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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission File Number 0-17071
First Merchants Corporation
(Exact name of registrant as specified in its charter)
Indiana 35-1544218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Jackson Street
Muncie, IN 47305-2814
(Address of principal executive office) (Zip code)
(765) 747-1500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2002, there were 15,475,208 outstanding common shares, without
par value, of the registrant.
FIRST MERCHANTS CORPORATION
FORM 10-Q
INDEX
Page No.
PART I. Financial information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets........................3
Consolidated Condensed Statements of Income..................4
Consolidated Condensed Statements of
Comprehensive Income.........................................5
Consolidated Condensed Statements of
Stockholders' Equity.........................................6
Consolidated Condensed Statements of Cash Flows..............7
Notes to Consolidated Condensed Financial Statements.........9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................25
PART II. Other Information:
Item 1. Legal Proceedings...........................................26
Item 2. Changes in Securities and Use of Proceeds...................26
Item 3. Defaults Upon Senior Securities.............................26
Item 4. Submission of Matters to a Vote of Security Holders.........26
Item 5. Other Information...........................................26
Item 6. Exhibits and Reports of Form 8-K............................27
Signatures...................................................................30
Certifications...............................................................30
Exhibit Index................................................................31
Page 2
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
June 30, December 31,
2002 2001
----------- -----------
(Unaudited)
ASSETS:
Cash and due from banks ....................................... $ 93,420 $ 68,743
Federal funds sold ............................................ 43,587 34,285
----------- -----------
Cash and cash equivalents ................................... 137,007 103,028
Interest-bearing deposits...................................... 14,577 3,871
Investment securities available for sale ...................... 350,207 231,668
Investment securities held to maturity ........................ 10,869 8,654
Mortgage loans held for sale................................... 6,518 307
Loans, net of allowance for loan losses of $21,963 and $15,141. 1,945,896 1,344,445
Premises and equipment ........................................ 39,292 27,684
Federal Reserve and Federal Home Loan Bank Stock............... 11,036 8,350
Interest receivable ........................................... 17,701 12,024
Goodwill ...................................................... 85,511 26,081
Core deposit intangibles ...................................... 21,111 6,096
Cash surrender value of life insurance......................... 13,976 6,470
Other assets .................................................. 10,283 8,357
----------- -----------
Total assets .............................................. $ 2,663,984 $ 1,787,035
=========== ===========
LIABILITIES:
Deposits:
Noninterest-bearing ......................................... $ 259,353 $ 186,987
Interest-bearing ............................................ 1,797,188 1,234,264
----------- -----------
Total deposits ............................................ 2,056,541 1,421,251
Borrowings .................................................... 337,525 174,404
Interest payable .............................................. 7,248 5,488
Other liabilities.............................................. 11,240 6,764
----------- -----------
Total liabilities ......................................... 2,412,554 1,607,907
STOCKHOLDERS' EQUITY:
Perferred stock, no-par value:
Authorized and unissued - 500,000 shares ....................
Common Stock, $.125 stated value:
Authorized --- 50,000,000 shares ............................
Issued and outstanding - 15,437,655 and 12,670,307 shares.... 1,930 1,584
Additional paid-in capital .................................... 114,160 50,642
Retained earnings ............................................. 131,222 124,304
Accumulated other comprehensive income ........................ 4,118 2,598
----------- -----------
Total stockholders' equity ................................ 251,430 179,128
----------- -----------
Total liabilities and stockholders' equity . $ 2,663,984 $ 1,787,035
=========== ===========
See notes to consolidated condensed financial statements.
Page 3
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Interest Income:
Loans receivable
Taxable ................................................... $34,875 $24,980 $ 59,142 $50,170
Tax exempt ................................................ 126 112 234 204
Investment securities
Taxable ................................................... 2,641 2,777 4,544 6,316
Tax exempt ................................................ 1,670 1,024 2,657 2,051
Federal funds sold .......................................... 84 206 265 295
Deposits with financial institutions ........................ 84 10 106 20
Federal Reserve and Federal Home Loan Bank stock ............ 198 158 321 299
------- ------- -------- -------
Total interest income ................................... 39,678 29,267 67,269 59,355
------- ------- -------- -------
Interest expense:
Deposits .................................................... 10,842 11,446 19,070 24,147
Borrowings .................................................. 3,754 2,551 5,739 5,248
------- ------- ------- -------
Total interest expense .................................... 14,596 13,997 24,809 29,395
------- ------- ------- -------
Net Interest Income ........................................... 25,082 15,270 42,460 29,960
Provision for loan losses ..................................... 1,284 695 2,476 1,348
------- ------- ------- -------
Net Interest Income After Provision for Loan Losses ........... 23,798 14,575 39,984 28,612
------- ------- ------- -------
Other Income:
Net realized gains on sales of available-for-sale securities. 290 408
Other income ................................................ 6,761 4,617 11,807 9,011
------- ------- ------- -------
Total other income ............................................ 7,051 4,617 12,215 9,011
Total other expenses .......................................... 18,938 10,505 31,942 20,979
------- ------- ------- -------
Income before income tax ...................................... 11,911 8,687 20,257 16,644
Income tax expense ............................................ 3,971 3,113 6,844 5,964
------- ------- ------- -------
Net Income .................................................... $ 7,940 $ 5,574 $13,413 $10,680
======= ======= ======= =======
Per share:
Diluted Cash Earnings(1)................................... $ .52 $ .49 $ .95 $ .93
Basic ..................................................... .52 .46 .95 .88
Diluted ................................................... .51 .46 .94 .88
Dividends ................................................. .23 .23 .46 .46
(1) Net income excluding goodwill, core deposit and other intangible assets
amortization.
See notes to consolidated condensed financial statements.
