SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No._____)
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FIRST MERCHANTS CORPORATION
(Name of Registrant as Specified In Its Charter)
__________________________________, AS AGENT FOR FIRST MERCHANTS CORPORATION
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 11, 2001
The annual meeting of the shareholders of First Merchants Corporation (the
"Corporation") will be held at the Horizon Convention Center, 401 South High
Street, Muncie, Indiana 47305, on Wednesday, April 11, 2001, at 3:30 p.m. for
the following purposes:
(1) To elect seven directors, five to hold office for a term of three years,
one to hold office for a term of two years, and one to hold office for a
term of one year; in each case, the directors will hold office until their
successors are duly elected and qualified.
(2) To transact such other business as may properly come before the meeting.
Only those shareholders of record at the close of business on February 14, 2001
shall be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
February 26, 2001
YOUR VOTE IS IMPORTANT!
YOU ARE URGED TO SUBMIT YOUR PROXY VIA THE 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.
February 26, 2001
FIRST MERCHANTS CORPORATION
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 11, 2001
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by and on behalf of the Board of Directors of First Merchants
Corporation (the "Corporation") for use at the annual meeting of shareholders of
the Corporation to be held April 11, 2001. The distribution of these proxy
materials is expected to commence on February 26, 2001.
Please sign, date and return your proxy card or submit your proxy via the
Internet as soon as possible so that your shares can be voted at the meeting in
accordance with your instructions. Internet voting is quick, convenient and your
vote is immediately submitted. Our Internet voting site is available 24 hours a
day, 7 days a week. To submit your proxy via the Internet, log on to the website
www.proxytrust.com, click on the "Investors" tab, and follow the simple
instructions on the screen. You will be required to enter your unique 10-digit
control number found in the box near the right margin of your First Merchants
Corporation proxy card in order to vote on the electronic equivalent of the
proxy card. Similar instructions are included on the enclosed proxy card. Your
Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed and returned your 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 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 in favor of election to the
Board of Directors of all nominees listed in Item 1.
VOTING SECURITIES
Only shareholders of record at the close of business on February 14, 2001 will
be entitled to notice of and to vote at the annual meeting. 11,607,509 shares of
common stock were outstanding and entitled to vote as of February 14, 2001.
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 1,200,867 shares of the Corporation's common
stock as of February 14, 2001 in various fiduciary capacities, in regular,
nominee or street name accounts, consisting of 10.35% 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 said 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
Seven directors will be elected at the annual meeting. The persons named below
have been nominated for election to the Board of Directors (the "Board"), with
terms expiring for the five Class I directors as of the 2004 annual meeting of
shareholders, for the Class II director as of the 2002 annual meeting of
shareholders, and for the Class III director as of the 2003 annual meeting of
shareholders. All of the nominees are currently members of the Board.
Those persons nominated as directors include:
Name and Age Present Occupation Director Since
- ------------ ------------------ --------------
Class I (Terms expire 2004):
Dennis A. Bieberich;(1) President and Chief Executive Officer, 2000
age 50 Decatur Bank and Trust Company ("Decatur"), a
wholly-owned subsidiary of the Corporation
Michael L. Cox; President and Chief Executive Officer of the 1984
age 56 Corporation
Norman M. Johnson; Retired Executive Vice President, Stein Roe & 1996
age 66 Farnham, Investment Counsel
George A. Sissel; Chairman of the Board, Ball Corporation (Ball 1995
age 64 Corporation manufactures metal and plastic
packaging products and technology products
and services.)
Robert M. Smitson; Chairman of the Board, Maxon Corporation 1982
age 64 (Maxon Corporation designs and manufactures
specialty industrial combustion systems and
valves.)
Class II (Term expires 2002):
Blaine A. Brownell; President, Ball State University 2001
age 58
Class III (Term expires 2003):
Roger M. Arwood; Executive Vice President of the Corporation 2000
age 49 and President and Chief Executive Officer,
First Merchants Bank, National Association
("First Merchants"), a wholly-owned
subsidiary of the Corporation
Those persons named below continue to serve as directors:
Class II (Terms expire 2002):
Stefan S. Anderson Chairman of the Board of the Corporation and 1982
age 66 First Merchants
Thomas B. Clark; Chairman of the Board, President and Chief 1989
age 55 Executive Officer, Alltrista Corporation
(Alltrista Corporation manufactures metal and
plastic products.)
John E. Worthen; President Emeritus, Ball State University 1987
age 67
Class III (Terms expire 2003):
James F. Ault;(2) Chairman of the Board, The Madison Community 1999
age 65 Bank ("Madison"), a wholly-owned subsidiary
of the Corporation, and Retired executive of
General Motors Corporation
-2-
Name and Age Present Occupation Director Since
- ------------ ------------------ --------------
Frank A. Bracken; Of Counsel, Bingham Summers Welsh & Spilman 1994
age 66 LLP, Attorneys
Barry J. Hudson;(2) Chairman of the Board, First National Bank of 1999
age 60 Portland ("First National"), a wholly-owned
subsidiary of the Corporation
(1) Under an Agreement of Reorganization and Merger between the Corporation and
Decatur Financial, Inc., the Board appointed Mr. Bieberich as a member of
the Board on August 8, 2000 and agreed to nominate him for election to a
full 3-year term as a director at the 2001 annual meeting of shareholders.
