SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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[_] Definitive Additional Materials
First Merchants Corporation
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(Name of Registrant as Specified In Its Charter)
Larry R. Helms
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FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 2004
The annual meeting of the shareholders of First Merchants Corporation (the
"Corporation") will be held at the Horizon Convention Center, 401 South High
Street, Muncie, Indiana 47305, on Thursday, April 22, 2004, at 3:30 p.m. for the
following purposes:
(1) To elect four directors, to hold office for a term of three years and
until their successors are duly elected and qualified.
(2) To act on a proposal to approve the First Merchants Corporation 2004
Employee Stock Purchase Plan.
(3) To ratify the appointment of the firm of BKD, LLP as the independent
public accountants for 2004.
(4) To transact such other business as may properly come before the
meeting.
Only those shareholders of record at the close of business on February 13, 2004
shall be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
March 5, 2004
YOUR VOTE IS IMPORTANT!
YOU ARE URGED TO SUBMIT YOUR PROXY VIA THE TELEPHONE OR INTERNET,
OR TO SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, AS SOON AS POSSIBLE SO THAT YOUR SHARES CAN BE VOTED AT
THE MEETING IN ACCORDANCE WITH YOUR INSTRUCTIONS.
March 5, 2004
FIRST MERCHANTS CORPORATION
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 2004
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by and on behalf of the Board of Directors (the "Board") of First
Merchants Corporation (the "Corporation") for use at the annual meeting of
shareholders of the Corporation to be held April 22, 2004. The distribution of
these proxy materials is expected to commence on March 5, 2004.
Please sign, date and return your proxy card or submit your proxy via the
telephone or Internet as soon as possible, so that your shares can be voted at
the meeting in accordance with your instructions. If you plan to vote by
telephone or Internet, you should have your control number, which is imprinted
on your proxy card, available when you call or access the web page.
o To vote by telephone, please call toll-free 1-800-PROXIES
(1-800-776-9437) on a touch-tone telephone and follow the instructions.
o To vote by Internet, please access the web page "www.voteproxy.com"
and follow the on-screen instructions.
Similar instructions are included on the enclosed proxy card.
Any shareholder giving a proxy has the right to revoke it any time before it is
exercised by giving written notice of revocation to the Secretary received prior
to the meeting, by voting again in writing or via the telephone or Internet, or
by voting in person at the meeting. The shares represented by proxies will be
voted in accordance with the instructions on the proxies. In the absence of
specific instructions to the contrary, proxies will be voted for election to the
Board of Directors of all nominees listed in Item 1 of the proxy, for approval
of the First Merchants Corporation 2004 Employee Stock Purchase Plan, and for
ratification of the appointment of BKD, LLP as the Corporation's independent
public accountants for 2004. If any director nominee named in this proxy
statement shall become unable or declines to serve (an event which the Board
does not anticipate), the persons named as proxies will have discretionary
authority to vote for a substitute nominee named by the Board, if the Board
determines to fill such nominee's position.
VOTING SECURITIES
Only shareholders of record at the close of business on February 13, 2004 will
be entitled to notice of and to vote at the annual meeting. 18,535,682 shares of
common stock were outstanding and entitled to vote as of February 13, 2004.
Each share of the Corporation's common stock is entitled to one vote. Directors
are elected by a plurality of the votes cast by the shares entitled to vote in
the election at a meeting at which a quorum is present. Shareholders do not have
a right to cumulate their votes for directors. The affirmative vote of a
majority of the shares present and voting at the meeting in person or by proxy
is required for approval of all items submitted to the shareholders for their
consideration other than the election of directors. The Secretary will count the
votes and announce the results of the voting at the meeting. Abstentions will be
counted for the purpose of determining whether a quorum is present but for no
other purpose. Broker non-votes will not be counted.
The Corporation's subsidiaries held 1,709,268 shares of the Corporation's common
stock as of February 13, 2004 in various fiduciary capacities, in regular,
nominee or street name accounts, consisting of 9.22% of the Corporation's
outstanding shares. Beneficial ownership of shares so held is disclaimed by the
Corporation. It is the practice of the respective subsidiaries when holding
shares as sole trustee or sole executor to vote the shares but, where shares are
held as co-executor or co-trustee, approval is obtained from the co-fiduciary
prior to voting.
ELECTION OF DIRECTORS
Four directors will be elected at the annual meeting.
The persons named below have been nominated for election to the Board of
Directors, with terms expiring as of the 2007 annual meeting of shareholders.
All of the nominees are currently members of the Board.
Those persons nominated as directors include:
Director
Name and Age Present Occupation Since
------------ ------------------ -----
Class I (Terms expire 2007):
Michael L. Cox President and Chief Executive Officer of the Corporation 1984
age 59
Norman M. Johnson Chairman of the Board, The Union County National Bank of 1996
age 69 Liberty ("Union County"), a wholly owned subsidiary of
the Corporation, and retired Executive Vice President of
Stein Roe & Farnham, Investment Counsel
Thomas D. McAuliffe(1) President and Chief Executive Officer, Commerce National 2003
age 54 Bank ("Commerce"), a wholly owned subsidiary of the
Corporation
Robert M. Smitson Chairman of the Board, Maxon Corporation (Maxon 1982
age 67 Corporation designs and manufactures specialty industrial
combustion systems and valves.)
Those persons named below continue to serve as directors:
Class II (Terms expire 2005)
Stefan S. Anderson Chairman of the Board of the Corporation and First 1982
Age 69 Merchants Bank, National Association ("First Merchants"),
a wholly owned subsidiary of the Corporation
Frank A. Bracken Retired attorney, Bingham McHale LLP 1994
age 69
Blaine A. Brownell CEO, U21pedagogica, Ltd. (U21pedagogica, Ltd. is an 2001
Age 61 international supplier of quality assurance services to
higher education)
2
Director
Name and Age Present Occupation Since
------------ ------------------ -----
Thomas B. Clark Retired Chairman of the Board, President and Chief 1989
age 58 Executive Officer, Jarden Corporation (Jarden Corporation
manufactures metal and plastic products.)
Class III (Terms expire 2006)
Roger M. Arwood Executive Vice President and Chief Operating Officer of 2000
age 52 the Corporation
James F. Ault Chairman of the Board, The Madison Community Bank, 1999
age 68 National Association ("Madison"), a wholly owned
subsidiary of the Corporation, and retired executive of
General Motors Corporation
Richard A. Boehning(2) Attorney, Bennett, Boehning & Clary 2002
age 66
Barry J. Hudson Chairman of the Board, First National Bank of Portland 1999
age 64 ("First National"), a wholly owned subsidiary of the
Corporation
Robert T. Jeffares(2) Retired Executive Vice President and Chief Financial 2002
age 68 Officer, Great Lakes Chemical Corporation
(1) Under an Agreement of Reorganization and Merger between the Corporation
and CNBC Bancorp, the Board appointed Mr. McAuliffe as a member of the
Board on April 15, 2003 and agreed to nominate him for election to a
full 3-year term as a director at the 2004 annual meeting of
shareholders.
(2) Under an Agreement of Reorganization and Merger between the Corporation
and Lafayette Bancorporation, the Board appointed Messrs. Boehning and
Jeffares as members of the Board on May 14, 2002 and agreed to nominate
them for election to full 3-year terms as directors at the 2003 annual
meeting of shareholders.
The occupations set forth above have been the principal occupations of the
director-nominees and continuing directors during the past 5 years except as
follows:
Mr. Anderson was also President of the Corporation from 1982 to 1998 and CEO
from 1982 to 1999, and he was President of First Merchants from 1979 to 1996 and
CEO from 1979 to 1999. Mr. Arwood was Executive Vice President and Chief Credit
Officer of Boatmen's Bank from 1988 until 1997, when he became Executive Vice
President, Credit Risk Management, of NationsBank/Bank of America. He joined the
Corporation and First Merchants in 2000 and served as Executive Vice President
of the Corporation and President and CEO of First Merchants from 2000 to 2002.
He became Executive Vice President and COO of the Corporation in 2002. Mr. Ault
became Chairman of the Board of Anderson Community Bank when it was formed in
1995, and he became Chairman of the Board of Madison in 1999, when Anderson
Community Bank was merged into Pendleton Banking Company to form Madison. Mr.
Bracken was Of Counsel with the Bingham Summers Welsh & Spilman LLP law firm
from 1994 to 2001. The firm changed its name to Bingham McHale LLP in 2002. Dr.
Brownell was Executive Director of the Center for International Programs and
Services at the University of Memphis from 1998 to 2000, and he was President of
Ball State University from 2000 to 2004. He became CEO of U21pedagogica, Ltd. in
3
2004. Mr. Clark served as President and CEO of Alltrista Corporation from 1995
to 2001, and as Chairman of the Board from 2000 to 2001. Alltrista Corporation
changed its name to Jarden Corporation in 2002. Mr. Cox was President of First
Merchants from 1996 to 2000 and CEO from 1999 to 2000. He has served as
President of the Corporation since 1998 and as its CEO since 1999. Mr. Hudson
has served as Chairman of the Board of First National since 1982, and he was
also President of First National from 1982 to 1998 and CEO from 1982 until 2000.
Mr. Johnson became Chairman of the Board of Union County in 2002.
Mr. Bracken is also a director of Ball Corporation.
MEETINGS OF THE BOARD
The Board of Directors of the Corporation held 7 meetings during 2003. All of
the directors attended at least 75% of the total number of meetings of the Board
and the committees on which they served.
COMPENSATION OF DIRECTORS
The directors of the Corporation who are employees of the Corporation or one of
its subsidiaries received no separate compensation for their services as
directors in 2003, except that, for his services as a director and Chairman of
the Board of First National, Mr. Hudson was paid $6,426 in 2003, of which $4,356
was deferred compensation under an insurance-funded deferred compensation plan
maintained by First National. The directors of the Corporation who are not
employees were paid an annual retainer of $7,600 in 2003, except that Mr.
