more than 10% of the Corporation's common stock, to file
reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and
greater than 10% shareholders (the "Reporting Persons") are
required by Securities and Exchange Commission regulation
to furnish the Corporation with copies of all Section 16(a)
forms they file. Based solely on review of the copies of such
forms furnished to the Corporation, the Corporation believes
that during 1997 all Reporting Persons complied with the
filing requirements of Section 16(a).
<PAGE> 22
ANNUAL REPORT
A copy of the Corporation's Annual
Report for the year ended December 31, 1997 has been
provided to all shareholders as of the record date. The Annual
Report is not to be considered as proxy solicitation material.
OTHER MATTERS
The Board of Directors knows of no
other matters to be brought before this Annual Meeting.
However, if other matters should come before the meeting, it
is the intention of each person named in the proxy to vote such
proxy in accordance with his or her judgment on such matters.
EXPENSES OF SOLICITATION
The entire expense of preparing,
assembling, printing and mailing the proxy form and the
material used in the solicitation of proxies will be paid by the
Corporation. The Corporation does not expect that the
solicitation will be made by specially engaged employees or
paid solicitors. Although the Corporation might use such
employees or solicitors if it deems them necessary, no
arrangements or contracts have been made with any such
employees or solicitors as of the date of this statement. In
addition to the use of the mails, solicitation may be made by
telephone, telegraph, cable or personal interview. The
Corporation will request record holders of shares beneficially
owned by others to forward this Proxy Statement and related
materials to the beneficial owners of such shares, and will
reimburse such record holders for their reasonable expenses
incurred in doing so.
IT IS IMPORTANT THAT
PROXIES BE RETURNED PROMPTLY. Whether or not
you attend the meeting, you are urged to execute and return the
proxy.
For the Board of Directors,
Robert H. McKinney
Chairman
March 12, 1998
<PAGE> 23
[LOGO OF THE BANK]
Principal Subsidiary of First Indiana Corporation
<PAGE> 24
[FORM OF PROXY CARD]
PLEASE MARK,
SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY
PROXY FIRST INDIANA USING THE ENCLOSED
CORPORATION ENVELOPE
135 North Pennsylvania Street
Indianapolis, Indiana 46204
This Proxy is solicited on behalf of the Board of Directors
for the Annual Meeting of Shareholders to be held on April 16, 1998
The undersigned hereby appoints Marni McKinney, Robert H. McKinney
and Michael L. Smith, and each of them, attorneys-in-fact and proxies, with
full power of substitution, to attend the Annual Meeting of Shareholders
to be held on April 16, 1998 at 9:00 a.m. E.S.T., and at any adjournments or
postponements of the Annual Meeting, and to vote as specified below all shares
of the Common Stock of First Indiana Corporation which the undersigned would
be entitled to vote if personally present at the Annual Meeting.
1. ELECTION OF DIRECTORS
h FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
Nominees for a term of three years:
Robert H. McKinney, Owen B. Melton, Jr. and Michael L. Smith
(To withhold authority to vote for any individual nominee, write that nominee's
name on the space provided below.)
________________________________________________________________________
2. APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
h FOR AGAINST ABSTAIN
3. APPROVAL OF THE CORPORATION'S 1998 STOCK INCENTIVE PLAN
h FOR AGAINST ABSTAIN
4. APPROVAL OF THE CORPORATION'S LONG-TERM MANAGEMENT INCENTIVE
PLAN
h FOR AGAINST ABSTAIN
5. In their discretion, the Proxies are authorized to vote such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholders. If no direction is made, this proxy will be
voted FOR Proposals 1, 2, 3 and 4.
THE UNDERSIGNED ACKNOWLEDGES
RECEIPT OF THE NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS, PROXY
STATEMENT AND ANNUAL REPORT.
Signature(s)
Please sign exactly as your
name appears. Joint owners
should each sign personally.
Where applicable, indicate your
official position or representative
capacity.
Dated ,1998
[NAME/ADDRESS]
REVOCABLE PROXY
<PAGE>
FIRST INDIANA CORPORATION
1998 STOCK INCENTIVE PLAN
Table of Contents
Page
ARTICLE I GENERAL
1.1 Purpose 1
1.2 Administration 1
1.3 Persons Eligible for Awards 3
1.4 Types of Awards Under Plan 3
1.5 Shares Available for Awards 3
ARTICLE II AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards 5
2.2 No Rights as a Shareholder 5
2.3 Grant of Stock Options, Stock
Appreciation Rights and Dividend
Equivalent Rights 5
2.4 Exercise of Options and Stock
Appreciation Rights 7
2.5 Termination of Continuous Status 8
2.6 Grant of Restricted Stock 10
2.7 Grant of Restricted Stock Units 12
2.8 Other Stock-Based Awards 12
2.9 Grant of Dividend Equivalent Rights 12
2.10 Deferral 13
2.11 Right of Recapture 13
ARTICLE III MISCELLANEOUS
3.1 Amendment of the Plan; Modification of
Awards 13
3.2 Tax Withholding 14
3.3 Nonassignability 14
3.4 Requirement of Notification of Election
Under Section 83(b) of
the Code 15
3.5 Requirement of Notification Upon
Disqualifying Disposition Under
Section 421(b) of the Code 15
3.6 Right of Discharge Reserved 15
3.7 Nature of Payments 15
3.8 Non-Uniform Determinations 16
3.9 Other Payments or Awards 16
3.10 Dissolution, Liquidation, Merger 16
3.11 Section 162(m) 17
3.12 Successors and Assigns 17
3.13 Designation of Beneficiary 17
3.14 Settlement by Subsidiaries 18
3.15 Expenses 18
3.16 Arbitration 18
3.17 Sections Headings 19
3.18 Effective Date and Term of Plan 19
3.19 Governing Law 19
ARTICLE IV DEFINITIONS
4.1 "Award" 19
4.2 "Board" 19
4.3 "Cause" 19
4.4 "Change of Control" 20
4.5 "Compensation Committee" 22
4.6 "Consultant" 22
4.7 "Continuous Status" 22
4.8 "Disability" 23
4.9 "Exempt Descendant" 23
4.10 "Exempt Person" 23
4.11 "Fair Market Value" 23
4.12 "Incentive Stock Option" 24
4.13 "Non-Qualified Stock Option" 24
4.14 "Subsidiary" 24
FIRST INDIANA CORPORATION
1998 STOCK INCENTIVE PLAN
The Board of Directors of First Indiana
Corporation (the "Corporation") has established the
following Stock Incentive Plan (the "Plan") for
employees and directors of the Corporation and its
Subsidiaries. All capitalized terms used in the Plan
have the meanings given them in Article IV.
ARTICLE I
General
1.1 Purpose
The purpose of the First Indiana Corporation
1998 Stock Incentive Plan (the "Plan") is to provide for
officers, other employees and directors of, and
consultants to, the Corporation and its Subsidiaries
(collectively, the "Employers") an incentive (a) to enter
into and remain in the service of the Employers, (b) to
enhance the long-term performance of the Employers,
and (c) to acquire a proprietary interest in the
Corporation.
1.2 Administration
1.2.1 This Plan shall be administered by the
Compensation Committee. It is contemplated that the
Compensation Committee will consist of two or more
members of the Board. To the extent required for
transactions under the Plan to qualify for the
exemptions available under Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of
1934 (the "1934 Act"), all actions relating to Awards to
persons subject to Section 16 of the 1934 Act shall be
taken by the Board unless each person who serves on
the Compensation Committee is a "non-employee
director" within the meaning of Rule 16b-3 or such
actions are taken by another committee of the Board
comprised solely of "non-employee directors." To the
extent required for compensation realized from Awards
under the Plan to be deductible by the Employers
pursuant to Section 162(m) of the Internal Revenue
Code of 1986 (the "Code"), the members of the
Compensation Committee shall be "outside directors"
within the meaning of Section 162(m).
1.2.2 Subject to the provisions of the Plan and
directions from the Board, the Compensation
Committee is authorized to:
(a) determine the persons to whom
Awards are to be granted;
(b) determine the type of Award to be
granted, the number of shares of Common Stock to be
covered by the Award, the pricing of the Award, the
time or times when the Award shall be granted and may
be exercised, any restrictions on the exercise of the
Award, and any restrictions upon shares of Common
Stock acquired pursuant to the exercise of any Award;
(c) provide for the extension of the
exercisability of an Award, accelerate the vesting or
exercisability of an Award, eliminate or make less
restrictive any restrictions contained in an Award,
waive any restriction or other provisions of the Plan or
in any Award, and to amend or modify any Award
provided such amendment or modification either is not
adverse to or is consented to by the grantee thereof;
(d) conclusively interpret the provisions
of the Plan and any Plan Agreement executed pursuant
to Section 2.1;
(e) prescribe, amend and rescind rules
and regulations relating to the Plan (including rules
governing its own operations) or make individual
decisions as questions arise, or both;
(f) correct any defect, supply any
omission or reconcile any inconsistency in the Plan;
(g) amend the Plan to reflect changes in
applicable law;
(h) delegate to one or more officers of
the Corporation or a Subsidiary some or all of its
authority under the Plan;
(i) employ such legal counsel,
independent auditors and consultants as it deems
desirable for the administration of the Plan and rely
upon any opinion or computation received therefrom;
(j) make all other determinations and
take all other actions necessary or advisable for the
administration of the Plan.
1.2.3 The determination of the Compensation
Committee on all matters relating to the Plan or any
Plan Agreement shall be final, binding and conclusive.
1.2.4 No member of the Compensation
Committee shall be liable for any action or
determination made in good faith, and the members of
such Committee shall be entitled to indemnification and
reimbursement in the manner provided in the
Corporation's articles of incorporation and bylaws as
amended from time to time. In the performance of its
responsibilities with respect to the Plan, such
Committee shall be entitled to rely upon information
and advice furnished by the Corporation's officers, the
Corporation's accountants, the Corporation's counsel
and any other party such Committee deems necessary,
and no member of such Committee shall be liable for
any action taken or not taken in reliance upon any such
advice.
1.3 Persons Eligible for Awards
Awards under the Plan may be made to such
directors, officers and other employees of the
Employers (including prospective employees
conditioned on their becoming employees) and to such
Consultants to the Employers (collectively, "eligible
persons") as the Compensation Committee in its
discretion shall select.
1.4 Types of Awards Under Plan
Awards may be made under the Plan in the form
of (a) Incentive Stock Options (within the meaning of
Section 422 of the Code), (b) Non-Qualified Stock
Options, (c) stock appreciation rights, (d) dividend
equivalent rights, (e) restricted stock, (f) restricted
stock units and (g) other stock-based compensation, all
as more fully set forth in Article II. No Incentive Stock
Option may be granted to a person who is not an
employee of an Employer on the date of grant.
1.5 Shares Available for Awards
1.5.1 The maximum number of shares of
Common Stock that may be issued pursuant to this
Plan is 525,000, subject to adjustment in accordance
with Section 1.5.3. Shares issued pursuant the Plan
may be authorized but unissued shares or reacquired
shares, including shares purchased on the open market.
If any Award is canceled or forfeited, or terminates for
any other reason without all of the shares covered
thereby being issued or settled in cash, then the shares
as to which the Award is canceled or forfeited or so
terminates may again be awarded pursuant to the Plan.
Restricted shares issued under this Plan that are
repurchased by the Corporation, pursuant to an
exercise of its repurchase rights under the applicable
Plan Agreement, for the same price for which they were
sold to the grantee, shall be deemed forfeited for
purposes of the foregoing and be available for
reissuance pursuant to subsequent Awards. If
previously acquired shares of Common Stock are
delivered to the Corporation in full or partial payment
of the exercise price for the exercise of an option
granted under this Plan, the number of shares available
for future Awards under this Plan shall be reduced only
by the net number of shares issued upon the exercise of
the option. Awards that may be satisfied either by the
issuance of shares or by cash or other consideration
shall be counted against the maximum number of shares
that may be issued under this Plan, even though the
Award ultimately is satisfied by the payment of
consideration other than shares, as, for example, when
an option is granted in tandem with a stock
appreciation right that is settled by a cash payment of
the stock appreciation. However, Awards will not
reduce the number of shares that may be issued
pursuant to this Plan if the settlement of the Award will
not require the issuance of shares, as, for example, a
stock appreciation right that may be satisfied only by
the payment of cash. Shares of Common Stock issued
in settlement, assumption or substitution of outstanding
awards (or obligations to grant future awards) under
the plans or arrangements of an unrelated entity shall
not reduce the maximum number of shares available for
issuance under this Plan, to the extent such settlement,
assumption or substitution is made in connection with
an Employer's acquisition of such unrelated entity or an
interest in such unrelated entity.
1.5.2 In no event may any eligible person be
granted Awards in any calendar year with respect to
more than 50,000 shares of Common Stock, subject to
adjustment from time to time in accordance with
Section 1.5.3. The number of shares relating to an
Award that is granted in a calendar year to an eligible
person and that subsequently is forfeited, canceled or
otherwise terminated shall continue to count toward
such limitation in such calendar year.
