SCHEDULE 14A (RULE 14a - 101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES
EXCHANGE ACT OFof the
Securities Exchange Act of 1934
(AMENDMENT NO.(Amendment No. )
Filed by the registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to rule 240.14a-11(c) or rule 240.14a-12
1st Source Corporation
- ------------------------------------------------------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
1st Source Corporation
- ------------------------------------------------------------------------------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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[1st Source Corporation Logo]
100 North Michigan Street
Post Office Box 1602
South Bend, Indiana 46634
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
TO THE SHAREHOLDERS OF 1st SOURCE CORPORATION:
The Annual Meeting of the Shareholders of 1st Source Corporation will be held at
the 1st Source Center, 4th Floor Boardroom, 100 North Michigan Street, South
Bend, Indiana, on April 18, 2000,24, 2001, at 10:00 a.m. local time, for the purpose of
considering and voting upon the following matters:
1. ELECTION OF DIRECTORS. Election of one director for a term expiring in
2001 and fourthree directors for terms expiring
in 2003.2004.
2. APPROVAL OF 2001 STOCK OPTION PLAN. Adoption of a stock option plan for
key employees of 1st Source and its subsidiaries providing for the award
of options by the Executive Compensation Committee to purchase up to
2,000,000 shares of common stock.
3. OTHER BUSINESS. Such other matters as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on February 14, 2000,17, 2001, are
entitled to vote at the meeting.
By Order of the Board of Directors
Vincent A. TamburoLarry E. Lentych
Assistant Secretary
South Bend, Indiana
March 15, 20007, 2001
- --------------------------------------------------------------------------------
PLEASE DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY,
NEVERTHELESS, VOTE IN PERSON.PERSON AND REVOKE A PREVIOUSLY SUBMITTED PROXY.
- --------------------------------------------------------------------------------
[1st Source Corporation Logo]
100 North Michigan Street
Post Office Box 1602
South Bend, Indiana 46634
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of proxies to be voted at the Annual Meeting of Shareholders
of 1st Source Corporation ("1st Source"), to be held on April 18, 2000,24, 2001, at 10:00
a.m. local time, at the 1st Source Center, 4th Floor Boardroom, South Bend,
Indiana. Only Shareholders of record at the close of business on February 14,
2000,17,
2001, will be eligible to vote at the Annual Meeting. The voting securities of
1st Source consist only of Common Stock, of which 19,043,74119,851,110 shares were
outstanding on the record date. Each Shareholder of record on the record date
will be entitled to one vote for each share. Cumulative voting is not
authorized. The approximate date for making available this Proxy Statement and
the form of proxy to Shareholders is March 15, 2000.7, 2001. With respect to each matter
to be acted upon at the meeting, abstentions on properly executed proxy cards
will be counted for determining a quorum at the meeting; however, such
abstentions and shares not voted by brokers and other entities holding shares on
behalf of beneficial owners will not be counted in calculating voting results on
those matters for which the shareholder has abstained or the broker has not
voted.
The cost of solicitation of proxies will be borne by 1st Source. In addition to
the use of mails, proxies may be solicited through personal interview,
telephone, and telegraph by directors, officers and regular employees of 1st
Source without additional remuneration therefor.
REVOCABILITY
Shareholders may revoke their proxies at any time prior to the meeting by giving
written notice to Vincent A. Tamburo, Secretary,Larry E. Lentych, Assistant Secretary; 1st Source Corporation,Corporation;
Post Office Box 1602,1602; South Bend, Indiana 46634, or by voting in person at the
meeting.
PERSONS MAKING THE SOLICITATION
This solicitation is being made by the Board of Directors of 1st Source.
1
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Ownership of beneficial owners of more than 5% of the Common Stock outstanding
at February 14, 2000:17, 2001:
Name and Address Type of Ownership Amount % of Class
- ---------------- ----------------- ------ ----------
Ernestine M. Raclin (1) Indirect(2) 5,697,967 29.925,505,077 27.73 %
100 North Michigan Street ========= =======
South Bend, IN 46601
Christopher J. Murphy III Direct 593,876 3.12630,020 3.18 %
100 North Michigan Street
South Bend, IN 46601 Indirect(3) 1,340,357 7.041,387,936 6.99 %
--------- -------
Total 1,934,233 10.162,017,956 10.17 %
========= =======
1st Source Bank as Trustee Direct 1,092,006 5.731,152,604 5.81 %
for the 1st Source ========= =======
Corporation Employees'
Profit Sharing Plan and Trust
(1) Mrs. Raclin is the mother-in-law of Mr. Murphy.
(2) Owned indirectly by Mrs. Raclin who disclaims beneficial ownership thereof.
Most of these securities are held in trust.trusts, of which 1st Source Bank is the
trustee and has sole voting power. While Mrs. Raclin is an income
beneficiary of many of these trusts, the ultimate benefit and ownership will
reside in her children and grandchildren.
(3) Owned indirectly by Mr. Murphy who disclaims beneficial ownership thereof.
The securities are held by Mr. Murphy's wife and children, or in trust for
the benefit of his wife and children. Mr. Murphy is not a current income
beneficiary of most of the trusts.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The Board of Directors knows of no matters to come before the Annual Meeting
other than the matters referred to in this Proxy Statement. However, if any
other matters should properly come before the meeting, the persons named in the
enclosed proxy intend to vote in accordance with their best judgment. No
director, nominee for election as director, nor officer of 1st Source has any
special interest in any matter to be voted upon other than (i) election to the
Board of Directors.Directors and (ii) officers may have an interest in Proposal Number 2,
relating to the 2001 Stock Option Plan, as described more fully herein.
Directors, officers, and voting trustees have indicated that they intend to vote
for all directors as listed in Proposal Number 1.1 and for Proposal Number 2.
PROPOSAL NUMBER 1: ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS
The last Shareholders' meeting at which directors were elected was held on April
15, 1999. At that meeting, 93% of the shares outstanding were represented in
person or by proxy. Directors were voted upon separately. All directors received
a majority of the votes cast.
The Board of Directors is divided into three (3) groups of directors whose terms
expire at different times. At this meeting, one (1) director is to be elected
for a term expiring in 2003 and four (4)the 2001 Annual Meeting, three (3) directors are
to be reelected one for
a term expiring in 2001 and three for terms expiring in 2003,2004, or until the qualification and
election of a successor. Directors will be elected by a plurality of the votes
cast.
2
The following information is submitted for each nominee as well as each director
and each non-director executive officer continuing in office.
2
Beneficial Ownership
of Equity Securities(1)
-----------------------
Year
in Which
Directorship Common % of
Name Age Principal Occupation(3) Assumed Stock(2) Class
- ---- --- ----------------------- ------- -------- -----
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
Term Expiring in April, 2003
Claire C. Skinner 45 Chairman of the Board and 1,210 *
Chief Executive Officer,
Coachmen Industries, Inc.
(recreational vehicle and
modular home manufacturer)
NOMINEES FOR REELECTION TO THE BOARD OF DIRECTORS
Term Expiring in April, 2001
Paul R. Bowles 62 Former Vice President, 1988 9,900 *
Corporate Development,
Clark Equipment Company
(off-highway components
and construction machinery
manufacturing)
Terms Expiring in April, 2003
Rev. E. William
Beauchamp, C.S.C 572004
Daniel B. Fitzpatrick 43 Chairman, President, 1995 27,972 *
Chief Executive Officer
and Director, Quality
Dining, Inc. (quick
service and casual dining
restaurant operator)
Wellington D. Jones III 56 Executive Vice President, 1989 5571998 207,939 1.05%
1st Source Corporation, and
President and Chief Operating
Officer, 1st Source Bank;
prior thereto, Executive
Vice President, 1st Source
Corporation and 1st Source Bank
Dane A. Miller, Ph.D. 55 President, Chief Executive 1987 17,909 *
University of Notre Dame
William P. Johnson 57Officer and Director,
Biomet, Inc. (medical
products and technology)
DIRECTORS CONTINUING IN OFFICE
Terms Expiring in April, 2002
Lawrence E. Hiler 55 Chairman, Hiler Industries 1992 2,063 *
(metal castings)
Rex Martin 49 Chairman, President and 1996 2,637 *
Chief Executive Officer,
1996 881 *
Goshen Rubber Co.,NIBCO, Inc. (rubber(copper
and plastic plumbing
parts manufacturer); Director,
Coachmen Industries, Inc.
