UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FIRST MERCHANTS CORPORATION
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FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 14, 2005
The annual meeting of the shareholders of First Merchants Corporation (the
"Corporation") will be held at the Horizon Convention Center, 401 South High
Street, Muncie, Indiana 47305, on Thursday, April 14, 2005, at 3:30 p.m. for the
following purposes:
(1) To elect five directors, four to hold office for a term of three years
and one to hold office for a term of two years; in each case, the
directors will hold office until their successors are duly elected and
qualified.
(2) To ratify the appointment of the firm of BKD, LLP as the independent
public accountants for 2005.
(3) To transact such other business as may properly come before the
meeting.
Only those shareholders of record at the close of business on February 11, 2005
shall be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
Larry R. Helms
Secretary
Muncie, Indiana
March 3, 2005
YOUR VOTE IS IMPORTANT!
YOU ARE URGED TO SUBMIT YOUR PROXY VIA THE TELEPHONE OR INTERNET,
OR TO SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, AS SOON AS POSSIBLE SO THAT YOUR SHARES CAN BE VOTED AT
THE MEETING IN ACCORDANCE WITH YOUR INSTRUCTIONS.
March 3, 2005
FIRST MERCHANTS CORPORATION
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 14, 2005
This proxy statement is furnished in connection with the solicitation of the
enclosed proxy by and on behalf of the Board of Directors (the "Board") of First
Merchants Corporation (the "Corporation") for use at the annual meeting of
shareholders of the Corporation to be held April 14, 2005. The distribution of
these proxy materials is expected to commence on March 3, 2005.
Please sign, date and return your proxy card or submit your proxy via the
telephone or Internet as soon as possible, so that your shares can be voted at
the meeting in accordance with your instructions. If you plan to vote by
telephone or Internet, you should have your control number, which is imprinted
on your proxy card, available when you call or access the web page.
o To vote by telephone, please call toll-free 1-800-PROXIES
(1-800-776-9437) on a touch-tone telephone and follow the instructions.
o To vote by Internet, please access the web page "www.voteproxy.com" and
follow the on-screen instructions.
Similar instructions are included on the enclosed proxy card.
Any shareholder giving a proxy has the right to revoke it any time before it is
exercised by giving written notice of revocation to the Secretary received prior
to the annual shareholders' meeting, by voting again in writing or via the
telephone or Internet, or by voting in person at the meeting. The shares
represented by proxies will be voted in accordance with the instructions on the
proxies. In the absence of specific instructions to the contrary, proxies will
be voted for election to the Board of Directors of all nominees listed in Item 1
of the proxy and for ratification of the appointment of BKD, LLP as the
Corporation's independent public accountants for 2005. If any director nominee
named in this proxy statement shall become unable or declines to serve (an event
which the Board does not anticipate), the persons named as proxies will have
discretionary authority to vote for a substitute nominee named by the Board, if
the Board determines to fill such nominee's position.
VOTING SECURITIES
Only shareholders of record at the close of business on February 11, 2005 will
be entitled to notice of and to vote at the annual meeting. 18,590,456 shares of
common stock were outstanding and entitled to vote as of February 11, 2005.
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.
Merchants Trust Company, National Association ("MTC"), a wholly owned subsidiary
of the Corporation, held 1,619,713 shares of the Corporation's common stock as
of February 11, 2005 in various fiduciary capacities, in regular, nominee or
street name accounts, consisting of 8.71% of the Corporation's outstanding
shares. Beneficial ownership of shares so held is disclaimed by the Corporation.
It is MTC"s practice, when holding shares as sole trustee or sole executor, to
vote the shares; but, when it holds shares as co-trustee or co-executor, MTC
obtains approval from the co-fiduciary prior to voting.
ELECTION OF DIRECTORS
Five directors will be elected at the annual meeting.
The persons named below have been nominated for election to the Board of
Directors, with terms expiring for the Class I director as of the 2007 annual
meeting of shareholders and for the four Class II directors as of the 2008
annual meeting of shareholders. All of the nominees are currently members of the
Board.
Those persons nominated as directors include:
Director
Name and Age Present Occupation Since
------------ ------------------ -----
Class I (Terms expire 2007):
Charles E. Schalliol Director, Indiana State Office of Management and Budget, 2004
Age 57 since January 10, 2005. Mr. Schalliol was President and
Chief Executive Officer of BioCrossroads, an economic
development organization focused on life sciences
companies, during 2004. He was Executive Director of
Corporate Finance & Investment Banking with Eli Lilly
and Company, a pharmaceuticals company, and Managing
Director of Lilly's venture funds from 1999 to 2004.
Class II (Terms expire 2008):
Thomas B. Clark Retired Chairman of the Board, President and Chief 1989
Age 59 Executive Officer, Jarden Corporation, a provider of
niche consumer products for the home. Jarden changed its
name from Alltrista Corporation in 2002. Mr. Clark was
President and CEO of Alltrista from 1995 to 2001, and he
was Chairman of the Board from 2000 to 2001.
Roderick English Senior Vice President of Human Resources and 2005
Age 53 Communications, Remy International, Inc., a manufacturer
of electrical and powertrain products for autos, trucks
and other vehicles since 1994. Remy changed its name
from Delco Remy International, Inc. in 2004.
2
Director
Name and Age Present Occupation Since
------------ ------------------ -----
Jo Ann M. Gora President, Ball State University, since 2004. Dr. Gora 2004
Age 59 served as Chancellor of University of Massachusetts at
Boston from 2001 until she became President of Ball State
University. She was Provost and Vice President for Academic
Affairs at Old Dominion University from 1992 to
2001.
Jean L. Wojtowicz President and Chief Executive Officer, Cambridge Capital 2004
Age 47 Management Corp., a manager of non-traditional sources of
financing, since 1983. Ms. Wojtowicz is also a director
of Vectren Corporation and a trustee of Windrose Medical
Properties Trust, which are both listed on
the New York Stock Exchange.
Those persons named below continue to serve as directors:
Class I (Terms expire 2007):
Michael L. Cox President of the Corporation since 1998, and its Chief 1984
Age 60 Executive Officer since 1999. Mr. Cox was President of
First Merchants Bank, National Association ("FMB"), a
wholly owned subsidiary of the Corporation, from 1996 to
2000, and he was FMB's CEO from 1999 to 2000.
Thomas D. McAuliffe(1) President and Chief Executive Officer, Commerce National 2003
age 55 Bank ("CNB"), a wholly owned subsidiary of the
Corporation, since 1991.
Robert M. Smitson Retired Chairman of the Board, President and Chief 1982
Age 68 Executive Officer, Maxon Corporation, a manufacturer of
combustion equipment. Mr. Smitson was Chairman of
Maxon's Board from 1998 to 2004, its CEO from 1985 to
1998, and its President from 1979 to 1997.
Class III (Terms expire 2006):
Roger M. Arwood Executive Vice President of the Corporation since 2000, 2000
age 53 and its Chief Operating Officer since 2002. Mr. Arwood
was President and Chief Executive Officer of FMB from
2000 to 2002. He was Executive Vice President, Credit
Risk Management, Nations Bank/Bank of America from 1997
to 2000.