1.5.3 Subject to any required action by the
shareholders of the Corporation, the number of shares
of Common Stock covered by each outstanding Award,
the number of shares available for Awards, the number
of shares that may be subject to Awards to any one
employee, and the price per share of Common Stock
covered by each such outstanding Award shall be
proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock, the
record date for which is after January 22, 1998,
effected without receipt of consideration by the
Corporation; provided, however, that conversion of any
convertible securities of the Corporation shall not be
deemed to have been "effected without receipt of
consideration." Such adjustment shall be made in a
manner which shall preclude the enlargement or
dilution of rights and benefits under such options. Such
adjustment shall be made by the Compensation
Committee, whose determination in that respect shall
be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock
subject to an Award. After any adjustment made
pursuant to this Section 1.5.3, the number of shares
subject to each outstanding Award shall be rounded to
the nearest whole number.
1.5.4 Except as provided in this Section 1.5
and in Section 2.3.8, there shall be no limit on the
number or the value of the shares of Common Stock
that may be subject to Awards to any individual under
the Plan.
ARTICLE II
Awards under the Plan
2.1 Agreements Evidencing Awards
Each Award granted under the Plan (except an
Award of unrestricted stock) shall be evidenced by a
written agreement ("Plan Agreement") which shall
contain such provisions as the Compensation
Committee in its discretion deems necessary or
desirable. By accepting an Award pursuant to the Plan,
a grantee thereby agrees that the Award shall be subject
to all of the terms and provisions of the Plan and the
applicable Plan Agreement.
2.2 No Rights as a Shareholder
No grantee of an option or stock appreciation
right (or other person having the right to exercise such
Award) shall have any of the rights of a shareholder of
the Corporation with respect to shares subject to such
Award until the issuance of a stock certificate to such
person for such shares. Except as otherwise provided
in Section 1.5.3, no adjustment shall be made for
dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash,
securities or other property) for which the record date
is prior to the date such stock certificate is issued.
2.3 Grant of Stock Options, Stock Appreciation
Rights and Dividend Equivalent Rights
2.3.1 The Compensation Committee may
grant Incentive Stock Options and Non-Qualified Stock
Options (collectively, "options") to purchase shares of
Common Stock from the Corporation, to such eligible
persons, in such amounts and subject to such terms and
conditions, as the Compensation Committee shall
determine in its discretion, subject to the provisions of
the Plan. The grantee and the Corporation shall enter
into separate Plan Agreements for Incentive Stock
Options and Non-Qualified Stock Options. At any time
and from time to time, the grantee and the Corporation
may agree to modify a Plan Agreement in order that an
Incentive Stock Option may be converted to a Non-Qualified Stock Option.
2.3.2 The Compensation Committee may
grant stock appreciation rights to such eligible persons,
in such amounts and subject to such terms and
conditions, as the Compensation Committee shall
determine in its discretion, subject to the provisions of
the Plan. Stock appreciation rights may be granted in
connection with all or any part of, or independently of,
any option granted under the Plan. A stock
appreciation right granted in connection with a Non-Qualified Stock
Option may be granted at or after the
time of grant of such option. A stock appreciation
right granted in connection with an Incentive Stock
Option may be granted only at the time of grant of such
option.
2.3.3 The grantee of a stock appreciation right
shall have the right, subject to the terms of the Plan and
the applicable Plan Agreement, to receive from the
Corporation an amount equal to (a) the excess of the
Fair Market Value of a share of Common Stock on the
date of exercise of the stock appreciation right over (b)
the exercise price of such right as set forth in the Plan
Agreement (or over the option exercise price if the
stock appreciation right is granted in connection with
an option), multiplied by (c) the number of shares with
respect to which the stock appreciation right is
exercised. Except as otherwise provided in the
applicable Plan Agreement, payment upon exercise of a
stock appreciation right shall be in cash or in shares of
Common Stock (valued at their Fair Market Value on
the date of exercise of the stock appreciation right) or
both, as the Compensation Committee shall determine
in its discretion. Upon the exercise of a stock
appreciation right granted in connection with an option,
the number of shares subject to the option shall be
reduced by the number of shares with respect to which
the stock appreciation right is exercised. Upon the
exercise of an option in connection with which a stock
appreciation right has been granted, the number of
shares subject to the stock appreciation right shall be
reduced by the number of shares with respect to which
the option is exercised.
2.3.4 Each Plan Agreement with respect to an
option shall set forth the amount (the "option exercise
price") payable by the grantee to the Corporation upon
exercise of the option evidenced thereby. The option
exercise price per share shall be determined by the
Committee in its discretion; provided, however, that the
option exercise price of an Incentive Stock Option shall
be at least 100% of the Fair Market Value of a share of
Common Stock on the date the option is granted, and
provided further that in no event shall the option
exercise price be less than the par value of a share of
Common Stock.
2.3.5 Each Plan Agreement with respect to an
option or stock appreciation right shall set forth the
periods during which the Award evidenced thereby
shall be exercisable, whether in whole or in part. Such
periods shall be determined by the Compensation
Committee in its discretion; provided, however, that no
Incentive Stock Option (or a stock appreciation right
granted in connection with an Incentive Stock Option)
shall be exercisable more than 10 years after the date of
grant.
2.3.6 The Compensation Committee may in its
discretion include in any Plan Agreement with respect
to an option (the "original option") a provision that an
additional option (the "additional option") shall be
granted to any grantee who, pursuant to Section
2.4.3(b), delivers shares of Common Stock in partial or
full payment of the exercise price of the original option.
The additional option shall be for a number of shares of
Common Stock equal to the number thus delivered,
shall have an exercise price equal to the Fair Market
Value of a share of Common Stock on the date of
exercise of the original option, and shall have an
expiration date no later than the expiration date of the
original option. In the event that a Plan Agreement
provides for the grant of an additional option, such
Agreement shall also provide that the exercise price of
the original option be no less than the Fair Market
Value of a share of Common Stock on its date of grant,
and that any shares that are delivered pursuant to
Section 2.4.3(b) in payment of such exercise price shall
have been held for at least six months.
2.3.7 To the extent that the aggregate Fair
Market Value (determined as of the time the option is
granted) of the stock with respect to which Incentive
Stock Options granted under this Plan and all other
plans of the Employers are first exercisable by any
employee during any calendar year shall exceed the
maximum limit (currently, $100,000), if any, imposed
from time to time under Section 422 of the Code, such
options shall be treated as Non-Qualified Stock
Options.
2.3.8 Notwithstanding the provisions of
Sections 2.3.4 and 2.3.5, to the extent required under
Section 422 of the Code, an Incentive Stock Option
may not be granted under the Plan to an individual
who, at the time the option is granted, owns stock
possessing more than 10% of the total combined voting
power of all classes of stock of his or her Employer or
of its parent or subsidiary corporations (as such
ownership may be determined for purposes of Section
422(b)(6) of the Code) unless (a) at the time such
Incentive Stock Option is granted the option exercise
price is at least 110% of the Fair Market Value of the
shares subject thereto and (b) the Incentive Stock
Option by its terms is not exercisable after the
expiration of 5 years from the date it is granted.
2.3.9 The Compensation Committee, in its
sole discretion, may include a provision in the Plan
Agreement for any Non-Qualified Stock Option that
provides for a cash payment, by the Corporation or
employing Subsidiary to the grantee, as soon as
practicable after the exercise thereof, of an amount
equal to all or a portion of the tax benefit to be received
by the Corporation or its Subsidiaries attributable to the
federal income tax deduction resulting from the
exercise of such Non-Qualified Stock Option.
2.4 Exercise of Options and Stock Appreciation
Rights
2.4.1 Subject to the provisions of this Article
II, each option or stock appreciation right granted
under the Plan shall be exercisable as follows:
2.4.2 Unless the applicable Plan Agreement
otherwise provides, an option or stock appreciation
right may be exercised from time to time as to all or
part of the shares as to which such Award is then
exercisable (but, in any event, only for whole shares).
A stock appreciation right granted in connection with
an option may be exercised at any time when, and to
the same extent that, the related option may be
exercised. An option or stock appreciation right shall
be exercised by the filing of a written notice with the
Corporation, on such form and in such manner as the
Compensation Committee shall prescribe.
2.4.3 Any written notice of exercise of an
option shall be accompanied by payment for the shares
being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent
thereof acceptable to the Corporation) for the full
option exercise price; or (b) unless the applicable Plan
Agreement provides otherwise, by delivery of shares of
Common Stock acquired at least six months prior to
the option exercise date and having a Fair Market
Value (determined as of the exercise date) equal to all
or part of the option exercise price and a certified or
official bank check (or the equivalent thereof acceptable
to the Corporation) for any remaining portion of the
full option exercise price; or (c) at the discretion of the
Compensation Committee and to the extent permitted
by law, by such other provision as the Compensation
Committee may from time to time prescribe.
2.4.4 Promptly after receiving payment of the
full option exercise price, or after receiving notice of
the exercise of a stock appreciation right for which
payment will be made partly or entirely in shares, the
Corporation shall, subject to the provisions of Section
3.2 (relating to certain tax withholding requirements),
deliver to the grantee or to such other person as may
then have the right to exercise the Award, a certificate
or certificates for the shares of Common Stock for
which the Award has been exercised. If the method of
payment employed upon option exercise so requires,
and if applicable law permits, an optionee may direct
the Corporation to deliver the certificate(s) to the
optionee's stockbroker.
2.5 Termination of Continuous Status
2.5.1 Upon termination of the grantee's
Continuous Status other than for Cause, and other than
by reason of the grantee's death or Disability, the
grantee of an option or stock appreciation right may
exercise the same within such period of time as is
specified in the applicable Plan Agreement to the extent
that he or she is entitled to exercise it on the date of
such termination (but in no event later than the
expiration of the term of such option or stock
appreciation right as set forth in such Plan Agreement).
In the absence of a specified time in the Plan
Agreement, such option or stock appreciation right
shall remain exercisable for three months following
such termination. If, on the date of termination, the
grantee is not entitled to exercise such option or stock
appreciation right in full, the shares subject to the
unexercisable portion thereof shall revert to the Plan.
If, after termination, the grantee does not exercise such
option or stock appreciation right within the applicable
time period or such longer period as the Compensation
Committee may allow, such option or stock
appreciation right shall terminate, and the shares
covered thereby shall revert to the Plan.
Notwithstanding the above, in the event the
Corporation is involved in a merger as a result of which
grantees are precluded from selling shares of the
acquiring or successor company until the publication of
financial results covering post-merger combined
operations ("Pooling Restrictions"), options held by
grantees subject to such Pooling Restrictions shall
remain exercisable until five business days after the
expiration of such Pooling Restrictions (but not beyond
the original term of the option), notwithstanding an
earlier termination of such grantee's Continuous Status.
2.5.2 Notwithstanding the above, in the event
of a grantee's change in status from one relationship
with the Employers to another, the grantee's
Continuous Status shall not automatically terminate
solely as a result of such change in status. In the event
a grantee ceases to be an Employee but retains
Continuous Status, an Incentive Stock Option held by
that grantee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a
Non-Qualified Stock Option three months and one day
following such termination of employment.
2.5.3 Upon termination of a grantee's
Continuous Status as a result of the grantee's Disability,
the grantee of an option or stock appreciation right may
exercise the same at any time within twelve months
from the date of termination (or within such longer or
shorter period of time as the applicable Plan Agreement
may specify or such longer period of time as the
Compensation Committee may allow), but only to the
extent that the grantee is entitled to exercise it on the
date of termination (and in no event later than the
expiration of the term of the option or stock
appreciation right as set forth in the applicable Plan
Agreement). If, on the date of termination, the grantee
is not entitled to exercise such option or stock
appreciation right in full, the shares subject to the
unexercisable portion thereof shall revert to the Plan.
If, after termination, the grantee does not exercise such
option or stock appreciation right within the applicable
time period or such longer period as the Compensation
Committee may allow, such option or stock
appreciation right shall terminate, and the shares
covered thereby shall revert to the Plan.
2.5.4 In the event of the grantee's death, an
option or stock appreciation right may be exercised at
any time within twelve months following the date of
death (or within such longer or shorter period of time
as the applicable Plan Agreement may specify or such
longer period of time as the Compensation Committee
may allow), but only to the extent that the grantee was
entitled to exercise the same on the date of his or her
death, and in no event later than the expiration of the
term of the option or stock appreciation right as set
forth in the applicable Plan Agreement. If, at the time
of death, the grantee was not entitled to exercise such
option or stock appreciation right in full, the shares
subject to the unexercisable portion thereof shall
immediately revert to the Plan. If, after death, such
option or stock appreciation right is not exercised
within the applicable time period or such longer period
as the Compensation Committee may allow, such
option or stock appreciation right shall terminate, and
the shares covered thereby shall revert to the Plan. If
the grantee's estate or a person who acquired the right
to exercise the option by bequest or inheritance does
not exercise the option with the time specified herein,
the option shall terminate, and the Shares covered by
such option shall revert to the Plan.