(2) Under Agreements of Reorganization and Merger between the Corporation and
Jay Financial Corporation, and among the Corporation, Pendleton Banking
Company ("Pendleton"), and Anderson Community Bank ("Anderson"), the Board
appointed Messrs. Hudson and Ault as members of the Board on May 11, 1999
and agreed to nominate them for election to full 3-year terms as directors
at the 2000 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 the 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 March 2000 and became
President and CEO of First Merchants in September 2000. Mr. Ault became Chairman
of the Board of Anderson when it was formed in 1995, and he became Chairman of
the Board of Madison in 1999 when Anderson was merged into Pendleton to form
Madison. Dr. Brownell was Provost and Vice President for Academic Affairs at the
University of North Texas from 1990 to 1998 and Director of the Center for
International Programs and Services at the University of Memphis from 1998 to
2000. He became President of Ball State University in July 2000. Mr. Clark has
served as President and Chief Executive Officer of Alltrista since 1995, and he
became Chairman of the Board in 2000. Mr. Cox was Executive Vice President of
the Corporation and First Merchants from 1994 to 1996. He became President of
First Merchants in 1996, President of the Corporation in 1998, and CEO of both
in 1999. He was succeeded by Mr. Arwood as President and CEO of First Merchants
in September 2000. 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 December 2000. Mr. Sissel has served as Chairman of
the Board of Ball Corporation since 1996. He was the CEO of Ball Corporation
from 1994 until his retirement in January 2001. Mr. Smitson was President of
Maxon Corporation from 1979 to 1997, Chief Executive Officer from 1985 to 1998,
and Vice Chairman of the Board from 1989 to 1998. Dr. Worthen was President of
Ball State University from 1984 through June 2000.
Messrs. Bracken and Sissel are also directors of Ball Corporation, and Mr. Clark
is also a director of Alltrista Corporation.
CERTAIN COMMITTEES OF THE BOARD
Executive Committee
The Corporation's Executive Committee functions as a nominating committee. It
recommends to the Board: (a) candidates to fill any vacancies on the Board, and
(b) a slate of directors to be elected each year at the annual meeting of
shareholders. The Committee will consider nominees recommended by shareholders.
Any such recommendation should be in writing and addressed to the Secretary,
First Merchants Corporation, 200 East Jackson Street, Muncie, Indiana 47305. The
members of the Executive Committee are Messrs. Smitson (Chairman), Anderson,
Bracken, Clark, Cox and Sissel. John W. Hartmeyer, who is a director of First
Merchants, serves as a non-voting member of the Committee. The Committee did not
meet during 2000. Its functions as a nominating committee were carried out by
the Board.
-3-
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 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. Mr. Hartmeyer serves as a non-voting member of the Committee.
The Committee met 3 times during 2000.
Audit Committee
The Corporation has an Audit Committee which assists the Board in monitoring the
integrity of the Corporation's financial statements, the Corporation's
compliance with legal and regulatory requirements, and the performance and
independence of the Corporation's internal and external auditors. In discharging
its duties, the Committee: (a) meets with the independent auditor to review the
scope and results of the annual audits; (b) meets with the internal audit staff,
the independent auditor and management to consider and review the adequacy of
the Corporation's internal controls, and meets separately with each of these
groups to discuss any other matters that the Committee or these groups believe
should be discussed privately; and (c) recommends the selection of the
independent auditor for approval by the Board, and approves the independent
auditor's compensation. The Board of Directors has adopted a written charter for
the Audit Committee, a copy of which is attached hereto as Appendix A. The
members of the Audit Committee are Messrs. Ault (Chairman), Anderson, Clark and
Worthen. David A. Galliher served as Chairman of the Audit Committee until his
retirement as a director of the Corporation on December 1, 2000. Daniel
Eichhorn, who is a director of the Corporation's wholly-owned subsidiary, First
United Bank ("First United"), Suzanne L. Gresham and Nelson W. Heinrichs, who
are directors of First Merchants, George R. Likens, who is a director of
Madison, Greg Moser, who is a director of First National, Gerald S. Paul, who is
a director of the Corporation's wholly-owned subsidiary, The Union County
National Bank of Liberty ("Union County"), and Thomas E. Chalfant, who is a
director of the Corporation's wholly-owned subsidiary, Randolph County Bank
("Randolph County"), serve as non-voting members of the Committee. All of the
members of the Audit Committee are "independent directors," as defined in Rule
4200(a)(15) of the NASD's listing standards, except for Mr. Anderson, who has
been employed by the Corporation and First Merchants within the past three
years. Mr. Anderson retired as the Chief Executive Officer of the Corporation
and First Merchants on April 16, 1999. The Board has determined, in accordance
with Rule 4460(d)(2) of the NASD's listing standards, that Mr. Anderson's
membership on the Committee is required by the best interests of the Corporation
and its shareholders due to his unique understanding of financial matters
acquired during his many years of service to the banking industry, including 6
years as a member of the Federal Reserve Board of Chicago. The Audit Committee
met 5 times during 2000.
Audit Committee Report
The Audit Committee reports as follows: (a) the Committee has reviewed and
discussed the audited financial statements of the Corporation for 2000 with the
Corporation's management; (b) the Committee has discussed with Olive LLP, the
Corporation's independent auditor for 2000, the matters required to be discussed
by SAS 61 (Codification of Statements on Auditing Standards, AU ss.380), as
modified or supplemented from time to time; and (c) the Committee has received
the written disclosures and the letter from the Corporation's independent
auditor required by Independence Standards Board Standard No. 1 (Independence
Standards Board Standard No. 1, Independent Discussions with Audit Committees),
as modified or supplemented from time to time, and has discussed with the
independent auditor the independent auditor's independence. Based on the review
and discussions referred to in clauses (a) - (c) of the preceding sentence, 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 (17 CFR ss.249.310) for the 2000 fiscal year for
filing with the Securities and Exchange Commission.