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Director
Name and Age Present Occupation Since
------------ ------------------ -----
James F. Ault Chairman of the Board, The Madison Community Bank, 1999
age 69 National Association ("MCB"), a wholly owned subsidiary
of the Corporation, since 1999. Mr. Ault was Chairman of
the Board of Anderson Community Bank, a predecessor to
MCB, from 1995 to 1999. He is a retired
executive of General Motors Corporation.
Richard A. Boehning(2) Of counsel, Bennett, Boehning & Clary, since 2001. Prior 2002
age 67 to 2001, Mr. Boehnig was a partner in that law firm.
Barry J. Hudson Chairman of the Board, First National Bank of Portland 1999
age 65 ("FNB"), a wholly owned subsidiary of the Corporation,
since 1982. Mr. Hudson was Chief Executive Officer of
FNB from 1982 to 2000, and he was its
President from 1982 to 1998.
Robert T. Jeffares(2) Retired Executive Vice President and Chief Financial 2002
age 69 Officer, Great Lakes Chemical Corporation, a producer of
specialty chemicals and consumer products.
(1) Under an Agreement of Reorganization and Merger between the Corporation
and CNBC Bancorp, the Board appointed Mr. McAuliffe as a member of the
Board on April 15, 2003 and agreed to nominate him for election to a full
3-year term as a director at the 2004 annual meeting of shareholders.
(2) Under an Agreement of Reorganization and Merger between the Corporation
and Lafayette Bancorporation, the Board appointed Messrs. Boehning and
Jeffares as members of the Board on May 14, 2002 and agreed to nominate
them for election to full 3-year terms as directors at the 2003 annual
meeting of shareholders.
MEETINGS OF THE BOARD
The Board of Directors of the Corporation held 6 meetings during 2004. All of
the directors, except Frank A. Bracken, who is retiring as a director of the
Corporation as of the 2005 annual meeting, attended at least 75% of the total
number of meetings of the Board and the committees on which they served. Mr.
Bracken attended 7 of the 10 meetings (70%) of the Board and the committee on
which he served.
COMPENSATION OF DIRECTORS
The directors of the Corporation who are employees of the Corporation or one of
its subsidiaries received no separate compensation for their services as
directors in 2004, except that, for his services as a director and Chairman of
the Board of FNB, Barry J. Hudson was paid $6,748 in 2004, of which $4,356 was
deferred compensation under an insurance-funded deferred compensation plan
maintained by FNB.
In 2004, the directors of the Corporation who are not employees were paid an
annual retainer of $7,600, except that Stefan S. Anderson, who is retiring as a
director as of the 2005 annual shareholders' meeting, was paid an annual
retainer of $15,000 for his services as Chairman of the
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Board of Directors of the Corporation. The directors who are not employees also
received $600 for each Board meeting and $400 for each committee meeting they
attended, except that the Board and committee chairmen received $800 and $600,
respectively, for each meeting they attended. In addition, under the provisions
of the Corporation's 1999 Long-term Equity Incentive Plan, options were granted
to each of the non-employee directors on July 1, 2004 to purchase shares of the
Corporation's common stock. Each option was for 1,157 shares at an option price
of $25.595 per share, the market price on the date of the grants.
Effective January 1, 2005, the compensation structure was modified to increase
the annual retainer for directors who are not employees to $15,000, plus $3,000
for each Board Committee on which the director serves. Committee Chairmen
receive an additional $2,000 annually, except that the Audit Committee Chairman
receives $5,000. The Chairman of the Board receives an annual retainer of
$50,000 but no retainer for Committee service. All meeting fees were eliminated.
Some non-employee directors received additional compensation in 2004 for their
services as a director of a subsidiary of the Corporation. Mr. Anderson received
an annual retainer of $10,000 for his services as Chairman of the FMB Board, and
director Robert M. Smitson received an annual retainer of $5,000 for his
services as an FMB director. Mr. Anderson, as FMB Board Chairman, received $800
for each FMB Board meeting and $300 for each FMB committee meeting he attended.
Mr. Smitson received $500 for each FMB Board meeting and $300 for each FMB
committee meeting he attended, except that, as its Chairman, Mr. Smitson
received $400 per meeting of the FMB Executive Committee. For his services as a
director and Chairman of the Board of Directors of MCB, director James F. Ault
was paid $375 for each Board meeting and $50 for each committee meeting he
attended in 2004. Directors Richard A. Boehning and Robert T. Jeffares serve as
directors of Lafayette Bank and Trust Company, National Association ("LBT"), a
wholly owned subsidiary of the Corporation, for which they received a retainer
of $19,800 in 2004. LBT also provided them life insurance coverage in the amount
of $6,000 for these services. For his services as a director and Chairman of the
Board of Directors of Union County National Bank ("UCNB"), a wholly owned
subsidiary of the Corporation, Norman M. Johnson, who is retiring as a director
as of the 2005 annual shareholders' meeting, was paid an annual retainer of
$3,600 and an additional $300 for each Board meeting and $250 for each committee
meeting he attended during 2004. UCNB also paid Mr. Johnson a bonus of $1,930
and provided him life insurance coverage in the amount of $25,000 for these
services.
BOARD INDEPENDENCE
The Board has determined that each of the director-nominees and continuing
directors is an "independent director," as defined in Marketplace Rule
4200(a)(15) of the Nasdaq Stock Market, Inc. ("NASDAQ"), except for Michael L.
Cox, the President and Chief Executive Officer of the Corporation, Roger M.
Arwood, the Executive Vice President and Chief Operating Officer of the
Corporation, Barry J. Hudson, the Chairman of the Board of FNB, and Thomas D.
McAuliffe, the President and Chief Executive Officer of CNB. All of the members
of the Nominating and Governance Committee, the Compensation and Human Resources
Committee, and the Audit Committee are "independent directors," as defined in
NASDAQ Marketplace Rule 4200(a)(15).
COMMITTEES OF THE BOARD
Nominating and Governance Committee
The Corporation has a Nominating and Governance Committee whose purpose is to
seek to ensure continuation of the effectiveness and independence of the Board
of Directors. The Committee is responsible for reviewing the credentials of
persons suggested as prospective directors, nominating persons to serve as
directors and as officers of the Board of Directors, including the slate of
directors to be elected each year at the annual meeting of shareholders, making
recommendations concerning
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the size and composition of the Board of Directors, as well as criteria for
Board membership, making recommendations concerning the Board's committee
structure and makeup, providing for continuing education of the directors and
self-assessment of the Board's effectiveness, and overseeing the Corporate-wide
Code of Business Conduct and the Code of Ethics for senior financial officers of
the Corporation. As of the date of this proxy statement, the Nominating and
Governance Committee is composed of directors Thomas B. Clark (Chairman), James
F. Ault, Richard A. Boehning and Robert M. Smitson. Stefan S. Anderson, who is
retiring as a director of the Corporation as of the 2005 annual meeting, served
ex officio on the Committee as Chairman of the Board of the Corporation. The
Nominating and Governance Committee met 5 times during 2004.