Richard J. Pfeil 67 Chairman and President, 1971 31,303 *
Koontz-Wagner Electric
Company, Inc. (electrical
equipment installer and
supplier)
3
Beneficial Ownership
of Equity Securities(1)
-----------------------
Year
in Which
Directorship Common % of
Name Age Principal Occupation(3) Assumed Stock(2) Class
- ---- --- ----------------------- ------- -------- -----
DIRECTORS CONTINUING IN OFFICE
Terms Expiring in April, 2001
Daniel B. Fitzpatrick 42Christopher J. Murphy III 54 Chairman of the Board, 1972 2,017,956 10.17%
President, 1995 20,744 *and Chief
Executive Officer, and Director, Quality
Dining, Inc. (quick
service and casual dining
restaurant operator)
Wellington D. Jones III 55 Executive Vice President, 1998 193,959 1.02%
1st Source
Corporation,
and PresidentCorporation; Chairman of the
Board and Chief OperatingExecutive
Officer, 1st Source Bank; prior
thereto, President and Chief
Executive Vice President,Officer, 1st Source
Corporation and 1st Source
Bank
Dane A. Miller, Ph.D. 54 President,Bank; and Director, Quality
Dining, Inc.
Timothy K. Ozark 51 Chairman and Chief Executive 1987 17,0561999 4,095 *
Officer, Aim Financial Corporation
(mezzanine funding and Director,
Biomet, Inc. (medical
productsleasing);
President and technology)Chief Executive
Officer, TKO Finance Corpor-
ation (lender to financial services
and manufacturing companies)
Terms Expiring in April, 2002
Lawrence2003
Rev. E. Hiler 54 Chairman, Hiler Industries 1992 1,965William
Beauchamp, C.S.C 58 Executive Vice President 1989 584 *
(metal castings)
Rex Martin 48 Chairman,Emeritus,
University of Notre Dame
William P. Johnson 58 President, andFlying J, LLC; 1996 1,5121,704 *
prior thereto, Chief Executive
Officer, NIBCO,Goshen Rubber Co., Inc.
(copper(rubber and plastic plumbing parts
manufacturer); Director,
Coachmen Industries, Inc.
Richard J. Pfeil 68 Chairman and President, 1971 34,918 *
Koontz-Wagner Electric
Company, Inc. (electrical
equipment installer and
supplier)
4
Beneficial Ownership
of Equity Securities(1)
-----------------------
Year
in Which
Directorship Common % of
Name Age Principal Occupation(3) Assumed Stock(2) Class
- ---- --- ----------------------- ------- -------- -----
Christopher J. Murphy III 53Claire C. Skinner 46 Chairman of the Board, 1972 1,934,233 10.16%2000 2,100 *
President, and Chief Executive
Officer, 1st Source
Corporation; Chairman of
the Board and Chief Execu-
tive Officer, 1st Source Bank; prior
thereto, President and Chief
Executive Officer, 1st Source
Corporation and 1st Source Bank; and Director,
Quality Dining,Coachmen Industries, Inc.
Timothy K. Ozark 50 Chairman(recreational vehicle and
Chief Executive 1999 1,500 *
Officer, Aim Financial Corpora-
tion (mezzanine funding and
leasing); President and Chief
Executive Officer, TKO Finance
Corporation (lender to financial
services and manufacturing
companies)modular home manufacturer)
NON-DIRECTOR EXECUTIVE OFFICERS
Richard Q. Stifel 5859 Executive Vice President, 80,96287,935 *
1st Source Bank
Allen R. Qualey 4748 President and Chief Operating 55,41365,022 *
Officer, Specialty Finance Group,
1st Source Bank; prior thereto,
Executive Vice President
and Senior Vice President
Vincent A. Tamburo 65Tamburo(4) 66 Senior Vice President, 72,127 *
General 63,680 * Counsel and Secretary,
1st Source Corporation and
1st Source Bank
Larry E. Lentych 5354 Senior Vice President, 52,32858,738 *
Treasurer and Chief Financial
Officer, 1st Source Corporation
and 1st Source Bank
All Directors and Executive Officers as a Group (16(15 persons) 2,467,203 12.96%2,603,699 13.12%
5
* Represents holdings of less than 1%.
(1) Based on information furnished by the directors and executive officers as of
February 14, 2000.17, 2001.
(2) The amounts shown include shares of Common Stock held directly or indirectly
in the following amounts by the spouse and other family members of the
immediate household of the following director, who disclaims beneficial
ownership of such securities: Christopher J. Murphy III, 1,340,3571,387,936
5
shares. Voting authority for 958,146912,760 shares owned beneficially by Mr. Murphy
is vested in 1st Source Bank as Trustee for various family trusts.
Investment authority for those shares is held by 1st Source Bank as Trustee
of the underlying trusts.
(3) The principal occupation represents the employment for the last five years
for each of the named directors and executive officers. Directorships
presently held in other registered corporations are also disclosed.
(4) Mr. Tamburo retired effective January 5, 2001.
Directors and officers of 1st Source and their associates were customers of and
had transactions with 1st Source and its subsidiaries in the ordinary course of
business during 1999;2000; additional transactions are expected to take place in the
ordinary course of business in the future. All outstanding loans and commitments
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. Credit underwriting procedures followed
were no less stringent than those for comparable transactions with other
borrowers.
BOARD COMMITTEES
1st Source and its major subsidiary, 1st Source Bank, share the following
permanent committees made up of board members of both organizations. Executive,
Audit, Human Resources and Executive Compensation Committee members are
appointed annually after the Annual Meeting of Shareholders.
EXECUTIVE COMMITTEE -- Members of the Executive Committee were Christopher J.
Murphy III, Chairman; Paul R. Bowles, Philip J. Faccenda, Daniel B. Fitzpatrick, William P. Johnson,
Rex Martin, Timothy K. Ozark, and Richard J. Pfeil. The committee did not meetheld one
meeting in 1999.2000. The committee has the power to act for the Board of Directors
between Board meetings subject to certain statutory limitations. The committee
also carries out the functions of the Nominating Committee and will consider
nominees for election to the Board of Directors recommended by Shareholders, if
submitted in writing at least 120 days prior to the next Annual Meeting to be
held on or about April 15
, 2001.20, 2002. Nominations should be addressed to the
attention of the Chairman, Executive Committee, c/o 1st Source Corporation.
AUDIT COMMITTEE -- Members of the Audit Committee were William P. Johnson,Rex Martin, Chairman;
Rev. E. William Beauchamp, Philip J. Faccenda, Rex Martin,Daniel B. Fitzpatrick, Lawrence E. Hiler, Dane A.
Miller, Timothy K. Ozark and Richard J. Pfeil,Claire C. Skinner, 1st Source Directors; H. Thomas
Jackson,Terry L.
Gerber, David L. Lerman, and John T. Phair, and Elmer H. Tepe, 1st Source Bank Directors. The
committee held threefour meetings in 1999.2000. The function of the Audit Committee is to
select the Company's outside independent accountants and to review the scope and
results of the audits by the internal audit staff and the independent
accountants. The committee also reviews the adequacy of the accounting and
financial controls and presents the results to the Board of Directors with
respect to accounting practices and internal procedures. It also makes
recommendations for improvements in such procedures.
6
HUMAN RESOURCES COMMITTEE--COMMITTEE -- Members of the Human Resources Committee were
Terry
L. Gerber, 1st Source Bank Director,Richard J. Pfeil, Chairman; Paul R. Bowles Daniel B.
Fitzpatrick, and Lawrence E. Hiler,William P. Johnson, 1st Source
Directors; Ann M. Hillman,Marilou Eldred, Hollis E. Hughes, Jr., H. Thomas Jackson, Craig A.
Kapson, David L. Lerman and Mark D. Schwabero, and Elmer H. Tepe, 1st Source Bank
6
Directors. The committee held three meetings in 1999.2000. The purpose of the
committee is to establish wage and benefit policies for 1st Source and its
subsidiaries and to approve individual salary and benefit plans for the senior
officers of 1st Source Bank.