-4-
The above report is submitted by:
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE
James F. Ault, Chairman
Stefan S. Anderson
Thomas E. Chalfant
Thomas B. Clark
Daniel Eichhorn
Suzanne L. Gresham
Nelson W. Heinrichs
George R. Likens
Greg Moser
Gerald S. Paul
John E. Worthen
MEETINGS OF THE BOARD
The Board of Directors of the Corporation held 6 meetings during 2000. The only
director who attended fewer than 75% of the total number of meetings of the
Board and the committees on which he served was Mr. Clark, who attended 7 of 14
meetings (50%).
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 2000, except as follows: Mr. Hudson's compensation included $5,556
for his services as a director of First National, 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 $5,000 in 2000, except that Mr. Anderson was paid an annual retainer
of $12,000 for his services as Chairman of the Board of Directors of the
Corporation. The directors who are not employees also received $400 for each
Board meeting and $250 for each committee meeting they attended, except that the
Board and committee chairmen were paid 150% of the regular meeting fee. Messrs.
Anderson and Smitson also serve as directors of First Merchants, for which Mr.
Smitson received an annual retainer of $3,400 in 2000 and Mr. Anderson, as
Chairman of the First Merchants Board, received an annual retainer of $8,000.
They also received $400 for each First Merchants Board meeting they attended,
except that Mr. Anderson, as Board Chairman, received $600. Messrs. Anderson,
Smitson and Worthen serve on committees of First Merchants and were paid $250
for each committee meeting they attended, except that Mr. Smitson, as Chairman
of the First Merchants Executive Committee, received $375 per meeting. For his
services as a director and Chairman of the Board of Directors of Madison, Mr.
Ault was paid $250 for each Board meeting and $50 for each committee meeting he
attended. For his services as a director and Chairman of the Executive Committee
of Union County, Mr. Johnson was paid a retainer of $4,200 and $350 for each
Board and Executive Committee meeting he attended. Union County also paid him a
bonus of $1,208 and provided him life insurance coverage in the amount of
$50,000 for these services. Dr. Brownell was not a director of the Corporation
in 2000 and thus did not receive a retainer or other compensation in 2000.
On July 1, 2000, options were granted under the provisions of the Corporation's
1999 Long-term Equity Incentive Plan to each of the non-employee directors,
other than Dr. Brownell, to purchase 1,000 shares of the Corporation's common
stock at an option price of $21.1563 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 2000, one of the Corporation's directors
participated in the plan, deferring fees totaling $8,150.
-5-
COMPENSATION OF EXECUTIVE OFFICERS
The tables in this section of the Proxy Statement contain information concerning
the compensation of the Corporation's Chief Executive Officer and its 4 most
highly compensated executive officers other than the Chief Executive Officer as
of the Corporation's most recent fiscal year-end, December 31, 2000. The
information in these tables concerning stock options has been adjusted to give
retroactive effect to the 3-for-2 common stock split which was effective at the
close of business on October 23, 1998 for shareholders of record at the close of
business on October 16, 1998.
Summary Compensation Table
The following table contains information concerning the compensation paid by the
Corporation and its subsidiaries for the years 1998, 1999 and 2000 to the
Corporation's Chief Executive Officers and its 4 most highly compensated
executive officers other than the Chief Executive Officers.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
---------------------------- --------------------------
Awards
---------------
Name and Securities
Principal Underlying All Other
Position Year Salary Bonus(1) Options Compensation(2)
($) ($) (#) ($)
- --------------------------------------------------------------------------------------------------------------
Michael L. Cox 2000 234,969 70,732 10,000 2,625
President and Chief 1999 194,105 56,772 10,000 2,375
Executive 1998 165,691 43,432 4,950 2,000
Officer, Corporation
Roger M. Arwood 2000 133,883 13,750 8,000 0
Executive Vice President,
Corporation; President and
Chief Executive Officer,
First Merchants(3)
Charles R. Phillips 2000 96,491 15,455 1,000 1,200
Senior Vice President, 1999 129,868 24,346 5,000 427
Corporation and First 1998 34,463 5,381 5,250 0
Merchants(4)
Larry R. Helms 2000 111,014 10,325 4,600 1,350
Senior Vice President, 1999 106,654 19,898 5,000 1,298
General Counsel and 1998 102,958 17,220 3,000 1,250
Secretary, Corporation;
Executive Vice President,
First Merchants
James L. Thrash, 2000 104,353 8,679 4,600 1,020
Senior Vice President, 1999 100,421 18,787 5,000 980
Corporation and First 1998 96,974 16,307 3,000 947
Merchants; Chief Financial
Officer, Corporation
- --------------------------------------------------------------------------------------------------------------
(1) The Corporation restructured its incentive compensation program for senior
management in 2000. Under the restructured program, the bonus earned by
each executive officer for 2000, other than Mr. Phillips, was paid 2/3 in
cash following the end of the fiscal year and 1/3 in "deferred stock units"
which are redeemable for cash after two years, 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 the 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
(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 by First Merchants as Executive Vice President of
the Corporation and First Merchants on March 1, 2000. He became President
and CEO of First Merchants on September 19, 2000.
-6-
(4) Mr. Phillips was employed by First Merchants as Senior Vice President on
September 21, 1998, and he became Senior Vice President of the Corporation
on April 14, 1999. He resigned as Senior Vice President of the Corporation
and First Merchants effective November 9, 2000.
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 2000 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.