Page 4
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net Income...................................................................... $ 7,940 $ 5,574 $13,413 $10,680
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period, net of
income tax expense of $1,991, $41, $1,176, and $1,228................... 2,987 62 1,764 1,843
Less: Reclassification adjustment for gains included
in net income, net of income tax expense of $116 and $163................. 174 245
--------- --------- --------- ---------
2,813 62 1,519 1,843
--------- --------- --------- ---------
Comprehensive income............................................................ $ 10,753 $ 5,636 $14,932 $12,523
========= ========= ========= =========
See notes to consolidated condensed financial statements
Page 5
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
2002 2001
--------- ---------
Balances, January 1 ............................................ $ 179,128 $ 156,063
Net income ..................................................... 13,413 10,680
Cash dividends ................................................. (6,494) (5,294)
Other comprehensive income, net of tax.......................... 1,519 1,843
Stock issued under dividend reinvestment and stock purchase plan 449 373
Stock options exercised ........................................ 160 92
Stock redeemed ................................................. (4,296) (4,492)
Issuance of stock in acquisitions............................... 67,551
--------- ---------
Balances, June 30 ............................................. $ 251,430 $ 159,265
========= =========
See notes to consolidated condensed financial statements
Page 6
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
----------------------------------
2002 2001
---------------- ----------------
Cash Flows From Operating Activities:
Net income........................................................................ $ 13,413 $ 10,680
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses....................................................... 2,476 1,348
Depreciation and amortization................................................... 2,996 2,124
Securities amortization, net................................................... 149 (173)
Securities gains, net........................................................... (408)
Gain on sale of premises and equipment.......................................... (64)
Mortgage loans originated for sale.............................................. (35,457) (6,942)
Proceeds from sales of mortgage loans........................................... 36,805 6,132
Change in interest receivable................................................... 408 1,398
Change in interest payable...................................................... (89) (31)
Other adjustments............................................................... (2,366) (2,206)
--------------- ----------------
Net cash provided by operating activities..................................... $ 17,927 $ 12,266
--------------- ----------------
Cash Flows From Investing Activities:
Net change in interest-bearing deposits........................................... (280) (377)
Purchases of
Securities available for sale................................................... (86,970) (10,761)
Proceeds from maturities of
Securities available for sale................................................... 63,281 57,182
Securities held to maturity..................................................... 1,562 2,707
Proceeds from sales of
Securities available for sale................................................... 8,724
Net change in loans............................................................... (59,888) (36,746)
Net cash paid in acquisitions..................................................... (12,532)
Purchases of premises and equipment............................................... (3,104) (706)
Proceeds from sale of fixed assets................................................ 156
--------------- ----------------
Net cash provided (used) by investing activities................................ (89,207) 11,455
--------------- ----------------
(continued)
Page 7
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
------------------------------------
2002 2001
---------------- ----------------
Cash Flows From Financing Activities:
Net change in
Demand and savings deposits........................................... $ 938 $ 4,460
Certificates of deposit and other time deposits....................... 27,071 (2,796)
Borrowings............................................................ 87,431 10,851
Cash dividends.......................................................... (6,494) (5,294)
Stock issued under dividend reinvestment and stock purchase plan........ 449 373
Stock options exercised................................................. 160 92
Stock repurchased....................................................... (4,296) (4,492)
---------------- ----------------
Net cash provided by financing activities............................. 105,259 3,194
---------------- ----------------
Net Change in Cash and Cash Equivalents................................... 33,979 26,915
Cash and Cash Equivalents, January 1...................................... 103,028 67,463
---------------- ----------------
Cash and Cash Equivalents, June 30........................................ $ 137,007 $ 94,378
================ ================
See notes to consolidated condensed financial statements.
Page 8
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 1. General
The significant accounting policies followed by First Merchants Corporation
("Corporation") and its wholly owned subsidiaries for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting, except for the change in method of accounting or adoption
of accounting pronouncements discussed more fully in Note 2. All adjustments
which are of a normal recurring nature and are in the opinion of management
necessary for a fair statement of the results for the periods reported have been
included in the accompanying consolidated condensed financial statements.
The consolidated condensed balance sheet of the Corporation as of December 31,
2001 has been derived from the audited consolidated balance sheet of the
Corporation as of that date. Certain information and note disclosures normally
included in the Corporation's annual financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted. These consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Corporation's Form 10-K annual
report filed with the Securities and Exchange Commission.
The results of operations for the period are not necessarily indicative of the
results to be expected for the year.
NOTE 2. Accounting Matters
ACCOUNTING FOR A BUSINESS COMBINATION
Statement of Financial Accounting Standards ("SFAS") No. 141 requires
that most all business combinations should be accounted for using the purchase
method of accounting; use of the pooling method is prohibited.
This Statement requires that goodwill be initially recognized as an asset
in the financial statement and measured as the excess of the cost of an acquired
entity over the net of the amounts assigned to identifiable assets acquired and
liabilities assumed. In addition, SFAS No. 141 requires all other intangibles,
such as core deposit intangibles for a financial institution, to be identified.
The provisions of Statement No. 141 were effective for any business
combination that was initiated after June 30, 2001.
ACCOUNTING FOR GOODWILL
Under the provisions of SFAS No. 142, goodwill should not be amortized
but should be tested for impairment at the reporting unit level. Impairment test
of goodwill should be done on an annual basis unless events or circumstances
indicate impairment has occurred in the interim period. The annual impairment
test can be performed at any time during the year as long as the measurement
date is used consistently from year to year.
Impairment testing is a two step process, as outlined within the statement.
If the fair value of goodwill is less than its carrying value, then the goodwill
is deemed impaired and a loss recognized. Any impairment loss recognized as a
result of completing the transitional impairment test should be treated as a
change in accounting principle and recognized in the first interim period
financial statements.
The Corporation adopted these new accounting rules on January 1, 2002.
As a result, the Corporation will not amortize the goodwill it has recorded, but
will make an annual assessment of any impairment in goodwill and, if necessary,
recognize an impairment loss at that time. The Corporation had goodwill of
$85,511,000 at June 30, 2002 and identified no impairment loss.
Page 9
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 3. Business Combinations
On April 1, 2002, the Corporation acquired 100% of the outstanding stock of
Lafayette Bancorporation, the holding company of Lafayette Bank and Trust
Company, Lafayette, Indiana ("Lafayette"). Lafayette is a state chartered bank
with branches located in central Indiana. Lafayette Bancorporation was merged
into the Corporation, and Lafayette maintained its state charter as a subsidiary
of First Merchants Corporation. The Corporation issued approximately 2,773,059
shares of its common stock at a cost of $23.48 per share and approximately
$50,867,000 in cash to complete the transaction. As a result of the acquisition,
the Corporation will have an opportunity to increase its customer base and
continue to increase its market share. The purchase had a recorded acquisition
price of $115,978,000, including goodwill of $57,893,000 none of which is
deductible for tax purposes. Additionally, core deposit intangibles totaling
$15,458,000 were recognized and will be amortized over 10 years using the 150%
declining balance method.
The combination was accounted for under the purchase method of accounting. All
assets and liabilities were recorded at their fair values as of April 1, 2002.
The purchase accounting adjustments will be amortized over the life of the
respective asset or liability. Lafayette's results of operations are included in
the Corporation's consolidated income statement beginning April 1, 2002. The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
Investments....................... $104,717
Loans............................. 552,016
Premises and equipment............ 10,447
Core deposit intangibles.......... 15,458
Goodwill.......................... 57,893
Other............................. 64,490
--------
Total assets acquired.......... 805,021
--------
Deposits.......................... 607,281
Other............................. 81,762
--------
Total liabilities acquired..... 689,043
--------
Net assets acquired............ $115,978
--------
The following proforma disclosures, including the effect of the purchase
accounting adjustments, depict the results of operations as though the merger
had taken place at the beginning of each period.