The Board has adopted a written charter for the Nominating and Governance
Committee. A copy of the charter is included among the documents under the
"Corporate Governance Disclosures" link on the Corporation's website,
www.firstmerchants.com.
Identifying and Evaluating Nominees for Directors
In nominating persons to serve as directors, the Nominating and Governance
Committee considers the person's ethical character, reputation, relevant
expertise and experience, accomplishments, leadership skills, demonstrated
business judgment, contribution to Board diversity, "independence" (as defined
in NASDAQ Marketplace Rule 4200(a)(15)) if a non-employee director, residency in
the Corporation's market area, ability and willingness to devote sufficient time
to director responsibilities, and willingness to maintain a meaningful ownership
interest in the Corporation and assist the Corporation in developing new
business.
In addition to considering the criteria described in the preceding paragraph,
the Committee's process for identifying and evaluating nominees involves, for
incumbent directors whose terms are expiring, reviewing the quality of their
prior service to the Corporation, including the nature and extent of their
participation in the Corporation's governance and their contributions of
management and financial expertise and experience to the Board and the
Corporation. For new director candidates, the Committee also considers whether
their skills are complementary to those of existing Board members and whether
they will fulfill the Board's needs for management, financial, technological or
other expertise. The Nominating and Governance Committee considers candidates
coming to its attention through current Board members, search firms,
shareholders and other persons.
In 2004, the Board amended Article IV, Section 9, of the Corporation's Bylaws,
which describes the process by which a shareholder may suggest a candidate for
consideration by the Committee as a director nominee. Under this amended
process, a suggestion by a shareholder of a director nominee must include: (a)
the name, address and number of the Corporation's shares owned by the
shareholder; (b) the name, address, age and principal occupation of the
suggested nominee; and (c) such other information concerning the suggested
nominee as the shareholder may wish to submit or the Committee may reasonably
request. A suggestion for a director nominee submitted by a shareholder must be
in writing and delivered or mailed to the Secretary, First Merchants
Corporation, 200 East Jackson Street, Muncie, Indiana 47305. Suggestions for
nominees from shareholders are evaluated in the same manner as other nominees.
There are no nominees for election to the Corporation's Board of Directors at
the 2005 annual shareholders' meeting other than directors standing for
re-election.
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)
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to review and approve the compensation and benefits to be paid to the executive
officers and senior management employees and the compensation ranges and
benefits for other officers and employees of the Corporation's subsidiaries. The
authority to periodically adjust the compensation and benefits of employees,
other than executive officers and senior management of the Corporation and the
chief executive officers of its subsidiaries, has been delegated by the
Committee to the chief executive officers of the subsidiaries. The Compensation
and Human Resources Committee is responsible for the administration of the
Corporation's incentive compensation and stock plans. As of the date of this
proxy statement, the Compensation and Human Resources Committee is composed of
directors Robert M. Smitson (Chairman), Stefan S. Anderson, Frank A. Bracken,
Thomas B. Clark and Norman M. Johnson. Mr. Anderson, Mr. Bracken and Mr. Johnson
are retiring as directors of the Corporation as of the 2005 annual meeting. The
Committee met 4 times during 2004.
Compensation and Human Resources Committee Interlocks and Insider Participation
No member of the Compensation and Human Resources Committee was an officer or
employee of the Corporation of any of its subsidiaries during 2004. Mr. Anderson
was the CEO of the Corporation and FMB until his retirement on April 16, 1999.
No other member of the Compensation and Human Resources Committee or executive
officer of the Corporation had a relationship during 2004 requiring disclosure
in this proxy statement under Securities and Exchange Commission ("SEC")
regulations.
Compensation and Human Resources Committee Report on Executive Compensation
The Compensation and Human Resources Committee establishes the salaries and
administers the executive compensation program applicable to the Corporation's
executive officers, including the executive officers named in the Summary
Compensation Table on page 11.
General Compensation Policy.
The Committee's compensation policies are designed to provide incentives to
executive officers to achieve short-term and long-term corporate strategic
management goals, with the ultimate objective of obtaining a superior return on
the shareholders' investment. The Committee believes that a competitive
compensation program, combining salary, employee benefits, incentive
compensation, and equity-based compensation, is necessary to attract and retain
qualified executives. The incentive compensation program for the Corporation's
executive officers is tied to the Corporation's financial performance and the
executive's individual contributions to that performance and thereby enhances
the Corporation's ability to achieve its business objectives. The equity-based
compensation programs encourage ownership and retention of the Corporation's
stock by key employees, assuring that they have a meaningful stake in the
Corporation's continued success and thereby aligning their interests more
closely with the interests of shareholders.
Cash Compensation.
The annual salaries paid to the Corporation's executive officers for 2004 were
determined by the Compensation and Human Resources Committee. The salaries for
2004 paid to the executive officers named in the Summary Compensation Table on
page 11 are shown in the "Salary" column of that Table. These salaries were
subjectively determined after consideration of the executive officer's
individual responsibilities, performance, experience, the chief executive
officer's evaluation of the other executive officers, a review of several
measurements of the Corporation's short-term and long-term financial results
compared with industry peers, various industry salary surveys, and other factors
such as budgetary considerations and inflation rates.
7
Incentive Compensation
The incentive compensation paid to the Corporation's executive officers for 2004
was determined under the Senior Management Incentive Compensation Program. This
Program incorporates modern incentive plan techniques and executive retention
features for the purpose of closely aligning the interests of executives with
those of shareholders. Under the Program, at or near the beginning of each
calendar year, the Committee assigns each of the Program participants a target
bonus for the year that is a percentage of salary. The participant's incentive
compensation for the year is based on accomplishment of specific performance
levels set forth in the Program. The chief executive officer's and chief
operating officer's bonuses for 2004 depended on meeting targets with respect to
the Corporation's operating return on equity and improvements in the
Corporation's operating earnings per share and diluted GAAP earnings per share
compared to the previous year. The other executive officers' bonuses depended on
meeting targets with respect to improvement in the Corporation's operating
earnings per share compared to the previous year and accomplishing personal
objectives as determined at or near the beginning of the year by the chief
executive officer. In order to avoid wide swings in payouts and to better focus
the Program participants on long-term results, the Program provides that 60% of
any bonus paid to the participants will be based on current year performance and
40% will be based on the previous year's payout. To further the purpose of
executive retention, 2/3 of each participant's bonus is payable to the
participant in cash following the end of the calendar year, and the other 1/3 is
payable in Deferred Stock Units ("DSUs") two years after the bonus is earned
(unless the portion payable in DSUs is less than $1,000, in which case the
entire bonus is payable in cash). When payable, the DSUs are valued at an amount
equal to the fair market value of the Corporation's common stock on the December
31 preceding the payment date plus accumulated dividends. Payment is made to the
participant in cash. The DSUs are forfeited if the participant's employment is
terminated for cause or is voluntarily terminated by the participant (except on
account of retirement, death or disability) prior to the date of payment. The
participant may elect to defer payment of all or part of the cash portion of the
bonus by filing an election to do so in the manner described in the Program.