OPTION GRANTS IN LAST FISCAL YEAR(1)
- -------------------------------------------------------------------------------------------------------------------------------
Individual Grants
Potential Realizable
Value at Assumed annual
- -------------------------------------------------------------------------------------------------- Rates of Stock Price
Appreciation for Option
Number of Percent of Term
Securities Total -----------------------
Underlying Options
Options Granted to Exercise
Granted Employees in Price
Name (#) Fiscal Year ($/Sh) Expiration Date 5%($) 10%($)
- -------------------------------------------------------------------------------------------------------------------------------
Michael L. Cox 10,000 9.99 21.1563 July 1, 2010 133,285 336,385
- -------------------------------------------------------------------------------------------------------------------------------
Roger M. Arwood 5,000 5.00 24.6875 March 1, 2010 77,766 196,266
3,000 3.00 21.1563 July 1, 2010 39,985 100,916
- -------------------------------------------------------------------------------------------------------------------------------
Charles R. Phillips 1,000 1.00 21.1563 July 1, 2010 13,328 33,639
- -------------------------------------------------------------------------------------------------------------------------------
Larry R. Helms 4,600 4.60 21.1563 July 1, 2010 61,311 154,737
- -------------------------------------------------------------------------------------------------------------------------------
James L. Thrash 4,600 4.60 21.1563 July 1, 2010 61,311 154,737
- -------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Arwood was granted an option for 5,000 shares on March 1, 2000, of
which 4,050 are exercisable on or after September 1, 2000 and 950 are
exercisable on or after January 1, 2001. This option is not exercisable
after March 1, 2010. The other options were granted on July 1, 2000 and are
exercisable on or after July 1, 2002. These options are not exercisable
after July 1, 2010.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table contains information concerning (1) each exercise of stock
options during 2000 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, 2000 of each of the named executive officer's unexercised options
on an aggregated basis.
-7-
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options
on Value Options at Fiscal Year-End at Fiscal Year-End
Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------------
Michael L. Cox 0 0 43,262 / 19,675 281,864 / 15,312
Roger M. Arwood 0 0 4,050 / 3,950 0 / 4,594
Charles R. Phillips 0 0 8,344 / 2,906 0 / 1,531
Larry R. Helms 0 0 25,319 / 5,205 122,477 / 7,044
James L. Thrash 0 0 7,395 / 5,205 0 / 7,044
- ------------------------------------------------------------------------------------------------------------------
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 2000 under the Senior
Management Incentive Compensation Program to each of the executive officers
named in the Summary Compensation Table above.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------
Name Number of Shares, Performance or Other Period Until Maturation or Payout
Units or Other Rights
- ------------------------------------------------------------------------------------------------------------------
Michael L. Cox 1,548 2/7/01 - 2/7/03
Roger M. Arwood 301 2/7/01 - 2/7/03
Charles R. Phillips(1) 0 N/A
Larry R. Helms 226 2/7/01 - 2/7/03
James L. Thrash 190 2/7/01 - 2/7/03
- ------------------------------------------------------------------------------------------------------------------
(1) Mr. Phillips resigned as Senior Vice President of the Corporation and First
Merchants effective November 9, 2000. He was not awarded any deferred stock
units.
Pension Plans
The Corporation has a qualified defined benefit pension plan - the First
Merchants Corporation Retirement Pension Plan - covering, in general, all
full-time employees of the Corporation and its subsidiaries. The Corporation
also has a nonqualified plan - the First Merchants Corporation Supplemental
Executive Retirement Plan - which provides benefits to designated executives
that would otherwise be payable under the qualified plan if incentive
compensation were included in compensation and Internal Revenue Code Section
401(a)(17) did not limit the amount of compensation that can be considered for
purposes of calculating pension benefits accruing under the qualified plan. For
plan years beginning on or after January 1, 2000, $170,000 is the maximum amount
of compensation that can be considered for purposes of calculating pension
benefits accruing under the qualified plan.
-8-
The following table shows the estimated annual benefits payable upon retirement
at age 65 to persons born in 1946 (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 $ 35,047 $ 46,729 $ 58,412 $ 58,412 $ 58,412
150,000 42,922 57,229 71,537 71,537 71,537
200,000 58,672 78,229 97,787 97,787 97,787
250,000 74,422 99,229 124,037 124,037 124,037
300,000 90,172 120,229 150,287 150,287 150,287
350,000 105,922 141,229 176,537 176,537 176,537
400,000 121,672 162,229 202,787 202,787 202,787
450,000 137,422 183,229 229,037 229,037 229,037
- ------------------------------------------------------------------------------------------------------------
Participants in the qualified plan who had at least 15 credited years of service
and whose combined age and years of service totaled at least 65 as of January 1,
1991, including Mr. Helms, are entitled to a pension benefit calculated under
the formula that was in effect prior to 1990 if that will produce a greater
benefit. The following table shows the estimated annual benefits payable upon
retirement at age 65 under the formula that was in effect prior to 1990 in
specified compensation and years of service classifications under the plans. The
benefit amounts shown in the table include amounts payable under both the
qualified and the nonqualified plans, for those executives who participate in
both.
PENSION PLAN TABLE (Pre-1990 Formula)
- ------------------------------------------------------------------------------------------------------------
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 above. Compensation for purposes of the nonqualified plan
also includes the bonus amounts reported in the Summary Compensation Table
above. All of the executive officers named in the Summary Compensation Table
above are participants in the qualified plan, except for Mr. Arwood, who isn't
eligible yet. Mr. Cox is also a participant in the nonqualified plan. The 2000
compensation used for purposes of calculating pension benefits under the plans,
and the credited years of service as of January 1, 2001, of the executive
officers named in the Summary Compensation Table who are participants in either
or both of the plans are: Mr. Cox, $335,600 (6.7 years), Mr. Phillips, $96,018
(2.1 years), Mr. Helms, $108,145 (29.3 years), and Mr. Thrash, $102,115 (23.0
years).