2.5.5 Any exercise of an option or stock
appreciation right following the grantee's death shall be
made only by the grantee's beneficiary, or by the legatee
thereof under the grantee's last will if no validly
designated beneficiary survives the grantee and such
will specifically disposes of such Award, or by the
grantee's personal representative if no validly
designated beneficiary and no such specific legatee
survives the grantee. If a grantee's beneficiary, specific
legatee or personal representative shall be entitled to
exercise any option or stock appreciation right pursuant
to the preceding sentence, such beneficiary, specific
legatee or personal representative shall be bound by all
the terms and conditions of the Plan and the applicable
Plan Agreement which would have applied to the
grantee.
2.5.6 Anything herein to the contrary
notwithstanding, no option or stock appreciation right
may be exercised after the grantee's Continuous Status
is terminated or deemed to have been terminated for
Cause as provided in Section 4.3.
2.6 Grant of Restricted Stock
2.6.1 The Compensation Committee may
grant restricted shares of Common Stock to such
eligible persons, in such amounts, and subject to such
terms and conditions as the Compensation Committee
shall determine in its discretion, subject to the
provisions of the Plan. Awards of restricted stock may
be made independently of or in connection with any
other Award under the Plan. In addition, such Awards
may be made in combination with awards under other
incentive plans of the Corporation, and any
performance goals and standards adopted for purposes
of such other plans may be incorporated and applied for
purposes of the Award as conditions which must
satisfied in order for the shares covered by the Award
to become nonforfeitable and transferable. The grantee
of a restricted stock Award shall have no rights with
respect to such Award unless such grantee (i) accepts
the Award within such period as the Compensation
Committee shall specify by executing a Plan Agreement
in such form as the Compensation Committee shall
determine and (ii) makes payment to the Corporation
by certified or official bank check (or the equivalent
thereof acceptable to the Corporation) of the purchase
price, if any, for the shares covered by the Award in
such amount as the Compensation Committee may
determine.
2.6.2 Promptly after a grantee accepts a
restricted stock Award, the Corporation shall issue in
the grantee's name a certificate or certificates for the
shares of Common Stock covered by the Award. Upon
the issuance of such certificate(s), the grantee shall
have the rights of a shareholder with respect to the
restricted stock, subject to the nontransferability
restrictions and Corporation repurchase rights
described in Sections 2.6.4 and 2.6.5 and to such other
restrictions and conditions as the Compensation
Committee in its discretion may include in the
applicable Plan Agreement.
2.6.3 Unless the Compensation Committee
shall otherwise determine, any certificate issued
evidencing shares of restricted stock shall remain in the
possession of the Corporation until such shares are free
of any restrictions specified in the applicable Plan
Agreement.
2.6.4 Shares of restricted stock may not be
sold, assigned, transferred, pledged or otherwise
encumbered or disposed of, except as specifically
provided in this Plan or the applicable Plan Agreement.
The Compensation Committee shall specify in the
applicable Plan Agreement the date or dates and the
conditions (which may depend upon or be related to the
attainment of performance goals, maintaining
Continuous Status and other conditions) on which the
foregoing transfer restrictions shall lapse and the
restricted stock shall vest. Unless the applicable Plan
Agreement provides otherwise, additional shares of
Common Stock or other property distributed to the
grantee in respect of shares of restricted stock, as
dividends or otherwise, shall be subject to the same
restrictions applicable to such restricted stock.
2.6.5 Except as otherwise specified in the
applicable Plan Agreement, shares covered by an
Award of restricted stock shall be forfeited if and when,
during the restricted period as to such shares, and prior
to the vesting of such shares, the grantee's Continuous
Status terminates or any condition to which the vesting
of such shares is subject can no longer be satisfied. It is
contemplated that a Plan Agreement (i) may provide
for the grantee to vest as to a pro rata portion of an
Award of restricted stock if the termination of his or
her Continuous Status is due to death, Disability or
retirement after age 62 and completing five years of
service, (ii) may permit the grantee, in the event of a
Change of Control of the Corporation occurring during
the applicable restricted period, to elect to become
vested as to a pro rata portion of an Award of
restricted stock and to forfeit the balance of the Award,
and (iii) may provide for an Award to become fully
vested in certain events upon the occurrence of a
Change of Control. In all events, however, shares
covered by an Award of restricted stock shall be
forfeited if, during the restricted period as to such
shares, the grantee's Continuous Status is terminated
for Cause.
2.6.6 If and when shares covered by an Award
of restricted stock are forfeited, the grantee shall be
deemed to have resold such shares to the Corporation
at the lesser of the purchase price paid by the grantee
(such purchase price shall be deemed to be zero dollars
if no purchase price was paid) or the Fair Market Value
of such shares on the date of such forfeiture. The
Corporation shall pay such amount to the grantee as
soon as is administratively practical. Such shares shall
cease to be outstanding, and shall no longer confer on
the grantee any rights as a stockholder of the
Corporation, from and after the date of such forfeiture.
2.6.7 Except as otherwise provided in the
applicable Plan Agreement or an agreement entered
into pursuant to Section 2.10, at the end of the period
during which shares covered by an Award of restricted
stock are subject to forfeiture or restrictions on
transfer, any of such shares that have not been forfeited
shall become nonforfeitable and fully transferable.
2.7 Grant of Restricted Stock Units
2.7.1 The Compensation Committee may
grant Awards of restricted stock units to such eligible
persons, in such amounts, and subject to such terms
and conditions as the Compensation Committee shall
determine in its discretion, subject to the provisions of
the Plan. Restricted stock units may be awarded
independently of or in connection with any other
Award under the Plan.
2.7.2 At the time of grant, the Compensation
Committee shall specify the date or dates on which the
restricted stock units shall become fully vested and
nonforfeitable, and may specify such conditions to
vesting as it deems appropriate. In the event of the
termination of the grantee's Continuous Status for any
reason, restricted stock units that have not become
nonforfeitable shall be forfeited and canceled. The
Compensation Committee at any time may accelerate
vesting dates and otherwise waive or amend any
conditions of an Award of restricted stock units.
2.7.3 At the time of grant, the Compensation
Committee shall specify the maturity date applicable to
each grant of restricted stock units, which may be
determined at the election of the grantee. Such date
may be later than the vesting date or dates of the
Award. On the maturity date, the Corporation shall
transfer to the grantee one unrestricted, fully
transferable share of Common Stock for each restricted
stock unit scheduled to be paid out on such date and
not previously forfeited. The Compensation Committee
shall specify the purchase price, if any, to be paid by the
grantee to the Corporation for such shares of Common
Stock.
2.8 Other Stock-Based Awards
The Board may authorize other types of
stock-based Awards (including the grant of unrestricted
shares), which the Compensation Committee may grant
to such eligible persons, and in such amounts and
subject to such terms and conditions, as the
Compensation Committee shall in its discretion
determine, subject to the provisions of the Plan. Such
Awards may entail the transfer of actual shares of
Common Stock to grantees, or payment in cash or
otherwise of amounts based on the value of shares of
Common Stock.
2.9 Grant of Dividend Equivalent Rights
The Compensation Committee may in its
discretion include in the Plan Agreement with respect
to any Award a dividend equivalent right entitling the
grantee to receive amounts equal to the ordinary
dividends that would be paid on the shares of Common
Stock covered by such Award, during the time such
Award is outstanding and unexercised, if such shares
were then outstanding. In the event such a provision is
included in a Plan Agreement, the Compensation
Committee shall determine whether such payments shall
be made in cash, in shares of Common Stock or in
another form, whether they shall be conditioned upon
the exercise or vesting of the Award to which they
relate, the time or times at which they shall be made,
and such other terms and conditions as the
Compensation Committee shall deem appropriate.
2.10 Deferral
If permitted by the Compensation Committee, a
grantee may elect to enter into a written agreement
with his or her Employer providing for the deferral of
any form of payment hereunder (whether in the form of
cash or Common Stock), subject to such terms and
conditions as the Committee may deem appropriate.
2.11 Right of Recapture
If at any time within one year after the date on
which a grantee exercises an option or stock
appreciation right, or on which restricted stock vests,
or which is the maturity date of restricted stock units,
or on which income is realized by a grantee in
connection with any other stock-based Award (each of
which events is a "Realization Event"), (a) the grantee's
Continuous Status is terminated for Cause or (b) the
grantee engages in any activity which the
Compensation Committee determines (i) was deliberate
and (ii) resulted in and was intended to result in
demonstrable material harm to the Corporation or any
Subsidiary, then any gain ("Gain") realized by the
grantee from the Realization Event shall be paid by the
grantee to the Corporation upon notice from the
Corporation. Such Gain shall be determined as of the
date of the Realization Event, without regard to any
subsequent change in the Fair Market Value of a share
of Common Stock. The Employers shall have the right
to offset such Gain against any amounts otherwise
owed to the grantee by the Employers (whether as
wages, vacation pay, or pursuant to any benefit plan or
other compensatory arrangement).
ARTICLE III
Miscellaneous
3.1 Amendment of the Plan; Modification of Awards
3.1.1 The Board may from time to time
suspend, discontinue, revise or amend the Plan in any
respect whatsoever, except that no such amendment
shall materially impair any rights or materially increase
any obligations under any Award theretofore made
under the Plan without the consent of the grantee (or,
after the grantee's death, the person having the right to
exercise the Award). For purposes of this Section 3.1,
any action of the Board or the Compensation
Committee that alters or affects the tax treatment of
any Award shall not be considered to materially impair
any rights of any grantee.
3.1.2 Shareholder approval of any amendment
shall be obtained to the extent necessary to comply with
Section 422 of the Code (relating to Incentive Stock
Options) or other applicable law or regulation.
3.1.3 The Compensation Committee may
amend any outstanding Plan Agreement (including,
without limitation, an amendment which would
accelerate the time or times at which the Award
becomes unrestricted or may be exercised) or may
waive or amend any goals, restrictions or conditions set
forth in the Plan Agreement. However, any such
amendment (other than an amendment pursuant to
Section 3.10, relating to dissolution, liquidation or
merger of the Corporation) that materially impairs the
rights or materially increases the obligations of a
grantee under an outstanding Award shall be made only
with the consent of the grantee (or, upon the grantee's
death, the person having the right to exercise the
Award).
3.2 Tax Withholding
3.2.1 As a condition to the receipt of any
shares of Common Stock pursuant to any Award or the
lifting of restrictions on any Award, or in connection
with any other event that gives rise to a federal or other
governmental tax withholding obligation on the part of
the Employers relating to an Award (including, without
limitation, FICA tax), the Employers shall be entitled to
require that the grantee remit to the Employers an
amount sufficient in the opinion of the Employers to
satisfy such withholding obligation.
3.2.2 If the event giving rise to the
withholding obligation is a transfer of shares of
Common Stock, then, unless otherwise specified in the
applicable Plan Agreement, the grantee may satisfy the
withholding obligation imposed under Section 3.2.1 by
electing to have the Employers withhold shares of
Common Stock having a Fair Market Value equal to
the amount of tax to be withheld. For this purpose,
Fair Market Value shall be determined as of the date on
which the amount of tax to be withheld is determined
(and any fractional share amount shall be settled in
cash).
3.3 Nonassignability
Except to the extent otherwise provided in the
applicable Plan Agreement, no Award or right granted
to any person under the Plan shall be assignable or
transferable other than by will or by the laws of descent
and distribution, and all such Awards and rights shall be
exercisable during the life of the grantee only by the
grantee or the grantee's legal representative.
3.4 Requirement of Notification of Election Under
Section 83(b) of the Code
If any grantee shall, in connection with the
acquisition of shares of Common Stock under the Plan,
make the election permitted under Section 83(b) of the
Code (that is, an election to include in gross income in
the year of transfer the amounts specified in Section
83(b)), such grantee shall notify the Corporation of
such election within 10 days of filing notice of the
election with the Internal Revenue Service, in addition
to any filing and notification required pursuant to
regulations issued under the authority of Code Section
83(b).
3.5 Requirement of Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code
If any grantee shall make any disposition of
shares of Common Stock issued pursuant to the
exercise of an Incentive Stock Option under the
circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), such
grantee shall notify the Corporation of such disposition
within 10 days thereof.
3.6 Right of Discharge Reserved
Nothing in the Plan shall confer upon any
employee of the Corporation or any Subsidiary any
right to continued employment with the Corporation or
such Subsidiary or interfere in any way with the right of
the Corporation or such Subsidiary to terminate the
employment of any of its employees at any time, with
or without cause, in accordance with applicable laws
and any applicable employment agreement.
3.7 Nature of Payments
3.7.1 Any and all grants of Awards and
issuances of shares of Common Stock under the Plan
shall be in consideration of services performed for the
Employers by the grantee.