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------ ------ ------ ------
Net Interest Income........... $25,082 $20,742 $48,201 $40,526
Net Income.................... 7,940 6,988 13,493 13,336
Per Share - combined:
Basic Net Income........... .52 .52 .87 .90
Diluted Net Income......... .51 .52 .86 .89
Effective January 1, 2002, the Corporation acquired Delaware County Abstract
Company, Inc. and Beebe & Smith Title Insurance Company, Inc., which were merged
into Indiana Title Insurance Company, a wholly-owned subsidiary of the
Corporation. The title insurance operations were subsequently contributed to
Indiana Title Insurance Company, LLC in which the Corporation has a 52.12%
ownership interest. This acquisition was deemed to be an immaterial acquisition.
Page 10
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 4. Investment Securities
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale at June 30, 2002
U.S. Treasury .................... $ 125 $ 125
Federal agencies.................. 36,553 $ 705 37,258
State and municipal .............. 148,511 3,627 $ (30) 152,108
Mortgage-backed securities ....... 128,581 2,709 (28) 131,262
Other asset-backed securities..... 9,058 98 9,156
Corporate obligations............. 13,079 379 13,458
Marketable equity securities...... 6,933 14 (107) 6,840
-------- -------- -------- --------
Total available for sale ..... 342,840 7,532 (165) 350,207
-------- -------- -------- --------
Held to maturity at June 30, 2002
State and municipal............... 10,702 407 (5) 11,104
Mortgage-backed securities........ 167 167
-------- -------- -------- --------
Total held to maturity ....... 10,869 407 (5) 11,271
-------- -------- -------- --------
Total investment securities .. $353,709 $ 7,939 $ (170) $361,478
======== ======== ======== ========
Page 11
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale at December 31, 2001
U.S. Treasury ...................... $ 124 $ 124
Federal agencies ................... 30,808 $ 767 $ (2) 31,573
State and municipal ................ 74,776 1,644 (215) 76,205
Mortgage-backed securities ......... 100,811 1,710 (1) 102,520
Other asset-backed securities ...... 10,116 167 10,283
Corporate obligations .............. 3,498 116 3,614
Marketable equity securities ....... 7,472 (123) 7,349
-------- -------- -------- --------
Total available for sale ........ 227,605 4,404 (341) 231,668
-------- -------- -------- --------
Held to maturity at December 31, 2001
State and municipal ................ 8,426 166 (58) 8,534
Mortgage-backed securities ......... 228 228
-------- -------- -------- --------
Total held to maturity .......... 8,654 166 (58) 8,762
-------- -------- -------- --------
Total investment securities ..... $236,259 $ 4,570 $ (399) $240,430
======== ======== ======== ========
Page 12
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 5. Loans and Allowance
June 30, December 31,
2002 2001
---- ----
Loans:
Commercial and industrial loans .............................................. $ 380,097 $ 301,962
Agricultural production financing and other loans to farmers ................. 86,585 29,645
Real estate loans:
Construction ............................................................... 123,251 58,316
Commercial and farmland .................................................... 449,845 230,233
Residential ................................................................ 693,784 544,028
Individuals' loans for household and other personal expenditures ............. 213,712 179,325
Other loans .................................................................. 20,585 16,077
----------- -----------
1,967,859 1,359,586
Allowance for loan losses..................................................... (21,963) (15,141)
----------- -----------
Total Loans............................................................... $ 1,945,896 $ 1,344,445
=========== ===========
Six Months Ended
June 30
2002 2001
----------- -----------
Allowance for loan losses:
Balances, January 1 .......................................................... $ 15,141 $ 12,454
Allowance acquired in acquisition............................................. 6,902
Provision for losses ......................................................... 2,476 1,348
Recoveries on loans .......................................................... 613 292
Loans charged off ............................................................ (3,169) (1,589)
----------- -----------
Balances, June 30............................................................. $ 21,963 $ 12,505
=========== ===========
Page 13
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 6. Net Income Per Share
Three Months Ended June 30,
2002 2001
------------------------------------------- -------------------------------------------
Weighted- Weighted-
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic net income per share:
Net income available to
common stockholders................. $ 7,940 15,530,474 $ .52 $ 5,574 12,024,871 $ .46
========== ==========
Effect of dilutive stock options........ 157,973 80,302
---------- ------------ ---------- ------------
Diluted net income per share:
Net income available to
common stockholders
and assumed conversions............. 7,940 15,688,447 $ .51 5,574 12,105,173 $ .46
========== ============ ========== ========== ============ ==========
Options to purchase 12,285 and 188,078 shares for the three months ended June
30, 2002 and 2001 were not included in the earnings per share calculation
because the exercise price exceeded the average market price.
Six Months Ended June 30,
2002 2001
------------------------------------------- -------------------------------------------
Weighted- Weighted-
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic net income per share:
Net income available to
common stockholders................. $ 13,413 14,162,023 $ .95 $ 10,680 12,101,016 $ .88
========== ==========
Effect of dilutive stock options........ 136,971 82,069
---------- ------------ ---------- ------------
Diluted net income per share:
Net income available to
common stockholders
and assumed conversions............. $ 13,413 14,298,994 $ .94 $ 10,680 12,183,085 $ .88
========== ============ ========== ========== ============ ==========
Options to purchase 75,598 and 108,489 shares for the six months ended June 30,
2002 and 2001 were not included in the earnings per share calculation because
the exercise price exceeded the average market price.
Page 14
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
Note 7. Cumulative Trust Preferred Securities
On April 12, 2002, the Corporation and First Merchants Capital Trust I (the
"Trust") entered into an Underwriting Agreement with Stifel, Nicolaus & Company,
Incorporated and RBC Dain Rauscher Inc. for themselves and as co-representatives
for several other underwriters (the "Underwriting Agreement"). On April 17, 2002
and pursuant to the Underwriting Agreement, the Trust issued 1,850,000 8.75%
Cumulative Trust Preferred Securities (liquidation amount $25 per Preferred
Security) (the "Preferred Securities") with an aggregate liquidation value of
$46,250,000. On April 23, 2002 and pursuant to the Underwriting Agreement, the
Trust issued an additional 277,500 Preferred Securities with an aggregate
liquidation value of $6,937,500 to cover over-allotments. The proceeds from the
sale of the Preferred Securities were invested by the Trust in the Corporation's
8.75% Junior Subordinated Debentures due June 30, 2032 (the "Debentures"). The
proceeds from the issuance of the Debentures were used by the Corporation to
fund a portion of the cash consideration payable to the shareholders of
Lafayette Bancorporation in connection with the acquisition referenced in Note
3. The Preferred Securities are recorded as borrowings in the Corporation's
consolidated June 30, 2002, balance sheet.