-9-
Termination of Employment and Change-in-Control Arrangements
The Corporation and First Merchants have change-in-control agreements with
Messrs. Cox, Arwood, Helms and Thrash which provide severance benefits in the
event of both a change in control of the Corporation or First Merchants and a
termination or constructive termination of the employment of the executive
within 24 months after the change in control, unless such termination was for
cause, because of the executive's death or disability, or by the executive other
than on account of constructive termination. In general, a "change in control"
means an acquisition by any person of 25% or more of the Corporation's or First
Merchants' voting shares, a change in the makeup of a majority of the
Corporation's or First Merchants' Board of Directors over a 24-month period, a
merger of the Corporation or First Merchants in which the shareholders before
the merger own 50% or less of the Corporation's or First Merchants' voting
shares after the merger, or approval by the Corporation's shareholders of a plan
of complete liquidation of the Corporation or First Merchants or an agreement to
sell or dispose of substantially all of the Corporation's or First Merchants'
assets. A "constructive termination" means, generally, a significant reduction
in duties, compensation or benefits or a relocation of the executive's office
outside of Muncie, Indiana unless agreed to by the executive. The severance
benefits payable to Messrs. Cox and Arwood, in addition to base salary and
incentive compensation accrued through the date of termination would be: a lump
sum payment equal to 299% 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 benefits
payable to Messrs. Helms and Thrash would be determined in a similar manner,
except that the percentage would be 200% for Mr. Helms and 150% for Mr. Thrash,
instead of 299%. The executives would also be paid an amount equal to any excise
tax imposed under Section 4999 of the Internal Revenue Code on any "excess
parachute payment,"and they would be entitled to 2 years of life, disability,
accident and health insurance benefits, the bargain element value of then
outstanding stock options, outplacement services, and reasonable legal fees and
expenses incurred as a result of the termination. The agreements were not
entered into in response to any effort to acquire control of the Corporation or
First Merchants, and the Board of Directors is not aware of any such effort.
Compensation and Human Resources Committee Interlocks and Insider Participation
The following non-employee directors comprise the Compensation and Human
Resources Committee of the Corporation: Robert M. Smitson (Chairman), Stefan S.
Anderson, Frank A. Bracken, Thomas B. Clark, and Norman M. Johnson. John W.
Hartmeyer, who is a director of First Merchants, serves as a non-voting member
of the Compensation and Human Resources Committee. Mr. Anderson was the Chief
Executive Officer of the Corporation and First Merchants until his retirement on
April 16, 1999. Mr. Bracken is of counsel with the firm of Bingham Summers Welsh
& Spilman LLP, which provides legal services to the Corporation and its
subsidiaries on a transactional basis.
Compensation and Human Resources Committee Report on Executive Compensation
The Compensation and Human Resources Committee administers the Corporation's
executive compensation program. It is responsible for establishing the
compensation and benefits of the Corporation's chief executive officer. The
Committee also reviews and approves the compensation and benefits of the other
executive officers of the Corporation, after receiving recommendations from the
chief executive officer. The Corporation's incentive compensation and stock
plans are also administered by the Committee.
General Policy on Executive Compensation. The Board of Directors of the
Corporation has established an executive compensation program which provides
incentives to executive officers to achieve both current and long-term strategic
management goals of the Corporation, with the ultimate objective of obtaining a
superior return on the shareholders' investment. To this end, the compensation
program for executive officers 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.
The Corporation's 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
-10-
stock performance. The Compensation and Human Resources Committee believes that
the executive compensation program is a significant contributor to the
Corporation's excellent performance compared to industry peers. The
Corporation's earnings have increased every year since it was formed in 1982.
In general, the Committee tries to set the total compensation, comprised of
salary and incentive compensation, of the chief executive officer and the other
executive officers of the Corporation at or near the median of the compensation
paid to executive officers with similar responsibilities at Indiana and
Midwestern banks and bank holding companies of similar size.
Salaries. The salaries paid to the Corporation's executive officers, including
the chief executive officer, for 2000 were subjectively determined after
consideration of the executive officer's individual responsibilities,
performance, and experience, the evaluation by the chief executive officer of
the executive officers other than the chief executive officer, 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.
Incentive Compensation. The Committee believes that performance-based pay should
be a significant component of the executive officers' total compensation
package. Therefore, under the Corporation's Senior Management Incentive
Compensation Program, each of the executive officers is covered by an incentive
plan whose purpose is to provide incentive compensation which will reward the
executive based on performance, link compensation to achievement of
organizational and individual goals, motivate and retain key personnel, and
attract qualified talent to the Corporation.
The Program was restructured in 2000 to incorporate modern incentive plan
techniques, simplify administration of the Program, incorporate executive
retention features, and more closely align the interests of executives with
those of shareholders.
Under the restructured Program, each executive officer, including the chief
executive officer, is assigned a target bonus for the following calendar year
which is a percentage of salary. If actual performance for the year is higher
than the target performance level, then the actual incentive compensation for
such year will be higher than the target. The executive officers, other than the
chief executive officer, will earn a bonus by meeting or exceeding
pre-established performance levels for the year with respect to the
Corporation's and/or relevant subsidiary bank's operating earnings and, except
for the chief executive officers of the Corporation and First Merchants, by
achieving pre-established individual benchmarks. The bonus of the Corporation's
chief executive officer is based on whether he meets or exceeds pre-established
performance levels for the year with respect to the Corporation's operating
earnings per share, diluted GAAP earnings per share and return on equity. To
further the purpose of executive retention, 2/3 of the bonus is payable 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 date of payment, plus accumulated dividends. Payment is made to the
executive in cash rather than stock. The deferred stock units are forfeited if
the executive's employment is terminated for cause or is voluntarily terminated
by the executive (except on account of retirement, death or disability) prior to
the date of payment. The executive 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. In order to avoid
wide swings in payouts and to better focus the Program participants on long-term
results, the Program provides that, for 2000, the bonus will be based 60% on
current year performance and 40% on the average of the two prior years'
performance. After 2000, 60% of any bonus paid to the executive officers will be
based on current year performance and 40% will be based on performance for the
prior year. The Senior Management Incentive Compensation Program is administered
by the Committee.