EXECUTIVE COMPENSATION COMMITTEE--COMMITTEE -- Members of the Executive Compensation
Committee were Philip J. Faccenda,Timothy K. Ozark, Chairman; Paul R. Bowles, William P. Johnson,
Rex Martin and Richard J. Pfeil. The committee held two meetings in 1999.2000. The
Executive Compensation Committee determines compensation for senior management
personnel, reviews the Chief Executive Officer and manages the company's stock
plans.
MEETINGS OF THE BOARD OF DIRECTORS AND DIRECTORS' COMPENSATION--COMPENSATION -- The Board of
Directors held sixseven meetings in 1999.2000. Incumbent directors who attended fewer
than 75% of the aggregate total meetings of the Board of Directors and all
committees of the board of 1st Source on which they served were Rev. E. William
Beauchamp, and William P. Johnson.Johnson, and Claire C. Skinner. Directors receive fees in
the amount of $6,000$7,000 per year, and $350$600 per board meeting and committee meeting
attended. Committee chairpersons receive $400$700 per meeting. Total fees paid in
19992000 were $156,550.$165,300.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees 1st Source's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the system of internal
controls. The Board of Directors has adopted a Charter for the Audit Committee
to set forth its authority and responsibilities. A copy of this Charter is
included in this proxy statement as Exhibit A. All of the members of the
Committee are independent as defined in the listing standards of the Nasdaq
Stock Market.
The Committee reviewed the audited financial statements in the Annual Report
with management. The Committee also reviewed the financial statements with 1st
Source's independent auditors, who are responsible for expressing an opinion on
the conformity of those audited financial statements with generally accepted
accounting principles. The Committee also considered with the auditors their
judgments as to the quality, not just the acceptability, of 1st Source's
accounting principles and such other matters as are required to be discussed
with the Committee under generally accepted auditing standards. In addition, the
Committee has discussed with the independent auditors the auditors' independence
from management and 1st Source, including the matters in the written disclosures
required by the Independence Standard Board, and considered the compatibility of
nonaudit services provided by the independent auditors to 1st Source with the
auditors' independence.
7
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial statements be
incorporated by reference in the Annual Report on Form 10-K for the year ended
December 31, 2000 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Rex Martin, Chairman
Rev. E. William Beauchamp
Daniel B. Fitzpatrick
Terry L. Gerber
Lawrence E. Hiler
David L. Lerman
Dane A. Miller
Timothy K. Ozark
John T. Phair
Claire C. Skinner
REMUNERATION OF EXECUTIVE OFFICERS
The following tables set forth all aggregate remuneration accrued by 1st Source
and its subsidiaries for 19992000 for 1st Source's chief executive officer and each
of 1st Source's other four most highly compensated executive officers.
78
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payouts
(A) (B) (C) (D) (E) (F) (G) (H)
Securities
Other Annual Underlying LTIP All Other
Name and Principal Position(1) Year Salary Bonus (2) Compensation Options (#Sh) Payouts(2) Compensation(3)
- ------------------------------ ---- ------ --------- ------------ ------------- ---------- ---------------
Christopher J. Murphy III 1999 $492,308 $1,022,493 $21,7332000 $518,269 $1,037,056 $23,923 - $237,863 $108,558$153,859 $112,786
Chairman, President & CEO, 1999 492,308 1,022,493 21,733 - 237,863 108,558
1st Source, and Chairman 1998 461,592 891,780 25,680 110,000115,500 243,151 133,716
1st Source, and Chairman 1997 414,515 633,405 25,190 - 217,463 13,989
& CEO, 1st Source Bank
Wellington D. Jones III 2000 276,145 72,943 17,746 - 53,440 15,261
Executive Vice President 1999 259,553 45,357 16,179 - 81,234 14,544
Executive Vice1st Source, and President 1998 249,335 59,500 10,953 55,00057,750 78,120 14,544
1st Source, and President 1997 202,145 656,613 6,190 - 70,826 13,989
& COO, 1st Source Bank
Allen R. Qualey 2000 194,769 55,428 4,416 - 42,578 15,261
President and COO, 1999 180,538 50,209 3,346 - 47,607 14,544
President and COO,Specialty Finance Group, 1998 173,077 46,350 2,809 55,00057,750 41,787 14,544
Specialty Finance Group, 1997 145,385 34,050 2,536 12,100 36,278 13,989
1st Source Bank
Richard Q. Stifel 2000 183,877 34,787 5,125 - 27,203 15,261
Executive Vice President 1999 174,035 23,404 4,515 - 45,336 14,544
Executive Vice President1st Source Bank 1998 169,610 24,875 4,246 33,00034,650 47,549 14,544
1st Source Bank 1997 152,461 207,505 4,133 - 43,771 13,989
Larry E. Lentych 2000 147,058 31,894 2,159 - 21,610 15,134
Senior Vice President, 1999 139,510 21,115 1,746 - 31,561 14,279
Senior Vice President,Treasurer and CFO, 1998 135,890 26,850 1,634 33,00034,650 47,354 12,968
Treasurer and CFO,
1st Source and 1st Source Bank
89
(1) Mr. Murphy, Mr. Jones, Mr. Qualey, Mr. Stifel, and Mr. Lentych (the
"Executives") signed Employment Agreements (the "Agreements") in April 1998.
Mr. Murphy's Agreement provides for a $525,000$553,875 base salary with annual
increases of not less than 5%, and cash bonus payments based on a formula
computed in a manner similar to the awards to executives under the Executive
Incentive Plan and Long-Term Executive Award Program. Under the other four
Agreements, Mr. Jones, Mr. Qualey, Mr. Stifel and Mr. Lentych will receive
base salaries of $250,000, $175,000, $165,000 and $135,000, respectively,
with annual increases as may be determined by 1st Source, and cash and stock
bonuses determined under the Executive Incentive Plan and the Long-Term
Executive Award Program. The Agreements permit gross- upgross-up payments necessary
to cover possible excise tax payments by the Executives and to reimburse the
Executives for legal fees that might be expended in enforcing the
Agreements' provisions or contesting tax issues relating to the Agreements'
parachute provisions. Mr. Murphy's Agreement is a five-year agreement which
is extended from year to year unless either party gives notice not to
extend. The Agreements for Mr. Jones, Mr. Qualey, Mr. Stifel, and Mr.
Lentych expire on December 31 of the years 2003, 2003, 2001, and 2001,
respectively. In each case their Agreement will be extended from year to
year thereafter unless either party gives notice not to extend. If any of
the Executives terminate employment because of any adverse change in their
status, he will continue to receive his base salary for a period of twelve
months after his termination. If any of the Executives terminate employment
within one year of a change in control (which term includes any third party
which becomes beneficial owner of 50%, or in the case of Mr. Murphy, 20%, or
more of the outstanding stock of 1st Source, the election of a majority of
new directors in connectionsconnection with a sale, merger, other business combination
or contested Board of Directors election, or any approval of any transaction
which results in a disposition of substantially all of the assets of 1st
Source), he will receive severance pay in cash equal to 2.99 times his
"Annualized Includable Compensation" (as defined under the Internal Revenue
Code of 1986, as amended.) The Agreements also include restrictive covenants
which provide, among other things, that the Executives not compete with 1st
Source in bank or bank-related services within certain designated counties
of Indiana or divulge confidential information or trade secrets for a
twenty-four month period after termination of employment. In the event of
disability, the Executives will receive their base salary for up to one
year, in addition to other disability programs in effect for all officers of
1st Source. Additionally, 1st Source has entered into a split-dollar life
insurance agreement with Mr. Murphy which insures the lives of Mr. Murphy
and his wife for $10.2 million.
(2) 1st Source has an Executive Incentive Plan (the "Plan") and a Performance
Compensation Plan which are administered by the Executive Compensation
Committee (the "Committee") of the Board. Awards under the Plan consist of
cash and "Book Value" shares of Common Stock. "Book Value" shares are
awarded annually on a discretionary basis and are subject to forfeiture over
a period of five (5) years. The Plan shares may only be sold to 1st Source,
and such sale is mandatory in the event of death, retirement, disability or
termination of employment. 1st Source may terminate or extend the Plan at
any time. During February 2001, February 1996, and March 1991, 1st Source
granted special long-term incentive awards (the "Awards") to participants in
the Executive Incentive Plan administered by the Committee. The 2001 Award
was granted for the attainment of the company's long-term goals for 2000,
which were set in 1995. The 1996 Award was granted for the attainment of the
company's long-term goals for 1995 which were set in 1990. The 1991 Award
was granted for the attainment of the company'sCompany's long-term return on assets
goal for 1990, set in 1986. Both Awards wereEach Award was split between cash and 1st Source
Common Stock valued at the market price at the time of the award.