3.7.2 All such grants and issuances shall
constitute a special incentive payment to the grantee
and shall not be taken into account in computing the
amount of salary or compensation of the grantee for the
purpose of determining any benefits under any pension,
retirement, profit-sharing, bonus, life insurance or other
benefit plan of the Employers or under any agreement
between an Employer and the grantee, unless such plan
or agreement specifically provides otherwise.
3.8 Non-Uniform Determinations
The Compensation Committee's determinations
under the Plan need not be uniform and may be made
by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan (whether or
not such persons are similarly situated). Without
limiting the generality of the foregoing, the
Compensation Committee shall be entitled, among
other things, to make non-uniform and selective
determinations, and to enter into non-uniform and
selective Plan Agreements, as to (a) the persons to
receive Awards under the Plan, (b) the terms and
provisions of Awards under the Plan, and (c) the
treatment of leaves of absence pursuant to Section 4.7.
3.9 Other Payments or Awards
Nothing contained in the Plan shall be deemed
in any way to limit or restrict the Employers from
making any Award or payment to any person under any
other plan, arrangement or understanding, whether now
existing or hereafter in effect.
3.10 Provisions Applicable Upon Change of Control
3.10.1 If a Change of Control occurs after the
grant of an option or stock appreciation right
hereunder, such Award shall continue in effect
according to its terms or, if there is a successor
employer, there shall be substituted for such option or
right an equivalent option or right relating to the stock
of the successor employer or a parent of the successor
employer. In the event the grantee's Continuous Status
is terminated by his or her Employer or its successor
without cause, as defined for purposes of any written
agreement under which the grantee is employed by such
Employer or its successor, or by the grantee for good
reason, as defined for purposes of any such agreement,
prior to the end of the employment term provided in
any such agreement, the option or right or the
substitute option or right shall become and remain fully
exercisable for the remainder of the term thereof,
notwithstanding such termination of Continuous Status.
3.10.2 If a Change of Control occurs after the
grant of restricted stock hereunder, such Award shall
continue in effect according to its terms or, if there is a
successor employer, there shall be substituted for the
restricted stock covered by such Award restricted stock
of the successor employer or a parent of the successor
employer having the same value, as of the effective date
of such Change of Control, as the restricted stock of
the predecessor for which it is substituted. In the event
the grantee's Continuous Status is terminated by his or
her Employer or its successor without cause, as defined
for purposes of any written agreement under which the
grantee is employed by such Employer or its successor,
or by the grantee for good reason, as defined for
purposes of any such agreement, prior to the end of the
employment term provided in any such agreement, such
restricted stock or substituted restricted stock shall
become and remain fully vested and transferable,
notwithstanding such termination of Continuous Status.
3.10.3 Nothing contained in the Plan shall be
construed to give a grantee the right to enjoin the
Corporation or any Subsidiary from taking any
corporate action which is deemed by it to be
appropriate or in its best interest, whether or not such
action would have an adverse effect on Awards made
under the Plan. Any right of a grantee, beneficiary or
other person respecting such a corporate action shall be
limited to a claim for actual damages and attorneys
fees.
3.11 Section 162(m)
If this Plan is subject to Section 162(m) of the
Internal Revenue Code, it is intended that the Plan meet
all of the requirements of such section so that options
and stock appreciation rights granted hereunder and, if
determined by the Compensation Committee, restricted
stock and restricted stock units granted hereunder shall
constitute "performance-based" compensation within
the meaning of such section. If any provision of the
Plan would disqualify the Plan or would not permit the
Plan to comply with such section, such provision shall
be construed or deemed amended to conform to the
requirements of such section; provided that no such
construction or amendment shall have an adverse
impact on the economic value to the grantee of any
Award previously granted hereunder.
3.12 Successors and Assigns
Awards under the Plan shall be binding upon
and inure to the benefit of the successors and assigns of
the Corporation and its Subsidiaries. In the event of a
sale of substantially all of the assets of the Corporation
or a Subsidiary, or a merger, consolidation or share
exchange involving the Corporation, all obligations of
the Corporation or such Subsidiary under the Plan with
respect to Awards granted hereunder shall be binding
on the successor to the transaction. Employment of a
grantee with such successor shall be considered
employment with the Corporation or such Subsidiary
for purposes of the Plan.
3.13 Designation of Beneficiary
A grantee may designate a beneficiary or
beneficiaries to receive any payments which may be
made following the grantee's death. Such designation
may be changed or canceled at any time without the
consent of such beneficiary. Any such designation,
change or cancellation must be made in a form
approved by the Compensation Committee and shall
not be effective until received by the Compensation
Committee. If a grantee does not designate a
beneficiary, or if the designated beneficiary or
beneficiaries predecease the grantee, any payments
which may be made following the grantee's death shall
be made to the grantee's estate.
3.14 Settlement by Subsidiaries
Settlement of Awards held by employees of a
Subsidiary shall be made by and at the expense of the
Subsidiary.
3.15 Expenses
The costs and expenses of administering the
Plan shall be borne by the Corporation.
3.16 Arbitration
To the extent any determination of the
Compensation Committee relating to an Award is
challenged as nonbinding, arbitrary and capricious or
otherwise subject to judicial review, the parties to the
Award (the grantee or his or her assignee, beneficiary,
legatee, guardian or personal representative being one
of the parties, and any or all of the Corporation, the
employing Subsidiary, any Successor to the
Corporation or the employing Subsidiary, and the
Compensation Committee being the other party) shall
be required to have the challenge settled through
binding arbitration pursuant to the American
Arbitration Association's rules of commercial
arbitration which are then in effect. The location of all
arbitration proceedings shall be Indianapolis, Indiana.
One arbitrator shall be selected by the parties and shall
be a current or former executive officer (vice president
or higher) of a publicly-traded corporation. In the
event the parties are unable mutually to agree upon a
person to act as the arbitrator, or in the event a
mutually-agreed upon arbitrator shall fail to accept the
appointment by the parties, the parties jointly shall
request from the American Arbitration Association a
list of the names of five persons who would be qualified
to act as an arbitrator under this section. The selection
of the final arbitrator then shall be achieved by each
party alternately striking a name, with the party
consisting of those aligned against the grantee (or his or
her assignee, beneficiary, legatee, guardian or personal
representative) going first, until one name remains. In
the event the parties mutually agree that the five names
submitted by the American Arbitration Association are
unsatisfactory, they jointly may request a second list of
five names from the American Arbitration Association
and final selection shall be achieved through the
procedure set out herein. The decision of the arbitrator
shall be final and binding upon both parties, and any
award entered by the arbitrator shall be final, binding
and non-appealable and judgment may be entered
thereon by either party in accordance with the
applicable law in any court of competent jurisdiction.
The arbitrator shall not have authority to modify any
provision of this Plan, to award any benefit in a form
not authorized under this Plan and the applicable Plan
Agreement, or to review any exercise by the
Compensation Committee of its discretionary authority
under the Plan otherwise than on grounds of its being
arbitrary and capricious or constituting an abuse of
discretion. The Corporation shall be responsible for all
of the reasonable expenses of the American Arbitration
Association, the arbitrator and the conduct of the
selection and the arbitration procedures set forth in this
clause, including reasonable attorneys' fees and
expenses incurred by either party which are associated
with the arbitration procedure through the time the final
arbitration decision or award is rendered. This
arbitration provision shall be specifically enforceable.
3.17 Section Headings
The section headings contained herein are for
the purpose of convenience only and are not intended
to define or limit the contents of the sections.
3.18 Effective Date and Term of Plan
3.18.1 The Plan was adopted by the Board on
January 22, 1998, subject to approval by the
Corporation's shareholders. The Plan shall become
effective on the day following its approval by the
stockholders (the "Effective Date").
3.18.2 Unless sooner terminated by the Board,
the provisions of the Plan respecting the grant of
Incentive Stock Options shall terminate on the day
before the tenth anniversary of the adoption of the Plan
by the Board, and no Incentive Stock Option Awards
shall thereafter be made under the Plan. All Awards
made under the Plan prior to its termination shall
remain in effect until such Awards have been satisfied
or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan
Agreements.
3.19 Governing Law
All rights and obligations under the Plan shall be
construed and interpreted in accordance with the laws
of the State of Indiana, without giving effect to
principles of conflict of laws.
ARTICLE IV
Definitions
4.1 "Award" means a grant made under this
Plan of Incentive Stock Options, Non-Qualified Stock
Options, stock appreciation rights, dividend equivalent
rights, restricted stock, restricted stock units, or other
stock-based compensation.
4.2 "Board" means the Board of Directors
of the Corporation.
4.3 "Cause," when used in connection with
termination of a grantee's employment or Continuous
Status, shall have the meaning set forth in any
then-effective employment agreement between the
grantee and his or her Employer. In the absence of
such an employment agreement provision, "Cause"
means: (a) conviction of any crime (whether or not
involving an Employer) constituting a felony in the
jurisdiction involved; (b) engaging in any substantiated
act involving moral turpitude; (c) engaging in any act
which, in each case, subjects, or if generally known
would subject, an Employer to public ridicule or
embarrassment; (d) material violation of his or her
Employer's policies, including, without limitation, those
relating to sexual harassment or the disclosure or
misuse of confidential information; (e) serious neglect
or misconduct in the performance of the grantee's
duties for his or her Employer or willful or repeated
failure or refusal to perform such duties. The
Compensation Committee shall have the right to
determine whether the termination of a grantee's
employment or Continuous Status is a dismissal for
Cause and the date of termination in such a case, which
date the Compensation Committee may deem to be the
date of the action that is Cause for dismissal. Such
determinations of the Compensation Committee shall
be final, binding and conclusive.
4.4 "Change of Control" means, with
reference to an Award hereunder, the first of the
following to occur after the date of grant thereof:
(a) The acquisition by any individual,
entity or "group" within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")(a "Person") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more
of either (i) the then outstanding shares of common
stock of the Corporation (the "Outstanding
Corporation Common Stock") or (ii) the combined
voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the
election of directors (the "Outstanding Corporation
Voting Securities"); provided, however, that the
following acquisitions of common stock shall not
constitute a Change of Control: (i) any acquisition
directly from the Corporation [excluding an acquisition
by virtue of the exercise of a conversion privilege by
one or more Persons acting in concert, and excluding
an acquisition that would be a Change of Control under
(c) below], (ii) any acquisition by the Corporation, (iii)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or
any corporation or other entity controlled by the
Corporation, (iv) any acquisition by any corporation or
other entity pursuant to a reorganization, merger or
consolidation which would not be a Change of Control
under (c) below; or (v) any acquisition by an Exempt
Person; provided further, that the applicable percentage
shall be reduced from 25% to 20% in the event of the
occurrence of one transaction or a series of transactions
which results in the beneficial ownership by Exempt
Persons of less than 15% of the Outstanding
Corporation Common Stock or the Outstanding
Corporation Voting Securities; or
(b) Individuals who, as of such date of
grant, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual
becoming a director subsequent to such beginning
whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of
at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either
an actual or threatened "election contest" or other
actual or threatened "solicitation" (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) of proxies or consents by or
on behalf of a person other than the Incumbent Board;
or
(c) Approval by the shareholders of the
Corporation of a reorganization, merger or
consolidation, unless, following such reorganization,
merger, share exchange or consolidation, (i) 75% or
more of, respectively, the then outstanding shares of
common stock of the corporation or other entity
resulting from such reorganization, merger, share
exchange or consolidation and the combined voting
power of the then outstanding voting securities of such
corporation or other entity entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities
immediately prior to such reorganization, merger, share
exchange or consolidation in substantially the same
proportions as their ownership, immediately prior to
such reorganization, merger, share exchange or
consolidation, (ii) no Person (excluding the
Corporation, any Exempt Person, any employee benefit
plan (or related trust) of the Corporation or such
corporation or other entity resulting from such
reorganization, merger, share exchange or
consolidation and any person beneficially owning,
immediately prior to such reorganization, merger, share
exchange or consolidation, directly or indirectly, 25%
or more of the Outstanding Corporation Common
Stock or Outstanding Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding shares of
common stock of the corporation or other entity
resulting from such reorganization, merger, share
exchange or consolidation or the combined voting
power of the then outstanding voting securities of such
corporation or other entity, entitled to vote generally in
the election of directors and (iii) at least a majority of
the members of the board of directors of the
corporation or other entity resulting from such
reorganization, merger, share exchange or
consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement
providing for such reorganization, merger, share
exchange or consolidation; provided however, that the
applicable percentage for purposes of clause (ii) of this
(c) shall be reduced from 25% to 20% in the event of
the occurrence of one transaction or a series of
transactions which results in the beneficial ownership
by Exempt Persons of less than 15% of the Outstanding
Corporation Common Stock or the Outstanding
Corporation Voting Securities; or
(d) Approval by the shareholders of the
Corporation of (i) a complete liquidation or dissolution
of the Corporation or (ii) the sale or other disposition
of all or substantially all of the assets of the
Corporation, other than to a corporation or other
entity, with respect to which following such sale or
other disposition, (A) 75% or more of, respectively, the
then outstanding shares of common stock of such
corporation or other entity and the combined voting
power of the then outstanding voting securities of such
corporation or other entity entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
Persons who were the beneficial owners, respectively,
of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately
prior to such sale or other disposition in substantially
the same proportion as their ownership, immediately
prior to such sale or other disposition, of the
Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case
may be, (B) no Person (excluding the Corporation, any
Exempt Person, any employee benefit plan (or related
trust) of the Corporation or such corporation or other
entity and any person beneficially owning, immediately
prior to such sale or other disposition, directly or
indirectly, 25% or more of the Outstanding
Corporation Common Stock or Outstanding
Corporation Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 25% or more
of, respectively, the then outstanding shares of common
stock of such corporation or other entity or the
combined voting power of the then outstanding voting
securities of such corporation or other entity entitled to
vote generally in the election of directors and (C) at
least a majority of the members of the board of
directors of such corporation or other entity were
members of the Incumbent Board at the time of the
execution of the initial agreement or action of the
Board providing for such sale or other disposition of
assets of the Corporation; provided however, that the
applicable percentage for purposes of subclause (ii)(B)
of this (d) shall be reduced from 25% to 20% in the
event of the occurrence of one transaction or a series of
transactions which results in the beneficial ownership
by Exempt Persons of less than 15% of the Outstanding
Corporation Common Stock or the Outstanding
Corporation Voting Securities; or
(e) The occurrence of one transaction
or a series of transactions, which has the effect of a
divestiture by the Corporation of 25% or more of the
combined voting power of the outstanding voting
securities of First Indiana Bank; or
(f) The occurrence of any sale, lease or
other transfer, in one transaction or a series of
transactions, of all or substantially all of the assets of
First Indiana Bank (other than to the Corporation or
one or more Exempt Persons); or
(g) The occurrence of one transaction
or a series of transactions which results in the beneficial
ownership by Exempt Persons of less than 20% of the
outstanding voting securities of The Somerset Group,
Inc. ("Somerset"), at any time when Somerset
beneficially owns 10% or more of the combined voting
power of the outstanding voting securities of the
Corporation.