Anderson was paid an annual retainer of $15,000 for his services as Chairman of
the Board of Directors of the Corporation. The directors who are not employees
also received $600 for each Board meeting and $400 for each committee meeting
they attended, except that the Board and committee chairmen received $800 and
$600, respectively, for each meeting they attended. Messrs. Anderson and Smitson
also serve as directors of First Merchants, for which Mr. Smitson received an
annual retainer of $5,000 in 2003 and Mr. Anderson, as Chairman of the First
Merchants Board, received an annual retainer of $10,000. They also received $500
for each First Merchants Board meeting they attended, except that Mr. Anderson,
as Board Chairman, received $800. Messrs. Anderson and Smitson served on
committees of First Merchants and were paid $300 for each committee meeting they
attended, except that Mr. Smitson, as Chairman of the First Merchants Executive
Committee, received $400 per meeting. For his services as a director and
Chairman of the Board of Directors of Madison, Mr. J. F. Ault was paid $375 for
each Board meeting and $50 for each committee meeting he attended in 2003.
Messrs. Boehning and Jeffares also serve as directors of Lafayette Bank and
Trust Company, National Association ("Lafayette"), a wholly owned subsidiary of
the Corporation, for which they received a retainer of $19,800 in 2003.
Lafayette also provided them life insurance coverage in the amount of $6,000 for
these services. For his services as a director and Chairman of the Board of
Directors of Union County, Mr. Johnson was paid a retainer of $3,800 and an
additional $5,025 for attending Board and committee meetings during 2003. Union
County also paid him a bonus of $1,324 and provided him life insurance coverage
in the amount of $30,000 for these services.
On July 1, 2003, options were granted under the provisions of the Corporation's
1999 Long-term Equity Incentive Plan to each of the non-employee directors to
purchase shares of the Corporation's common stock. Taking into account the 5%
common stock dividend that was distributed on September 12, 2003 to shareholders
of record at the close of business on August 29, 2003, each option is for 1,157
shares at an option price of $23.46 per share, the market price on the date of
the grants.
The Corporation maintains an unfunded deferred compensation plan which gives
each director an annual election to defer the receipt of director's fees. Any
amounts reflected in a director's account under the plan are credited with
interest at a rate equal to First Merchants' 18-month variable rate IRA account
rate. Payments commence when the participant is no longer a director of the
Corporation or First Merchants. During 2003, one of the Corporation's directors
participated in the plan, deferring fees totaling $13,400.
4
BOARD INDEPENDENCE
The Board has determined that each of the director-nominees and continuing
directors is an "independent director," as defined in Marketplace Rule
4200(a)(15) of the Nasdaq Stock Market, Inc. ("Nasdaq"), except for Mr. Cox, the
President and Chief Executive Officer of the Corporation, Mr. Arwood, the
Executive Vice President and Chief Operating Officer of the Corporation, Mr.
Hudson, the Chairman of the Board of First National, and Mr. McAuliffe, the
President and Chief Executive Officer of Commerce. All of the members of the
Nominating and Governance Committee, the Compensation and Human Resources
Committee, and the Audit Committee are "independent directors," as defined in
Nasdaq Marketplace Rule 4200(a)(15).
COMMITTEES OF THE BOARD
Nominating and Governance Committee
-----------------------------------
The Corporation has a Nominating and Governance Committee whose purpose is to
seek to ensure continuation of the effectiveness and independence of the Board
of Directors. The Committee is responsible for reviewing the credentials of
persons suggested as prospective directors, nominating persons to serve as
directors and as officers of the Board of Directors, including the slate of
directors to be elected each year at the annual meeting of shareholders, making
recommendations concerning the size and composition of the Board of Directors,
as well as criteria for Board membership, making recommendations concerning the
Board's committee structure and makeup, providing for continuing education of
the directors and self-assessment of the Board's effectiveness, and overseeing
the Corporate-wide Code of Conduct and the Code of Ethics for senior financial
officers of the Corporation. The Nominating and Governance Committee's Charter
is available in the "Corporate Governance Disclosure" section of the
Corporation's web site at www.firstmerchants.com. The members of the Nominating
and Governance Committee are Messrs. Clark (Chairman), Ault, Boehning and
Smitson. Mr. Anderson serves ex officio on the Committee as Chairman of the
Board of the Corporation. The Nominating and Governance Committee met 2 times
during 2003.
Identifying and Evaluating Nominees for Directors
The Nominating and Governance Committee is presently developing written criteria
for membership on the Board of Directors but has not yet finalized these
criteria. The Committee's process for identifying and evaluating nominees is as
follows: (a) for incumbent directors whose terms are expiring, it reviews the
quality of their prior service to the Corporation, including the nature and
extent of their participation in the Corporation's governance and their
contributions of management and financial expertise and experience to the Board
and the Corporation; and (b) for new director candidates, in addition to their
expertise, experience, reputation and stature, it considers whether their skills
are complementary to those of existing Board members, whether they will fulfill
the Board's needs for management, financial, technological or other expertise,
and whether they are likely to have sufficient time to responsibly perform all
of their duties as directors. The Nominating and Governance Committee considers
candidates coming to its attention through current Board members, search firms,
shareholders and other persons. Suggestions for nominees from shareholders are
evaluated in the same manner as other nominees. Any shareholder nominations must
be submitted in writing and should include the nominee's name and qualifications
and be addressed to the Secretary, First Merchants Corporation, 200 East Jackson
Street, Muncie, Indiana 47305. There are no nominees for election to the
Corporation's Board of Directors at the 2004 annual shareholders' meeting other
than directors standing for re-election.
5
Compensation and Human Resources Committee
------------------------------------------
The Corporation has a Compensation and Human Resources Committee whose functions
are: (a) to review and approve the compensation and benefits to be paid to the
executive officers and senior management employees of the Corporation and the
chief executive officers of its subsidiaries, and (b) to review and approve the
compensation and benefits to be paid to the executive officers and senior
management employees and the compensation ranges and benefits for other officers
and employees of the Corporation's subsidiaries. The authority to periodically
adjust the compensation and benefits of employees, other than executive officers
and senior management of the Corporation and the chief executive officers of its
subsidiaries, has been delegated by the Committee to the chief executive
officers of the subsidiaries. The Compensation and Human Resources Committee is
responsible for the administration of the Corporation's incentive compensation
and stock plans. The members of the Committee are Messrs. Smitson (Chairman),
Anderson, Bracken, Clark and Johnson. The Committee met 3 times during 2003.
Compensation and Human Resources Committee Interlocks and Insider Participation
No member of the Compensation and Human Resources Committee was an officer or
employee of the Corporation during 2003. Mr. Anderson was the Chief Executive
Officer of the Corporation and First Merchants until his retirement on April 16,
1999.
Compensation and Human Resources Committee Report on Executive Compensation
General Compensation Policy. The Compensation and Human Resources Committee
administers the Corporation's executive compensation program, which is intended
to provide incentives to executive officers to achieve both current and
long-term strategic management goals of the Corporation, with the ultimate
objective of achieving a superior return on the shareholders' investment. To
this end, the program is comprised of cash and equity-based components which
recognize performance as measured against the Corporation's annual and long-term
goals as well as performance evaluated in comparison to industry peers.
Equity-based compensation, including the Employee Stock Purchase Plan, the
Long-term Equity Incentive Plan, and Deferred Stock Units under the Senior
Management Incentive Compensation Program, encourages ownership and retention of
the Corporation's common stock by key employees, assuring that they have a
meaningful stake in the Corporation's continued success and thereby aligning the
interests of these employees and shareholders.
The executive compensation program is designed to assist the Corporation in
achieving its business objectives by: maintaining a competitive compensation
program to attract and retain qualified executives; providing performance-based
incentive compensation that is directly related to the Corporation's financial
performance and individual contributions to that performance; and linking
compensation to factors which affect short-term and long-term stock performance.
The manner in which the Committee establishes the compensation and incentives
for Mr. Cox, the Corporation's chief executive officer, and the other executive
officers listed in the Summary Compensation Table on page 10 is described below.
Cash Compensation. The annual cash compensation paid to the Corporation's
executive officers for 2003, consisting of salary and incentive compensation,
was determined by the Compensation and Human Resources Committee. The salaries
paid to the executive officers named in the Summary Compensation Table for 2003
are shown in the "Salary" column of that Table. These salaries were subjectively
determined after consideration of the executive officer's individual
responsibilities, performance, experience, the chief executive officer's
evaluation of the other executive officers, a review of several measurements of
the Corporation's short-term and long-term financial results compared with
industry peers, various industry salary surveys, and other factors such as
budgetary considerations and inflation rates.
6
The incentive compensation paid to the Corporation's executive officers for 2003
was determined under the Senior Management Incentive Compensation Program. This
Program incorporates modern incentive plan techniques and executive retention
features for the purpose of closely aligning the interests of executives with
those of shareholders. Under the Program, at or near the beginning of each
calendar year, the Committee assigns each of the Program participants a target
bonus for the year that is a percentage of salary. The participant's incentive
compensation for the year is based on accomplishment of specific performance
levels set forth in the Program. The chief executive officer's and chief
operating officer's bonuses depend on meeting targets with respect to the
Corporation's operating return on equity and improvements in the Corporation's
operating earnings per share and diluted GAAP earnings per share compared to the
previous year. The other executive officers' bonuses depend on meeting targets
with respect to improvement in the Corporation's operating earnings per share
compared to the previous year and accomplishing individual benchmarks as
determined by the chief executive officer. In order to avoid wide swings in
payouts and to better focus the Program participants on long-term results, the
Program provides that 60% of any bonus paid to the participants will be based on
current year performance and 40% will be based on the previous year's payout. To
further the purpose of executive retention, 2/3 of each participant's bonus is
payable to the participant in cash following the end of the calendar year, and
the other 1/3 is payable in Deferred Stock Units two years after the bonus is
earned (unless the portion payable in Deferred Stock Units is less than $1,000,
in which case the entire bonus is payable in cash). When payable, the Deferred
Stock Units are valued at an amount equal to the fair market value of the
Corporation's common stock on the December 31 preceding the payment date plus
accumulated dividends. Payment is made to the participant in cash. The Deferred
Stock Units are forfeited if the participant's employment is terminated for
cause or is voluntarily terminated by the participant (except on account of
retirement, death or disability) prior to the date of payment. The participant
may elect to defer payment of all or part of the cash portion of the bonus by
filing an election to do so in the manner described in the Program. Deferred
amounts will be credited with interest quarterly based on the current 5-year
U.S. Treasury Bond rate.