Deferred amounts will be credited with interest quarterly based on the current
5-year U.S. Treasury Bond rate.
The cash portion of the bonuses for 2004 for the executive officers named in the
Summary Compensation Table on page 11 is set forth in the "Bonus" column of that
Table, and the DSU portion of these bonuses is set forth in the Long-Term
Incentive Plan Awards Table on page 13. Cash amounts paid to these executive
officers for DSUs earned in 2002 are set forth in the "LTIP Payouts" column of
the Summary Compensation Table on page 11. For 2004, Mr. Cox's target bonus was
45% of salary, and his actual bonus, based 60% on 2004 performance and 40% on
2003 payout, was 15.30% of salary. Mr. Arwood's target bonus was 40% of salary,
and his actual bonus, based 60% on 2004 performance and 40% on 2003 payout, was
13.37% of salary. The target bonuses for Mr. Connors, Mr. Hardwick and Mr. Helms
were each 30% of salary, and their actual bonuses, based 60% on 2004 performance
and 40% on 2003 payout, were 16.09%, 17.21% and 18.04% of salary, respectively.
Equity-based Compensation.
The equity-based compensation paid to the Corporation's executive officers for
2004, in addition to the DSUs under the Senior Management Incentive Compensation
Program described above, included compensation under the Corporation's Long-term
Equity Incentive Plan and the 1999 Employee Stock Purchase Plan.
The Long-term Equity Incentive Plan is briefly described in the paragraph on
page 12 immediately preceding the Option Grants in Last Fiscal Year Table. The
number of shares for which the Compensation and Human Resources Committee
awarded options under the Plan to the executive officers named in the Summary
Compensation Table during 2004 is set forth in the "Number of
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Securities Underlying Options Granted" column of the Option Grants in Last
Fiscal Year Table on page 12.
The 1999 Employee Stock Purchase Plan, which expired with the offering period
ending June 30, 2004, generally provided 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, 2004, Mr. Cox, Mr.
Hardwick and Mr. Helms purchased 787, 498 and 131 shares, respectively, under
the 1999 Employee Stock Purchase Plan. Mr. Arwood and Mr. Connors did not
participate in the Plan during this offering period. Although the 1999 Employee
Stock Purchase Plan expired on June 30, 2004, the shareholders approved the 2004
Employee Stock Purchase Plan at the 2004 annual meeting of shareholders, for a
maximum of 5 offering periods, expiring on June 30, 2009. The terms of the 2004
Employee Stock Purchase Plan are essentially the same as those that were
contained in the 1999 Plan.
Other Compensation.
The Corporation's executive officers are also covered by medical and retirement
plans that are generally applicable to full-time employees of the Corporation
and its subsidiaries. The retirement plans covering each of the executive
officers are the First Merchants Corporation Retirement Pension Plan, a
qualified defined benefit pension plan (described on page 13 in the section
entitled "Compensation of Executive Officers -- Pension Plans"), and the First
Merchants Corporation Retirement Savings Plan, a qualified Internal Revenue Code
ss.401(k) defined contribution pension plan (referred to in note (2) to the
Summary Compensation Table on page 11). Mr. Cox and Mr. Arwood are also covered
by the First Merchants Corporation Supplemental Executive Retirement Plan, a
nonqualified SERP plan (described on page 13 in the section entitled
"Compensation of Executive Officers -- Pension Plans").
Compensation of CEO
The compensation of the Corporation's chief executive officer, Mr. Cox, was
determined in the same manner as that of the other executive officers of the
Corporation. The Summary Compensation Table on page 11 provides an overview of
the principal components of his compensation for 2004.
Mr. Cox's base annual salary for 2004 was $320,000, the same as his 2003 salary.
Prior to the beginning of 2004, he and the chief operating officer, Roger M.
Arwood, informed the Compensation and Human Resources Committee that they were
recommending no salary increases for themselves due to the decline in the
Corporation's earnings per share in 2003, and the Committee approved this
recommendation. The Corporation's earnings per share increased in 2004, and Mr.
Cox and Mr. Arwood will receive salary increases for 2005.
Mr. Cox is eligible to participate in all of the Corporation's incentive and
equity-based compensation programs. The cash component of his bonus for 2004
under the Senior Management Incentive Compensation Program was $32,640, as shown
in the "Bonus" column of the Summary Compensation Table, and the DSU component
of his bonus was $16,320, or 577 DSUs, as shown in the Long-Term Incentive Plan
Awards Table on page 13. The number of DSUs was determined by dividing the
dollar amount by $28.30, the year end market value of the Corporation's common
stock. Mr. Cox was awarded options for 15,000 shares of the Corporation's common
stock in 2004 under the Long-term Equity Incentive Plan, as shown in the "Number
of Securities Underlying Options Granted" column of the Option Grants in Last
Fiscal Year Table on page 12. Mr. Cox participated in the 1999 Employee Stock
Purchase Plan during 2004, acquiring 787 shares of the Corporation's common
stock under the
9
Plan. He also received the benefits described in the "Other Compensation"
section of this report, including coverage under the First Merchants Corporation
Supplemental Executive Retirement Plan.
The above report is submitted by:
FIRST MERCHANTS CORPORATION COMPENSATION
AND HUMAN RESOURCES COMMITTEE
Robert M. Smitson, Chairman
Stefan S. Anderson
Frank A. Bracken
Thomas B. Clark
Norman M. Johnson
Audit Committee
The Corporation has an Audit Committee which assists the Board (1) in its
oversight of the Corporation's accounting and financial reporting principles and
policies and internal accounting and disclosure controls and procedures, (2) in
its oversight and supervision of the Corporation's internal audit function, (3)
in its oversight of the certification of the Corporation's quarterly and annual
financial statements and disclosures and assessment of internal disclosure
controls by the Corporation's CEO and CFO, (4) in its oversight of the
Corporation's consolidated financial statements and the independent external
audit thereof, and (5) in evaluating the independence of the external auditors.
The Audit Committee recommends the selection of the independent auditor for
approval by the Board and ratification by the shareholders, and it approves the
independent auditor's compensation. As of the date of this proxy statement, the
Audit Committee is composed of directors James F. Ault (Chairman), Stefan S.
Anderson, Blaine A. Brownell, Thomas B. Clark, Robert T. Jeffares and Robert M.
Smitson. Mr. Anderson and Dr. Brownell are retiring as directors of the
Corporation as of the 2005 annual meeting. In accordance with Section 407 of the
Sarbanes-Oxley Act, the Corporation has identified Mr. Jeffares as the "Audit
Committee financial expert." The Audit Committee met 6 times during 2004.
The Board has adopted a written charter for the Audit Committee. A copy of the
charter is included among the documents under the "Corporate Governance
Disclosures" link on the Corporation's website, www.firstmerchants.com.
Audit Committee Report
The Audit Committee reports as follows:
(1) The Committee has reviewed and discussed the audited financial statements
of the Corporation for 2004 with the Corporation's management.