4.5 "Compensation Committee" means the
Compensation Committee of the Board.
4.6 "Consultant" means any person,
including an advisor, who is engaged by an Employer
to render services on a regular or periodic basis and
who is compensated for such services.
4.7 "Continuous Status" means that the
Grantee's relationship with the Employers as a director,
officer, employee or Consultant, is not interrupted or
terminated. Continuous Status shall not be considered
interrupted in the case of transfers between locations of
an Employer, or between Employers, or from an
Employer to any successor. The Compensation
Committee in its discretion may determine (a) whether
any leave of absence constitutes a termination of
Continuous Status for purposes of the Plan, (b) the
impact, if any, of any such leave of absence on Awards
theretofore made under the Plan, and (c) when a
change in a Consultant's association with the
Employers constitutes a termination of Continuous
Status for purposes of the Plan. For purposes of
Incentive Stock Options, no leave of absence may
exceed 90 days, unless reemployment upon expiration
of such leave is guaranteed by statute or contract. If
reemployment upon expiration of a leave of absence is
not so guaranteed, then on the 181st day of such leave
any Incentive Stock Option held by the grantee shall
cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Non-Qualified
Stock Option.
4.8 "Disability" means, with respect to any
termination of Continuous Status, any physical or
mental impairment of a grantee which (i) prevents the
grantee from doing any substantial gainful activity for
which he or she is fitted by education, training or
experience, and (ii) is expected to last at least 12
months from the date of such termination of
Continuous Service or to result in death within such
period of 12 months.
4.9 "Exempt Descendant" means any child,
grandchild or other descendant of Robert H.
McKinney, or any spouse of any such child, grandchild
or other descendant, including in all cases adoptive
relationships.
4.10 "Exempt Person" means (i) Robert H.
McKinney; (ii) Arlene A. McKinney; (iii) any Exempt
Descendant; (iv) any corporation, partnership, trust or
other organization a majority of the beneficial
ownership interest of which is owned directly or
indirectly by one or more of Robert H. McKinney,
Arlene A. McKinney or any Exempt Descendant; (v)
any estate or other successor-in-interest by operation of
law of Robert H. McKinney, Arlene A. McKinney or
any Exempt Descendant; (vi) The Somerset Group,
Inc., so long as it is controlled by one or more
individuals and entities described in (i) through (v)
inclusive; and (vii) with reference to an issuer, any
group within the meaning of Rule 13d-5(b) under the
Exchange Act, if the majority of the shares of such
issuer beneficially owned by such group is attributable
to shares of such issuer which would be considered
beneficially owned by individuals and entities described
in (i) through (vi) inclusive absent the existence of the
group.
4.11 "Fair Market Value" means, with
reference to a share of Common Stock and a given day,
the per share value of Common Stock on such day,
determined as follows.
(a) If the principal market for the
Common Stock (the "Market") is a national securities
exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ")
National Market, the last sale price of Common Stock
on such day or, if no reported sale takes place on such
day, the average of the high bid and low asked price of
Common Stock as reported on such Market for such
day ("average price") or, if no such average price can
be determined for such day, the most recent reported
sale price of Common Stock within the preceding ten
business days, or if no such sale shall have occurred,
the average price for the most recent business day
preceding such day for which an average price can be
determined, provided an average price can be
determined for any of the ten business days preceding
such day;
(b) If the Market is the NASDAQ
National List, the NASDAQ Supplemental List or
another market, the average of the high bid and low
asked price for Common Stock on such day (the
"average price"), or, if no such average price can be
determined for such day, the most recent reported sale
price within the preceding ten business days, or, if no
such sale shall have occurred, the average price for the
most recent business day preceding such day for which
an average price can be determined, provided an
average price can be determined for any of the ten
business days preceding such day; or,
(c) In the event that neither paragraph
(a) nor (b) shall apply, the Fair Market Value of a share
of Common Stock on any day shall be determined in
good faith by the Compensation Committee.
4.12 "Incentive Stock Option" means an option
that is intended to qualify for special federal income tax
treatment pursuant to Sections 421 and 422 of the
Code, as now constituted or subsequently amended, or
pursuant to a successor provision of the Code, and
which is so designated in the applicable Plan
Agreement. Any option that is not specifically
designated as an Incentive Stock Option shall under no
circumstances be considered an Incentive Stock
Option.
4.13 "Non-Qualified Stock Option" means any
option that is not an Incentive Stock Option.
4.14 "Subsidiary" means any corporation,
partnership or other entity in which the Corporation,
directly or indirectly, owns a fifty percent (50%) or
greater interest.
<PAGE>
FIRST INDIANA CORPORATION
LONG-TERM MANAGEMENT PERFORMANCE
INCENTIVE PLAN
The Board of Directors of First Indiana
Corporation (the "Corporation") has established the
following Long-Term Management Performance
Incentive Plan (the "Plan") for senior executive officers
of the Corporation and its wholly-owned subsidiary,
First Indiana Bank (the "Bank"). All capitalized terms
used in the Plan have the meanings given them in
Section 12 below
1. Purposes
The purposes of the incentive plans of the
Corporation and the Bank are to attract, retain,
motivate and reward senior executive officers of the
highest caliber and quality by providing them with the
opportunity to earn incentive compensation directly
linked to the Corporation's performance. The specific
purpose of this Plan is to provide long-term incentives
to Participants, based on the performance of the
Corporation over a three-year Performance Period.
The object of the Plan is to ensure that the management
of the Corporation is not so preoccupied meeting the
annual target requirements of the annual Management
Performance Incentive Plan ("MIP") that the
Corporation's long-term growth and prosperity are
jeopardized. In addition, the Board is aware of the
many changes occurring in the financial services
industry and desires to keep its current management
team intact.
2. Eligibility.
Participation in the Plan is limited to senior
executive officers of the Corporation or the Bank who,
individually and as a management team, are in a
position to contribute materially to the long-term
success of the Corporation or the Bank. No such
officer may participate for a given Participation Period
both as a Group A Participant and as a Group B
Participant.
3. Administration
(a) Power and Authority of the
Committee. The Plan shall be administered by
the Committee which shall have full power and
authority, subject to the express provisions
hereof,
(i) to select Participants from
senior executive officers of the
Corporation and the Subsidiaries;
(ii) to establish the Performance
Goals for achievement during a
Performance Period and to determine
whether such Performance Goals have
been achieved;
(iii) to determine the cash
amount or number of shares of Common
Stock payable in connection with an
award;
(iv) to prescribe, amend and
rescind rules and procedures relating to
the Plan;
(v) subject to the provisions of
the Plan and subject to such additional
limitations and restrictions as the
Committee may impose, to delegate to
one or more officers of the Corporation
or the Bank some or all of its authority
under the Plan;
(vi) to employ such legal
counsel, independent auditors and
consultants as it deems desirable for the
administration of the Plan and to rely
upon any opinion or computation
received therefrom; and
(vii) to make all other
determinations and to formulate such
procedures as may be necessary or
advisable for the administration of the
Plan.
(b) Plan Construction and
Interpretation. The Committee shall have full
power and authority, subject to the express
provisions hereof, to construe and interpret the
Plan.
(c) Liability of Committee. No member
of the Committee shall be liable for any action
or determination made in good faith, and the
members of the Committee shall be entitled to
indemnification and reimbursement in the
manner provided in the Corporation's articles of
incorporation and bylaws as amended from time
to time. In the performance of its
responsibilities with respect to the Plan, the
Committee shall be entitled to rely upon
information and advice furnished by the
Corporation's officers, the Corporation's
accountants, the Corporation's counsel and any
other party the Committee deems necessary,
and no member of the Committee shall be liable
for any action taken or not taken in reliance
upon any such advice.
4. Performance Goals
(a) Except as provided in Section 5(f)
below regarding additional awards to Group A
Participants, compensation under the Plan shall
be paid solely on account of the attainment
during the applicable Performance Period of one
or more preestablished, objective Performance
Goals. Such Performance Goals may relate to
the Participant or a particular group of
Participants, to the Corporation or the Bank, or
to the Corporation and its Subsidiaries as a
whole. The criteria with respect to which the
Committee may establish Performance Goals
include, without limitation, Net Income, Net
Income Growth Rate, Return on Equity, Fair
Market Value of Common Stock, economic
value added, level of non-performing loans,
expense management, deposits, loan
originations, market share, industry leadership
and organizational development.
(b) The Committee may establish a
Performance Goal with various levels of
performance, in which case the lowest level (the
"Base Level") shall be the level which must be
attained in order for any shares or incentive
amount to be earned and the highest or second
highest level (the "Target Level") shall be the
level which must be attained in order for the full
number of shares or incentive amount to be
earned. In the case of Group A Participants,
the Committee may provide for an "Extra
Achievement Level," this being a level higher
than the Target Level and being the level which
must be attained in order for the Committee to
consider an ward of extra shares. All
Performance Goals and all levels of attainment
thereof must be substantially uncertain as to
outcome when established by the Committee.
(c) The Committee shall review the
Performance Goals at least annually during the
course of a Performance Period. If it
determines, based on actual results achieved by
peer group institutions during the portion of a
Performance Period preceding its review, that
the economic environment in which the
Corporation and the Bank are operating is such
that the Performance Goals previously
established for such Performance Period or
portion thereof are too high or too low, the
Committee shall adjust the Performance Goals
accordingly; provided, however, that any such
adjustment shall be reported promptly to
Participants and shall be made far enough
before the end of the Performance Period, and
at a such level, that attainment of the
Performance Goal, as adjusted, is substantially
uncertain as to outcome at the time of such
announcement.
(d) The Committee may establish a
year-by-year schedule for the attainment of a
Performance Goal. For example, it may
determine that ROE must be 10% for the first
year of a Performance Period, 10.5% for the
second year and 11% for the third year. In such
a case, it shall adjust the percentages for all
three years after the end of the first year and
adjust the percentages for the second and third
years after the second year, if, with respect to
each such annual adjustment, it determines,
based on its annual review of actual results
achieved by peer group institutions for the prior
year, that the economic environment in which
the Corporation and the Bank are operating is
such that the percentages previously set are too
high or too low and that the adjustment is
needed in order for the original intent of the
Committee to be carried out. Normally, if the
percentage established for first or second year,
adjusted in accordance with the preceding
sentence, is not attained, the shares and
incentive amounts associated with the particular
Performance Goal shall be forfeited, even
though the percentage for one or both other
years of the Performance Period are attained.
However, the Committee in its discretion may
reduce the percentage for the first year to match
actual results and make a proportionate increase
in the percentages for the second and third
years, or reduce the percentage for the second
year to match actual results and make a
proportionate increase in the percentage for the
third year, to give Participants an opportunity to
make up for a failure to attain in the first or
second year or both by exceeding the original
percentages, as previously adjusted, for the
second and third years, in the case of an
adjustment for the first year, or for the third
year, in the case of an adjustment for the second
year. All adjustments under this paragraph shall
be reported promptly to Participants and shall
be made far enough before the end of the
Performance Period, and at such a level, that
attainment of the Performance Goal, as
adjusted, is substantially uncertain as to
outcome at the time of the announcement.