The cash portion of the bonuses for 2003 for the executive officers named in the
Summary Compensation Table is set forth in the "Bonus" column of that Table, and
the Deferred Stock Unit portion of these bonuses is set forth in the Long-Term
Incentive Plan Awards Table on page 12. Cash amounts paid to these executive
officers for Deferred Stock Units earned in 2001 are set forth in the "LTIP
Payouts" column of the Summary Compensation Table. For 2003, Mr. Cox's target
bonus was 45% and Mr. Arwood's was 40% of salary. The target bonuses of Messrs.
Connors, Hardwick and Helms were each 30% of salary. None of the executive
officers earned bonuses for 2003 based on the return on equity, operating
earnings per share, and diluted GAAP earnings per share components of the
Program. Messrs. Connors, Hardwick and Helms earned bonuses for 2003 based on
accomplishing individual benchmarks as determined by the chief executive
officer. The actual 2003 bonus payouts to Messrs. Cox, Arwood, Connors, Hardwick
and Helms, based 60% on 2003 performance and 40% on 2002 payouts, were 7.20%,
5.82%, 4.68%, 7.48% and 9.55% of salary, respectively.
Equity-based Compensation. The equity-based compensation paid to the
Corporation's executive officers for 2003, in addition to the Deferred Stock
Units under the Senior Management Incentive Compensation Program described
above, included compensation under the Corporation's Long-term Equity Incentive
Plan and 1999 Employee Stock Purchase Plan.
The Long-term Equity Incentive Plan is briefly described in the paragraph on
page 10 immediately preceding the Option Grants in Last Fiscal Year Table. The
number of shares for which the Compensation and Human Resources Committee
awarded options under the Plan to the executive officers named in the Summary
Compensation Table during 2003 is set forth in the "Number of Securities
Underlying Options Granted" column of the Option Grants in Last Fiscal Year
Table.
7
The 1999 Employee Stock Purchase Plan generally provides that full-time
employees of the Corporation or a participating subsidiary with more than 6
months of service may elect, prior to the offering period (July 1 to June 30),
to purchase common shares of the Corporation at a price equal to 85% of the
lesser of the market price of the stock at the beginning of the period and the
market price at the end of the period. For the offering period ending June 30,
2003, Messrs. Cox, Arwood, Connors, Hardwick and Helms purchased 761, 0, 0, 222
and 126 shares, respectively, under the 1999 Employee Stock Purchase Plan. The
1999 Employee Stock Purchase Plan covers 5 offering periods expiring on June 30,
2004.
Other Compensation. The executive officers are also covered by medical and
retirement plans that are generally applicable to full-time employees of the
Corporation and its subsidiaries. The retirement plans covering each of the
executive officers are the First Merchants Corporation Retirement Pension Plan,
a qualified defined benefit pension plan (described on page 12 in the section
entitled "Compensation of Executive Officers -- Pension Plans"), and the First
Merchants Corporation Retirement Savings Plan, a qualified Internal Revenue Code
ss.401(k) defined contribution pension plan (referred to in note (2) to the
Summary Compensation Table). Mr. Cox and Mr. Arwood are also covered by the
First Merchants Corporation Supplemental Executive Retirement Plan, a
nonqualified SERP plan (described in the section entitled "Compensation of
Executive Officers -- Pension Plans").
The above report is submitted by:
FIRST MERCHANTS CORPORATION COMPENSATION
AND HUMAN RESOURCES COMMITTEE
Robert M. Smitson, Chairman
Stefan S. Anderson
Frank A. Bracken
Thomas B. Clark
Norman M. Johnson
Audit Committee
---------------
The Corporation has an Audit Committee which assists the Board (1) in its
oversight of the Corporation's accounting and financial reporting principles and
policies and internal accounting and disclosure controls and procedures, (2) in
its oversight and supervision of the Corporation's internal audit function, (3)
in its oversight of the certification of the Corporation's quarterly and annual
financial statements and disclosures and assessment of internal disclosure
controls by the Corporation's CEO and CFO, (4) in its oversight of the
Corporation's consolidated financial statements and the independent external
audit thereof, and (5) in evaluating the independence of the external auditors.
The Audit Committee recommends the selection of the independent auditor for
approval by the Board and ratification by the shareholders, and it approves the
independent auditor's compensation. In 2003 the Board of Directors amended the
written charter for the Audit Committee. A copy of the amended charter is
attached as Appendix A. The members of the Audit Committee are Messrs. Ault
(Chairman), Anderson, Brownell, Clark, Jeffares and Smitson. John E. Worthen,
who is retiring as a director of the Corporation as of the 2004 annual meeting,
was also a member of the Audit Committee during 2003. In accordance with Section
407 of the Sarbanes-Oxley Act, the Corporation has identified Mr. Jeffares as
the "Audit Committee financial expert." The Audit Committee met 5 times during
2003.
8
Audit Committee Report
The Audit Committee reports as follows:
(1) The Committee has reviewed and discussed the audited financial
statements of the Corporation for 2003 with the Corporation's
management.
(2) The Committee has discussed with BKD, LLP, the Corporation's
independent auditors for 2003, the matters required to be discussed by
SAS 61 (Codification of Statements on Auditing Standards, AU ss.380),
as modified or supplemented.
(3) The Committee has received the written disclosures and the letter from
BKD, LLP required by Independence Standards Board Standard No. 1
(Independent Discussions with Audit Committees), as modified or
supplemented, and has discussed with BKD, LLP its independence from the
Corporation.
(4) Based on the review and discussions referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board, and
the Board has approved, that the audited financial statements of the
Corporation be included in the Corporation's Annual Report on Form 10-K
for the 2003 fiscal year for filing with the Securities and Exchange
Commission.
The above report is submitted by:
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE
James F. Ault, Chairman
Stefan S. Anderson
Blaine A. Brownell
Thomas B. Clark
Robert T. Jeffares
Robert M. Smitson
John E. Worthen
COMPENSATION OF EXECUTIVE OFFICERS
The tables in this section of the Proxy Statement contain information concerning
the compensation of the Corporation's Chief Executive Officer and its 4 most
highly compensated executive officers other than the Chief Executive Officer as
of the Corporation's most recent fiscal year-end, December 31, 2003. The
information in these tables concerning stock options has been adjusted to give
retroactive effect to the 5% common stock dividends that were distributed on
September 24, 2001, September 13, 2002, and September 12, 2003 to shareholders
of record at the close of business on September 3, 2001, August 30, 2002, and
August 29, 2003, respectively.
Summary Compensation Table
--------------------------
The following table contains information concerning the compensation paid by the
Corporation and its subsidiaries for the years 2001, 2002 and 2003 to the
Corporation's Chief Executive Officer and its 4 most highly compensated
executive officers other than the Chief Executive Officer.
9
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-------------------------------------------------
Awards Payouts
-------------------------
-----------------------------------------------------------------------------------------------------------
Securities
Name and Underlying LTIP All Other
Principal Position Year Salary Bonus(1) Options Payouts(1)Compensation(2)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Michael L. Cox 2003 $326,715 $15,360 13,125 $38,988 $2,500
President and Chief 2002 285,941 33,600 13,781 41,880 3,231
Executive Officer 2001 255,359 63,450 11,576 3,125
Roger M. Arwood 2003 234,699 8,930 10,500 21,630 0
Executive Vice President 2002 209,218 19,899 11,025 8,142 0
and 2001 188,834 35,201 9,261 0
Chief Operating Officer(3)
Robert R. Connors 2003 166,231 5,085 5,250 0 2,002
Senior Vice President, 2002 51,361 3,391 3,308 0 641
Operations and Technology(4)
Mark K. Hardwick 2003 132,722 6,732 5,250 4,553 1,901
Senior Vice President and 2002 103,294 6,787 4,410 1,703 1,383
Chief Financial Officer(5) 2001 77,885 7,410 1,736 954
Larry R. Helms 2003 135,817 8,426 5,250 10,256 1,918
Senior Vice President, 2002 125,619 12,134 5,513 6,114 1,470
Administrative Services, 2001 115,422 16,690 5,325 1,404
General Counsel and
Corporate Secretary
-----------------------------------------------------------------------------------------------------------
(1) Under the Corporation's Senior Management Incentive Compensation Program ,
the bonuses earned by each executive officer are paid 2/3 in cash following
the end of the fiscal year and 1/3 in Deferred Stock Units that are payable
in cash two years later, unless the Units are forfeited due to termination
of the executive officer's employment for cause or because the executive
officer voluntarily terminated employment (except on account of retirement,
death or disability) prior to payment. The portion of each year's bonus
paid in Deferred Stock Units is not reportable in the Summary Compensation
Table, but is disclosed in the Long-term Incentive Plan Awards Table below.
The LTIP Payouts column in the Summary Compensation Table sets forth the
cash amounts paid in the year indicated for Deferred Stock Units earned by
the executive officer two years earlier under the Senior Management
Incentive Compensation Program. The first year for which LTIP Payouts were
made under the Program was 2002.
(2) Represents employer matching contributions for fiscal year to First
Merchants Corporation Retirement Savings Plan (a ss.401(k) plan).
(3) Mr. Arwood was employed as Executive Vice President of the Corporation and
First Merchants on March 1, 2000. He was President and CEO of First
Merchants from September 19, 2000 until he was appointed Executive Vice
President and COO of the Corporation on August 13, 2002.
(4) Mr. Connors was employed as Senior Vice President, Operations and
Technology of the Corporation on August 26, 2002.
(5) Mr. Hardwick was promoted from Vice President to Senior Vice President of
the Corporation on August 13, 2002. He became CFO on April 11, 2002. He
served as Corporate Controller prior to that date.