The Compensation and Human Resources Committee, taking into consideration the
fact that the restructured Program wasn't adopted until May 2000, decided that
the executive officers' 2000 bonuses should not be less than the amount the
executives would have earned by applying the formulas and schedules which
applied in 1999, before the Program was restructured. Bonuses were earned in
1999 on the basis of the Corporation's or relevant subsidiary's performance in
relation to pre-established performance levels for return on assets, return on
equity, income growth and efficiency ratio.
-11-
The cash portion of the bonuses for 2000 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 the bonuses is set forth in the Long-Term
Incentive Plan Awards Table. Mr. Cox's target bonus for 2000 under the Program
was 45% of annual base salary. Mr. Arwood's target bonus was a pro-rated amount
based on 40% of annual base salary during his 3 1/2 months as the Corporation's
Executive Vice President and First Merchants' President and Chief Executive
Officer, and 30% of annual base salary during his 6 1/2 months as the
Corporation's and First Merchants' Executive Vice President. Mr. Helms' target
bonus was also a pro-rated amount based on 30% of annual base salary during his
3 1/2 months as Executive Vice President of First Merchants, and 25% of annual
base salary during his 8 1/2 months as Senior Vice President of First Merchants.
The target bonuses of Messrs. Phillips and Thrash were 25% of annual base
salary. Mr. Cox's bonus for 2000 was near the target level, due to significant
improvements in the Corporation's earnings per share and return on equity during
2000. The bonuses of the other named executive officers were below the target
level, mostly because they depended in part on First Merchants' earnings, which
did not meet the minimum pre-established performance level.
Stock Plans. Equity-based compensation, including compensation under the
Corporation's Long-term Equity Incentive Plan and Employee Stock Purchase Plan,
is intended to encourage ownership and retention of the Corporation's common
stock by key employees, thereby giving them a meaningful stake in the
Corporation's continued success and aligning their interests with those of other
shareholders.
The Long-term Equity Incentive Plan is briefly described in the paragraph above
the Option Grants Table. During 2000 the Compensation and Human Resources
Committee awarded options under the plan to the executive officers named in the
Summary Compensation Table as follows: for 10,000 shares to Mr. Cox, for 8,000
shares to Mr. Arwood, for 1,000 shares to Mr. Phillips, and for 4,600 shares
each to Messrs. Helms and Thrash.
The Employee Stock Purchase Plan generally provides that full-time employees of
the Corporation or a participating subsidiary with more than 6 months of service
may elect, prior to the offering period (July 1 to June 30), to purchase common
shares of the Corporation at a price equal to 85% of the lesser of the market
price of the stock at the beginning of the period and the market price at the
end of the period. For the offering period ending June 30, 2000, Mr. Arwood was
not eligible to participate in the Employee Stock Purchase Plan; and Messrs.
Cox, Phillips, Helms and Thrash, the other executive officers named in the
Summary Compensation Table, purchased 665, 147, 147 and 443 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 which are generally applicable to full-time employees of the
Corporation and its subsidiaries. The retirement plans covering each of the
executive officers are the First Merchants Corporation Retirement Pension Plan,
a defined benefit pension plan (described in the "Pension Plans" section), and
the First Merchants Corporation Retirement Savings Plan, an Internal Revenue
Code Section 401(k) plan (referred to in note (1) to the Summary Compensation
Table). Mr. Cox is also covered by the First Merchants Corporation Supplemental
Executive Retirement Plan, a nonqualified SERP plan (described in the "Pension
Plans" section).
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
John W. Hartmeyer
Norman M. Johnson
-12-
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, 1996 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
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIALS.]
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
FMC 100..............106.39............154.60...........167.46............175.77...........157.95
Russell 2000 100..............116.49............142.54...........138.91............168.44...........163.35
Russell 2000 Finl Serv 100..............128.83............175.25...........162.64............153.09...........185.32
-13-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Corporation is not aware of any person who is the beneficial owner of more
than 5% of the Corporation's outstanding common stock. The following is a
summary of the amount and percent of the Corporation's common stock beneficially
owned on February 14, 2001 by each director and director nominee, by each
executive officer named in the Summary Compensation Table above, and by all
directors and executive officers as a group. Unless otherwise noted, the
beneficial owner has sole voting and investment power.