(e) In determining the extent to which a
Performance Goal has been attained during the
Performance Period or any portion thereof, the
Committee shall adjust the actual results for
such Performance Period or portion to eliminate
the impact thereon of items that were not
considered by the Committee in establishing
such Performance Goal and that are deemed by
the Committee to be extraordinary.
(f) If a major change in the business of
the Corporation or the Bank occurs during a
Performance Period, and if the Committee
determines that because of such change the
Performance Goals initially established for such
Performance Period are no longer appropriate,
or can no longer be measured objectively on the
basis of readily available financial data, the
Committee may change such Performance
Goals in such a manner as it deems appropriate;
provided, however, that any such changes shall
be reported promptly to Participants and shall
be made far enough before the end of the
Performance Period, and shall be of such a
nature, that attainment of the Performance
Goals, as changed, is substantially uncertain as
to outcome at the time of the announcement.
5. Awards to Group A Participants
(a) Performance Goals. The Committee
shall determine in its sole discretion whether any
senior executive officer of the Corporation or
the Bank will have the opportunity to earn
incentive compensation under the Plan as a
Group A Participant during a Performance
Period. If the Committee decides to offer such
opportunity to one or more such senior
executive officers, then no later than 90 days
after the beginning of such Performance Period
[or such other time as may be required or
permitted under Section 162(m) of the Code],
the Committee shall (i) designate each Group A
Participant for such Performance Period, (ii)
establish the number of shares of Common
Stock which may be earned by each of such
Group A Participants for such Performance
Period, and (iii) establish for each of such
Group A Participants the Performance Goals
which must be attained in order for his or her
shares to be earned. If two or more
Performance Goals are specified, the Committee
may assign a portion of the shares to each and
provide that the portion assigned to a
Performance Goal that is attained will be earned
even though one or more other Performance
Goals are not attained. Alternatively, the
Committee may provide that all of the
Performance Goals must be attained in order for
any of the shares to be earned or that all of the
shares will be earned so long as a specified
number of the Performance Goals are attained.
(b) Maximum Limitation. Anything in
this Plan to the contrary notwithstanding, the
maximum number of shares of Common Stock
that may be earned under the Plan by any one
Group A Participant during any one
Performance Period shall be such number of
shares as shall have an aggregate Fair Market
Value at the beginning of such Performance
Period of $1 million, rounded down the nearest
whole number of shares.
(c) Following the completion of each
Performance Period, the Committee shall certify
in writing whether the applicable Performance
Goals have been achieved for such Performance
Period and the number of shares of Common
Stock, if any, earned by each Group A
Participant for such Performance Period. If the
Committee determines, based upon factors that
it deems relevant to the assessment of the
Participant's or the Corporation's performance
for the Performance Period, that vesting of all
shares subject to a Group A Participant's award
would be inconsistent with the intent and
expectations of the Committee at the time the
award was made, it may reduce the number of
shares as to which such Participant becomes
vested by reason of such Performance Goals
having been achieved; provided, however, that
no such reduction shall be made unless at least
one member of the Committee participating in
such action was a member of the Committee
when such award was made.
(d) Awards to Group A Participants
will be made in the form of restricted stock
grants under the Stock Option Plan. The
restricted stock agreement covering the grant (i)
shall be for the total number of shares which
may be earned (subject to adjustment in
accordance with the Stock Option Plan in the
event of certain changes in the Corporation's
capitalization), (ii) shall provide for a restricted
period which is the same as the Performance
Period during which the shares may be earned,
(iii) shall set forth or incorporate by reference
the Performance Goals which must be attained
in order for the shares subject thereto to be
earned (not forfeited) and (iv) shall provide that
the shares subject thereto shall not be deemed
earned until the Committee certifies pursuant to
subsection (c) above that such Performance
Goals were attained. Awards to Group A
Participants shall be subject not only to the
terms and conditions of this Plan but also to the
terms and conditions of the Stock Option Plan
and the restricted stock agreements issued
pursuant thereto. Accordingly, such awards
and determinations regarding the extent such
awards are earned shall require action by the
committee administering the Stock Option Plan
as well as action by the Committee
administering this Plan.
(e) In the event of a merger,
consolidation or combination of the
Corporation (other than a merger, consolidation
or combination in which the Corporation is the
continuing entity and which does not result in
the outstanding shares of Common Stock being
converted into or exchanged for different
securities, cash or other property, or any
combination thereof), any award then
outstanding to a Group A Participant thereafter
shall relate to the securities, cash or other
property received in exchange for the shares of
Common Stock covered by the award.
Dividends and interest received on such
securities, cash or other property shall be
payable to the Participant when and as they are
received, to the same extent as dividends on
such shares of Common Stock would have been
payable to the Participant under the terms of the
Stock Option Plan and restricted stock
agreement applicable to the award. However,
the securities, cash or other property received in
exchange for such Common Stock shall remain
subject to forfeiture, as provided in this Plan, or
as provided in the Stock Option Plan or
restricted stock agreement applicable to the
award, to the same extent as such Common
Stock would have been subject to forfeiture.
(f) If the Committee specifies an Extra
Achievement Level with respect to a
Performance Goal for a Performance Period,
and if such Extra Achievement Level is
achieved, then the Committee may distribute
additional shares of Common Stock to one or
more Group A Participants, not to exceed, in
the case of any one Group A Participant, the
excess of the maximum number of shares that
could have been awarded to such Participant for
such Performance Period pursuant to subsection
5(b) above, over the number of shares actually
awarded to and earned by such Participant, in
each case adjusted for changes in the
Corporation's capitalization in accordance with
the Stock Option Plan. Additional shares so
distributed may be treasury shares or shares
purchased on the open market and need not be
shares issued under or subject to the Stock
Option Plan.
(g) In connection with an award to a
Group A Participant, the Committee may grant
the Participant a tax gross-up right. Such a
right may be granted when the award is made or
at any time thereafter and shall entitle the
Participant to receive in cash an amount equal
to the (i) the federal, state and local income
taxes on ordinary income for which the
Participant may be liable with respect to shares
earned under the award, determined by
assuming taxation at the highest marginal rate,
plus (ii) an additional amount on a gross-up
basis intended to make the Participant whole on
an after-tax basis after discharging all of the
Participant's income tax liabilities arising from
payments under this subsection (g). Such
amount shall be payable by the 15th day of the
fourth calendar month which begins after the
end of the Performance Period for which the
award is made, but not before the Committee
makes its certification with respect thereto
pursuant to subsection 4(c) above.
Notwithstanding the foregoing, if a tax gross-up
right is granted prior to the close of the
Performance Period to which the right relates,
and if the Committee thereafter determines,
based upon factors that it deems relevant to the
assessment of the Participant's or the
Corporation's performance for such
Performance Period, that payment of all of the
amounts potentially payable under such right
would be inconsistent with the intent and
expectations of the Committee at the time the
right was granted, it may reduce the aggregate
of such amounts; provided, however, that no
such reduction shall be made unless at least one
member of the Committee participating in such
action was a member of the Committee when
such right was granted.
6. Awards to Group B Participants
(a) The Committee shall determine in its
sole discretion whether any senior executive
officer of the Corporation or the Bank will have
the opportunity to earn incentive compensation
under the Plan as a Group B Participant during
a Performance Period. If the Committee
decides to offer such opportunity to one or
more such senior executive officers, then no
later than 90 days after the beginning of the
Performance Period [or such other time as may
be required or permitted under Section 162(m)
of the Code], the Committee shall (i) designate
each Group B Participant for such Performance
Period, (ii) establish the aggregate of the
incentive amounts (the "Pool") which may be
earned by such Group B Participants for such
Performance Period, and (iii) establish the
Performance Goals which must be attained in
order for the Pool to be earned. If two or more
Performance Goals are specified, the Committee
may assign a portion of the Pool to each and
provide that the portion assigned to a
Performance Goal that is attained will be earned
even though one or more other Performance
Goals are not attained. Alternatively, the
Committee may provide that all of the
Performance Goals must be attained in order for
any of such Pool to be earned or that all of such
Pool will be earned so long as a specified
number of the Performance Goals are attained.
(b) The Pool which may be earned by
Group B Participants during a Performance
Period shall be expressed as a percentage of the
average annual rate of base salary paid or
accrued (or deemed to have been paid or
accrued) to such Participants during the
Performance Period [or during the portion of
the Performance Period after they are
designated as Group B Participants, in the case
of Participants whose participation is pro-rated
in accordance with subsection 6(c) below][or
during the portion of the Performance Period
preceding the applicable in the case of
Participants electing (or deemed to have
elected) to receive a Pro-Rata Award pursuant
to subsection 8(b) below]. If a Group B
Participant terminates employment prior to the
end of the Performance Period otherwise than
by reason of a qualifying circumstance as
provided in Section 7, the Pool shall be reduced
by the amount thereof attributable to the base
salary paid or accrued to such Participant prior
to such termination. If a Group B Participant is
employed under a written employment
agreement and is terminated by the
Corporation, the Bank or a Successor without
cause, or quits for Good Reason (as defined in
such employment agreement), upon or after the
occurrence of a Change of Control, and prior to
the end of the term of such employment
agreement, such Participant shall be deemed to
have received a base salary payment on the last
day of his or her employment equal to the
aggregate amount of base salary that would
have been paid or accrued to such Participant,
at his or her base salary then in effect, from that
day until the earlier of the end of such
Performance Period or the end of the term of
such agreement, and the Pool shall be increased
by the amount of such deemed payment. Each
Group B Participant's percentage share of the
Pool shall be the portion thereof attributable to
the base salary paid or accrued (or deemed to
have been paid or accrued) to such Participant
during the Performance Period and included in
the computation of the Pool.
(c) The Committee may designate
additional Group B Participants for a
Performance Period, provided such designation
is made sooner than 16 months before the end
of the Performance Period. If a Group B
Participant is designated more than one year
after the beginning of the Performance Period,
such participation shall be on a pro-rated basis,
so that only the portion of his or her base salary
paid or accrued after such designation is taken
into account for purposes of determining the
Pool and his or her percentage share of the
Pool.
(d) Maximum Limitation. Anything in
this Plan to the contrary notwithstanding, the
maximum incentive amount that may be earned
under the Plan by any one Group B Participant
during any one Performance Period shall be the
lesser of $250,000 or 100% of the Participant's
annual rate of base salary in effect at the
beginning of the Performance Period.
(e) If the Committee determines that
distribution of the Pool as previously
constituted for a Performance Period would
cause the consolidated per share Net Income of
the Corporation and its Subsidiaries for one or
more years of such Performance Period to fall
substantially below historic levels, the
Committee may reduce the aggregate of the
incentive amounts which may be earned by
Group B Participants during such Performance
Period. Any such reduction shall be expressed
as a percentage of the average annual rate of
base salary paid or accrued (or deemed to have
been paid or accrued) to Group B Participants
during such Performance Period and included in
the computation of the Pool for such
Performance Period as previously constituted.
Accordingly, such a reduction will not operate
by itself to reduce any Group B Participant's
percentage share of the Pool. The Committee
may act with respect to such a reduction at any
time prior to payment of such incentive
amounts. Notwithstanding the foregoing, no
reduction under this subsection may be made
after a Change of Control with respect to a
Performance Period which commenced before
such Change of Control.
(f) Following the completion of each
Performance Period, the Committee shall certify
in writing whether the applicable Performance
Goals have been attained for such Performance
Period and the incentive amounts, if any,
payable to each Group B Participant for such
Performance Period. Subject to the maximum
limitation provided in subsection 6(d) above,
the Pool shall be allocated among Group B
Participants in proportion to their respective
percentage shares of the Pool. However, if the
Committee determines that a particular Group
B Participant's contribution to the attainment of
the Performance Goals for the Performance
Period was less than that of Group B
Participants generally, it may eliminate or
reduce the allocation to such Participant. Such
elimination or reduction shall not have the effect
of increasing the allocation to any other
Participant; rather, it shall have the effect of
reducing the distributable Pool.
Notwithstanding the foregoing, if a Change of
Control occurs after the beginning of a
Performance Period and prior to the close
thereof, no such elimination or reduction shall
be made, and any distribution of the Pool for
such Performance Period shall be made strictly
on the basis of percentage shares.
(g) Payment of incentive amounts to
Group B Participants shall be as soon as
practicable after the Committee makes the
certification provided for in subsection 6(f)
above. The Committee in its sole discretion
shall determine whether such incentive amounts
shall be payable in cash, in the form of shares of
Common Stock, or in any combination thereof.
Settlement in the form of shares of Common
Stock shall be based on the Fair Market Value
of such shares as of the date the Committee
makes the certification provided for in
subsection 6(c) above. Such shares may be
treasury shares or shares purchased on the open
market for such purpose.