Option Grants Table
-------------------
The 1999 Long-term Equity Incentive Plan, which became effective as of July 1,
1999, authorizes the Compensation Committee to grant stock-based incentive
awards, including stock options, to eligible employees of the Corporation or any
subsidiary. The following table contains information concerning individual
grants of stock options under the plan made during 2003 to each of the executive
officers named in the Summary Compensation Table above. Each option was to
purchase the Corporation's common stock at a price not less than the market
price of the stock on the date of grant.
10
OPTION GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
-----------------------------------------------------------------------------------------------------------
Number of
Securities Percent of
Underlying Total Options
Options Granted to Exercise
Name Granted Employees in Price Expiration Date 5% 10%
Fiscal Year (per share)
-----------------------------------------------------------------------------------------------------------
Michael L. Cox 13,125 8.61 $23.46 July 1, 2013 $193,985 $489,581
Roger M. Arwood 10,500 6.88 23.46 July 1, 2013 155,188 391,665
Robert R. Connors 5,250 3.44 23.46 July 1, 2013 77,594 195,832
Mark K. Hardwick 5,250 3.44 23.46 July 1, 2013 77,594 195,832
Larry R. Helms 5,250 3.44 23.46 July 1, 2013 77,594 195,832
-----------------------------------------------------------------------------------------------------------
Aggregated Option Exercises and Fiscal Year-End Option Value Table
------------------------------------------------------------------
The following table contains information concerning (1) each exercise of stock
options during 2003 under the 1989 Stock Option Plan, the 1994 Stock Option
Plan, or the 1999 Long-term Equity Incentive Plan by each of the executive
officers named in the Summary Compensation Table above, and (2) the value as of
December 31, 2003 of each of the named executive officer's unexercised options
on an aggregated basis.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
-----------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Value Options at Fiscal at Fiscal Year-End
Name On Exercise Realized Year-End Exercisable/Unexercisable
Exercisable/Unexercisable
-----------------------------------------------------------------------------------------------------------
Michael L. Cox 0 $0 84,426 / 26,913 $764,303 / $26,906
Roger M. Arwood 0 0 18,519 / 21,528 102,815 / 21,542
Robert R. Connors 0 0 0 / 8,558 0 / 11,358
Mark K. Hardwick 0 0 3,008 / 9,662 18,280 / 10,776
Larry R. Helms 4,949 71,354 31,938 / 11,022 228,471 / 12,260
-----------------------------------------------------------------------------------------------------------
Long-term Incentive Plan Awards Table
-------------------------------------
Under the restructured Senior Management Incentive Compensation Program, which
became effective in 2000, the annual bonuses earned by participating employees
are payable 2/3 in cash following the end of the fiscal year and 1/3 in
"deferred stock units" two years after the bonus is earned. When payable, the
units are valued at an amount equal to the fair market value of the
Corporation's common stock on the date of payment, plus accumulated dividends.
Payments for the units are made in cash, not stock. If the participant's
employment is terminated for cause or is voluntarily terminated by the
participant (except on account of retirement, death or disability) prior to the
date of payment, the units are forfeited. The following table contains
information concerning deferred stock unit awards for 2003 under the Senior
Management Incentive Compensation Program to each of the executive officers
named in the Summary Compensation Table above. The section of this Proxy
11
Statement entitled "Compensation and Human Resources Committee Report on
Executive Compensation -- Cash Compensation," on pages 6 and 7, contains
additional information about the Senior Management Incentive Compensation
Program.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------------------------------------
Number of Shares, Performance or Other Period Until
Name Units or Other Rights Maturation or Payout
-------------------------------------------------------------------------------------------------------------
Michael L. Cox 301 1/01/04 - 1/01/06
Roger M. Arwood 175 1/01/04 - 1/01/06
Robert R. Connors 100 1/01/04 - 1/01/06
Mark K. Hardwick 132 1/01/04 - 1/01/06
Larry R. Helms 165 1/01/04 - 1/01/06
-------------------------------------------------------------------------------------------------------------
Pension Plans
-------------
The Corporation's qualified defined benefit pension plan, the First Merchants
Corporation Retirement Pension Plan, covers the full-time employees of the
Corporation and most of its subsidiaries. Its nonqualified "excess benefit"
plan, the First Merchants Corporation Supplemental Executive Retirement Plan,
provides benefits to designated executives that would otherwise be payable under
the qualified plan if incentive compensation were included in compensation and
Internal Revenue Code Section 401(a)(17) did not limit the amount of
compensation that can be considered for purposes of calculating pension benefits
accruing under the qualified plan. For plan years beginning on or after January
1, 2002, $200,000 is the maximum amount of compensation that can be considered
for purposes of calculating pension benefits accruing under the qualified plan.
This amount will increase to $205,000 for plan years beginning on or after
January 1, 2004.
The following table shows the estimated annual benefits payable upon retirement
at age 65 to persons born in 1951 (the average of the birth years of the
executive officers named in the Summary Compensation Table above) in specified
compensation and years of service classifications under the plans. The benefit
amounts shown in the table include amounts payable under both the qualified and
the nonqualified plans, for those executives who participate in both.
PENSION PLAN TABLE
-----------------------------------------------------------------------------------------------------------
Compensation Years of Service
-----------------------------------------------------------------------------------------------------------
15 20 25 30 35
-----------------------------------------------------------------------------------------------------------
$125,000 $ 34,132 $ 45,509 $ 56,886 $ 56,886 $ 56,886
150,000 42,007 56,009 70,011 70,011 70,011
200,000 57,757 77,009 96,261 96,261 96,261
250,000 73,507 98,009 122,510 122,510 122,510
300,000 89,257 119,009 148,761 148,761 148,761
350,000 105,007 140,009 175,011 175,011 175,011
400,000 120,757 161,009 201,261 201,261 201,261
450,000 136,507 182,009 227,511 227,511 227,511
-----------------------------------------------------------------------------------------------------------
Participants in the qualified plan who had at least 15 credited years of service
and whose combined age and years of service totaled at least 65 as of January 1,
1991 are entitled to a pension benefit calculated under the formula that was in
effect prior to 1990 if that will produce a greater benefit. Mr. Helms is the
only executive officer named in the Summary Compensation Table who qualifies for
a benefit under the pre-1990 formula. The following table shows the estimated
annual benefits payable upon retirement at age 65 under the formula that was in
effect prior to 1990 in specified compensation and years of service
classifications under the plans. The benefit amounts shown in the table include
12
amounts payable under both the qualified and the nonqualified plans, for those
executives who participate in both.
PENSION PLAN TABLE (Pre-1990 Formula)
-----------------------------------------------------------------------------------------------------------
Compensation Years of Service
-----------------------------------------------------------------------------------------------------------
15 20 25 30 35
-----------------------------------------------------------------------------------------------------------
$125,000 $ 37,500 $ 50,000 $ 62,500 $ 62,500 $ 62,500
150,000 45,000 60,000 75,000 75,000 75,000
200,000 60,000 80,000 100,000 100,000 100,000
250,000 75,000 100,000 125,000 125,000 125,000
300,000 90,000 120,000 150,000 150,000 150,000
350,000 105,000 140,000 175,000 175,000 175,000
400,000 120,000 160,000 200,000 200,000 200,000
450,000 135,000 180,000 225,000 225,000 225,000
-----------------------------------------------------------------------------------------------------------
Benefits under the plans are determined primarily by average final compensation
and years of service (to a maximum of 25 years) and are computed on the basis of
straight-life annuity amounts. They are not subject to any deduction for Social
Security or other offset amounts.
Compensation for purposes of the qualified plan consists of the base salary and
service award components of the salary amounts reported in the Summary
Compensation Table on page 10. Compensation for purposes of the nonqualified
plan also includes the bonus amounts reported in the Summary Compensation Table.
All of the executive officers named in the Summary Compensation Table are
participants in the qualified plan. Mr. Connors became eligible to participate
on January 1, 2004. Mr. Cox and Mr. Arwood are also participants in the
nonqualified plan. The 2003 compensation used for purposes of calculating
pension benefits under the plans, and the credited years of service as of
January 1, 2004, of the executive officers named in the Summary Compensation
Table are: Mr. Cox, $343,085 (9.7 years), Mr. Arwood, $243,395 (3.8 years), Mr.
Connors, $163,000 (0 years), Mr. Hardwick, $130,030 (6.1 years), and Mr. Helms,
$132,480 (32.3 years).
Termination of Employment and Change of Control Arrangements
------------------------------------------------------------
The Corporation has change of control agreements with Messrs. Cox, Arwood,
Connors, Hardwick and Helms which provide severance benefits in the event of
both a change of control of the Corporation and a termination or constructive
termination of the employment of the executive within 24 months after the change
of control, unless such termination was for cause, because of the executive's
death or disability, or by the executive other than on account of constructive
termination. In general, a "change of control" means an acquisition by any
person of 25% or more of the Corporation's voting shares, a change in the makeup
of a majority of the Corporation's Board of Directors over a 24-month period, a
merger of the Corporation in which the shareholders before the merger own 50% or
less of the Corporation's voting shares after the merger, or approval by the
Corporation's shareholders of a plan of complete liquidation of the Corporation
or an agreement to sell or dispose of substantially all of the Corporation's
assets. A "constructive termination" means, generally, a significant reduction
in duties, compensation or benefits or a relocation of the executive's office
outside of Muncie, Indiana unless agreed to by the executive. The severance
benefits payable under the agreements, in addition to base salary and incentive
compensation accrued through the date of termination, would be a lump sum to
Messrs. Cox and Arwood, equal to 299%, and to Messrs. Connors, Hardwick and
Helms, equal to 200%, of the sum of (1) their annual base salary and (2) their
largest bonus under the Corporation's Senior Management Incentive Compensation
Program during the 2 years preceding termination. The Corporation would also pay
any excise tax imposed on the executive under Section 4999 of the Internal
Revenue Code on an "excess parachute payment," and would provide 2 years' life,
disability, accident and health insurance coverage, the bargain element value of
outstanding stock options, outplacement services, and reasonable legal fees and
expenses incurred as a result of the termination. The agreements were not
entered into in response to any effort to acquire control of the Corporation,
and the Board of Directors is not aware of any such effort.