Page 15
FIRST MERCHANTS CORPORATION
FORM 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- --------------
Forward-Looking Statements
The Corporation from time to time includes forward-looking statements in
its oral and written communication. The Corporation may include forward-looking
statements in filings with the Securities and Exchange Commission, such as this
Form 10-Q, in other written materials and in oral statements made by senior
management to analysts, investors, representatives of the media and others. The
Corporation intends these forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and the Corporation is including this
statement for purposes of these safe harbor provisions. Forward-looking
statements can often be identified by the use of words like "estimate,"
"project," "intend," "anticipate," "expect" and similar expressions. These
forward-looking statements include:
* statements of the Corporation's goals, intentions and expectations;
* statements regarding the Corporation's business plan and growth
strategies;
* statements regarding the asset quality of the Corporation's loan and
investment portfolios; and
* estimates of the Corporation's risks and future costs and benefits.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors which could affect the actual outcome of future events:
* fluctuations in market rates of interest and loan and deposit pricing,
which could negatively affect the Corporation's net interest margin,
asset valuations and expense expectations;
* adverse changes in the Indiana economy, which might affect the
Corporation's business prospects and could cause credit-related losses
and expenses;
* adverse developments in the Corporation's loan and investment
portfolios;
* competitive factors in the banking industry, such as the trend towards
consolidation in the Corporation's market; and
* changes in the banking legislation or the regulatory requirements of
federal and state agencies applicable to bank holding companies and
banks like the Corporation's affiliate banks.
Because of these and other uncertainties, the Corporation's actual future
results may be materially different from the results indicated by these forward-
looking statements. In addition, the Corporation's past results of operations
do not necessarily indicate its future results.
Critical Accounting Policy
Certain policies are important to the portrayal of the Corporation's
financial condition, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently
uncertain. Management believes that it's critical accounting policy includes
determining the allowance for loan losses, ("ALL"). The Critical Accounting
Policy should be read in conjunction with the consolidated financial statements
and notes thereto included in the Corporation's Form 10-K annual report filed
with the Securities and Exchange Commission.
Page 16
FIRST MERCHANTS CORPORATION
FORM 10-Q
Allowance for Loan Losses
The ALL is a significant estimate that can and does change based on management's
assumptions about specific borrowers and applicable economic and environmental
conditions, among other factors. The ALL is maintained to absorb losses inherent
in the loan portfolio. The allowance is based on ongoing, quarterly assessments
of the probable estimated losses inherent in the loan portfolio. The allowance
is increased by the provision for loan losses, which is charged against current
period operating results and decreased by the amount of chargeoffs, net of
recoveries. The Corporation's methodology for assessing the appropriateness of
the allowance consists of several key elements, which include the formula
allowance, specific allowances for identified problem loans, and the unallocated
allowance.
The formula allowance is calculated by applying loss factors to outstanding
loans and certain unused commitments, in each case based on the internal risk
grade of such loans, pools of loans or commitments. Changes in risk grades of
both performing and nonperforming loans affect the amount of the formula
allowance. Loss factors are based on our historical loss experience and may be
adjusted for significant factors that, in management's judgement, affect the
collectibility of the portfolio as of the evaluation date.
Specific allowances are established in cases where management has identified
significant conditions or circumstances related to a credit that management
believes indicate the probability that a loss has been incurred in excess of the
amount determined by the application of the formula allowance.
The unallocated allowance is based upon management's evaluation of various
conditions, the effects of which are not directly measured in the determination
of the formula and specific allowances. The evaluation of the inherent loss with
respect to these conditions is subject to a higher degree of uncertainty because
they are not identified with specific credits. The conditions evaluated in
connection with the unallocated allowance may include existing general economic
and business conditions affecting the Banks' key lending areas, credit quality
trends, collateral values, loan volumes and concentrations, seasoning of the
loan portfolio, specific industry conditions within portfolio segments, recent
loss experience in particular segments of the portfolio, duration of the current
business cycle, bank regulatory examination results, and findings of an
independent third party conducting reviews of the loan portfolio.
Results of Operations
Net income for the three months ended June 30, 2002, equaled
$7,940,000, compared to $5,574,000 earned in the same period of 2001. Diluted
earnings per share were $.51 an increase of $.05 over the $.46 reported for the
second quarter 2002.
Net income for the six months ended June 30, 2002, equaled $13,413,000,
compared to $10,680,000 during the same period in 2001. Diluted earnings per
share were $.94, a 6.8% increase over $.88 in 2001.
Annualized returns on average assets and average stockholders' equity
for six months ended June 30, 2002 were 1.24 percent and 12.49 percent,
respectively, compared with 1.34 percent and 13.51 percent for the same period
of 2001.
Page 17
FIRST MERCHANTS CORPORATION
FORM 10-Q
Capital
The Corporation's capital continues to exceed regulatory minimums and
management believes that its capital levels continue to be a distinct advantage
in the competitive environment in which the Corporation operates.
The Corporation's Tier I capital to average assets ratio was 8.7 percent at
year-end 2001 and 7.9 percent at June 30, 2002. At June 30, 2002, the
Corporation had a Tier I risk-based capital ratio of 10.1 percent and total
risk-based capital ratio of 11.3 percent. Regulatory capital guidelines require
a Tier I risk-based capital ratio of 4.0 percent and a total risk-based capital
ratio of 8.0 percent. Banks with Tier I risk-based capital ratios of 6.0 percent
and total risk-based capital ratios of 10.0 percent are considered "well
capitalized."
Asset Quality/Provision for Loan Losses
Asset quality has been a major factor in the Corporation's ability to
generate consistent profit improvement. The allowance for loan losses is
maintained through the provision for loan losses, which is a charge against
earnings. The amount provided for loan losses and the determination of the
adequacy of the allowance are based on a continuous review of the loan
portfolio, including an internally administered loan "watch" list and an
independent loan review provided by an outside accounting firm. The evaluation
takes into consideration identified credit problems, as well as the possibility
of losses inherent in the loan portfolio that cannot be specifically identified.
The following table summarizes the non-accrual, contractually past due 90
days or more other than non-accruing and restructured loans for the Corporation.
- --------------------------------------------------------------------------------
(Dollars in Thousands) June 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Non-accrual loans .................. $10,911 $ 6,327
Loans contractually past due 90 days
Or more other than nonaccruing
6,030 4,828
Restructured loans ................. 2,771 3,511
------ ------
Total ................ $19,712 $14,666
====== ======
- --------------------------------------------------------------------------------
At June 30, 2002, non-performing loans totaled $19,712,000, an increase of
$5,046,000 from December 31, 2001. This increase was primarily due to the
addition of $5,015,000 in non-performing loans related to the acquisition of
Lafayette Bancorporation.