10
Such shares are subject to forfeiture over a period of ten (10) years. The first
10% of these shares was vested at the grant of the Award. Subsequent vesting
requires (i) the participant to remain an employee of 1st Source and (ii) that
1st Source be profitable on an annual basis based on the determination of the
Committee.
1st Source also has a Restricted Stock Award Plan (the "Restricted Plan") for
key employees. Awards under the Restricted Plan are made to employees
recommended by the Chief Executive Officer and approved by the Committee. Shares
awarded under the Restricted Plan are subject to forfeiture over a ten (10) year
period. Vesting is based upon meeting certain criteria, including continued
employment by 1st Source.
9
The bonus amounts represent the annual cash awards under the Plan, the 1998
Performance Compensation Plan and other cash bonuses. Vested stock under the
Plan, the Awards and the Restricted Plan isare included in the LTIP Payouts
column. The value placed on "Book Value" shares is the book value per share as
of December 31 of each year. The value placed on market value shares is market
value as of December 31 of each year. Mr. Murphy receives this vested amount in
cash.
Unvested stock holdings under the Plan, the Awards and the Restricted Plan as of
December 31, 1999,2000, are as follows:
Book Value Market Value Calculated
Name Shares Shares Value
- ---- ---------- ------------ ----------
Christopher J. Murphy III 32,576 5,210 $542,01131,953 18,197 $770,490
Wellington D. Jones III 12,268 1,413 190,39312,377 6,423 287,032
Allen R. Qualey 11,036 1,030 165,24510,825 5,348 246,120
Richard Q. Stifel 5,933 947 98,6685,878 2,847 132,604
Larry E. Lentych 5,143 614 80,3585,360 2,287 115,277
(3) For 1999 and 1998 Mr. Murphy's amount in the "All Other Compensation" column includes $97,525,
$94,014, and $119,172 for 2000, 1999, and 1998, respectively, for the
current value on an actuarial basis of his split-dollar life insurance
agreement. All other amounts reported in the "All Other Compensation" column
represent 1st Source contributions to defined contribution retirement plans.
EXECUTIVE INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
Number of Performance
Book Value Period Until
Name Shares(1) Payout(2)
- ---- ---------- ------------
Christopher J. Murphy III 10,149
Number of Performance Number of Performance
Book Value Period Until Market Value Period Until
Name Shares(1) Payout(2) Shares(1) Payout(3)
- ---- ---------- ------------ ------------ ------------
Christopher J. Murphy III 7,507 5 years 13,820 10 years
Wellington D. Jones III 2,996 5 years 5,236 10 years
Allen R. Qualey 2,053 5 years 4,482 10 years
Richard Q. Stifel 1,367 5 years 2,051 10 years
Larry E. Lentych 1,280 5 years 1,833 10 years
Wellington D. Jones III 3,589 5 years
Allen R. Qualey 3,973 5 years
Richard Q. Stifel 1,852 5 years
Larry E. Lentych 1,671 5 years
11
(1) Mr. Murphy will receive his vested awards in cash.
(2) Vesting of awards is tied to 1st Source achieving an 8%targeted annual increaseincreases
in net income over the next five years. Twenty percent (20%) of the award
vests each year based on attaining the performance.
10
(3) Vesting of awards is tied to 1st Source being profitable on an annual basis
as determined by the Committee. Ten percent (10%) of the award vests each
year based on attaining the performance. The first 10% was vested at the
time of the award.
PENSION PLAN BENEFITS
Annual pension benefits payable to executive officers after their retirement
under annuity contracts received from the terminated Pension Plan are as
follows:
Annual Pension
Name Benefits
---- --------------
Christopher J. Murphy III $17,078
Wellington D. Jones III 6,694
Richard Q. Stifel 3,879
Larry E. Lentych 4,827
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Mr. Murphy served as a member of the compensation committee of
Quality Dining, Inc. Director Fitzpatrick is an executive officer of Quality
Dining, Inc.
EXECUTIVE COMPENSATION COMMITTEE REPORT
1st Source officers are reviewed annually by their immediate supervisor. The
review includes assessment of management performance and achievement of
individual, group, and company goals.
The performance review is a normal part of 1st Source's Salary Administration
Program. All positions are rated and placed in a salary range. Annually, with
our approval, management establishes a salary performance grid that sets the
range of merit increases that may be given to officers depending on their review
and their respective position (lower, middle or upper third) in their respective
salary range.
The categories of performance under the Company's review program are:
- Substantially and consistently exceeds job requirements;requirements
- Often exceeds job requirements;requirements
- Meets and sometimes exceeds job requirements;requirements
- Meets some job requirements, improvement is required; andrequired
- Does not meet minimal job requirements.requirements
Management awards salary increases as determined under the guidelines of the
Salary Administration Program in conformance with the salary performance grid in
effect for the year and the annual budget.
All of the officers reported herein, including Mr. Murphy, are under the 1st
Source Salary Administration Program. In his case, he is evaluated by us against
a series of objectives set in the Company's annual
12
budget plan and in its long-term strategic plan as annually approved by our full
Board. In January 2000,2001, we reviewed Mr. Murphy's salary. We reviewed his
performance against the Company's 19992000 Plan and his progress toward achieving
the Company's long-term plan. The Company had again exceededgenerally met its
quantitative and qualitative objectives in 1999.2000. We determined that Mr. Murphy's
performance "substantially and
consistently"often exceeds job requirements," and he was therefore eligible to
receive up to a 6% to 8% base salary increase. Mr. Murphy's minimum annual increase is
governed by his employment contract, described elsewhere in this proxy
statement. We determined it to be in the best interest of the Company to
increase Mr. Murphy's salary to $525,000$553,875 effective March 2001, up from the
previous amount of $525,000 approved by us in January 2000.
11
Bonuses under 1st Source's Executive Incentive Plan are determined annually
following the close of the year. The bonus is calculated based on the officer's
"partnership level" adjusted for the Company's performance relative to plan and
for the individual's performance relative to weighted objectives set at the
beginning of the year. In Mr. Murphy's case, the base bonus calculation is 25%
of his salary. For each 1% that the company varies from its profit plan for the
year, the base bonus is adjusted up or down by 2.5%.
Once the base bonus is calculated, an officer can receive 100% to 300% of the
amount depending on their individual performance. As with all Executive
Incentive Plan participants, the reviewer assesses performance relative to an
agreed upon set of objectives. In Mr. Murphy's case, these are the annual
business objectives and the Company's long-term goals as approved by the Board.Board
and the performance of the senior officers reporting directly to Mr. Murphy. In
1999,2000, the Company continued the expansion of its branch network, generally exceededapproached or achieved its annual financial goals
and generally met its qualitative objectives. Accordingly, Mr. Murphy was
awarded a bonus of $256,564$205,978 for 1999's2000's performance.
Under the Company's Executive Incentive Plan, 50% of the Executive Incentive
Plan bonus will be paid in cash in March 20002001 to Mr. Murphy. The other 50% is
subject to forfeiture over the next five (5) years. The forfeiture lapses
ratably for each year Mr. Murphy remains with the Company and for each year or
period of years the Company grows its net income by a targeted minimum of 8% per year.
During this period, the "at risk" portion of the bonus is delineated in book
value stock but is paid in cash to Mr. Murphy as the forfeiture lapses.
In addition, bonuses under 1st Source's special long-term incentive award
program were determined following the end of 2000 for the current five-year
period. The bonus is calculated based on a pre-determined mathematical formula
which compares Company performance relative to the 2000 long-term goals set in
1995 adjusted for the officer's "partnership level" and for the individual's
performance over the five-year period. The Company approached or achieved its
long-term profitability growth and credit quality goals and generally met its
qualitative goals. Accordingly, based on this application of the mathematical
formula to the Company's Executiveperformance in 2000, Mr. Murphy was awarded a bonus of
$336,264 for 1996 to 2000 performance.