13
PERFORMANCE GRAPH
The following graph compares the yearly change in the Corporation's cumulative
total shareholder return on its common stock during the last 5 years with (1)
the cumulative total return of the Russell 2000 Index, and (2) the cumulative
total return of the Russell 2000 Financial Services Sector Index. The graph
assumes $100 was invested on January 1, 1999 in the Corporation's common stock,
and in each of the two indexes shown, and all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST MERCHANTS CORPORATION, RUSSELL 2000
AND RUSSELL 2000 FINANCIAL SERVICES SECTOR
[LINE CHART OMITTED]
================== ============== =============== ============== =============== ============== =============
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
------------------ -------------- --------------- -------------- --------------- -------------- -------------
FMC $100.00 $104.96 $ 94.32 $109.05 $112.71 $137.42
------------------ -------------- --------------- -------------- --------------- -------------- -------------
Russell 2000 $100.00 $121.26 $117.59 $120.52 $ 95.83 $141.11
------------------ -------------- --------------- -------------- --------------- -------------- -------------
Russell 2000 $100.00 $ 94.13 $113.94 $131.76 $134.55 $187.66
Finl Serv
================== ============== =============== ============== =============== ============== =============
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Corporation is not aware of any person who is the beneficial owner of more
than 5% of the Corporation's outstanding common stock. The following table lists
the amount and percent of the Corporation's common stock beneficially owned on
February 13, 2004 by directors (including directors who are retiring as of the
2004 annual meeting of shareholders), director nominees and the executive
officers named in the Summary Compensation Table on page 10, and such persons
and other executive officers as a group. Unless otherwise noted, the beneficial
owner has sole voting and investment power.
Amount and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
----------------------------------------------------------------------------------------------------
Stefan S. Anderson (20) 113,016 (1)..............................*
Roger M. Arwood 18,634 (2)..............................*
James F. Ault 25,478 (3)..............................*
Dennis A. Bieberich 90,508 (4)..............................*
Richard A. Boehning 15,766 (5)..............................*
Frank A. Bracken (20) 97,191 (6)..............................*
Blaine A. Brownell 3,473 (7)..............................*
Thomas B. Clark 12,521 (8)..............................*
Michael L. Cox 98,175 (9)..............................*
Barry J. Hudson 497,883 (10)..............................2.68%
Robert T. Jeffares 12,092 (11)..............................*
Norman M. Johnson 388,499 (12)..............................2.10%
Thomas D. McAuliffe 73,912 (13)..............................*
George A. Sissel 10,345 (14)..............................*
Robert M. Smitson (20) 21,461 (15)..............................*
John E. Worthen 10,813 (16)..............................*
Robert R. Connors 210...................................*
Mark K. Hardwick 3,885 (17)..............................*
Larry R. Helms 54,727 (18)..............................*
Directors and Executive
Officers as a Group (19 persons) (20) 1,548,589 (19) .............................8.24%
* Percentage beneficially owned is less than 1% of the outstanding
shares.
(1) Includes 2,071 shares held by his spouse, Joan Anderson, in
which he disclaims beneficial ownership, and 36,698 shares
that he may acquire during the next 60 days upon the exercise
of stock options.
(2) Includes 18,519 shares that he may acquire during the next 60
days upon the exercise of stock options.
(3) Includes 13,318 shares held by his spouse, Marilyn Ault, in
which he disclaims beneficial ownership, and 3,473 shares that
he may acquire during the next 60 days upon the exercise of
stock options.
15
(4) Includes 33,650 shares held by his spouse, Melanie Bieberich,
in which he disclaims beneficial ownership, and 4,052 shares
that he may acquire during the next 60 days upon the exercise
of stock options.
(5) Includes 4,315 shares held jointly with his spouse, Phyllis
Boehning, 5,586 shares held in trust for family members for
which Mr. Boehning, as trustee, has voting and investment
power, and 2,315 shares that he may acquire during the next 60
days upon the exercise of stock options.
(6) Includes 4,825 shares held by his spouse, Judy Bracken, in
which he disclaims beneficial ownership, and 9,957 shares that
he may acquire during the next 60 days upon the exercise of
stock options.
(7) Includes 956 shares held by his spouse, Mardi Brownell, in
which he disclaims beneficial ownership, and 2,517 shares that
he may acquire during the next 60 days upon the exercise of
stock options.
(8) Includes 9,958 shares that he may acquire during the next 60
days upon the exercise of stock options.
(9) Includes 5,828 shares held jointly with his spouse, Sharon
Cox, and 84,426 shares that he may acquire during the next 60
days upon the exercise of stock options.
(10) Includes 327,756 shares owned by Mutual Security, Inc., 97,319
shares held jointly with his spouse, Elizabeth Hudson, 12,026
shares held by his spouse as custodian for his children, in
which he disclaims beneficial ownership, and 10,650 shares
that he may acquire during the next 60 days upon the exercise
of stock options.
(11) Includes 3,595 shares held by his spouse, Olga Jeffares, in
which he disclaims beneficial ownership, 4,475 shares held
jointly with his spouse, Olga Jeffares, 1,709 shares held in
trust for family members for which Mr. Jeffares, as trustee,
has voting and investment power, and 2,315 shares that he may
acquire during the next 60 days upon the exercise of stock
options.
(12) Includes 28,352 shares held by his spouse, Julia Johnson, in
which he disclaims beneficial ownership, and 7,873 shares that
he may acquire during the next 60 days upon the exercise of
stock options.
(13) Includes 43,833 shares held jointly with his spouse, Andrea
McAuliffe, and 8,398 shares that he and his spouse hold as
joint custodians for his children.
(14) Includes 388 shares held jointly with his spouse, Mary Sissel,
and 9,957 shares that he may acquire during the next 60 days
upon the exercise of stock options.
(15) Includes 5,859 shares held by his spouse, Marilyn Smitson, in
which he disclaims beneficial ownership, and 9,957 shares that
he may acquire during the next 60 days upon the exercise of
stock options.
(16) Includes 7,873 shares that he may acquire during the next 60
days upon the exercise of stock options.
(17) Includes 3,008 shares that he may acquire during the next 60
days upon the exercise of stock options.
16
(18) Includes 22,789 shares held jointly with his spouse, Sandra
Helms, and 31,938 shares that he may acquire during the next
60 days upon the exercise of stock options.
(19) Includes 255,486 shares that may be acquired during the next
60 days upon the exercise of stock options.
(20) Messrs. Anderson, Bracken and Smitson serve as directors of
the George and Frances Ball Foundation, Muncie, Indiana, which
owns 182,267 shares (0.98%) of the Corporation's outstanding
common stock. The Foundation's Board of Directors, which has 6
members, has the voting and investment power over the shares
held by the Foundation. The Foundation's shares are not
included in the totals of the shares beneficially owned by
Messrs. Anderson, Bracken and Smitson or by directors and
executive officers as a group.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain directors and executive officers of the Corporation and its subsidiaries
and their associates are customers of, and have had transactions with, the
Corporation's subsidiary banks from time to time in the ordinary course of
business. Additional transactions may be expected to take place in the ordinary
course of business in the future. All loans and commitments included in such
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
Richard A. Boehning, a director of the Corporation and Lafayette, is Of Counsel
with the law firm of Bennett, Boehning & Clary, Lafayette, Indiana, which serves
as legal counsel to Lafayette. Bennett, Boehning & Clary was paid $119,209 in
fees and expenses for legal services in 2003 to Lafayette.
COMMUNICATIONS WITH THE BOARD
Shareholders may communicate with the Corporation's Board of Directors by
submitting an e-mail to the Board at bod@firstmerchants.com. All such e-mails
will be automatically forwarded to the Chairman of the Nominating and Governance
Committee, Mr. Clark, who will arrange for such communications to be relayed to
the other directors.
DIRECTORS' ATTENDANCE AT ANNUAL SHAREHOLDERS MEETING
The Corporation's directors are encouraged to attend the annual meeting of
shareholders. At the 2003 annual meeting, all but one of the 15 directors were
in attendance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's directors and executive officers to file reports of ownership and
changes in ownership of the Corporation's stock with the Securities and Exchange
Commission. Based on its records and the written representations of its
directors and executive officers, the Corporation believes that during 2003
these persons complied with all Section 16(a) filing requirements, except that
one late Form 4 report was filed on November 10, 2003 by John E. Worthen, who is
retiring as a director as of the 2004 annual meeting, to report a sale of 364
shares on November 4, 2003.
17
PROPOSAL TO APPROVE THE FIRST MERCHANTS CORPORATION 2004 EMPLOYEE STOCK PURCHASE
PLAN
On December 9, 2003, the Board of Directors approved the First Merchants
Corporation 2004 Employee Stock Purchase Plan (the "2004 Stock Purchase Plan"),
subject to approval by the holders of a majority of the Corporation's
outstanding shares of common stock, which approval is now being sought. A copy
of the 2004 Stock Purchase Plan is attached as Appendix B.
The 2004 Stock Purchase Plan is intended to replace the Corporation's previous
employee stock purchase plans - the 1989, 1994 and 1999 Stock Purchase Plans.
The Board of Directors believes that the 1989 and 1994 Stock Purchase Plans, and
the 1999 Stock Purchase Plan, under which no more offerings can be made after
the offering period ending June 30, 2004, have provided eligible employees of
the Corporation and its participating subsidiaries a convenient way to purchase
shares of the common stock of the Corporation through payroll deductions. The
opportunity to purchase the Corporation's common shares has provided a
significant incentive to these employees who contribute and are expected to
contribute materially to the continued success of the Corporation. A substantial
majority of these employees have become shareholders and/or increased their
shareholdings through the Stock Purchase Plans, thus aligning their interests
closely with those of other shareholders. Therefore, the Board recommends
approval of the 2004 Stock Purchase Plan, which contains essentially the same
provisions as were in the 1989, 1994 and 1999 Plans.