(2) The Committee has discussed with BKD, LLP, the Corporation's independent
auditors for 2004, the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU ss.380), as modified
or supplemented.
(3) The Committee has received the written disclosures and the letter from
BKD, LLP required by Independence Standards Board Standard No. 1
(Independent Discussions with Audit Committees), as modified or
supplemented, and has discussed with BKD, LLP its independence from the
Corporation.
(4) Based on the review and discussions referred to in paragraphs (1) through
(3) above, the Audit Committee recommended to the Board, and the Board has
approved, that the audited
10
financial statements of the Corporation be included in the Corporation's
Annual Report on Form 10-K for the 2004 fiscal year for filing with the
SEC.
The above report is submitted by:
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE
James F. Ault, Chairman
Stefan S. Anderson
Blaine A. Brownell
Thomas B. Clark
Robert T. Jeffares
Robert M. Smitson
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, 2004. The
information in these tables concerning stock options has been adjusted to give
retroactive effect to the 5% common stock dividends that were distributed on
September 13, 2002 and September 12, 2003, to shareholders of record at the
close of business on August 30, 2002 and August 29, 2003, respectively.
Summary Compensation Table
The following table contains information concerning the compensation paid by the
Corporation and its subsidiaries for the years 2002, 2003 and 2004 to the
Corporation's Chief Executive Officer and its 4 most highly compensated
executive officers other than the Chief Executive Officer.
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-------------------------------------------------------------------
Awards Payouts
-----------------------------------------------------------------------------------------------------------
Securities
Name and Underlying LTIP All Other
Principal Position Year Salary Bonus(1) Options Payouts(1) Compensation(2)
-----------------------------------------------------------------------------------------------------------
Michael L. Cox 2004 $326,855 $32,640 15,000 $23,333 $2,563
President and Chief 2003 326,715 15,360 13,125 38,988 2,500
Executive Officer 2002 285,941 33,600 13,781 41,880 3,231
Roger M. Arwood 2004 234,743 20,498 12,000 13,818 0
Executive Vice President 2003 234,699 8,930 10,500 21,630 0
and 2002 209,218 19,899 11,025 8,142 0
Chief Operating Officer(3)
Robert R. Connors 2004 169,810 17,830 6,000 2,355 2,261
Senior Vice President, 2003 166,231 5,085 5,250 0 2,002
Operations and Technology(4) 2002 51,361 3,391 3,308 0 641
Mark K. Hardwick 2004 158,112 17,786 6,000 4,713 2,123
Senior Vice President and 2003 132,722 6,732 5,250 4,553 1,901
Chief Financial Officer(5) 2002 103,294 6,787 4,410 1,703 1,383
Larry R. Helms 2004 138,722 16,226 6,000 8,426 2,018
Senior Vice President, 2003 135,817 8,426 5,250 10,256 1,918
Administrative Services, 2002 125,619 12,134 5,513 6,114 1,470
General Counsel and
Corporate Secretary
-----------------------------------------------------------------------------------------------------------
11
(1) Under the Corporation's Senior Management Incentive Compensation Program ,
the bonuses earned by each executive officer are paid 2/3 in cash
following the end of the fiscal year and 1/3 in Deferred Stock Units that
are payable in cash two years later, unless the Units are forfeited due to
termination of the executive officer's employment for cause or because the
executive officer voluntarily terminated employment (except on account of
retirement, death or disability) prior to payment. The portion of each
year's bonus paid in Deferred Stock Units is not reportable in the Summary
Compensation Table, but is disclosed in the Long-term Incentive Plan
Awards Table below. The LTIP Payouts column in the Summary Compensation
Table sets forth the cash amounts paid in the year indicated for Deferred
Stock Units earned by the executive officer two years earlier under the
Senior Management Incentive Compensation Program.
(2) Represents employer matching contributions for fiscal year to First
Merchants Corporation Retirement Savings Plan (a ss.401(k) plan).
(3) Mr. Arwood was employed as Executive Vice President of the Corporation and
FMB on March 1, 2000. He was President and CEO of FMB from September 19,
2000 until he was appointed Executive Vice President and COO of the
Corporation on August 13, 2002.
(4) Mr. Connors was employed as Senior Vice President, Operations and
Technology of the Corporation on August 26, 2002.
(5) Mr. Hardwick was promoted from Vice President to Senior Vice President of
the Corporation on August 13, 2002. He became CFO on April 11, 2002. He
served as Corporate Controller prior to that date.
Option Grants Table
The 1999 Long-term Equity Incentive Plan, which became effective as of July 1,
1999, authorizes the Compensation Committee to grant stock-based incentive
awards, including stock options, to eligible employees of the Corporation or any
subsidiary. The following table contains information concerning individual
grants of stock options under the plan made during 2004 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
---------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
---------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price
Name Granted Fiscal Year (per share) Expiration Date 5% 10%
---------------------------------------------------------------------------------------------------------
Michael L. Cox 15,000 8.18 $25.595 July 1, 2014 $241,873 $610,441
Roger M. Arwood 12,000 6.54 25.595 July 1, 2014 193,498 488,353
Robert R. Connors 6,000 3.27 25.595 July 1, 2014 96,749 244,176
Mark K. Hardwick 6,000 3.27 25.595 July 1, 2014 96,749 244,176
Larry R. Helms 6,000 3.27 25.595 July 1, 2014 96,749 244,176
---------------------------------------------------------------------------------------------------------
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table contains information concerning (1) each exercise of stock
options during 2004 under 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, 2004 of each of
the named executive officer's unexercised options on an aggregated basis.
12
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
---------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Shares Acquired Value Year-End at Fiscal Year-End
Name On Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---------------------------------------------------------------------------------------------------------
Michael L. Cox 15,368 $213,452 82,844 / 28,129 $758,327 / $104,100
Roger M. Arwood 0 0 29,543 / 22,504 169,500 / 83,280
Robert R. Connors 0 0 3,307 / 11,250 9,822 / 41,640
Mark K. Hardwick 0 0 7,417 / 11,250 32,713 / 41,640
Larry R. Helms 4,297 58,482 33,408 / 11,250 267,165 / 41,640
---------------------------------------------------------------------------------------------------------
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 ("DSUs") two years after the bonus is earned. When payable, the DSUs
are valued at an amount equal to the fair market value of the Corporation's
common stock as of the last day of the calendar year preceding the date of
payment, plus accumulated dividends. Payments for the DSUs 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 DSUs are forfeited. The following
table contains information concerning DSU awards for 2004 under the Senior
Management Incentive Compensation Program to each of the executive officers
named in the Summary Compensation Table above. The section of this proxy
statement entitled "Compensation and Human Resources Committee Report on
Executive Compensation -- Incentive Compensation," on page 8, contains
additional information about the Senior Management Incentive Compensation
Program.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------------------------------
Number of Shares, Performance or Other Period Until
Name Units or Other Rights Maturation or Payout
-------------------------------------------------------------------------------------------------------
Michael L. Cox 577 1/01/05 - 1/01/07
Roger M. Arwood 362 1/01/05 - 1/01/07
Robert R. Connors 315 1/01/05 - 1/01/07
Mark K. Hardwick 314 1/01/05 - 1/01/07
Larry R. Helms 287 1/01/05 - 1/01/07
-------------------------------------------------------------------------------------------------------
Pension Plans
The Corporation's qualified defined benefit pension plan, the First Merchants
Corporation Retirement Pension Plan, covers the full-time employees of the
Corporation and most of its subsidiaries. Its nonqualified "excess benefit"
plan, the First Merchants Corporation Supplemental Executive Retirement Plan,
provides benefits to designated executives that would otherwise be payable under
the qualified plan if incentive compensation were included in compensation and
Internal Revenue Code Section 401(a)(17) did not limit the amount of
compensation that can be considered for purposes of calculating pension benefits
accruing under the qualified plan. For plan years beginning on or after January
1, 2002, $200,000 is the maximum amount of compensation that can be considered
for
13
purposes of calculating pension benefits accruing under the qualified plan. This
amount will increase to $210,000 for plan years beginning on or after January 1,
2005.