13
Under the Company's Long-Term Incentive Program limits bonuses, at timePlan, 25% of award,this bonus will be paid in
cash in March 2001 to Mr. Murphy. The other 75% will be subject to forfeiture
over the next ten (10) years. During this period, the "at risk" portion of salary.the
bonus is delineated in market value stock but is paid in cash to Mr. Murphy as
the forfeiture lapses.
In addition, the Executive Compensation Committee awarded Mr. Murphy a cash
bonus of $894,211$850,000 under the 1998 Performance Compensation Plan approved by the
shareholders and based on goals established by us at the beginning of 1999.2000. This
bonus was awarded in recognition of 1st Source's achievement of those goals, as
well as 1st Source's continued excellent financial performance in comparison
with its peer bank holding companies.goals.
EXECUTIVE COMPENSATION COMMITTEE
Philip J. Faccenda,Timothy K. Ozark, Chairman
Paul R. Bowles
William P. Johnson
Rex Martin
Richard J. Pfeil
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Expect for Philip J. Faccenda, who retired in April 2000, the persons named
above were the only persons who served on the Executive Compensation Committee
of the Board of Directors during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
There have been no option grants to executive officers in the last fiscal year.
1214
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 19992000 OPTION VALUES
(a) (b) (c) (d) (e)
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Options at
December 31, 19992000 December 31, 19992000
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------- ----------- ------------- ----------- -------------
Christopher J. Murphy III 98,490 $2,561,141 363,025 21,417 $4,302,092 $241,635- $ - 392,419 11,244 $2,883,383 $58,314
Wellington D. Jones III 3,752 70,003 62,320 8,289 82,587 93,520- - 69,787 4,352 62,426 22,570
Allen R. Qualey 1,200 23,950 93,080 13,310 512,422 119,2592,100 22,416 101,351 8,258 289,238 22,218
Richard Q. Stifel 1,150 21,587 56,328 5,929 319,491 66,893- - 62,256 3,113 199,453 16,145
Larry E. Lentych 650 14,760 56,727 4,356 339,452 49,1462,369 19,957 59,481 2,287 189,971 11,861
1315
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG 1ST SOURCE, NASDAQ MARKET INDEX AND PEER GROUP INDEX**
[GRAPH}
31-Dec-94 31-Dec-95 31-Dec-96 31-Dec-97 31-Dec-98 31-Dec-99 31-Dec-00
--------- --------- --------- --------- --------- ---------
1st Source 100 142 158 260 304 252111 183 214 178 138
NASDAQ Index 100 130 161 197 278 490124 152 214 378 238
Peer Group 100 146 194 332 368 306134 229 259 224 268
* Assumes $100 invested on December 31, 1994,1995, in 1st Source Corporation common
stock, NASDAQ market index, and peer group index.
** The peer group is a market-capitalization-weighted stock index of banking
companies in Indiana, Illinois, Michigan, Ohio, and Wisconsin.
NOTE: Total return assumes reinvestment of dividends.
1416
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires executive officers and directors to
file reports of ownership and changes in ownership of 1st Source Corporation
stock with the Securities and Exchange Commission and to furnish 1st Source with
copies of all reports filed. Based solely on a review of the copies of such
reports furnished to 1st Source and written representations from the executive
officers and directors that no other reports were required, 1st Source believes
that all filing requirements were complied with during the last fiscal year.
PROPOSAL NUMBER 2: APPROVAL OF THE 2001 STOCK OPTION PLAN
The 1st Source Corporation 1992 Stock Option Plan (the "1992 Plan"), which was
approved by the shareholders of 1st Source at the 1992 Annual Meeting of
Shareholders, provides for the issuance of incentive stock options and
nonstatutory stock options to key officers of 1st Source and its subsidiaries.
It is the judgment of the Board of Directors that the stock option grants made
under the 1992 Plan have been effective and useful in attracting, retaining, and
motivating key officers.
To date over 50% of option shares granted under the 1992 Plan have been
incentive stock options. However, no grants of incentive stock options may be
made under the 1992 Plan after March 4, 2002. The Board believes that it is
important for 1st Source to have the capability of offering incentive stock
options without interruption. The Board also wants to improve its stock option
choices by allowing the use of a reload feature in future grants. Therefore, on
February 14, 2001 the Board approved a proposal to adopt the 2001 Stock Option
Plan (the "2001 Plan"), subject to shareholder approval. The 2001 Plan allows
1st Source to have the capability of offering incentive stock options until
February 14, 2011 and includes a reload feature, as described further below.
As of February 17, 2001 (the record date for the Annual Meeting) a total of
1,089,307 shares of common stock were available for future stock option grants
under the 1992 Plan. The 2001 Plan provides for the granting of options for an
aggregate of 2,000,000 shares of common stock. The Board's intent is to
terminate the 1992 Plan (except for outstanding options) after the 2001 Plan is
approved by the shareholders and the shares to be issued thereunder have been
registered with the Securities and Exchange Commission.
A summary of the key features of the 2001 Plan appears below. The summary is
qualified by and made subject to the specific provisions of the 2001 Plan, the
full text of which is set out in Exhibit B.
ADMINISTRATION
The 2001 Plan is to be administered by the Executive Compensation Committee of
the Board of Directors (the "Committee"). The Committee is authorized to
interpret the 2001 Plan; determine the terms and conditions of each option
including any restrictions to be imposed upon transfer of shares purchased
pursuant to the options; establish and amend the rules for its administration;
determine which
17
key employees will be granted options; determine the number of shares and type
of options to be granted to each eligible employee; and prescribe the form of
all stock option agreements.
ELIGIBILITY
The Committee may select to participate in the 2001 Plan any key employee of 1st
Source and its subsidiaries who, in the Committee's judgment, is responsible for
the management, growth and protection of the business of 1st Source and its
subsidiaries.
TYPES OF AWARDS
To provide a flexible and competitive program, the 2001 Plan permits awards of
incentive or nonstatutory options. The total number of shares that may be
granted under the Plan to any employee during any calendar year shall not exceed
150,000 shares, as adjusted. The aggregate fair market value of incentive stock
options becoming exercisable for the first time by an individual during any
calendar year under all plans of the Company shall not exceed $100,000. With
limited exceptions for nonstatutory options, the awards are not transferable
except by will, by the laws of descent and distribution, or pursuant to a
qualified domestic relations order.
RESERVATION OF SHARES
The 2001 Plan provides for the granting of options for an aggregate of 2,000,000
shares of common stock. Authorized but unissued shares and treasury shares may
be made available for issuance under the 2001 Plan. In the event of changes
affecting 1st Source's common stock such as the payment of a stock dividend, the
declaration of a stock split, combination of shares, recapitalization, merger,
consolidation, or other corporate reorganization in which 1st Source is the
surviving company, the Committee shall make adjustments to awards and shares
under the 2001 Plan.
TERMS OF OPTIONS
OPTION PRICE -- The purchase price of shares subject to any option must be at
least 100% of the fair market value of the shares on the date of grant. Fair
market value is defined in the 2001 Plan as the closing price of 1st Source's
common stock, as reported by the Nasdaq Stock Market, on the day on which the
value is to be determined or, if that day is not a trading day, then on the last
preceding trading day. The exercise price of any incentive stock option granted
to a person owning more than 10% of the outstanding common stock of 1st Source
may not be less than 110% of such fair market value. Upon exercise, the option
price is to be paid in full in cash or by check, or by surrender of a number of
shares of common stock having a fair market value equal to the option price, or
a combination of both.
EXERCISE OF OPTIONS -- The maximum term of any stock option is 10 years from the
date the option is granted. A grant of an incentive stock option to a person
owning more than 10% of the outstanding common stock of 1st Source may not be
exercisable after the expiration of five years from the date of grant. No
incentive stock option may be granted after February 14, 2011. In the event of a
dissolution or liquidation of 1st Source or a merger, consolidation, sale of all
or substantially all of its assets, or other
18
corporate reorganization in which 1st Source is not the surviving corporation
or, if so provided by the Committee with respect to a particular option in the
event of a Change of Control, all options previously granted and still
outstanding, regardless of their terms, will become exercisable.
If the employment of an optionee terminates due to his/her retirement, death or
disability, all of the optionee's outstanding options must be exercised within
twelve months or the stated period of the option, whichever is shorter.