The principal features of the 2004 Stock Purchase Plan are set forth below.
Offerings. The 2004 Stock Purchase Plan provides for purchase of the
Corporation's common stock by eligible employees through a maximum of 5
offerings, each of 12 months' duration. A total of 400,000 shares of the
Corporation's common stock are to be reserved for issuance pursuant to the Plan.
The fair market value of 400,000 shares as of December 31, 2003 was $10,204,000.
Eligibility. The employees eligible to participate in the Plan are all employees
of the Corporation or a participating subsidiary who customarily work more than
20 hours per week and who have been employed for at least 6 months as of the
first day of the offering. At the present time, there are approximately 1,016
employees who would be eligible to participate in the Plan.
Purchase of Shares. Prior to each offering period (July 1 to June 30), eligible
employees will be entitled to elect to have up to 20% of their base salary or
wages, excluding bonuses, overtime, incentive or other similar extraordinary
remuneration, deducted from their pay and accumulated with interest until the
end of that offering period, but not to exceed $25,000 per offering period.
Participants may increase, decrease or suspend their payroll deductions one time
each offering period and may withdraw the balance of their payroll deduction
account at any time during each offering period. At the end of each offering
period, the balance of each participant's payroll deduction account will be
applied towards the purchase of the largest number of full shares of the
Corporation's common stock possible, and each participant will receive a
certificate evidencing such shares.
The benefits or amounts that will be received by or allocated to the
participants under the 2004 Stock Purchase Plan, including the executive
officers named in the Summary Compensation Table above, are not determinable. If
the 2004 Stock Purchase Plan had been in effect for 2003, the benefits or
amounts that would have been received by or allocated to the participants under
the Plan, including the executive officers named in the Summary Compensation
Table above, are also not determinable.
Price. The price at which the shares will be deemed to have been purchased (the
"option price") will be determined by the Compensation and Human Resources
Committee of the Board, and will be equal to the lesser of (i) 85% of the fair
market value of the common stock at the time the option is granted (the "grant
date"), or (ii) 85% of the fair market value of the common stock on the last day
18
of the offering period (the "exercise date"). In general, for purposes of the
2004 Stock Purchase Plan "fair market value" means the last reported sale price
of a share of stock for the particular date, as reported on Nasdaq; or if no
sale took place, the last reported sale price of a share of stock on the most
recent day on which a sale of a share of stock took place, as reported on
Nasdaq.
Administration. The Compensation and Human Resources Committee will administer
the 2004 Stock Purchase Plan. The Compensation and Human Resources Committee has
the authority, subject to the terms of the Plan, to (i) adopt, alter, and repeal
administrative rules and practices governing the Plan; (ii) interpret the terms
and provisions of the Plan; and (iii) otherwise supervise the administration of
the Plan.
Federal Income Tax Consequences. The 2004 Stock Purchase Plan is intended to
qualify as an employee stock purchase plan under Section 423 of the Internal
Revenue Code of 1986, as amended. Consequently, the Compensation and Human
Resources Committee's purchase of stock on behalf of a participant pursuant to
the Plan will not cause any federal income tax consequences to the participant
or the Corporation. If the participant holds the shares purchased pursuant to
the Plan for more than 1 year after the exercise date and 2 years after the
grant date (the "holding period"), upon selling the shares the participant's
gain will be subject to capital gains treatment. The Corporation will not
receive an income tax deduction in the event the participant disposes of the
shares after completion of the holding period. However, if the participant sells
the shares before the expiration of the holding period, the participant will
have made a "disqualifying disposition" and will realize ordinary income on the
date of sale equal to the difference between the option price and the fair
market value of the shares on the exercise date. Upon the subsequent sale of any
such shares, any appreciation or depreciation in the value of the shares after
the date the option was exercised is treated as a capital gain or loss. The
Corporation will receive an income tax deduction in the same amount and at the
same time as the participant realizes ordinary income, but not as to any amount
which is subject to capital gains treatment.
Shareholder Vote Required to Approve the 2004 Stock Purchase Plan. The favorable
vote of a majority of the shares present and voting is required for approval of
the 2004 Stock Purchase Plan. Abstentions and broker non-votes are considered
neither a vote "for" nor "against."
The Board of Directors unanimously recommends a vote "FOR" the Proposal to
Approve the First Merchants Corporation 2004 Employee Stock Purchase Plan.
EQUITY COMPENSATION PLAN INFORMATION
The following table presents information as of December 31, 2003 with respect to
compensation plans under which equity securities of the Corporation are
authorized for issuance. It does not include information concerning equity
securities that may be authorized for issuance under the First Merchants
Corporation 2004 Employee Stock Purchase Plan described on pages 18 and 19
above.
------------------------------------- ----------------------- ------------------- -------------------------
Number of securities
remaining available for
Number of securities Weighted-average future issuance under
to be issued upon exercise price of equity compensation
exercise of outstanding plans (excluding
Plan Category outstanding options, options, warrants securities reflected in
warrants and rights and rights first column)
------------------------------------- ----------------------- ------------------- -------------------------
Equity compensation plans approved
by shareholders 908,476 $20.66 163,244(1)
Equity compensation plans not
approved by shareholders(2) 40,520 21.81 0
------------------------------------- ----------------------- ------------------- -------------------------
Total 948,996 20.71 163,244
------------------------------------- ----------------------- ------------------- -------------------------
19
(1) This number does not include shares remaining available for future
issuance under the 1999 Long-term Equity Incentive Plan, which was
approved by the Corporation's shareholders at the 1999 annual meeting.
The aggregate number of shares that are available for grants under that
Plan in any calendar year is equal to the sum of: (a) 1% of the number
of common shares of the Corporation outstanding as of the last day of
the preceding calendar year; plus (b) the number of shares that were
available for grants, but not granted, under the Plan in any previous
year; but in no event will the number of shares available for grants in
any calendar year exceed 1 1/2 % of the number of common shares of the
Corporation outstanding as of the last day of the preceding calendar
year. The 1999 Long-term Equity Incentive Plan will expire in 2009.
(2) The only plan not approved by the Corporation's shareholders involves
non-qualified options to purchase the Corporation's common stock at a
price not less than the market price of the stock on the date of the
grant, awarded between 1997 and 2002 to directors of First Merchants
who, on the dates of the grants: (a) were serving as directors of First
Merchants; (b) were not employees of the Corporation, First Merchants,
or any of the Corporation's other subsidiaries; and (c) were not
serving as directors of the Corporation. The options are exercisable
during a period of ten years after the dates of the grants.
INDEPENDENT PUBLIC ACCOUNTANTS
Selection of Independent Public Accountants
-------------------------------------------
The Board, subject to the approval of the shareholders, has selected BKD, LLP as
the Corporation's independent public accountants for 2004. Representatives of
the firm are expected to be present at the annual shareholders' meeting. They
will have an opportunity to make a statement, if they desire to do so, and are
expected to be available to respond to appropriate questions.
The Board of Directors unanimously recommends a vote "FOR" ratification of the
appointment of the firm of BKD, LLP as independent public accountants for 2004.
Fees for Professional Services Rendered by BKD, LLP
---------------------------------------------------
The following table shows the aggregate fees billed by BKD, LLP for audit and
other services rendered to the Corporation for 2002 and 2003.
2002 2003
---- ----
Audit Fees $316,083 $250,626
Audit-Related Fees 33,280 39,826
Tax Fees 58,700 44,454
All Other Fees 0 0
-------------- --------------
Total Fees $408,063 $334,906
============== ==============
The audit fees were for professional services rendered for the audit of the
Corporation's annual financial statements and review of financial statements
included in the Corporation's Form 10-Q and services that are normally provided
by BKD, LLP to the Corporation in connection with statutory and regulatory
filings or engagements.
The audit-related fees were for professional services rendered for the audit of
the Corporation's stock and employee benefit plans.
20
The tax fees were for professional services rendered for preparation of tax
returns and consultations with the Corporation on various tax matters.
The Audit Committee has considered whether the provision by BKD, LLP of the
services covered by the fees other than the audit fees is compatible with
maintaining BKD, LLP's independence and believes that it is compatible.
Pre-approval Policies and Procedures
------------------------------------
The Audit Committee pre-approves all audit and non-audit services performed by
the Corporation's independent auditors in order to assure that the provision of
such services does not impair the auditor's independence. These services may
include audit services, audit-related services, tax services and other services.
The Audit Committee has adopted a policy for the pre-approval of services
provided by the independent auditors. Under this policy, pre-approval is
provided for 12 months from the date of pre-approval unless the Committee
specifically provides for a different period. The policy is detailed as to the
particular services or category of services and fee levels that are
pre-approved. Unless a service or type of service to be provided by the
independent auditors has received general pre-approval, it will require specific
pre-approval by the Audit Committee. The Committee must also approve any
proposed services exceeding the pre-approved fee levels. The independent
auditors are required to provide detailed back-up documentation with respect to
each proposed pre-approved service at the time of approval. The Audit Committee
may delegate pre-approval authority to one or more of its members. The member or
members to whom such authority has been delegated must report any pre-approval
decisions to the Audit Committee at its next scheduled meeting. The Audit
Committee does not delegate its responsibilities to pre-approve services
performed by the independent auditors to management.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2005 annual meeting of
the shareholders must be received by the Secretary of the Corporation at the
Corporation's principal office by November 8, 2004, for inclusion in the
Corporation's 2005 proxy statement and form of proxy relating to that meeting.
Shareholder proposals, if any, intended to be presented at the 2004 annual
meeting that were not submitted for inclusion in this proxy statement will be
considered untimely unless they were received by the Secretary of the
Corporation at the Corporation's principal office by January 21, 2004.
OTHER MATTERS
The cost of soliciting proxies will be borne by the Corporation. In addition to
solicitations by mail, proxies may be solicited personally or by telephone or
other electronic means, but no solicitation will be made by specially engaged
employees or paid solicitors.
The Board and management are not aware of any matters to be presented at the
annual meeting of the shareholders other than the election of the directors.