Amount and Nature Percent
Beneficial Owner of Beneficial Ownership(1) of Class
---------------- -------------------------- --------
Stefan S. Anderson (13) 98,542 (2) *
Roger M. Arwood 5,100 *
James F. Ault 22,938 (3) *
Dennis A. Bieberich 76,527 (4) *
Frank A. Bracken (13) 80,880 (5) *
Blaine A. Brownell 0 (6) *
Thomas B. Clark 7,817 *
Michael L. Cox 57,321 (7) *
Barry J. Hudson 518,266 (8) 4.46%
Norman M. Johnson 368,884 (9) 3.18%
George A. Sissel 5,937 (10) *
Robert M. Smitson (13) 15,812 (11) *
John E. Worthen 8,225 *
Larry R. Helms 41,061 (12) *
Charles R. Phillips 10,397 *
James L. Thrash 22,142 *
Directors and Executive
Officers as a Group (16 persons) (13) 1,339,849 11.38%
(1) The information contained in this column is based upon information
furnished to the Corporation by the persons and entities named above and
shareholder records of the Corporation. The shares shown include the
following shares which may be acquired during the next 60 days under a
stock option plan by the executive officers named above: Mr. Arwood, 5,000
shares; Mr. Cox, 47,657 shares; Mr. Phillips, 10,250 shares; Mr. Helms,
25,924 shares; and Mr. Thrash, 8,000 shares; and the following shares which
may be acquired during the next 60 days under a stock option plan by the
directors named above: Mr. Anderson, 28,700 shares; Messrs. Clark and
Worthen, 6,500 shares each; Messrs. Bracken, Sissel and Smitson, 5,600
shares each; Mr. Johnson, 3,800 shares; Mr. Hudson, 3,000 shares; and Mr.
Ault, 2,000 shares. The shares shown for directors and executive officers
as a group include 164,131 shares which may be acquired during the next 60
days under a stock option plan.
(2) Includes 1,875 shares held by his spouse, Joan Anderson, in which he
disclaims any beneficial interest.
(3) Includes 12,420 shares held by his spouse, Marilyn Ault, in which he
disclaims any beneficial interest.
(4) Includes 29,069 shares held by his spouse, Melanie S. Bieberich, in which
he disclaims any beneficial interest.
(5) Includes 4,170 shares held by his spouse, Judy Bracken, in which he
disclaims any beneficial interest.
-14-
(6) Dr. Brownell did not become a director until February 13, 2001.
(7) Includes 4,291 shares held jointly with his spouse, Sharon Cox.
(8) Includes 283,130 shares owned by Mutual Security, Inc.; 178,509 shares held
jointly with his spouse, Elizabeth Hudson; and 8,592 shares held by his
spouse as custodian for his children, in which he disclaims any beneficial
interest.
(9) Includes 24,493 shares held by his spouse, Julia Johnson, in which he
disclaims any beneficial interest; and 74,220 shares held in trust for
family members for which Mr, Johnson, as co-trustee, has shared voting and
investment power.
(10) Includes 337 shares held jointly with his spouse, Mary R. Sissel.
(11) Includes 5,062 shares held by his spouse, Marilyn S. Smitson, in which he
disclaims any beneficial interest.
(12) Includes 15,137 shares held jointly with his spouse, Sandra Helms.
(13) Messrs. Anderson, Bracken and Smitson serve as directors of the George and
Frances Ball Foundation, Muncie, Indiana, which owns 251,100 shares (2.16%)
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.
* Percentage beneficially owned is less than 1% of the outstanding shares.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain directors and executive officers of the Corporation and its subsidiaries
and their associates are customers of, and have had transactions with the
Corporation's subsidiary banks from time to time in the ordinary course of
business. Additional transactions may be expected to take place in the ordinary
course of business in the future. All loans and commitments included in such
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
Frank A. Bracken, a director of the Corporation, is of counsel with the firm of
Bingham Summers Welsh & Spilman LLP, Indianapolis, Indiana, which provides legal
services to the Corporation and its subsidiaries on a transactional basis.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's directors and executive officers to file reports of ownership and
changes in ownership of the Corporation's stock with the Securities and Exchange
Commission. Based on its records and the written representations of its
directors and executive officers, the Corporation believes that during 2000 its
directors and executive officers complied with all Section 16(a) filing
requirements, with the following exception: Frank A. Bracken, a director of the
Corporation, filed a late Form 4 on December 1, 2000, reporting a sale of 66
shares of the Corporation's common stock from a family member's estate, of which
he served as co-personal representative, a distribution of 900 shares of the
Corporation's common stock from the same estate (180 shares to each of five
beneficiaries), and receipt of 180 of these 900 shares as a beneficiary of the
estate.
-15-
INDEPENDENT PUBLIC ACCOUNTANTS
Selection of Independent Public Accountants
The Board has selected Olive LLP as the Corporation's independent public
accountants for 2001. Representatives of the firm are expected to be present at
the annual shareholder's meeting. They will have an opportunity to make a
statement, if they desire to do so, and are expected to be available to respond
to appropriate questions.
Audit Fees
Olive LLP billed the Corporation and its affiliates aggregate fees totaling
$151,800 for professional services rendered for the audit of the Corporation's
annual financial statements for 2000 and the reviews of the financial statements
included in the Corporation's Forms 10-Q for 2000.
Financial Information Systems Design and Implementation Fees
Olive LLP did not perform any financial information systems design or
implementation services for the Corporation in 2000.
All Other Fees
The aggregate fees for all services rendered by Olive LLP to the Corporation for
2000, other than those described in the two immediately preceding paragraphs,
totaled $37,900.
The Audit Committee has considered whether the provision by Olive LLP of the
services covered by the fees other than the audit fees is compatible with
maintaining Olive LLP's independence and believes that it is compatible.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2002 annual meeting of
the shareholders must be received by the Secretary of the Corporation at the
Corporation's principal office by October 29, 2001, for inclusion in the
Corporation's 2002 proxy statement and form of proxy relating to that meeting.
Shareholder proposals, if any, intended to be presented at the 2001 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 9, 2001.
OTHER MATTERS
The cost of soliciting proxies will be borne by the Corporation. In addition to
solicitations by mail, proxies may be solicited personally or by telephone or
telegraph, but no solicitation will be made by specially engaged employees or
paid solicitors.
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 9, 2001.