7. Termination of Employment
If a Participant's employment with the
Corporation and its Subsidiaries terminates during a
Performance Period otherwise than by reason of a
qualifying circumstance, the Participant's participation
in the Plan shall terminate forthwith, and he or she shall
not be entitled to receive any portion of his award for
such Performance Period, except as provided in Section
8 below in the event of a Change of Control. If a
Group A Participant's employment terminates during a
Performance Period by reason of a qualifying
circumstance, and if the Performance Goals for that
Performance Period ultimately are met, the Participant
shall receive his or her Pro-Rata Award for such
Performance Period [or his or her Full Share, to the
extent provided in subsection 8(c) below in the event of
a Change of Control]. A termination shall be deemed
to be by reason of a qualifying circumstance if (i) it
occurs due to the Participant's death or Disability, (ii) it
occurs after the Participant has attained age 62 and
completed five years of service, (iii) it occurs with the
consent of the Committee. A Participant who transfers
to an becomes an employee of a Successor shall not be
deemed to have terminated employment unless and
until his or her employment with such Successor (and
the successors to such Successor) terminates.
8. Provisions Applicable Upon Change of Control.
(a) If substantially all of the assets and
business of the Bank are acquired by a
Successor upon or after a Change of Control,
and if any awards under the Plan are then
outstanding for a Performance Period then still
open, then such Successor shall be required to
assume the Plan and such awards, and all rights
and obligations of the Corporation and the Bank
thereunder, as to all Participants who become
employees of such Successor or any affiliate
thereof in connection with such acquisition.
The Corporation and the Bank, in connection
with any transaction or series of transactions by
which a Successor acquires substantially all of
the assets and business of the Bank (whether
directly or indirectly, by purchase, merger, share
exchange, consolidation or otherwise), (i) shall
advise such Successor of the existence of the
Plan and of the terms of each award then
outstanding under the Plan and (ii) shall require
such Successor (A) to acknowledge that the
Plan and all such awards are valid and
enforceable against the Corporation and the
Bank in accordance with their terms and the
determinations of the Committee, (B) to assume
the rights and obligations of the Corporation
and the Bank with respect to the Plan and any
such awards then outstanding to Participants
who become employees of such Successor or
any affiliate thereof, and (C) to agree to impose
similar obligations upon any corporation or
other entity acquiring such assets and business
from such Successor or any subsequent
Successor.
(b) If a Change of Control occurs after
the beginning but not more than four months
before the end of a Performance Period, a
Participant may elect to receive his or her Pro-Rata
Share for the portion of such Performance
Period preceding the Effective Date of such
Change of Control (which Pro-Rata Share then
shall be payable regardless of whether the
Performance Goals for such Performance
Period ultimately are attained) in lieu of
continuing his or her participation for the
remainder of such Performance Period. Such an
election must be made in writing to the
Committee before or within 30 days after the
occurrence of such Change of Control and no
later than four months before the end of such
Performance Period. Payment of a Participant's
Pro-Rata Share pursuant to such an election
shall be made before or within 15 days after the
later of the occurrence of such Change of
Control or the delivery of such writing. If such
an election is made, then the Participant shall
forfeit the balance of his or her award for such
Performance Period, regardless of whether the
Performance Goals for such Performance
Period ultimately are achieved, unless
subsection 8(c) applies. [A Participant who
terminates employment within 30 days after the
occurrence of a Change of Control shall be
deemed to have made and perfected an election
under this subsection at the time of such
termination of employment, if he or she did not
actually do so earlier.]
(c) If a Change of Control occurs after
the beginning but before the end of a
Performance Period, then a Participant shall be
entitled to receive his or her Full Award for
such Performance Period, regardless of whether
the Performance Goals for such Performance
Period ultimately are achieved, in each of the
following events:
(i) Upon or after such Change
of Control, and prior to the end of such
Performance Period, a Successor
acquires substantially all of the assets
and business of the Bank (A) without
assuming (directly or through an
affiliate) such award and the Plan as to
such Participant or (B) if a written
employment agreement between such
Participant and the Corporation or the
Bank is in effect or becomes effective at
the time of such Change of Control,
without either (I) assuming or agreeing
to honor such agreement for the balance
of the term thereunder or (II) entering
into a new written employment
agreement with such Participant which
amends or supersedes such agreement.
(ii) Upon or after such Change
of Control and prior to the end of such
Performance Period, the Corporation,
the Bank or a Successor terminates such
Participant's employment without cause
prior to the end of the term provided for
in any written employment agreement
between such Participant and the
Corporation or the Bank that is in effect
or becomes effective upon such Change
of Control or in any new written
agreement between such Participant and
the Corporation, the Bank or a
Successor which amends or supercedes
any such agreement.
(d) If substantially all of the assets and
business of the Bank are acquired by a
Successor in a transaction or series of
transactions that constitute or result in a Change
of Control, it is contemplated that the
Committee administering the Plan as to
Participants who transfer to and become
employees of such Successor or an affiliate
thereof will be a Committee appointed by such
Successor, and that such newly-appointed
Committee will be able to avail itself of the
authority granted under subsection 4(f) above
to establish new Performance Goals that relate
to the assets and business acquired from the
Bank and to the role of such Participants in
preserving and growing such assets and
business. Anything herein to the contrary
notwithstanding, in the event of a Change of
Control occurring after the beginning but before
the end of a Performance Period, no changes
shall be made pursuant to subsections 4(c), 4(d)
or (4(e) above in the Performance Goals
previously established for such Performance
Period, and no new Performance Goals shall be
established pursuant to subsection 4(f) for such
Performance Period, either by the Committee
appointed by the Corporation or by the
Committee appointed by the Successor to the
Bank's assets and business, unless such changed
or new Performance Goals are at least as likely
to be attained as the prior Performance Goals
would have been had there been no change in
the business of the Corporation or the Bank and
no Change of Control.
9. Effective Date
The Plan shall become effective upon its
adoption by the Board and shall apply to all
Performance Periods commencing on or after January
1, 1997, subject to its approval by the stockholders of
the Corporation. Prior to such stockholder approval,
the Committee may grant awards conditioned on
stockholder approval. If such stockholder approval is
not obtained by June 30, 1999, the Plan and any awards
made hereunder shall terminate ab initio and be of no
further force and effect. Notwithstanding the
foregoing, the Plan shall become effective without
shareholder approval, and awards made hereunder shall
not be subject to termination as aforesaid, in the event a
Change of Control occurs on or before June 30, 1999,
and before the Plan is brought before the stockholders
for approval.
10. Amendment and Termination
The Board or the Committee may at any time
amend, suspend, discontinue or terminate the Plan;
provided, however, that no such action shall impair the
rights of Participants under awards for Performance
Periods that commenced prior to the date thereof;
provided further, that amendments to the Plan shall be
subject to stockholder approval to the extent required
in order for benefits under the Plan to qualify as
performance-based compensation under section 162(m)
of the Code.
11. Miscellaneous
(a) Tax Withholding. No later than the date as
of which an amount first becomes includable in the
gross income of the Participant for applicable income
tax purposes with respect to any award under the Plan,
the Participant shall pay to the Corporation or make
arrangements satisfactory to the Committee regarding
the payment of any federal, state or local taxes of any
kind required by law to be withheld with respect to
such amount. In the case of an award that is payable in
shares of Common Stock, the Corporation may permit
the Participant to satisfy, in whole or in part, such
obligation to remit taxes by directing the Corporation
to withhold shares of Common Stock that would
otherwise be received by such individual, pursuant to
such rules as the Committee may establish from time to
time.
(b) No Rights to Awards or Employment.
Except as otherwise expressly provided herein, no
person shall have any claim or right to receive shares of
Common Stock or incentive amounts for a Performance
Period, unless he or she is designated as a Participant
for such Performance Period, and unless the
Performance Goals and other conditions applicable to
his or her award are satisfied in full as determined by
the Committee. Nothing in the Plan shall confer upon
any employee of the Corporation or any Subsidiary any
right to continued employment with the Corporation or
such Subsidiary or interfere in any way with the right of
the Corporation or such Subsidiary to terminate the
employment of any of its employees at any time, with
or without cause, in accordance with applicable laws
and any applicable employment agreement.
(c) Other Compensation. Nothing in this Plan
shall preclude or limit the ability of the Corporation to
pay any compensation to a Participant under the
Corporation's other compensation and benefit plans and
programs, including without limitation any Stock
Option Plan.
(d) No Limitation on Corporate Actions.
Nothing contained in the Plan shall be construed to give
a Participant the right to enjoin the Corporation or any
Subsidiary from taking any corporate action which is
deemed by it to be appropriate or in its best interest,
whether or not such action would have an adverse
effect on awards made under the Plan. Any right of a
Participant, beneficiary or other person respecting such
a corporate action shall be limited to a claim for actual
damages and attorneys fees.
(e) Unfunded Plan. The Plan is intended to
constitute an unfunded plan for incentive compensation.
Prior to the payment of any award, nothing contained
herein shall give any Participant any rights that are
greater than those of a general creditor of his or her
employer. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements
to meet the obligations created under the Plan to
deliver payment in cash or Common Stock with respect
to awards hereunder.
(f) Successors and Assigns. Awards under the
Plan shall be binding upon and inure to the benefit of
the successors and assigns of the Corporation and the
Bank.
(g) Non-Transferability. Except as expressly
provided herein, no Participant or beneficiary shall have
the power or right to sell, transfer, assign, pledge or
otherwise encumber or dispose of the Participant's
interest under the Plan.
(g) Designation of Beneficiary. A Participant
may designate a beneficiary or beneficiaries to receive
any payments which may be made following the
Participant's death. Such designation may be changed
or canceled at any time without the consent of such
beneficiary. Any such designation, change or
cancellation must be made in a form approved by the
Committee and shall not be effective until received by
the Committee. If a Participant does not designate a
beneficiary, or if the designated beneficiary or
beneficiaries predecease the Participant, any payments
which may be made following the Participant's death
shall be made to the Participant's estate.
(i) Settlement by Subsidiaries. Settlement of
awards held by employees of the Bank shall be made by
and at the expense of the Bank.
(j) Expenses. The costs and expenses of
administering the Plan shall be borne by the
Corporation.
(k) Arbitration. In the event of any disputes,
differences, controversies or claims arising out of, or in
connection with, an award under the Plan, other than a
dispute in which the sole relief sought is an equitable
remedy, such as a temporary restraining order or a
permanent or temporary injunction, the parties to the
award (the Corporation , the Bank or a Successor being
one party, and the Participant or his or her beneficiary
being the other party) shall be required to have the
dispute, controversy, difference or claim settled
through binding arbitration pursuant to the American
Arbitration Association's rules of commercial
arbitration which are then in effect. The location of all
arbitration proceedings shall be Indianapolis, Indiana.
One arbitrator shall be selected by the parties and shall
be a current or former executive officer (vice president
or higher) of a publicly-traded corporation. In the
event the parties are unable mutually to agree upon a
person to act as the arbitrator, or in the event a
mutually-agreed upon arbitrator shall fail to accept the
appointment by the parties, the parties jointly shall
request from the American Arbitration Association a
list of the names of five persons who would be qualified
to act as an arbitrator under this subsection. The
selection of the final arbitrator then shall be achieved by
each party alternately striking a name, with the
Corporation or employing Subsidiary or its successor
going first, until one name remains. In the event the
parties mutually agree that the five names submitted by
the American Arbitration Association are
unsatisfactory, they jointly may request a second list of
five names from the American Arbitration Association
and final selection shall be achieved through the
procedure set out herein. The decision of the arbitrator
shall be final and binding upon both parties, and any
award entered by the arbitrator shall be final, binding
and non-appealable and judgment may be entered
thereon by either party in accordance with the
applicable law in any court of competent jurisdiction.
The arbitrator shall not have authority to modify any
provision of this Plan nor to award a remedy for any
difference, dispute, controversy or claim arising under
this Plan or any award hereunder other than a benefit
specifically provided under or by virtue of this Plan or
such award. The Corporation, the Bank or the
Successor shall be responsible for all of the reasonable
expenses of the American Arbitration Association, the
arbitrator and the conduct of the selection and the
arbitration procedures set forth in this clause, including
reasonable attorneys' fees and expenses incurred by
either party which are associated with the arbitration
procedure through the time the final arbitration decision
or award is rendered. This arbitration provision shall
be specifically enforceable.
(l) Severability. If any provision of this Plan is
held unenforceable, the remainder of the Plan shall
continue in full force and effect without regard to such
unenforceable provision and shall be applied as though
the unenforceable provision were not contained in the
Plan.
(m) Governing Law. The Plan and all actions
taken thereunder shall be governed by and construed in
accordance with and governed by the laws of the State
of Indiana, without reference to the principles of
conflict of laws.
12. Definitions
For purposes of the Plan, the following terms
shall be defined as follows:
"Board" means the Board of Directors of the
Corporation.