At June 30, 2002, impaired loans totaled $28,785,000. In addition, an
allowance for losses was not deemed necessary for impaired loans totaling
$12,593,000, but an allowance of $5,943,000 was recorded for the remaining
balance of impaired loans of $16,192,000 and is included in the Corporation's
allowance for loan losses. The average balance of impaired loans for the second
quarter ended June 30, 2002 was $28,722,000. After consideration of an
additional $12,000,000 of impaired loans as of June 30, 2002, due to the
acquisition of Lafayette Bancorporation, the Corporation's impaired loans
decreased by $4,700,000 from year end 2001.
At December 31, 2001, impaired loans totaled $21,161,000. In addition,
an allowance for losses was not deemed necessary for impaired loans totaling
$10,780,000, but an allowance of $3,251,000 was recorded for the remaining
balance of impaired loans of $10,381,000 and is included in the Corporation's
allowance for loan losses. The average balance of impaired loans for 2001 was
$22,327,000.
At June 30, 2002, the allowance for loan losses increased by $6,800,000,
to $21,963,000, from year end 2001. The increase was primarily due to the
allowance acquired in the acquisition of Lafayette Bancorporation, which totaled
$6,902,000. As a percent of loans, the allowance was 1.11 percent, which
remains unchanged from the 1.11 percent at year end 2001.
Page 18
FIRST MERCHANTS CORPORATION
FORM 10-Q
The six month 2002 provision of $2,476,000 was up $1,128,000 from
$1,348,000 for the same period in 2001. Net charge offs amounted to $2,556,000
during the period, an increase of $1,259,000 from $1,297,000 for the same
period in 2001. The increased provision has helped improve the allowance to
total loans by 8 basis points over the same period of 2001, increasing the total
to 1.11% at June 30, 2002.
Six Months Ended
June 30,
------------------
2002 2001
---- ----
(Dollars in Thousands)
Balance at beginning of period ......................... $15,141 $12,454
------- -------
Chargeoffs ............................................. 3,169 1,589
Recoveries ............................................. 613 292
------- -------
Net chargeoffs ......................................... 2,556 1,297
Provision for loan losses .............................. 2,476 1,348
Allowance acquired in acquisition....................... 6,902
------- -------
Balance at end of period ............................... $21,963 $12,505
======= =======
Ratio of net chargeoffs during the period to average loans
outstanding during the period .......................... .31%(1) .20%(1)
(1) First six months annualized
Liquidity, Interest Sensitivity, and Disclosures About Market Risk
Asset/Liability Management has been an important factor in the
Corporation's ability to record consistent earnings growth through periods of
interest rate volatility and product deregulation. Management and the Board of
Directors monitor the Corporation's liquidity and interest sensitivity positions
at regular meetings to review how changes in interest rates may affect earnings.
Decisions regarding investment and the pricing of loan and deposit products are
made after analysis of reports designed to measure liquidity, rate sensitivity,
the Corporation's exposure to changes in net interest income given various rate
scenarios and the economic and competitive environments.
It is the objective of the Corporation to monitor and manage risk
exposure to net interest income caused by changes in interest rates. It is the
goal of the Corporation's Asset/Liability function to provide optimum and stable
net interest income. To accomplish this, management uses two asset liability
tools. GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation
Modeling are both constructed, presented, and monitored quarterly.
Management believes that the Corporation's liquidity and interest
sensitivity position at June 30, 2002, remained adequate to meet the
Corporation's primary goal of achieving optimum interest margins while avoiding
undue interest rate risk.
Page 19
FIRST MERCHANTS CORPORATION
FORM 10-Q
The Corporation places its greatest credence in net interest income
simulation modeling. The GAP/Interest Rate Sensitivity Report is believed by the
Corporation's management to have two major shortfalls. The GAP/Interest Rate
Sensitivity Report fails to precisely gauge how often an interest rate sensitive
product reprices, nor is it able to measure the magnitude of potential future
rate movements.
Net interest income simulation modeling, or earnings-at-risk, measures
the sensitivity of net interest income to various interest rate movements. The
Corporation's asset liability process monitors simulated net interest income
under three separate interest rate scenarios; base, rising and falling.
Estimated net interest income for each scenario is calculated over a 12-month
horizon. The immediate and parallel changes to the base case scenario used in
the model are presented below. The interest rate scenarios are used for
analytical purposes and do not necessarily represent management's view of
future market movements. Rather, these are intended to provide a measure of
the degree of volatility interest rate movements may introduce into the
earnings of the Corporation.
The base scenario is highly dependent on numerous assumptions embedded
in the model, including assumptions related to future interest rates. While the
base sensitivity analysis incorporates management's best estimate of interest
rate and balance sheet dynamics under various market rate movements, the actual
behavior and resulting earnings impact will likely differ from that projected.
For mortgage-related assets, the base simulation model captures the expected
prepayment behavior under changing interest rate environments. Assumptions and
methodologies regarding the interest rate or balance behavior of indeterminate
maturity products, e.g., savings, money market, NOW and demand deposits reflect
management's best estimate of expected future behavior.
The comparative rising and falling scenarios for the period ended June 30,
2003 assume further interest rate changes in addition to the base simulation
discussed above. These changes are immediate and parallel changes to the base
case senario. In addition, total rate movements (beginning point minus ending
point) to each of the various driver rates utilized by management in the base
simulation for the period ended June 30, 2003 are as follows:
Driver Rates RISING FALLING
================================================================================
Prime 200 Basis Points (200)Basis Points
Federal Funds 200 (75)
One-Year T-Bill 200 (92)
Two-Year T-Bill 200 (182)
Interest Checking 100 -
MMIA Savings 200 (100)
Money Market Index 200 (100)
CD's 200 (200)
FHLB Advances 200 (200)
Results for the base, rising and falling interest rate scenarios are listed
below, based upon the Corporation's rate sensitive assets at June 30, 2002.
The net interest income shown represents cumulative net interest income over a
12-month time horizon. Balance sheet assumptions used for the base scenario are
the same for the rising and falling simulations.
BASE RISING FALLING
================================================================================
Net Interest Income (dollars in thousands) $103,628 $101,068 $101,015
Variance from base $ (2,560) $ (2,613)
Percent of change from base (2.47)% (2.52)%
Page 20
FIRST MERCHANTS CORPORATION
FORM 10-Q
The comparative rising and falling scenarios for the year ended December 31,
2002 assume further interest rate changes in addition to the base simulation
discussed above. These changes are immediate and parallel changes to the base
case senario. In addition, total rate movements (beginning point minus ending
point) to each of the various driver rates utilized by management in the base
simulation for the year ended December 31, 2002 are as follows:
Driver Rates RISING FALLING
================================================================================
Prime 200 Basis Points (150)Basis Points
Federal Funds 200 (100)
One-Year T-Bill 200 (100)
Two-Year T-Bill 200 (100)
Interest Checking 100 (25)
MMIA Savings 75 (25)
Money Market Index 200 (100)
CD's 170 (130)
FHLB Advances 200 (100)
Results for the base, rising and falling interest rate scenarios are listed
below, based upon the Corporation's rate sensitive assets at December 31, 2001.