By Order of the Board of Directors
Muncie, Indiana Larry R. Helms
February 26, 2001 Secretary
-16-
APPENDIX A
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board of Directors (Board) of First
Merchants Corporation (Company) to assist the Board in monitoring the integrity
of the financial statements of the Company, the compliance by the Company with
legal and regulatory requirements and the independence and performance of the
Company's internal and external auditors.
The members of the Audit Committee shall meet the independence and experience
requirements of the NASDAQ.
The Audit Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The audit Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall:
1. Provide an open avenue of communication between the independent auditor,
the Senior Staff Auditor and the Board.
2. Meet four times per year or more frequently as circumstances require.
3. Confirm and assure the independence of the independent auditor and the
objectivity of the internal auditor.
4. Review with the independent auditor and the Senior Staff Auditor the
coordination of audit efforts to assure completeness of coverage, reduction
of redundant efforts, and the effective use of audit resources.
5. Approve the Internal audit schedule prior to each calendar year.
6. Inquire of management, the independent auditor, and the Senior Staff
Auditor about the significant risks or exposures and assess the steps
management has taken to minimize such risk to the Company and its
subsidiaries.
7. Consider and review with the independent auditor and the Senior Staff
Auditor:
(a) The adequacy of the Company and its subsidiaries' internal controls.
(b) Related findings and recommendations of the independent auditor and
the internal audits together with management's response.
8. Consider and review with management, the Senior Staff Auditor and the
independent auditor:
(a) Significant findings during the year, including the status of previous
audit recommendations
(b) Any difficulties encountered in the course of audit work including any
restrictions on the scope of activities or access to required
information.
(c) Any changes required in the planned scope of the Internal Audit plan.
(d) The internal audit department responsibilities and staffing.
9. Meet when necessary with the independent auditor, the Senior Staff Auditor
and management in separate executive sessions to discuss any matters that
the Committee or these groups believe should be discussed privately with
the Audit Committee.
10. Review with management and the independent auditor the results of the
annual audits conducted by the independent auditor and related comments as
deemed appropriate including:
(a) The independent auditor's audit of the Company and Subsidiaries'
annual financial statements, accompanying footnotes and its report
thereon.
(b) Any significant changes required in the independent auditor's audit
plans
(c) Any difficulties or disputes with management encountered during the
course of the audit.
(d) Other matters related to the conduct of the audit, which are to be
communicated to the Audit Committee under Generally Accepted Auditing
Standards.
11 Review judgments made in connection with the preparation of the Company's
financial statements.
12. Review major changes to the Company's auditing and accounting principles
and practices as suggested by the independent auditor, internal auditors or
management.
13. Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit.
14. Report on significant results of the foregoing activities periodically to
the Board.
A-1
15. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
16. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations.
17. Advise the Board with respect to any significant change in the BOPEC
ratings of the Company and/or the CAMELS rating of any subsidiary bank.
18. Review with the Company's Counsel, and/or independent auditor 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.
19. Recommend the selection of the independent auditor for approval by the
Board, approve compensation of the independent auditor and review and
approve the discharge of the independent auditor
20. Approve the engagement of the independent auditor before each calendar
year.
21. Review and concur in the appointment, replacement, reassignment, or
dismissal of the Senior Staff Auditor.
22. Each March, review and update the Committee's Charter and submit it to the
Board for approval.
The Committee may:
1. Appoint other directors of the Company or directors of individual banks in
the Company to attend the meetings for informational purposes.
2. Ask members of management or others to attend meetings and provide
pertinent information as necessary.
A-2
FIRST MERCHANTS BANK, N.A. PROXY SOLICITED ON BEHALF OF THE
Transfer Agent BOARD OF DIRECTORS OF FIRST MERCHANTS CORPORATION
75 Oser Avenue MUNCIE, INDIANA
Hauppauge, NY 11788 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 11, 2001, and at any adjournment thereof,
with all of the powers the undersigned would
possess if personally present. If any of the
nominees for election as Directors are unable to
serve for any reason, the persons listed above
have the authority to vote as directed for any
substitute nominee.
NEW VOTING OPTION: Available 24 hours a day, 7 days a week, Internet voting is
quick, convenient and your vote is immediately submitted. Simply log on to
www.proxytrust.com, click on the INVESTORS tab and follow the instructions on
the screen. You will be asked to enter your 10-digit control number (found below
right) in order to vote on the electronic equivalent of this proxy card. Your
Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed and returned your proxy card. If you vote by
Internet, please do not return your proxy by mail.
Your Control Number: 1234567890
FIRST MERCHANTS CORPORATION ANNUAL MEETING OF SHAREHOLDERS
APRIL 11, 2001
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION RECOMMEND A
VOTE "FOR" THE PROPOSALS LISTED.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
1. Election of Directors: |_| FOR all nominees listed to the left (except
Roger M. Arwood as specified in the space below)
Dennis A. Bieberich |_| WITHHOLD VOTE (do not vote for any
Blaine A. Brownell of the nominees listed to the left)
Michael L. Cox
Norman M. Johnson
George A. Sissel
Robert M. Smitson
(Instruction: To withhold authority to vote for
any individual nominee, write that nominee's
name in the space provided to the right.) __________________________________
2. 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 9,
2001.
This proxy will be voted as directed, but if
not otherwise directed this proxy will be
voted "FOR" election to the Board of
Directors of all nominees listed in item 1
above.
________________________________Dated________
(Signature of Shareholder)
________________________________Dated________
(Signature of Shareholder)
(Joint owners should each sign personally.
Trustees and others signing in a
representative capacity should indicate the
capacity in which they sign).
|_| Please check this box if you plan to attend the Annual Meeting. Number
attending: _______