The following table shows the estimated annual benefits payable upon retirement
at age 65 to persons born in 1951 (the average of the birth years of the
executive officers named in the Summary Compensation Table above) in specified
compensation and years of service classifications under the plans. The benefit
amounts shown in the table include amounts payable under both the qualified and
the nonqualified plans, for those executives who participate in both.
PENSION PLAN TABLE
-----------------------------------------------------------------------------------------------------
Compensation Years of Service
-----------------------------------------------------------------------------------------------------
15 20 25 30 35
-----------------------------------------------------------------------------------------------------
$125,000 $ 34,105 $ 45,473 $ 56,841 $ 56,841 $ 56,841
150,000 41,980 55,973 69,966 69,966 69,966
175,000 49,855 66,473 83,091 83,091 83,091
200,000 57,730 76,973 96,216 96,216 96,216
250,000 73,480 97,973 122,466 122,466 122,466
300,000 89,230 118,973 148,716 148,716 148,716
350,000 104,980 139,973 174,966 174,966 174,966
400,000 120,730 160,973 201,216 201,216 201,216
450,000 136,480 181,973 227,466 227,466 227,466
500,000 152,230 202,973 253,716 253,716 253,716
-----------------------------------------------------------------------------------------------------
Participants in the qualified plan who had at least 15 credited years of service
and whose combined age and years of service totaled at least 65 as of January 1,
1991 are entitled to a pension benefit calculated under the formula that was in
effect prior to 1990 if that will produce a greater benefit. Mr. Helms is the
only executive officer named in the Summary Compensation Table who qualifies for
a benefit under the pre-1990 formula. The following table shows the estimated
annual benefits payable upon retirement at age 65 under the formula that was in
effect prior to 1990 in specified compensation and years of service
classifications under the plans. The benefit amounts shown in the table include
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
175,000 52,500 70,000 87,500 87,500 87,500
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
500,000 150,000 200,000 250,000 250,000 250,000
-----------------------------------------------------------------------------------------------------
Benefits under the plans are determined primarily by average final compensation
and years of service (to a maximum of 25 years) and are computed on the basis of
straight-life annuity amounts. They are not subject to any deduction for Social
Security or other offset amounts.
Compensation for purposes of the qualified plan consists of the base salary and
service award components of the salary amounts reported in the Summary
Compensation Table on page 11. Compensation for purposes of the nonqualified
plan also includes the bonus amounts reported in the Summary Compensation Table.
All of the executive officers named in the Summary Compensation Table are
participants in the qualified plan. Mr. Cox and Mr. Arwood are also participants
in the nonqualified plan. The 2004 compensation used for purposes of calculating
pension benefits under
14
the plans, and the credited years of service as of January 1, 2005, of the
executive officers named in the Summary Compensation Table are: Mr. Cox,
$360,010 (9.5 years), Mr. Arwood, $260,746 (3.5 years), Mr. Connors, $166,200 (1
year), Mr. Hardwick, $155,035 (5 years), and Mr. Helms, $135,085 (32 years).
Termination of Employment and Change of Control Arrangements
The Corporation has change of control agreements with each of the executive
officers named in the Summary Compensation Table. These are "double trigger"
change of control agreements, in that they provide for the payment of severance
benefits to the executives only in the event of both a change of control of the
Corporation and a termination or constructive termination of the employment of
the executive within 24 months after the change of control (but no payment will
be made if the termination was for cause, because of the executive's death or
disability, or by the executive other than on account of constructive
termination). In general, a "change of control" means an acquisition by any
person of 25% or more of the Corporation's voting shares, a change in the makeup
of a majority of the Corporation's Board of Directors over a 24-month period, a
merger of the Corporation in which the shareholders before the merger own 50% or
less of the Corporation's voting shares after the merger, or approval by the
Corporation's shareholders of a plan of complete liquidation of the Corporation
or an agreement to sell or dispose of substantially all of the Corporation's
assets. A "constructive termination" means, generally, a significant reduction
in duties, compensation or benefits or a relocation of the executive's office
outside of area described in the agreement, unless agreed to by the executive.
The severance benefits payable under each of the change of control agreements,
in addition to base salary and incentive compensation accrued through the date
of termination, would be a lump sum amount, determined by multiplying the sum of
(1) the executive's annual base salary and (2) the executive's largest bonus
under the Corporation's Senior Management Incentive Compensation Program during
the 2 years preceding termination, by the following percentages: in the cases of
Mr. Cox and Mr. Arwood, 299%; and, in the cases of Mr. Connors, Mr. Hardwick and
Mr. Helms, 200%. The Corporation would also pay any excise tax imposed on the
executive under Section 4999 of the Internal Revenue Code on an "excess
parachute payment;" and it would provide to the executive 2 years' life,
disability, accident and health insurance coverage, the bargain element value of
outstanding stock options, outplacement services, and reasonable legal fees and
expenses incurred as a result of the termination. The change of control
agreements were not entered into in response to any effort to acquire control of
the Corporation, and the Board of Directors is not aware of any such effort.
15
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 Industry Index.
Comparative Five-Year Total Returns*
First Merchants Corp., Russell 2000, Russell 2000 - Financial Services
(Performance results through 12/31/2004)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
12/31/1999 12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004
--------------------------------------------------------------------------------------------------------------------------------
FRME $100.00 $89.87 $103.90 $107.39 $130.93 $150.62
Russell 2000 $100.00 $96.98 $99.39 $79.03 $116.37 $137.71
R2 - Finl Svcs $100.00 $121.05 $139.98 $142.94 $199.36 $242.13
--------------------------------------------------------------------------------------------------------------------------------
Assumes $100 invested at the close of trading on the last trading day preceding
the first day of the fifth preceding fiscal year in FRME common stock, Russell
2000, and Russell 2000 - Financial Services Industry.
* Cumulative total return assumes reinvestment of dividends.