The net interest income shown represents cumulative net interest income over a
12-month time horizon. Balance sheet assumptions used for the base scenario are
the same for the rising and falling simulations.
BASE RISING FALLING
================================================================================
Net Interest Income (dollars in thousands) $ 74,029 $ 74,356 $ 71,540
Variance from base $ 327 $ (2,489)
Percent of change from base .44% (3.36)%
Page 21
FIRST MERCHANTS CORPORATION
FORM 10-Q
Earning Assets
The following table presents the earning asset mix as of June 30,
2002, and December 31, 2001.
Loans grew by over $614.5 million from December 31, 2001 to June 30,
2002, while investment securities increased by $120.7 million during the same
period. Farmland related real estate loans increased $219.6 million. Residential
real estate loans increased by $149.8 million, while commercial and industrial
loans increased by more than $78.1 million.
- ----------------------------------------------------------------------------------------------------
EARNING ASSETS
(Dollars in Millions) June 30, December 31,
2002 2001
- ----------------------------------------------------------------------------------------------------
Federal funds sold and interest-bearing deposits $ 58.2 $ 38.2
Investment securities available for sale ....... 350.2 231.7
Investment securities held to maturity ......... 10.9 8.7
Mortgage loans held for sale ................... 6.5 .3
Loans .......................................... 1,967.9 1,359.6
Federal Reserve and Federal Home Loan Bank stock 11.0 8.4
---------- ----------
Total ..................... $ 2,404.7 $ 1,646.9
========== ==========
- --------------------------------------------------------------------------------
Deposits and Borrowings
The following table presents the level of deposits and borrowed funds
(Federal funds purchased, repurchase agreements, U.S. Treasury demand notes,
Federal Home Loan Bank advances, trust preferred securities and other borrowed
funds)at December 31, 2001 and June 30, 2002.
- --------------------------------------------------------------------------------
(Dollars in Millions) June 30, December 31,
2002 2001
---------- ------------
Deposits ........................................ $ 2,056.5 $ 1,421.3
Securities sold under repurchase agreements...... 87.2 45.6
Other short-term borrowings ..................... 16.8
Federal Home Loan Bank advances ................. 171.0 103.5
Trust preferred securities....................... 53.2
Other borrowed funds ............................ 26.2 8.5
The Corporation has continued to leverage its capital position with
Federal Home Loan Bank advances, as well as, repurchase agreements which are
pledged against acquired investment securities as collateral for the borrowings.
Trust preferred securities are classified as Tier I Capital when computing risk
based capital ratios due to the long-term nature of the investment. The interest
rate risk is included as part of the Corporation's interest simulation discussed
in Management's Discussion and Analysis under the heading Liquidity, Interest
Sensitivity, and Disclosures about Market Risk.
Page 22
FIRST MERCHANTS CORPORATION
FORM 10-Q
Net Interest Income
Net Interest Income is the primary source of the Corporation's
earnings. It is a function of net interest margin and the level of average
earning assets. The table below presents the Corporation's asset yields,
interest expense, and net interest income as a percent of average earning assets
for the three and six months ended June 30, 2002 and 2001.
Annualized net interest income (FTE) for the six months ended June 30,
2002 increased by $40,671,000, or 64.0 percent over the same period in 2001,
due to an increase in average earning assets of over $823 million. For the same
period interest income and interest expense, as a percent of average earning
assets, decreased 99 basis points and 123 basis points respectively.
- ---------------------------- ------------------- -------------------- -------------------- -------------- ---------------------
(Dollars in Thousands)
Interest Income Net Interest Income Annualized
(FTE) as a Percent Interest Expense (FTE) as a Percent Net Interest Income
of Average as a Percent of Average Average On a
Earning Assets of Average Earning Assets Earning Fully Taxable
Earning Assets Assets Equivalent Basis
- ---------------------------- ------------------- -------------------- -------------------- -------------- ---------------------
For the three months
Ended June 30,
2002 7.02% 2.52% 4.50% $2,315,288 $104,194
2001 8.01% 3.75% 4.26% $1,492,034 $ 63,523
- -------------------------------------------------------------------------------------------------------------------------------
- ---------------------------- ------------------- -------------------- -------------------- -------------- ---------------------
(Dollars in Thousands)
Interest Income Net Interest Income Annualized
(FTE) as a Percent Interest Expense (FTE) as a Percent Net Interest Income
of Average as a Percent of Average Average On a
Earning Assets of Average Earning Assets Earning Fully Taxable
Earning Assets Assets Equivalent Basis
- ---------------------------- ------------------- -------------------- -------------------- -------------- ---------------------
For the six months
Ended June 30,
2002 6.96% 2.51% 4.45% $1,977,412 $88,032
2001 8.12% 3.94% 4.18% $1,491,688 $62,348
Average earning assets include the average balance of securities classified as
available for sale, computed based on the average of the historical amortized
cost balances without the effects of the fair value adjustment.
- -------------------------------------------------------------------------------------------------------------------------------
Page 23
FIRST MERCHANTS CORPORATION
FORM 10-Q
Other Income
The Corporation has placed emphasis on the growth of non-interest
income in recent years by offering a wide range of fee-based services. Fee
schedules are regularly reviewed by a pricing committee to ensure that the
products and services offered by the Corporation are priced to be competitive
and profitable.
Other income in the second quarter of 2002 exceeded the same quarter in
the prior year by $2,144,000, or 46.4 percent.
Two major areas account for most of the increase:
1. Service charges on deposit accounts increased $1,216,000 or 90.3
percent due to increased number of accounts and price adjustments.
Also, a portion of the additional service charge income is related to
the July 1, 2001, acquisition of Frances Slocum Bank and Trust Company
("Frances Slocum") and the April 1, 2002 acquisition of Lafayette Bank
and Trust Company ("Lafayette").
2. Revenues from fiduciary activities increased $312,000 or 21.7 percent
due primarily to additional fees received related to the acquisition of
Lafayette Bank and Trust Company.
Other income in the first six months of 2002 exceeded the same period
in the prior year by $2,796,000 or 31.0 percent.
Two major areas account for most of the increase:
1. Service charges on deposit accounts increased $1,406,000 or 54.0
percent due to increased number of accounts and price adjustments.
Also, a portion of the additional service charge income is related to
the July 1, 2001, acquisition of Frances Slocum and the April 1, 2002
acquisition of Lafayette.