Notwithstanding the foregoing, if the optionee of an incentive stock option
retires, his/her outstanding incentive stock options must be exercised within
three months or within the stated period of the option, whichever is shorter. If
an optionee's employment terminates for any reason other than retirement, death
or disability, all of the optionee's outstanding options, unless otherwise
provided in an employment agreement, shall become null and void.
RELOAD OPTIONS -- The Committee may at its discretion provide in an award
agreement for the automatic grant of a new option to any optionee who delivers
1st Source shares as full or partial payment of the exercise price of the
original option. Any new option granted in such a case shall:
(i) Be for the same number of shares as the optionee delivered in exercising
the original option;
(ii) Have an exercise price of 100% of the fair market value of the shares
on the date of exercise of the original option (the grant date for the
new option); and
(iii) Have a term equal to the remaining term of the original option.
AMENDMENT
The Board of Directors may amend, alter, suspend or discontinue the 2001 Plan.
However, no amendment, alteration, suspension or discontinuance of the 2001 Plan
may; (i) impair the rights of any optionee under any option without the
optionee's consent or (ii) increase the total number of shares reserved, change
the employees eligible to receive options, change the shares for which options
may be granted, change the exercise price or change the maximum term of the
options without the approval of the shareholders, except for certain automatic
adjustments.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS -- The grantee of an incentive stock option will not be
deemed to receive any taxable income upon the grant or exercise of an option,
and any gain realized upon the disposition of shares acquired pursuant to an
option will be treated as capital gain. However, in order for such capital gain
treatment to be applicable, the shares acquired upon exercise of the option
ordinarily must not be disposed of within two years after the date of grant or
within one year of the date of exercise, and the option must be exercised prior
to or within a specified period after a grantee's termination of employment. No
gain or loss will be recognized by 1st Source either upon the grant or upon the
exercise of a qualifying incentive stock option. The difference between the
option exercise price and the fair market value of the shares on the option
exercise date of an incentive stock option will be treated as an item of tax
preference in the year of exercise for purposes of the alternative minimum tax.
19
If shares acquired pursuant to an incentive stock option are disposed of before
the holding periods described above expire, then the excess of the fair market
value (but not in excess of the sales proceeds) of such shares on the option
exercise date over the option price will be treated as ordinary income to the
grantee in the year in which such disposition occurs and 1st Source will be
entitled to a commensurate income tax deduction. Any difference between the
sales proceeds and the fair market value of the shares on the option exercise
date will be treated as capital gain or loss.
NONSTATUTORY STOCK OPTIONS -- The grantee of a nonstatutory stock option will
not be deemed to receive any taxable income upon the grant of the option. When a
nonstatutory stock option is exercised, the excess of the fair market value of
the shares on the exercise date over the exercise price will be ordinary income
to the grantee and an allowable income tax deduction to 1st Source.
The full text of the 2001 Plan is attached as Exhibit B.
THE BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE 2001 STOCK OPTION PLAN.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of 1st Source are audited annually by independent
accountants. For the year ended December 31, 1999, and the ten (10) preceding
years,2000 the audit was performed by
PricewaterhouseCoopers LLP, South Bend,
Indiana.Ernst & Young LLP. Fees for the last annual audit were $142,000 and all other
fees were $131,800, including audit related services of $111,500 and nonaudit
services of $20,300. Audit related services generally include fees for pension
and statutory audits, accounting consultations, and SEC registration statements.
Representatives of the firm of PricewaterhouseCoopersErnst & Young LLP will be available to respond to
questions during the Annual Meeting. These representatives have indicated that
they do not presently intend to make a statement at the Annual Meeting. Ernst &
Young LLP will continue as 1st Source plans to select itsSource's independent accountants for the year
ending December 31, 2001, as recommended by the Audit Committee and approved by
the Board of Directors.
1st Source notified its former accountant, PricewaterhouseCoopers LLP ("PwC") on
April 18, 2000 that it would be conducting a request for proposals for a
possible change in Julyindependent accountants. 1st Source invited PwC to submit a
proposal. On May 26, 2000, PwC informed 1st Source that it would not be
submitting a proposal in response to 1st Source's request and, therefore, it
declined to stand for re-election as 1st Source's independent accountants.
PwC's report on the financial statements of 1st Source for either of the past
two years contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
There was a disagreement with PwC concerning income recognition on securitized
loans in accordance with SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." The disagreement was
resolved to PwC's satisfaction in mid-February, 2000 after 1st Source changed
its method of estimating the timing of cash flows and certain assumptions
relating
20
to the securitized loans as well as 1st Source's retained interests in such
loans. These changes in the estimates used resulted in a difference in the
timing of revenue recognition, but had no effect on total cash flows to be
derived from the securitized transactions. Such changes resulted in 1st Source
filing an amended Form 10-K for 1998, including a revised auditor's report
referring to the revisions, and related amended forms 10-Q for the affected
periods. The changes increased net earnings for 1998 from $31,020,000 to
$31,457,000 (a change of 1.4%) with no change in total earnings for 1999.
Management reported regularly to the Audit Committee regarding these matters
prior to reaching resolution of the disagreement with PwC. The Audit Committee
also discussed the matter directly with PwC on April 18, 2000. 1st Source has
authorized PwC to respond fully to inquiries of its successor auditor concerning
these matters.
On June 14, 2000 the Audit Committee of 1st Source's Board of Directors engaged
the firm of Ernst & Young LLP as independent accountants for fiscal year 2000.
The decision to change accountants was recommended and approved by the Audit
Committee of the Board of Directors of 1st Source.
PROPOSALS OF SECURITY HOLDERS
Proposals submitted by security holders for presentation at the next Annual
Meeting must be submitted in writing to the Secretary, 1st Source Corporation,
on or before November 6, 2000.
15
2001.
ADDITIONAL INFORMATION
As to the proposals presented for approval, a plurality of the shares voted is
required for approval.
COPIES OF 1ST SOURCE'S MOST RECENT FORM 10-K WILL BE PROVIDED, WITHOUT CHARGE,
ON WRITTEN REQUEST TO: TREASURER, 1ST SOURCE CORPORATION, POST OFFICE BOX 1602,
SOUTH BEND, INDIANA 46634.
A copy of 1st Source's Annual Report is furnished herewith to Shareholders for
the calendar year ended December 31, 1999,2000, containing financial statements for
such year. The financial statements and the Report of Independent Accountants
are incorporated by reference in this Proxy Statement.
By orderOrder of the Board of Directors,
Vincent A. TamburoLarry E. Lentych
Assistant Secretary
DatedSouth Bend, Indiana
March 15, 2000
167, 2001
21
EXHIBIT A
1ST SOURCE CORPORATION BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
The Audit Committee has at least three members and is comprised solely of
independent directors.
The Audit Committee assists the Board of Directors to provide oversight to 1st
Source in assuring that the Company carries out its responsibility to customers,
shareholders, the investment community, regulators and to the communities the
Company and its subsidiaries serve. The particular focus of the Committee is to
oversee the quality and integrity of the Company's corporate accounting,
reporting and financial practices. In carrying out its responsibility, the Audit
Committee maintains free and open communication among the directors, the
independent auditors, the internal auditors, and the financial management of the
Company.
I. GENERAL RESPONSIBILITY FOR INVESTIGATIONS & OBTAINING ADVICE.
The Audit Committee has authority to require investigations and to obtain advice
respecting the Company's financial matters and the Committee's exercise of its
authority, as the Committee deems necessary or appropriate. Without limiting the
foregoing, the Committee has authority to direct management, including the
Company's internal legal counsel, the independent auditors and the director of
internal audit to investigate any financial matters and related issues and to
provide reports to the Committee respecting such investigation. The Committee
has authority to meet with the Company's external general counsel, to obtain
advice respecting the exercise of the Committee's authority and to direct such
external counsel to investigate such legal issues relating to financial matters
and to report to the Committee regarding same, as the Committee deems necessary
or appropriate, including, without limitation, independent legal counsel, and
independent financial advisors which may include investment banking firms or
accounting firms, other than the independent auditors. The Committee has
authority to meet separately with, and to receive private and where appropriate,
privileged, written or oral communications from any of such advisors.
II. RESPONSIBILITIES FOR ENGAGING INDEPENDENT AUDITOR.
1. The Audit Committee shall review and recommend to the Board the
appointment of the independent auditor to audit the books of the Company
and its subsidiaries, which firm is ultimately accountable to the Audit
Committee and the Board.