"Change of Control" shall mean the first to
occur of the following:
(a) The acquisition by any individual,
entity or "group" within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange
Act")(a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of
common stock of the Corporation (the
"Outstanding Corporation Common Stock") or
(ii) the combined voting power of the then
outstanding voting securities of the Corporation
entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting
Securities"); provided, however, that the
following acquisitions of common stock shall
not constitute a Change of Control: (i) any
acquisition directly from the Corporation
[excluding an acquisition by virtue of the
exercise of a conversion privilege by one or
more Persons acting in concert, and excluding
an acquisition that would be a Change of
Control under (c) below], (ii) any acquisition by
the Corporation, (iii) any acquisition by any
employee benefit plan (or related trust)
sponsored or maintained by the Corporation or
any corporation or other entity controlled by the
Corporation, (iv) any acquisition by any
corporation or other entity pursuant to a
reorganization, merger or consolidation which
would not be a Change of Control under (c)
below; or (v) any acquisition by an Exempt
Person; provided further, that the applicable
percentage shall be reduced from 25% to 20%
in the event of the occurrence of one transaction
or a series of transactions which results in the
beneficial ownership by Exempt Persons of less
than 15% of the Outstanding Corporation
Common Stock or the Outstanding Corporation
Voting Securities; or
(b) Individuals who, as of the beginning
of the Performance Period then in progress,
constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a
majority of the Board; provided, however, that
any individual becoming a director subsequent
to such beginning whose election, or
nomination for election by the Corporation's
shareholders, was approved by a vote of at least
a majority of the directors then comprising the
Incumbent Board shall be considered as though
such individual were a member of the
Incumbent Board, but excluding, for this
purpose, any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened "election contest" or
other actual or threatened "solicitation" (as such
terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) of
proxies or consents by or on behalf of a person
other than the Incumbent Board; or
(c) Approval by the shareholders of the
Corporation of a reorganization, merger or
consolidation, unless, following such
reorganization, merger, share exchange or
consolidation, (i) 75% or more of, respectively,
the then outstanding shares of common stock of
the corporation or other entity resulting from
such reorganization, merger, share exchange or
consolidation and the combined voting power of
the then outstanding voting securities of such
corporation or other entity entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities
who were the beneficial owners, respectively, of
the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities
immediately prior to such reorganization,
merger, share exchange or consolidation in
substantially the same proportions as their
ownership, immediately prior to such
reorganization, merger, share exchange or
consolidation, (ii) no Person (excluding the
Corporation, any Exempt Person, any employee
benefit plan (or related trust) of the Corporation
or such corporation or other entity resulting
from such reorganization, merger, share
exchange or consolidation and any person
beneficially owning, immediately prior to such
reorganization, merger, share exchange or
consolidation, directly or indirectly, 25% or
more of the Outstanding Corporation Common
Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or
indirectly, 25% or more of, respectively, the
then outstanding shares of common stock of the
corporation or other entity resulting from such
reorganization, merger, share exchange or
consolidation or the combined voting power of
the then outstanding voting securities of such
corporation or other entity, entitled to vote
generally in the election of directors and (iii) at
least a majority of the members of the board of
directors of the corporation or other entity
resulting from such reorganization, merger,
share exchange or consolidation were members
of the Incumbent Board at the time of the
execution of the initial agreement providing for
such reorganization, merger, share exchange or
consolidation; provided however, that the
applicable percentage for purposes of clause (ii)
of this (c) shall be reduced from 25% to 20% in
the event of the occurrence of one transaction
or a series of transactions which results in the
beneficial ownership by Exempt Persons of less
than 15% of the Outstanding Corporation
Common Stock or the Outstanding Corporation
Voting Securities; or
(d) Approval by the shareholders of the
Corporation of (i) a complete liquidation or
dissolution of the Corporation or (ii) the sale or
other disposition of all or substantially all of the
assets of the Corporation, other than to a
corporation or other entity, with respect to
which following such sale or other disposition,
(A) 75% or more of, respectively, the then
outstanding shares of common stock of such
corporation or other entity and the combined
voting power of the then outstanding voting
securities of such corporation or other entity
entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by all or substantially all of the
Persons who were the beneficial owners,
respectively, of the Outstanding Corporation
Common Stock and Outstanding Corporation
Voting Securities immediately prior to such sale
or other disposition in substantially the same
proportion as their ownership, immediately
prior to such sale or other disposition, of the
Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as
the case may be, (B) no Person (excluding the
Corporation, any Exempt Person, any employee
benefit plan (or related trust) of the Corporation
or such corporation or other entity and any
person beneficially owning, immediately prior to
such sale or other disposition, directly or
indirectly, 25% or more of the Outstanding
Corporation Common Stock or Outstanding
Corporation Voting Securities, as the case may
be) beneficially owns, directly or indirectly,
25% or more of, respectively, the then
outstanding shares of common stock of such
corporation or other entity or the combined
voting power of the then outstanding voting
securities of such corporation or other entity
entitled to vote generally in the election of
directors and (C) at least a majority of the
members of the board of directors of such
corporation or other entity were members of the
Incumbent Board at the time of the execution of
the initial agreement or action of the Board
providing for such sale or other disposition of
assets of the Corporation; provided however,
that the applicable percentage for purposes of
subclause (ii)(B) of this (d) shall be reduced
from 25% to 20% in the event of the
occurrence of one transaction or a series of
transactions which results in the beneficial
ownership by Exempt Persons of less than 15%
of the Outstanding Corporation Common Stock
or the Outstanding Corporation Voting
Securities; or
(e) The occurrence of one transaction
or a series of transactions, which has the effect
of a divestiture by the Corporation of 25% or
more of the combined voting power of the
outstanding voting securities of the Bank; or
(f) The occurrence of any sale, lease or
other transfer, in one transaction or a series of
transactions, of all or substantially all of the
assets of the Bank (other than to the
Corporation or one or more Exempt Persons);
or
(g) The occurrence of one transaction
or a series of transactions which results in the
beneficial ownership by Exempt Persons of less
than 20% of the outstanding voting securities of
The Somerset Group, Inc. ("Somerset"), at any
time when Somerset beneficially owns 10% or
more of the combined voting power of the
outstanding voting securities of the
Corporation.
"Code" means the Internal Revenue Code of
1986, as amended, and the applicable rulings and
regulations (including any proposed regulations)
thereunder.
"Committee" means the Compensation
Committee of the Board, any successor committee
thereto or any other committee appointed by the Board
to administer the Plan. The Committee shall consist of
at least two individuals, each of whom shall be qualified
as an "outside director" (or shall satisfy any successor
standard thereto) for purposes of Section 162(m) of the
Code, and shall serve at the pleasure of the Board.
"Common Stock" means the Common Stock
of the Corporation.
"Disability" means eligibility for disability
benefits under the terms of the Corporation's long-term
disability plan in effect at the time the Participant
becomes disabled.
"Equity" means with respect to any calendar
year the average stockholders' equity of the
Corporation for such year as determined by the
Corporation's Independent Auditors.
"Exempt Descendant" means any child,
grandchild or other descendant of Robert H.
McKinney, or any spouse of any such child, grandchild
or other descendant, including in all cases adoptive
relationships.
"Exempt Person" means (i) Robert H.
McKinney; (ii) Arlene A. McKinney; (iii) any Exempt
Descendant; (iv) any corporation, partnership, trust or
other organization a majority of the beneficial
ownership interest of which is owned directly or
indirectly by one or more of Robert H. McKinney,
Arlene A. McKinney or any Exempt Descendant; (v)
any estate or other successor-in-interest by operation of
law of Robert H. McKinney, Arlene A. McKinney or
any Exempt Descendant; (vi) The Somerset Group,
Inc., so long as it is controlled by one or more
individuals and entities described in (i) through (v)
inclusive; and (vii) with reference to an issuer, any
group within the meaning of Rule 13d-5(b) under the
Exchange Act, if the majority of the shares of such
issuer beneficially owned by such group is attributable
to shares of such issuer which would be considered
beneficially owned by individuals and entities described
in (i) through (vi) inclusive absent the existence of the
group.
"Fair Market Value" means, with reference to
a share of Common Stock and a given day, the per
share value of Common Stock on such day, determined
as follows.
(a) If the principal market for the
Common Stock (the "Market") is a
national securities exchange or the
National Association of Securities
Dealers Automated Quotation System
("NASDAQ") National Market, the last
sale price or, if no reported sales take
place on the applicable date, the average
of the high bid and low asked price of
Common Stock as reported for such
Market on such date ("average price")
or, if no such average price can be
determined on such date, the most
recent reported sale price within the
preceding ten (10) business days, or if
no such sale shall have occurred, on the
next preceding day on which the average
price can be determined, provided that
such determination can be made with
respect to the ten (10) business days
preceding the applicable date;
(b) If the Market is the NASDAQ
National List, the NASDAQ
Supplemental List or another market,
the average of the high bid and low
asked price for Common Stock on the
applicable date (the "average price"), or,
if no such average price can be
determined on such date, the most
recent reported sale price within the
preceding ten (10) business days, or, if
no such sale shall have occurred, on the
next preceding day on which the average
price can be determined, provided that
such determination can be made with
respect to the ten (10) business days
preceding the applicable date; or,
(c) In the event that neither paragraph
(a) nor (b) shall apply, the Fair Market
Value of a share of Common Stock on
any day shall be determined in good
faith by the Committee.
"Full Award" means: (i) with reference to a
Group A Participant, the full number of shares of
Common Stock which may be earned by such
Participant pursuant to an award made under Section 5
above, excluding, however, any additional shares which
may be awarded by the Committee in its discretion for
Extra Achievement; and (ii) with reference to a Group
B Participant, such Participant's percentage share of
the Pool as constituted under Section 6 above.
"Group A Participant" means, with respect to
a particular Performance Period, each senior executive
officer of the Corporation or the Bank whom the
Committee selects to participate under Section 5 of the
Plan for such Performance Period,
"Group B Participant" means, with respect to
a particular Performance Period, each senior executive
officer of the Corporation or the Bank whom the
Committee selects to participate under Section 6 of the
Plan for such Performance Period.
"Growth Rate" with respect to a Performance
Period means the growth rate determined by measuring
the specific performance being measured during the
first year of the Performance Period as compared to
such performance during the calendar year immediately
preceding the beginning of the Performance Period; the
growth rate determined by measuring such performance
during the second year of the Performance Period as
compared to such performance during the first year of
the Performance Period; the growth rate determined by
measuring such performance during the third year of
the Performance Period as compared to such
performance during the second year of the Performance
Period; and then calculating a simple arithmetic average
of the individual year growth rates to determine the
applicable growth rate for the Performance Period.
"Independent Auditors" means with respect
to any calendar year the independent public accountants
appointed by the Board of Directors of the Corporation
to audit the consolidated financial statements of the
Corporation on behalf of the shareholders and Board of
Directors of the Corporation.
"Net Income" means with respect to any
calendar year the consolidated net income of the
Corporation for such year after provision for all costs
and expenses, including the expenses incurred by the
Plan, and federal, state and foreign income taxes; all as
determined by the Independent Auditors.
"Participant" means, with respect to a
Performance Period, each Group A Participant and
Group B Participant for such Performance Period..
"Performance Goals" means the goals related
to the performance criteria designated in Section 4
above, which Performance Goals will be established by
the Committee for a Performance Period.
"Performance Period" means each period of
three calendar years commencing on January 1, 1997 or
January 1 of every third year thereafter.
"Plan" means this First Indiana Corporation
Long-Term Management Performance Incentive Plan,
as set forth in this document, and as hereafter amended.
As implemented for a particular Performance Period,
the Plan may be referred to as the Plan for the year in
which such Performance Period begins. Thus, the Plan
as implemented and in effect for the Performance
Period beginning January 1, 1997 and ending December
31, 1999 may be referred to as the "1997 Long-Term
Management Performance Incentive Plan."
"Pro-Rata Award" means: (i) with reference
to a Group A Participant, a fraction of the Participant's
Full Award, the numerator of which fraction is the
number of full calendar months during the Performance
Period for such award (and ending prior to the last date
for making the election referred to subsection 8(b)
above, if such election is made by such Participant) in
which the Participant was employed by the Corporation
or the Bank or a Successor, and the denominator of
which fraction is 36; and (ii) with reference to a Group
B Participant, the Participant's Full Award.
"Return on Equity" or "ROE" means, with
respect to any calendar year, Net Income for such year
divided by Equity for such year.
"Stock Option Plan" means the First Indiana
Corporation 1991 Stock Option and Incentive Plan and
any successor or similar plan of the Corporation.
"Subsidiary" means (i) the Bank, or (ii) any
other subsidiary of the Corporation within the meaning
of section 424(f) of the Code.
"Successor" means an entity, other than the
Corporation or the Bank, which upon or after a Change
of Control acquires substantially all of the assets and
business of the Bank and thereafter operates the
business of the Bank.
<PAGE>