2. Net realized gains on sales of available-for-sale securities totaled
$408,000 in the first six months of 2002. No sales occurred during
the same period in the prior year.
Other Expenses
Total other expenses represent non-interest operating expenses of the
Corporation. Total other expense during the second quarter of 2002 exceeded the
same period of the prior year by $8,433,000, or 80.3 percent.
Three major areas account for most of the increase:
1. Salaries and benefit expense grew $4,644,000 or 80.4 percent, due to
normal salary increases, staff additions and additional salary cost
related to the July 1, 2001, acquisition of Frances Slocum and the
April 1, 2002 acquisition of Lafayette.
2. Core deposit intangible amortization increased by $742,000, due to
utilization of the purchase method of accounting for the Corporation
related to the July 1, 2001, acquisition of Frances Slocum and the
April 1, 2002 acquisition of Lafayette.
3. Equipment expense increased by $818,000 or 76.2%, primarily related to
the July 1, 2001, acquisition of Frances Slocum and the April 1, 2002
acquisition of Lafayette.
Total other expenses during the first six months in 2002 exceeded the
same period of the prior year by $10,963,000, or 52.3 percent.
Three major areas account for most of the increase:
1. Salaries and benefit expense grew $6,051,000, or 52.0 percent, due to
normal salary increases, staff additions and additional salary cost
related to the July 1, 2001, acquisition of Frances Slocum and the
April 1, 2002 acquisition of Lafayette.
2. Telephone expenses increased by $666,000 or 124.3%, primarily due to
additional telephone costs related to the acquisition of Frances Slocum
and Lafayette. In addition, increased service contract charges related
to greater usage of telephone lines contributed to this increase.
3. Equipment expenses increased by $826,000 or 38.6%, primarily related to
the July 1, 2001, acquisition of Frances Slocum and the April 1, 2002
acquisition of Lafayette.
Page 24
FIRST MERCHANTS CORPORATION
FORM 10-Q
Income Taxes
Income tax expense, for the six months ended June 30, 2002,
increased by $880,000 over the same period in 2001. The effective tax rate was
33.8 and 35.8 percent for the 2002 and 2001 periods. The 2.0 percent decrease
is primarily a result of the April 1, 2002 acquisition of Lafayette Bank and
Trust Company.
Other
The Securities and Exchange Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Corporation, and that address is (http://www.sec.gov).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The information required under this item is included as part of Management's
Discussion and Analysis of Financial Condition and Results of Operations, under
the heading Liquidity, Interest Sensitivity, and Disclosures About Market Risk.
Page 25
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
None
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
a. None
b. None
c. None
d. None
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At the April 11th, 2002, Annual Meeting of Shareholders of the
Corporation, the following matters were submitted to a vote of the
shareholders.
Election of Directors - The following directors were elected for a term
of three years.
Vote Count
------------------------------------------------
Vote For Vote Against Vote Abstained
---------------- -------------- --------------
Stefan S. Anderson 10,637,676.2044 0 90,378.7953
Jerry M. Ault 10,586,023.8919 0 142,031.1078
Dr. Blaine A. Brownell 10,669,550.8737 0 58,504.1260
Thomas B. Clark 10,585,954.8343 0 142,100.1654
Dr. John E. Worthen 10,665,772.9551 0 62,282.0446
The broker non-vote shares totaled 381,277 shares.
Item 5. Other Information
- --------------------------
None
Page 26
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. Exhibits
Exhibit No.: Description of Exhibit: Form 10-Q Page No.:
------------ ------------------------- -------------------
3(ii) Bylaws of First Merchants
Corporation, as most
recently amended on
May 14, 2002 32
4.1 Certificate of Trust of
First Merchants Capital
Trust I dated December 12,
2001 *
4.2 Amended and Restated Trust
Agreement of First Merchants
Capital Trust I dated April
17, 2002 *
4.3 Agreement as to Expenses and
Liabilities dated April 17,
2002 *
4.4 Cumulative Trust Preferred
Security Certificate *
4.5 Preferred Securities
Guarantee Agreement dated
April 17, 2002 *
4.6 Indenture dated April 17,
2002 *
4.7 First Supplemental Indenture
dated April 17, 2002 *
4.8 8.75% Junior Subordinated
Debenture due June 30, 2002 *
10 First Merchants Corporation
Change of Control Agreement
with Mark K. Hardwick dated
May 14, 2002 41
*Incorporated by reference to Registrant's Current Report on Form 8-K filed
April 19, 2002.
Page 27
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K continued
- ---------------------------------------------------
b. Reports on Form 8-K
A report on Form 8-K, dated April 1, 2002, was filed on April 2,
2002 under report item number 2, announcing that the Corporation
had acquired all of the assets of Lafayette Bancorporation through
the merger of Lafayette Bancorporation with and into the
Corporation. Lafayette Bancorporation's principal asset was the
shares of common stock of its wholly-owned subsidiary, Lafayette
Bank and Trust Company.
Under report items number 7, the following financial statements of
Lafayette Bancorporation and exhibits were included in this
Form 8-K.
(a) Financial Statements of Business Acquired.
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of December 31,
2001 and 2000.
(iii) Consolidated Statements of Income for the Years
Ended December 31, 2001, 2000 and 1999.
(iv) Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999.
(v) Consolidated Statements of Cash Flows for the
Years Ended December 31, 2001, 2000 and 1999.
(vi) Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information.
(i) Unaudited Pro Forma Combined Consolidated
Financial Information Including Balance Sheet
as of December 31, 2001, Statement of Income
for the Year Ended December 31, 2001 and the
notes thereto.
(c) Exhibits.
(2.1) Agreement of Reorganization and Merger by and
between First Merchants Corporation and
Lafayette Bancorporation dated October 14, 2001
(the "Merger Agreement"). (Incorporated by
reference to Exhibit 2 to First Merchants
Corporation's Current Report on Form 8-K filed
October 15, 2001.)
(2.2) Undertaking by First Merchants Corporation to
furnish supplementally the Disclosure Letters
referenced in the Merger Agreement.
(23) Consent of Crowe, Chizek and Company LLP
(99) Press release dated April 1, 2002
Page 28
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
A report on Form 8-K dated April 12, 2002, was filed on April 19,
2002, under report item number 5, announcing that the Corporation
and First Merchants Capital Trust I (the "Trust") entered into an
Underwriting Agreement with Stifel, Nicolaus & Company,
Incorporated and RBC Dain Rauscher Inc. for themselves and as
co-representatives of the several underwriters named in Schedule
I thereto (the "Underwriting Agreement"). On April 17, 2002 and
pursuant to the Underwriting Agreement, the Trust issued
1,850,000 8.75% Cumulative Trust Preferred Securities
(liquidation amount $25 per Preferred Security) (the "Preferred
Securities") with an aggregate liquidation value of $46,250,000.