Source: Russell/Mellon Analytical Services
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Corporation is not aware of any person who is the beneficial owner of more
than 5% of the Corporation's outstanding common stock. The following table lists
the amount and percent of the Corporation's common stock beneficially owned on
February 11, 2005 by directors (including directors who are retiring as of the
2005 annual meeting of shareholders), director nominees and the executive
officers named in the Summary Compensation Table on page 11, and such persons
and other executive officers as a group. Unless otherwise noted, the beneficial
owner has sole voting and investment power.
Amount and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
--------------------------------------------------------------------------------------
Stefan S. Anderson(19) 107,454(1)............................*
Roger M. Arwood 29,658(2)............................*
James F. Ault 25,733(3)............................*
Richard A. Boehning 19,022(4)............................*
Frank A. Bracken(19) 98,372(5)............................*
Blaine A. Brownell 4,628(6)............................*
Thomas B. Clark 13,669(7)............................*
Michael L. Cox 113,125(8)............................*
Roderick English 0...............................*
Jo Ann M. Gora 0...............................*
Barry J. Hudson 492,187(9) ...........................2.61%
Robert T. Jeffares 13,411(10)...........................*
Norman M. Johnson 354,650(11)...........................1.88%
Thomas D. McAuliffe 67,034(12)...........................*
Charles E. Schalliol 1,000...............................*
Robert M. Smitson(19) 22,610(13)...........................*
Jean L. Wojtowicz 1,157(14)...........................*
Robert R. Connors 3,517(15)...........................*
Mark K. Hardwick 8,792(16)...........................*
Larry R. Helms 58,424(17)...........................*
Directors and Executive
Officers as a Group (21persons)(19) 1,436,788(18)...........................7.63%
* Percentage beneficially owned is less than 1% of the outstanding shares.
(1) Includes 2,071 shares held by his spouse, Joan Anderson, in which he
disclaims beneficial ownership, and 30,556 shares that he may acquire
during the next 60 days upon the exercise of stock options.
(2) Includes 29,543 shares that he may acquire during the next 60 days upon
the exercise of stock options.
(3) Includes 13,318 shares held by his spouse, Marilyn Ault, in which he
disclaims beneficial ownership, and 4,628 shares that he may acquire
during the next 60 days upon the exercise of stock options.
17
(4) Includes 6,415 shares held jointly with his spouse, Phyllis Boehning,
5,586 shares held in trust for family members for which Mr. Boehning, as
trustee, has voting and investment power, and 3,471 shares that he may
acquire during the next 60 days upon the exercise of stock options.
(5) Includes 4,825 shares held by his spouse, Judy Bracken, in which he
disclaims beneficial ownership, and 11,106 shares that he may acquire
during the next 60 days upon the exercise of stock options.
(6) Includes 1,157 shares held by his spouse, Mardi Brownell, in which he
disclaims beneficial ownership, and 3,471 shares that he may acquire
during the next 60 days upon the exercise of stock options.
(7) Includes 11,106 shares that he may acquire during the next 60 days upon
the exercise of stock options.
(8) Includes 39,303 shares held jointly with his spouse, Sharon Cox, and
65,524 shares that he may acquire during the next 60 days upon the
exercise of stock options.
(9) Includes 327,756 shares owned by Mutual Security, Inc., 88,533 shares held
jointly with his spouse, Elizabeth Hudson, 13,626 shares held by his
spouse as custodian for his children, in which he disclaims beneficial
ownership, and 9,492 shares that he may acquire during the next 60 days
upon the exercise of stock options.
(10) Includes 3,595 shares held by his spouse, Olga Jeffares, in which he
disclaims beneficial ownership, 2,799 shares held jointly with his spouse,
Olga Jeffares, 1,771 shares held in trust for family members for which Mr.
Jeffares, as trustee, has voting and investment power, and 3,471 shares
that he may acquire during the next 60 days upon the exercise of stock
options.
(11) Includes 28,352 shares held by his spouse, Julia Johnson, in which he
disclaims beneficial ownership, and 9,024 shares that he may acquire
during the next 60 days upon the exercise of stock options.
(12) Includes 43,455 shares held jointly with his spouse, Andrea McAuliffe, and
8,398 shares that he and his spouse hold as joint custodians for his
children.
(13) Includes 5,859 shares held by his spouse, Marilyn Smitson, in which he
disclaims beneficial ownership, and 11,106 shares that he may acquire
during the next 60 days upon the exercise of stock options.
(14) Includes 1,157 shares that she may acquire during the next 60 days upon
the exercise of stock options.
(15) Includes 3,307 shares that he may acquire during the next 60 days upon the
exercise of stock options.
(16) Includes 7,417 shares that he may acquire during the next 60 days upon the
exercise of stock options.
(17) Includes 25,016 shares held jointly with his spouse, Sandra Helms, and
33,408 shares that he may acquire during the next 60 days upon the
exercise of stock options.
18
(18) Includes 239,992 shares that may be acquired during the next 60 days upon
the exercise of stock options.
(19) Messrs. Anderson, Bracken and Smitson serve as directors of the George and
Frances Ball Foundation, Muncie, Indiana, which owns 182,267 shares
(0.98%) of the Corporation's outstanding common stock. The Foundation's
Board of Directors, which has 6 members, has the voting and investment
power over the shares held by the Foundation. The Foundation's shares are
not included in the totals of the shares beneficially owned by Messrs.
Anderson, Bracken and Smitson or by directors and executive officers as a
group.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain directors and executive officers of the Corporation and its subsidiaries
and their associates are customers of, and have had transactions with, the
Corporation's subsidiary banks from time to time in the ordinary course of
business. Additional transactions may be expected to take place in the ordinary
course of business in the future. All loans and commitments included in such
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
Richard A. Boehning, a director of the Corporation and LBT, is of counsel with
the law firm of Bennett, Boehning & Clary, Lafayette, Indiana, which serves as
legal counsel to LBT. Bennett, Boehning & Clary was paid $154,583 in fees and
was reimbursed $24,698 for expenses for legal services in 2004 to LBT.
COMMUNICATIONS WITH THE BOARD
Shareholders may communicate with the Corporation's Board of Directors by
submitting an e-mail to the Board at bod@firstmerchants.com. All such e-mails
will be automatically forwarded to the Chairman of the Nominating and Governance
Committee, Thomas B. Clark, who will arrange for such communications to be
relayed to the other directors.
DIRECTORS' ATTENDANCE AT ANNUAL SHAREHOLDERS MEETING
The Corporation's directors are encouraged to attend the annual meeting of
shareholders. At the 2004 annual meeting, 12 of the 13 directors were in
attendance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's directors and executive officers to file reports of ownership and
changes in ownership of the Corporation's stock with the Securities and Exchange
Commission. Based on its records and the written representations of its
directors and executive officers, the Corporation believes that during 2004
these persons complied with all Section 16(a) filing requirements.
INDEPENDENT PUBLIC ACCOUNTANTS
Selection of Independent Public Accountants
The Board, subject to ratification by the shareholders, has appointed BKD, LLP
as the Corporation's independent public accountants for 2005. If the
shareholders do not ratify the appointment of BKD, the Audit Committee and the
Board will reconsider this appointment. Representatives of the firm are
19
expected to be present at the annual shareholders' meeting. They will have an
opportunity to make a statement, if they desire to do so, and are expected to be
available to respond to appropriate questions.