However, if any other matters properly come before such meeting or any
adjournment thereof, the holders of the proxies are authorized to vote thereon
at their discretion, provided the Corporation did not have notice of any such
matter on or before January 21, 2004.
By Order of the Board of Directors
Muncie, Indiana Larry R. Helms
March 5, 2004 Secretary
21
APPENDIX A
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE CHARTER
ROLE
----
The Audit Committee (the "Committee") is appointed by the Board of Directors
(the "Board") of First Merchants Corporation (the "Corporation") to assist the
Board:
1. In its oversight of the Corporation's accounting and financial
reporting principles and policies and internal accounting and
disclosure controls and procedures;
2. In its oversight and supervision of the Corporation's internal
audit function;
3. In its oversight of the certification of the Corporation's
quarterly and annual financial statements and disclosures and
assessment of internal disclosure controls by the Corporation's
Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO");
4. In its oversight of the Corporation's consolidated financial
statements and the independent external audit thereof, including
the appointing, compensating, overseeing (including resolving any
disagreements between management and the independent external
auditor regarding financial reporting); and
5. In evaluating the independence of the external auditors.
MEMBERSHIP
----------
The members of the Committee shall meet the independence and experience
requirements of Nasdaq and any other applicable laws and regulations. These
requirements specifically include the rules of the Securities and Exchange
Commission ("SEC") regarding audit committee financial experts, as defined.
1. The number and names of person determined to be audit committee
financial experts will be disclosed in the Corporation's annual
report.
2. The Corporation will disclose in the annual report whether the
audit committee financial experts are independent of management,
and if not, why.
3. If it is determined that the Corporation does not have a financial
expert on the Committee, it must disclose that fact and explain
why it does not.
Members of the Committee shall be appointed annually by majority vote of the
Board and will serve until the next annual meeting of the Board.
MEETINGS
--------
The Committee shall meet four times annually or more frequently as circumstances
require:
1. To discuss with the Senior Staff Auditor and/or the outsourced
internal auditor the status of completion of the annual audit plan
and audit reports arising therefrom.
2. To discuss with management the annual audited financial statements
and quarterly financial results and the required certifications of
the CEO and CFO.
3. At least annually, the Committee will meet separately with the
internal auditor and the
independent external auditor, without any members of management
being present, to discuss matters that the Committee or any of
these persons or firms believes should be discussed privately.
4. The Committee may request any officer or employee of the
Corporation, or independent counsel, or independent external
auditors to attend a meeting.
RESPONSIBILITIES
----------------
Overseeing Financial Reporting and Disclosures
The Committee shall:
1. Read and approve, prior to filing, the Corporation's annual
audited financial statements filed with the SEC and consider
whether they accurately and appropriately reflect their knowledge
of the financial condition of the Corporation and its results of
operations. Specific consideration will be given to the accuracy
A-1
of the financial statements, off-balance-sheet transactions,
disclosure of pro forma financial information, and real time
issuer disclosure matters.
2. Determine that management has put in place procedures to report to
the SEC, changes in Corporation stockholdings by directors,
executive officers, and more than 10% stockholders of the
Corporation.
3. Ensure that the Corporation has established adequate procedures to
ensure that quarterly and annual financial statements and
disclosures are accurate and complete. This will include reviewing
and approving the quarterly and annual CEO and CFO certifications.
4. Determine that the Corporation has complied with requirements of
the SEC to disclose in periodic reports whether or not the
Corporation has established a Code of Ethics.
5. Determine that the Corporation has complied with requirements of
the SEC to disclose the approval by the Committee of all non-audit
services to be performed by the Corporation's independent external
auditor.
Internal Audit Supervision
The Committee shall:
1. Review the appointment of the Senior Staff Auditor and/or
outsourced internal auditor; and
2. Evaluate the effectiveness of the internal audit function.
Independent External Auditor
The Committee shall:
1. Recommend the appointment and/or discharge of the independent
external auditor;
2. Pre-approve the external auditor's fees;
3. Evaluate the external auditor's independence; and
4. Pre-approve all permissible non-audit services to be provided by
the external auditors.
Internal and External Audit Plans and Results
The Committee shall:
1. Review and approve the annual audit plans of the internal audit
function and the independent external auditor;
2. Approve any changes to the annual audit plans;
3. Meet with the Senior Staff Auditor and/or outsourced internal
auditor to discuss the status of completion of the annual internal
audit plans and the periodic internal audit reports;
4. Review with management the results of the independent external
auditor's quarterly financial statements reviews;
5. Review with management and the independent external auditor the
results of the annual financial statements audit;
6. Review with management and the independent external auditor their
assessment of the quality of the Corporation's accounting
principles, the adequacy of internal accounting and disclosure
controls and resolution of identified significant deficiencies or
material weaknesses and reportable conditions in internal
accounting and disclosure controls;
7. Review compliance with laws and regulations and other audit
reports deemed significant by the Committee:
8. Receive certain communications from the independent external
auditors on an annual basis which include required communications
under generally accepted auditing standards; and
9. Based on these reviews, the Committee shall make its
recommendation to the Board as to the inclusion of the audited
consolidated financial statements in the Corporation's annual
report on Form 10-K.
Annual Proxy Statement Disclosure
The Committee should report activities to the Board and issue an annual report
to be included in the Corporation's proxy statement. In addition, the Committee
shall re-approve the Committee Charter annually, with a copy of the charter
filed with the SEC every three (3) years, and after any amendments.
A-2
Fraud Reporting and Handling of Complaints
The Committee shall have the responsibility for establishing procedures for:
1. Receipt, retention, and treatment of complaints received by the
Corporation regarding accounting, internal controls, or auditing
matters; and
2. The confidential, anonymous submission by employees of the
Corporation of concerns regarding questionable accounting or
auditing matters.
Regulatory Responsibilities
The Committee shall advise the Board with respect to any significant change in
the BOPEC ratings of the Corporation and/or the CAMELS rating of any subsidiary
bank.
RESOURCES AND AUTHORITY
-----------------------
The Committee shall:
1. Meet with the Corporation's general in-house legal counsel, when
appropriate;
2. Retain legal counsel at its discretion; and
3. Engage independent legal counsel, auditors, or other advisors as
it determines necessary to carry out its duties.
FUNDING
-------
The Corporation shall provide the Committee with appropriate funding, as
determined by the Committee, for payment of compensation:
1. To the registered independent external auditor employed by the
Corporation for the purpose of rendering or issuing an audit
report, and
2. To any advisors employed by the Committee.
A-3
APPENDIX B
FIRST MERCHANTS CORPORATION 2004 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
------------
The First Merchants Corporation 2004 Employee Stock Purchase Plan (the "Plan")
was adopted by the Board of Directors (the "Board") of First Merchants
Corporation (the "Company") on December 9, 2003, subject to approval of the
Company's shareholders at their annual meeting on April 22, 2004. The effective
date of the Plan shall be July 1, 2004, if it is approved by the shareholders.
The purpose of the Plan is to provide eligible employees of the Company and its
subsidiaries a convenient opportunity to purchase shares of common stock of the
Company through annual offerings financed by payroll deductions. As used in this
Plan, "subsidiary" means a corporation or other form of business association of
which shares (or other ownership interests) having 50% or more of the voting
power are, or in the future become, owned or controlled, directly or indirectly,
by the Company.
The Plan may continue until all the stock allocated to it has been purchased or
until after the fifth offering is completed, whichever is earlier. The Board may
terminate the Plan at any time, or make such amendment of the Plan as it may
deem advisable, but no amendment may be made without the approval of the
Company's shareholders if it would materially: (i) increase the benefits
accruing to participants under the Plan; (ii) modify the requirements as to
eligibility for participation in the Plan; (iii) increase the number of shares
which may be issued under the Plan, (iv) increase the cost of the Plan to the
Company; or (v) alter the allocation of Plan benefits among participating
employees.
The Plan is not qualified under Section 401(a) of the Internal Revenue Code of
1986 (the "Code") and is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). It is the Company's intention to
have the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Code, and the provisions of the Plan shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that Section
of the Code.
ADMINISTRATION
--------------
The Plan is administered by the Compensation and Human Resources Committee (the
"Committee"), which consists of two or more members of the Board, none of whom
are eligible to participate in the Plan and all of whom are "non-employee
directors," as such term is defined in Rule 16b-3(b)(3) of the Securities and
Exchange Commission, under the Securities Exchange Act of 1934, as amended (the
"1934 Act"). The Committee shall prescribe rules and regulations for the
administration of the Plan and interpret its provisions. The Committee may
correct any defect, reconcile any inconsistency or resolve any ambiguity in the
Plan. The actions and determinations of the Committee on matters relating to the
Plan are conclusive. The Committee and its members may be addressed in care of
the Company at its principal office. The members of the Committee do not serve
for fixed periods but may be appointed or removed at any time by the Board.
STOCK SUBJECT TO THE PLAN
-------------------------
An aggregate of 400,000 shares of common stock, without par value, of the
Company (the "Common Stock") is available for purchase under the Plan. Shares of
Common Stock which are to be delivered under the Plan may be obtained by the
Company by authorized purchases on the open market or from private sources, or
by issuing authorized but unissued shares of Common Stock. In the event of any
change in the Common Stock through recapitalization, merger, consolidation,
stock dividend or split, combination or exchanges of shares or otherwise, the
Committee may make such equitable adjustments in the Plan and the then
outstanding offering as it deems necessary and appropriate including, but not
limited to, changing the number of shares of Common Stock reserved under the
Plan and the price of the current offering. If the number of shares of Common
Stock that participating employees become entitled to purchase is greater than
the number of shares of Common Stock available, the available shares shall be
allocated by the Committee among such participating employees in such manner as
B-1
it deems fair and equitable. No fractional shares of Common Stock shall be
issued or sold under the Plan.
ELIGIBILITY
-----------
All employees of the Company and such of its subsidiaries as shall be designated
by the Committee will be eligible to participate in the Plan. No employee shall
be eligible to participate in the Plan if his or her customary employment is
less than 20 hours per week. No employee shall be eligible to participate in an
offering unless he or she has been continuously employed by the Company or
subsidiary for at least six months as of the first day of such offering. No
employee shall be eligible to participate in the Plan if, immediately after an
option is granted under the Plan, the employee owns more than five percent (5%)
of the total combined voting power or value of all classes of shares of the
Company or of any parent or subsidiary of the Company.