2. The Audit Committee shall receive periodic reports from the independent
auditor regarding the auditor's independence, discuss such reports with
the auditor, and if so determined by the Audit Committee, recommend that
the Board take appropriate action to insure the independence of the
auditor.
3. The Audit Committee shall evaluate the performance of the independent
auditor and, if so determined by the Audit Committee, recommend that the
Board replace the independent auditor.
22
III. RESPONSIBILITIES WITH RESPECT TO INDEPENDENT AUDITOR, EXTERNAL AUDIT, AND
FINANCIAL STATEMENTS.
The Audit Committee has the authority of the Board of Directors to carry out, or
cause the Company or its management to carry out, the following activities as
the Committee deems necessary or appropriate from time to time:
1. Meet with the independent auditor and financial management of the
Company, together or separately, to review the scope of the audit, the
procedures to be utilized, and review their comments or recommendations.
2. Review with the independent auditor and with the Company's financial and
accounting personnel, together or separately, the adequacy and
effectiveness of the internal auditing, accounting and financial
controls of the Company, and any recommendations for the improvement
thereof.
3. Direct management or the independent auditor to prepare an analysis of
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements and to review
such analysis with management and the independent auditor, together or
separately.
4. Periodically review summaries of findings from completed internal audits
and progress reports on the proposed internal audit plan with
explanations for major deviations from the original plan.
5. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended,
relating to the conduct of the audit.
6. Meet periodically with the independent auditor without members of
management present to allow for a free exchange of information regarding
evaluation of the Company's financial, accounting and auditing
personnel, and the cooperation which the independent auditors received
during the course of their audit.
7. Require the independent auditor to review the Company's quarterly
reports containing financial information prior to their filing with the
SEC.
8. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices, as well as the adequacy of internal controls that could
significantly affect the Company's financial statements.
23
IV. PERIODIC & PROCEDURAL MATTERS.
1. The Audit Committee shall meet from time to time at the call of its
Chairman or at the direction of the Board of Directors. The Chairman of
the Audit Committee shall call a meeting of the Committee upon the
request of any member of the Committee or the Chairman of the Board of
Directors. The Provisions of the Code of By-Laws of the Company
respecting notice of meetings and for action to be taken by the Board of
Directors shall apply to meetings and actions of the Audit Committee.
2. The Chairman of the Audit Committee shall report on the activities of
the Committee to the Board of Directors from time to time upon request
of the Chairman of the Board of Directors or of the Board of Directors.
3. The Audit Committee shall, as needed, review with the Company's General
Counsel, legal matters that may have a material impact on the financial
statements, the Company's compliance policies, and any material reports
or inquiries received from regulators or governmental agencies.
4. The Audit Committee shall review and reassess the adequacy of this
Charter periodically and to recommend modifications to this Charter to
the Board of Directors.
V. LIMITATION.
Nothing in this Charter is intended to alter in any way the standard of conduct
that applies to any of the directors of the Company under the Indiana Business
Corporation Law ("IBCL"), as amended, and this Charter does not impose, nor
shall it be interpreted to impose any duty on any director greater than, or in
addition to, the duties or standard established by the IBCL.
Adopted by the Board of Directors, this 18th day of April, 2000.
24
EXHIBIT B
1ST SOURCE CORPORATION
2001 STOCK OPTION PLAN
1. PURPOSE AND SCOPE OF PLAN.
The purpose of the Plan is to aid 1st Source Corporation (herein called the
"Company") and its subsidiaries in securing and retaining key employees of
outstanding ability and to motivate such employees to exert their best efforts
on behalf of the Company and its subsidiaries. In addition, the Company expects
that it will benefit from the added interest which the respective optionees will
have in the welfare of the Company as a result of their ownership or increased
ownership of the Company's Common Stock. The options which may be granted under
the Plan are incentive stock options and nonstatutory stock options. For
purposes of the Plan, an "incentive stock option" is an option which meets the
requirements of Section 422 of the Internal Revenue Code, and a "nonstatutory
stock option" is an option which is not an "incentive stock option."
2. STOCK SUBJECT TO THE PLAN.
The total number of shares of Common Stock of the Company that may be optioned
under the Plan is 2,000,000, as adjusted after the effective date pursuant to
Section 6. The total number of shares that may be granted under the Plan to any
employee during any calendar year shall not exceed 150,000 shares, as adjusted.
Shares may consist, in whole or in part, of unissued shares or treasury shares.
If any shares that have been optioned cease to be subject to option, they may
again be optioned under the Plan. During the period that any options granted
under the Plan are outstanding, the Company shall reserve and keep available
such number of shares of Common Stock as will be sufficient to satisfy all
outstanding unexercised options.
3. ADMINISTRATION.
The Plan shall be administered by the Executive Compensation Committee of the
Board of Directors, herein called the "Committee," each member of which shall be
a "non-employee director" as provided under Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, and an "outside director" as provided under
Section 162(m) of the Internal Revenue Code of 1986, as amended. The Committee
shall have the authority, consistent with the Plan:
(i) To select the eligible employees to whom options shall be granted under
the Plan;
(ii) To determine the terms and conditions of each option including but not
limited to the date of grant, the date(s) of exercise, the number of
shares of Common Stock subject to the option, the exercise price, and
the restrictions, if any, to be imposed upon the transfer of shares
purchased pursuant to the option;
(iii) To prescribe the form of all stock option agreements and any other
agreement or document which the Committee determines is appropriate in
connection with the Plan;
(iv) To prescribe rules and regulations for the administration of the Plan;
(v) To construe and interpret any provision of the Plan and any option
agreement or other agreement executed in connection with the Plan; and
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(vi) To determine whether the option is an incentive stock option or a
nonstatutory stock option.
4. ELIGIBILITY.
Key employees, including officers or directors of the Company and its
subsidiaries who are from time to time responsible for the management, growth
and protection of the business of the Company and its subsidiaries, are eligible
to be granted options under the Plan. The optionees under the Plan shall be
selected from time to time by the Committee, in its sole discretion, from among
those eligible, and the Committee shall determine in its sole discretion, the
number of shares to be covered by the option or options granted to each
optionee.
5. TERMS AND CONDITIONS OF OPTIONS.
All options granted under this Plan shall be subject to the foregoing, and to
the following terms and conditions and to such other terms and conditions not
inconsistent therewith, as the Committee shall determine.
5.1-The price to be paid for shares of Common Stock upon the exercise of
each option shall be determined by the Committee at the time such option
is granted, but such price in no event shall be less than the fair
market value of the Common Stock on the date on which such option is
granted. For purposes of the Plan, "fair market value" shall mean the
closing price of a share of Common Stock, as reported by the Nasdaq
Stock Market, or by any other exchange upon which the shares may be
traded, on the day on which the value is to be determined or if that day
is not a stock trading day, then on the last preceding stock trading
day. Notwithstanding the foregoing, in the case of an incentive stock
option granted to any person who, at the time of grant of such option,
owns stock of the Company possessing more than 10% of the total combined
voting power of all classes of stock of the Company, the option price
must be at least 110% of the fair market value of the stock subject to
the option and such option by its terms must not be exercisable after
the expiration of five years from the date such option is granted.
5.2-Each option shall be exercisable during and over such period ending not
later than ten years from the date it was granted, as may be determined
by the Committee and stated in the option, except as otherwise required
in Paragraph 5.1 above. No incentive stock option shall be granted after
February 14, 2011.
5.3-In the case of incentive stock options, the aggregate fair market value
(determined as of the date an incentive stock option is granted) of
stock with respect to which stock options intended to meet the
requirements of Code Section 422 become exercisable for the first time
by an individual during any calendar year under all plans of the Company
shall not exceed $100,000; provided further, that if the limitation is
exceeded, the incentive stock option(s) which cause the limitation to be
exceeded shall be treated as nonstatutory stock options.
5.4-Payment for shares purchased pursuant to exercise of an option shall be
made either in cash or by check, or by delivery in exchange for such
option shares Company shares with a fair market value on the date of
exercise equal to the option price, or a combination of both. If Company
shares are used, an optionee may tender only shares without legend that
such optionee has owned for six months or longer prior to the exercise
date of the option. Fair market value for the purpose of this Paragraph
5.4 shall have the same meaning as provided in Paragraph 5.1.