The Board of Directors unanimously recommends a vote "FOR" ratification of the
appointment of the firm of BKD, LLP as independent public accountants for 2005.
Fees for Professional Services Rendered by BKD, LLP
The following table shows the aggregate fees billed by BKD, LLP for audit and
other services rendered to the Corporation for 2003 and 2004.
2003 2004
---- ----
Audit Fees $250,626 $308,000
Audit-Related Fees 39,826 46,000
Tax Fees 44,454 78,000
All Other Fees 0 0
-------- --------
Total Fees $334,906 $432,000
======== ========
The audit fees were for professional services rendered for the audits of the
Corporation's consolidated financial statements and internal control over
financial reporting, reviews of condensed consolidated financial statements
included in the Corporation's Forms 10-Q, and assistance with regulatory
filings.
The audit-related fees were for professional services rendered for audits of the
Corporation's benefit plans.
The tax fees were for professional services rendered for preparation of tax
returns and consultation on various tax matters.
All of these audit-related fees and tax fees were pre-approved by the Audit
Committee in accordance with the Committee's pre-approval policy described
below.
The Audit Committee has considered whether the provision by BKD, LLP of the
services covered by the fees other than the audit fees is compatible with
maintaining BKD, LLP's independence and believes that it is compatible.
Pre-approval Policies and Procedures
The Audit Committee has established a pre-approval policy, under which the
Committee is required to pre-approve all audit and non-audit services performed
by the Corporation's independent auditors, in order to assure that the provision
of such services does not impair the auditor's independence. These services may
include audit services, audit-related services, tax services and other services.
Under this policy, pre-approval is provided for 12 months from the date of
pre-approval unless the Committee specifically provides for a different period.
The policy is detailed as to the particular services or category of services and
fee levels that are pre-approved. Unless a service or type of service to be
provided by the independent auditors has received general pre-approval, it will
require specific pre-approval by the Audit Committee. The Committee must also
approve any proposed services exceeding the pre-approved fee levels. The
independent auditors are required to provide detailed back-up documentation with
respect to each proposed pre-approved service at the time of approval. The Audit
Committee may delegate pre-approval authority to one or more of its members. The
member or members to whom such authority has been delegated must report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. The
Audit Committee does not delegate its responsibilities to pre-approve services
performed by the independent auditors to management.
20
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2006 annual meeting of
the shareholders must be received by the Secretary of the Corporation at the
Corporation's principal office by November 3, 2005, for inclusion in the
Corporation's 2006 proxy statement and form of proxy relating to that meeting.
Shareholder proposals, if any, intended to be presented at the 2005 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 19, 2005.
OTHER MATTERS
The Corporation is delivering only one set of proxy materials, including this
proxy statement and the annual report, to shareholders who, according to the
Corporation's records, share an address and whom it believes are members of the
same family. A separate proxy card is included for each of these shareholders.
Any shareholder who received only one set of proxy materials, and who wishes to
receive a separate set now or in the future, may write or call the Corporation's
Shareholder Services Department to request a separate copy of these materials at
First Merchants Corporation, P. O. Box 792, Muncie IN 47308-9915; (800)
262-4261, extension 7278. Similarly, shareholders who share an address and are
members of the same family, and who have received multiple copies of the proxy
materials, may write or call the Corporation's Shareholder Services Department
at the same address and telephone number to request delivery of a single copy of
these materials in the future.
The cost of soliciting proxies will be borne by the Corporation. In addition to
solicitations by mail, proxies may be solicited personally or by telephone or
other electronic means, but no solicitation will be made by specially engaged
employees or paid solicitors.
The Board and management are not aware of any matters to be presented at the
annual meeting of the shareholders other than the election of the directors.
However, if any other matters properly come before such meeting or any
adjournment thereof, the holders of the proxies are authorized to vote thereon
at their discretion, provided the Corporation did not have notice of any such
matter on or before January 19, 2005.
By Order of the Board of Directors
Muncie, Indiana Larry R. Helms
March 3, 2005 Secretary
21
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST MERCHANTS CORPORATION
April 14, 2005
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
v Please detach along perforated line and mail in the envelope provided. v
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THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
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1. Election of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Thomas B. Clark
( ) Roderick English
|_| WITHHOLD AUTHORITY ( ) Jo Ann M. Gora
FOR ALL NOMINEES ( ) Charles E. Schalliol
( ) Jean L. Wojtowicz
|_| FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each
nominee you wish to withhold, as shown here: (X)
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To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note |_|
that changes to the registered name(s) on the account may not be
submitted via this method.
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FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of the firm of |_| |_| |_|
BKD, LLP as the independent public accountants for
2005.
3. 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 20, 2005.
This proxy will be voted as directed, but if not otherwise directed this proxy
will be voted "FOR" items 1 and 2.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as
such. If signer is a partnership, please sign in partnership name by
authorized person.
PROXY
FIRST MERCHANTS CORPORATION
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FIRST MERCHANTS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
APRIL 14, 2005
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 14, 2005, and at any
adjournment thereof, with all of the powers the undersigned would possess if
personally present. If any of the nominees for election as Directors is unable
or declines to serve for any reason, the persons listed above have the authority
to vote for any substitute nominee named by the Board of Directors of First
Merchants Corporation.
(Continued, and to be marked, dated and signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST MERCHANTS CORPORATION
April 14, 2005
-------------------------
PROXY VOTING INSTRUCTIONS
-------------------------
MAIL - Date, sign and mail your proxy card in the
envelope provided as soon as possible.
- OR - -------------------------
COMPANY NUMBER
TELEPHONE - Call toll-free 1-800-PROXIES -------------------------
(1-800-776-9437) from any touch-tone telephone and ACCOUNT NUMBER
follow the instructions. Have your proxy card -------------------------
available when you call.
-------------------------
- OR -
INTERNET - Access "www.voteproxy.com" and follow
the on-screen instructions. Have your proxy card
available when you access the web page.
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You may enter your voting instructions at 1-800-PROXIES (1-800-776-9437) or
www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or
meeting date.
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v Please detach along perforated line and mail in the envelope provided IF v
you are not voting via telephone or the Internet.
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THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
--------------------------------------------------------------------------------
1. Election of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Thomas B. Clark
( ) Roderick English
|_| WITHHOLD AUTHORITY ( ) Jo Ann M. Gora
FOR ALL NOMINEES ( ) Charles E. Schalliol
( ) Jean L. Wojtowicz
|_| FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each
nominee you wish to withhold, as shown here: (X)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note |_|
that changes to the registered name(s) on the account may not be
submitted via this method.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of the firm of |_| |_| |_|
BKD, LLP as the independent public accountants for
2005.
3. 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 20, 2005.
This proxy will be voted as directed, but if not otherwise directed this proxy
will be voted "FOR" items 1 and 2.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as
such. If signer is a partnership, please sign in partnership name by
authorized person.