OFFERINGS, PARTICIPATING, DEDUCTIONS
------------------------------------
The Company may make up to five offerings of 12 months' duration each to
eligible employees to purchase Common Stock under the Plan. An eligible employee
may participate in such offering by authorizing at any time prior to the first
day of such offering a payroll deduction for such purpose in whole dollar
amounts, up to a maximum of twenty percent (20%) of his or her basic salary or
wages, excluding any bonus, overtime, incentive or other similar extraordinary
remuneration received by such employee. The Committee may at any time suspend an
offering if required by law or if determined by the Committee to be in the best
interests of the Company.
The Company will maintain or cause to be maintained payroll deduction accounts
for all participating employees. All funds received or held by the Company or
its subsidiaries under the Plan may be, but need not be, segregated from other
corporate funds. Payroll deduction accounts will be credited with interest at
such rates and intervals as the Committee shall determine from time to time. Any
balance remaining in any employee's payroll deduction account at the end of an
offering period will be refunded to the employee.
Each participating employee will receive a statement of his or her payroll
deduction account and the number of shares of Common Stock purchased therewith
following the end of each offering period.
Subject to rules, procedures and forms adopted by the Committee, a participating
employee may at any time during the offering period increase, decrease or
suspend his or her payroll deduction, or may withdraw the entire balance of his
or her payroll deduction account and thereby withdraw from participation in an
offering. Under the initial rules established by the Committee, payroll
deductions may not be altered more than once in each offering period and
withdrawal requests may be received on or before the last day of such offering.
In the event of a participating employee's retirement, death or termination of
employment, his or her participation in any offering under the Plan shall cease,
no further amounts shall be deducted pursuant to the Plan, and the balance in
the employee's account shall be paid to the employee, or, in the event of the
employee's death, to the employee's beneficiary designated on a form approved by
the Committee (or, if the employee has not designated a beneficiary, to his or
her estate).
PURCHASE, LIMITATIONS, PRICE
----------------------------
Each employee participating in any offering under the Plan will be granted an
option, upon the effective date of such offering, for as many full shares of
Common Stock as the amount of his or her payroll deduction account at the end of
any offering period can purchase. No employee may be granted an option under the
Plan which permits his or her rights to purchase Common Stock under the Plan,
and any other stock purchase plan of the Company or a parent or subsidiary of
the Company qualified under Section 423 of the Code, to accrue at a rate which
exceeds $25,000 of Fair Market Value of such Common Stock (determined at the
time the option is granted) for each calendar year in which the option is
outstanding at any time. As of the last day of the offering period, the payroll
deduction account of each participating employee shall be totaled. If such
account contains sufficient funds to purchase one or more full shares of Common
Stock as of that date, the employee shall be deemed to have exercised an option
B-2
to purchase the largest number of full shares of Common Stock at the offering
price. Such employee's account will be charged for the amount of the purchase
and the employee's book entry stock account will be credited with the number of
shares of Common Stock purchased.
The Committee shall determine the purchase price of the shares of Common Stock
which are to be sold under each offering, which price shall be the lesser of (i)
an amount equal to 85 percent of the Fair Market Value of the Common Stock at
the time such option is granted, or (ii) an amount equal to 85 percent of the
Fair Market Value of the Common Stock at the time such option is exercised.
"Fair Market Value" of a share of Common Stock on a given date is defined as the
last reported sale price of a share on such date, or if no sale took place, the
last reported sale price of a share of stock on the most recent day on which a
sale of a share of stock took place as recorded on the Nasdaq Stock Market or
national securities exchange on which the Common Stock of the Company is listed
on such date. If the Common Stock of the Company isn't listed on such date on
the Nasdaq Stock Market or a national securities exchange, "Fair Market Value"
is defined as the fair market value of a share on such date as determined in
good faith by the Committee.
STOCK ACCOUNTS, TRANSFER OF INTERESTS
-------------------------------------
Shares of Common Stock purchased under the Plan may be registered in the name of
a nominee or held in such other manner as the Committee determines to be
appropriate. A book entry stock account will be established in each
participating employee's name. Each participating employee will be the
beneficial owner of the Common Stock purchased under the Plan and credited to
his or her stock account, and he or she will have all rights of beneficial
ownership in such Common Stock. The Company or its nominee will retain custody
of the Common Stock purchased under the Plan until specifically requested in
writing by the participating employee to be sold, transferred or delivered. A
participating employee may request that a stock certificate, representing all or
part of the shares of Common Stock credited to his or her stock account, be
issued and delivered to the participating employee at any time.
No option, right or benefit under the Plan may be transferred by a participating
employee other than by will or the laws of descent and distribution, and all
options, rights and benefits under the Plan may be exercised during the
participating employee's lifetime only by such employee or the employee's
guardian or legal representative. There are no restrictions imposed by or under
the Plan upon the resale of shares of Common Stock issued under the Plan.
Certain officers of the Company are subject to restrictions under Section 16(b)
of the 1934 Act. With respect to such officers, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the 1934 Act. To the extent any provision of the Plan or action
by the Committee fails to so comply, it shall be deemed null and void if
permitted by law and deemed advisable by the Committee.
Beneficial ownership of the shares of Common Stock purchased under the Plan may
be held only in the name of the participating employee, or, if such employee so
indicates on his or her authorization form, in his or her name jointly with a
member of his or her family, with right of survivorship. A participating
employee who is a resident of a jurisdiction which does not recognize such a
joint tenancy may hold shares in the employee's name as tenant in common with a
member of his or her family, without right of survivorship.
B-3
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST MERCHANTS CORPORATION
April 22, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
v Please detach along perforated line and mail in the envelope provided. v
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
--------------------------------------------------------------------------------
1. Election of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Michael L. Cox
( ) Norman M. Johnson
|_| WITHHOLD AUTHORITY ( ) Thomas D. McAuliffe
FOR ALL NOMINEES ( ) Robert M. Smitson
|_| FOR ALL EXCEPT
(See Instructions below)
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: (X)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please |_|
note that changes to the registered name(s) on the account may not
be submitted via this method.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to approve the First Merchants |_| |_| |_|
Corporation 2004 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
3. Proposal to ratify the appointment of the |_| |_| |_|
firm of BKD, LLP as the independent public
accountants for 2004.
4. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting, provided the Corporation
did not have notice of any such matter on or before January 21, 2004.
This proxy will be voted as directed, but if not otherwise directed this proxy
will be voted "FOR" Items 1, 2 and 3.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|
_________________________________ ______________
Signature of Shareholder _________________________________ Date: ______________
_________________________________ ______________
Signature of Shareholder _________________________________ Date: ______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
PROXY
FIRST MERCHANTS CORPORATION
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FIRST MERCHANTS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 2004
The undersigned hereby appoints Clell W. Douglass and Hamer D. Shafer, and
each of them, as proxies with power of substitution, to represent and to vote
all shares of common stock of First Merchants Corporation which the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of First
Merchants Corporation to be held at the Horizon Convention Center, 401 South
High Street, Muncie, Indiana 47305, at 3:30 PM EST on April 22, 2004, and at any
adjournment thereof, with all of the powers the undersigned would possess if
personally present. If any of the nominees for election as Directors is unable
or declines to serve for any reason, the persons listed above have the authority
to vote for any substitute nominee named by the Board of Directors of First
Merchants Corporation.
(Continued, and to be marked, dated and signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST MERCHANTS CORPORATION
April 22, 2004
-------------------------
PROXY VOTING INSTRUCTIONS
-------------------------
MAIL - Date, sign and mail your proxy card in the
envelope provided as soon as possible.
- OR -
----------------------------
TELEPHONE - Call toll-free 1-800-PROXIES from any COMPANY NUMBER
touch-tone telephone and follow the instructions. ----------------------------
Have your proxy card available when you call. ACCOUNT NUMBER
----------------------------
- OR - ----------------------------
INTERNET - Access "www.voteproxy.com" and follow
the on-screen instructions. Have your proxy card
available when you access the web page.
Please detach along perforated line and mail in the envelope provided IF
v you are not voting via telephone or the Internet. v
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
--------------------------------------------------------------------------------
1. Election of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Michael L. Cox
( ) Norman M. Johnson
|_| WITHHOLD AUTHORITY ( ) Thomas D. McAuliffe
FOR ALL NOMINEES ( ) Robert M. Smitson
|_| FOR ALL EXCEPT
(See Instructions below)
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: (X)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please |_|
note that changes to the registered name(s) on the account may not
be submitted via this method.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to approve the First Merchants |_| |_| |_|
Corporation 2004 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
3. Proposal to ratify the appointment of the |_| |_| |_|
firm of BKD, LLP as the independent public
accountants for 2004.
4. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting, provided the Corporation
did not have notice of any such matter on or before January 21, 2004.
This proxy will be voted as directed, but if not otherwise directed this proxy
will be voted "FOR" Items 1, 2 and 3.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|
_________________________________ ______________
Signature of Shareholder _________________________________ Date: ______________
_________________________________ ______________
Signature of Shareholder _________________________________ Date: ______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
PROXY
FIRST MERCHANTS CORPORATION
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FIRST MERCHANTS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 2004
The undersigned hereby appoints Clell W. Douglass and Hamer D. Shafer, and
each of them, as proxies with power of substitution, to represent and to vote
all shares of common stock of First Merchants Corporation which the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of First
Merchants Corporation to be held at the Horizon Convention Center, 401 South
High Street, Muncie, Indiana 47305, at 3:30 PM EST on April 22, 2004, and at any
adjournment thereof, with all of the powers the undersigned would possess if
personally present. If any of the nominees for election as Directors is unable
or declines to serve for any reason, the persons listed above have the authority
to vote for any substitute nominee named by the Board of Directors of First
Merchants Corporation.
(Continued, and to be marked, dated and signed on the reverse side)