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No optionee shall have any rights to dividends or other rights of a
stockholder with respect to shares subject to an option, until such
optionee has given written notice of exercise of such option and paid in
full for such shares. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the optionee or his or her legal
representative to remit to the Company an amount sufficient to satisfy
any federal, state, and/or local withholding tax requirements prior to
the delivery of any certificate or certificates for such shares. If
required by the Committee, or, pursuant to procedures established by the
Committee, an optionee so elects, shares of Common Stock having an
aggregate fair market value, as determined by the Committee, consistent
with the requirements of Treas. Reg. ss. 20.2031-2 sufficient to satisfy
the applicable withholding taxes, shall be withheld from the shares
otherwise to be received upon the exercise of a nonqualified option. The
maximum number of shares that may be withheld by the Company from option
shares at the time of an option exercise shall not exceed the number of
shares necessary to meet the optionee's required tax withholding based
on the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes, that are applicable to the optionee's
supplemental taxable income generated by the exercise.
5.5-The Committee shall, in its sole discretion, provide in an award
agreement for the automatic grant of a new option to any optionee who
delivers Company shares as full or partial payment of the exercise price
of the original option. Any new option granted in such a case shall:
(i) Be for the same number of shares as the optionee delivered in
exercising the original option;
(ii) Have an exercise price of 100% of the fair market value of the
shares on the date of exercise of the original option (the grant
date for the new option); and
(iii) Have a term equal to the remaining term of the original option.
Without limiting the foregoing, the Committee may provide that the new
option otherwise issuable pursuant to this provision shall not be issued
if certain conditions to be satisfied at the time of exercise of the
initial option are not satisfied. Such conditions may include a
requirement that the fair market value of the Common Stock at the time
of exercise must exceed the exercise price of the original option by a
prescribed amount or percentage.
5.6-If an optionee's employment by the Company or a subsidiary terminates by
reason of the optionee's retirement, death or permanent and total
disability, all of the optionee's outstanding options must thereafter be
exercised during the period of twelve months after the date of the
optionee's retirement, death or disability, or the stated period of the
option, whichever period is shorter. Notwithstanding the foregoing, in
the case of an incentive stock option, if an optionee's employment by
the Company or a subsidiary terminates solely by reason of the
optionee's retirement, all such outstanding options must thereafter be
exercised during the period of three months after the date of the
optionee's retirement, or during the stated period of the option,
whichever period is shorter.
27
5.7-If an optionee's employment by the Company or a subsidiary is terminated
by reason other than retirement, death or permanent and total
disability, all of the optionee's unexercised outstanding options,
unless otherwise provided in an employment agreement, shall become null
and void.
5.8-The Committee may require each person purchasing shares pursuant to the
option to represent to and agree with the Company in writing that he/she
is acquiring the shares without a view to distribution thereof. The
certificates for such may include any legend which the Committee deems
appropriate to reflect any restrictions on transfers.
5.9-Except as provided in Paragraph 5.10, no option granted pursuant to
this Plan shall be transferable otherwise than by will or by the laws of
descent and distribution, or pursuant to a qualified domestic relations
order. The Company shall not be liable to any person for honoring the
exercise of the option of a deceased optionee by the person or persons
it shall have determined in good faith to have acquired the option.
During the lifetime of an optionee, the option shall be exercisable only
by the optionee.
5.10-Subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, an optionee may transfer a nonstatutory stock
option without consideration to the following ("Permitted Transferees"):
(i) a member of the optionee's immediate family, including only his or
her spouse, lineal descendants, and adopted children, the spouse's
lineal descendants and adopted children, and the legal
representatives of any of those persons who are minors;
(ii) an irrevocable trust solely for the benefit of the optionee and
his or her immediate family;
(iii) a partnership, limited liability company, or corporate entity
whose sole owners of its capital interests are the optionee and
his or her immediate family; or
(iv) a revocable trust with respect to which the optionee, as settlor
of the trust, retains the right of revocation or amendment until
his or her death.
Such a transfer shall be effective only if the optionee notifies the Committee
in advance and in writing of the terms of the transfer and if the Committee
determines that the transfer complies with the Plan and any applicable option
agreement. Upon transfer, the option shall remain subject to the terms of the
Plan and any applicable option agreement, except the Permitted Transferee may
not transfer the option otherwise than by will or by the laws of descent and
distribution.
6. CHANGES IN CAPITAL.
If the outstanding Common Stock of the Company, shares of which are eligible for
the granting of options hereunder or subject to options theretofore granted,
shall at any time be changed or exchanged by declaration of a stock dividend,
split-up, combination of shares, recapitalization, merger, consolidation, or
other corporate reorganization in which the Company is the surviving
corporation, the Committee shall determine what changes, if any, are appropriate
in the number and kind of shares subject to the Plan, and the Committee shall
determine what changes, if any, are appropriate in the option price under and
the number and kind of shares covered by outstanding options granted under the
Plan. The Committee's determination shall be binding on all then existing and
future optionees. In the event of a dissolution or
28
liquidation of the Company or a merger, consolidation, sale of all or
substantially all of its assets, or other corporation reorganization in which
the Company is not the surviving corporation (other than a mere redomestication
or similar transaction in which the operations and control are not materially
affected), notwithstanding the terms and conditions otherwise set forth in the
Plan, all options previously granted and still outstanding shall become
exercisable. The Committee may provide in any option agreement that the option
covered thereby shall become immediately exercisable in the event of a Change of
Control. A "Change of Control" shall be deemed to have occurred if (i) any
person or group of persons (as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934) together with its affiliates, excluding
employee benefit plans of the Company, is or becomes, directly or indirectly,
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities; or (ii) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors. "Continuing
Directors" means, as of any date of determination, any member of the Board of
Directors of the Company who (a) was a member of such Board of Directors
February 14, 2001 or (b) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election; or (iii) any
event which Company's Board of Directors determines should constitute a Change
of Control.
7. USE OF PROCEEDS.
Proceeds from the sale of stock pursuant to options granted under this Plan
shall constitute general funds of the Company.
8. AMENDMENTS.
The Board of Directors may amend, alter, suspend or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would impair the
rights of any optionee under any option theretofore granted, without the
optionee's consent, or which, without the approval of the shareholders, would
except as is provided in Paragraph 6 of the Plan:
(i) Increase the total number of shares reserved for the purposes of the
Plan.
(ii) Change the employees (or class of employees) eligible to receive
options under the Plan.
iii) Change the class of shares for which options may be granted.
(iv) Change the provisions of Paragraph 5.1 concerning the exercise price.
(v) Change the provisions of Paragraph 5.2 concerning the maximum term of
the options.
9. EFFECTIVE DATE OF THE PLAN.
The effective date of the Plan shall be the date that the Plan is approved by a
majority vote of the holders of the total outstanding Common Stock of the
Company.
10. MISCELLANEOUS.
The term "Board of Directors" as used herein shall mean the Board of Directors
of the Company and not a committee thereof.
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[1st Source Corporation Logo]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Christopher J. Murphy III, Wellington D. Jones
III, and Larry E. Lentych and
Vincent A. Tamburo and each of them Proxies; to represent the
undersigned, with full power of substitution, at the Annual Meeting of
Shareholders of 1st Source Corporation to be held on April 18, 200024, 2001 and at any
and all adjournments thereof.
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all nominees listed below.
INSTRUCTION: to withhold authority to vote for any individual nominee, strike a
line through or otherwise strike the nominee's name in the list below.
TERM EXPIRES APRIL, 2001: Paul R. Bowles
TERM EXPIRES APRIL, 2003: Rev. E. William Beauchamp, CSC Richard J. Pfeil
William P. Johnson Claire C. Skinner2004: Daniel B. Fitzpatrick
Wellington D. Jones III
Dane A. Miller, Ph.D.
2. APPROVAL OF 2001 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. SUCH OTHER BUSINESS AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
[1st Source Corporation Logo]
Post Office Box 1602
South Bend, Indiana 46634
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL NOMINEES LISTED IN PROPOSAL 1.1 AND FOR PROPOSAL 2.
Please sign exactly as shares are registered. When shares are held by joint
tenants, both should sign. When signing as attorney, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
------------------------------------------------
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Signature
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Signature if held jointly
Dated: --------------------------------------------------------------------------------------, 20002001