The proceeds from the sale of the Preferred Securities were
invested by the Trust in the Corporation's 8.75% Junior
Subordinated Debentures due June 30, 2032 (the "Debentures"). The
proceeds from the issuance of the Debentures were used by the
Corporation to fund a portion of the cash consideration payable
to the shareholders of Lafayette Bancorporation as part of the
Corporation's April 1, 2002 acquisition of Lafayette Bank and Trust
Company.
In addition, under report item number 7, the following exhibits
were attached to this form 8-K.
Exhibits.
1.1 Underwriting Agreement dated April 12, 2002
4.1 Certificate of Trust of First Merchants Capital Trust I
dated December 12, 2001
4.2 Amended and Restated Trust Agreement of First Merchants
Capital Trust I dated April 17, 2002
4.3 Agreement as to Expenses and Liabilities dated April 17, 2002
4.4 Cumulative Trust Preferred Security Certificate
4.5 Preferred Securities Guarantee Agreement dated April 17, 2002
4.6 Indenture dated April 17, 2002
4.7 First Supplemental Indenture dated April 17, 2002
4.8 8.75% Junior Subordinated Debenture due June 30, 2032
Page 29
FIRST MERCHANTS CORPORATION
FORM 10-Q
SIGNATURES AND CERTIFICATIONS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
First Merchants Corporation
---------------------------
(Registrant)
Date 08/14/02 by /s/ Michael L. Cox
--------------------------- -------------------------------------
Michael L. Cox
President and Chief Executive Officer
Date 08/14/02 by /s/ Mark K. Hardwick
--------------------------- -------------------------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of First Merchants Corporation (the
"Corporation") on Form 10Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I Michael
L. Cox, President & Chief Executive Officer of the Corporation, do hereby
certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Corporation.
Date 08/14/02 by /s/ Michael L. Cox
--------------------------- -------------------------------------
Michael L. Cox
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of First Merchants Corporation (the
"Corporation") on Form 10Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I Mark K.
Hardwick, Senior Vice President and Chief Financial Officer of the Corporation,
do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Corporation.
Date 08/14/02 by /s/ Mark K. Hardwick
--------------------------- -------------------------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Page 30
FIRST MERCHANTS CORPORATION
FORM 10-Q
INDEX TO EXHIBITS
INDEX TO EXHIBITS
(a)3. Exhibits:
Exhibit No.: Description of Exhibit: Form 10-Q Page No.:
------------ ------------------------- -------------------
3(ii) Bylaws of First Merchants
Corporation, as most
recently amended on
May 14, 2002 32
4.1 Certificate of Trust of
First Merchants Capital
Trust I dated December 12,
2001 *
4.2 Amended and Restated Trust
Agreement of First Merchants
Capital Trust I dated April
17, 2002 *
4.3 Agreement as to Expenses and
Liabilities dated April 17,
2002 *
4.4 Cumulative Trust Preferred
Security Certificate *
4.5 Preferred Securities
Guarantee Agreement dated
April 17, 2002 *
4.6 Indenture dated April 17,
2002 *
4.7 First Supplemental Indenture
dated April 17, 2002 *
4.8 8.75% Junior Subordinated
Debenture due June 30, 2002 *
10 First Merchants Corporation
Change of Control Agreement
with Mark K. Hardwick dated
May 14, 2002 41
*Incorporated by reference to Registrant's Current Report on Form 8-K filed
April 19, 2002.
Page 31
FIRST MERCHANTS CORPORATION
FORM 10-Q
Exhibit 3 (ii)
BYLAWS OF
FIRST MERCHANTS CORORATION
Following are the Bylaws, as amended, of First Merchants Corporation
(hereinafter referred to as the "Corporation"), a corporation existing pursuant
to the provisions of the Indiana Business Corporation Law, as amended
(hereinafter referred to as the "Act"):
ARTICLE I
Section 1. Name. The name of the Corporation is First Merchants
Corporation.
Section 2. Principal Office and Resident Agent. The post office
address of the principal office of the Corporation is 200 East Jackson Street,
Muncie, Indiana 47305, and the name of its Resident Agent in charge of such
office is Larry R. Helms.
Section 3. Seal. The seal of the Corporation shall be circular
in form and mounted upon a metal die, suitable for impressing the same upon
paper. About the upper periphery of the seal shall appear the words AFirst
Merchants Corporation@ and about the lower periphery thereof the word AMuncie,
Indiana@. In the center of the seal shall appear the word ASeal@.
ARTICLE II
The fiscal year of the Corporation shall begin each year on the first
day of January and end on the last day of December of the same year.
ARTICLE III
Capital Stock
Section 1. Number of Shares and Classes of Capital Stock. The
total number of shares of capital stock which the Corporation shall have
authority to issue shall be as stated in the Articles of Incorporation.
Section 2. Consideration for No Par Value Shares. The shares
of stock of the Corporation without par value shall be issued or sold in such
manner and for such amount of consideration as may be fixed from time to time by
the Board of Directors. Upon payment of the consideration fixed by the Board of
Directors, such shares of stock shall be fully paid and nonassessable.
Section 3. Consideration for Treasury Shares. Treasury
shares may be disposed of by the Corporation for such consideration as may be
determined from time to time by the Board of Directors.
Section 4. Payment for Shares. The consideration for the
issuance of shares of capital stock of the Corporation may be paid, in whole or
in part, in money, in other property, tangible or intangible, or in labor
actually performed for, or services actually rendered to the Corporation;
provided, however, that the part of the surplus of the Corporation which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for the issuance of such shares. When
payment of the consideration for which a share was authorized to be issued shall
have been received by the Corporation, or when surplus shall have been
transferred to stated capital upon the issuance of a share dividend, such share
shall be declared and taken to be fully paid and not liable to any further call
or assessment, and the holder thereof shall not be liable for any further
payments thereon. In the absence of actual fraud in the transaction, the
judgment of the Board of Directors as to the value of such property, labor or
services received as consideration, or the value placed by the Board of
Directors upon the corporate assets in the event of a share dividend, shall be
conclusive. Promissory notes, uncertified checks, or future services shall not
be accepted in payment or part payment of the capital stock of the Corporation,
except as permitted by the Act.
Section 5. Certificate for Shares. Each holder of capital
stock of the Corporation shall be entitled to a stock certificate, signed by the
President or a Vice President and the Secretary or any Assistant Secretary of
the Corporation, with the seal of the Corporation thereto affixed, stating the
name of the registered holder, the number of shares represented by such
certificate, the par value of each share of stock or that such shares of stock
are without par value, and that such shares are fully paid and nonassessable. If
such shares are not fully paid, the certificates shall be legibly stamped to
indicate the per cent which has been paid, and as further payments are made, the
certificate shall be stamped accordingly.
Page 32
If the Corporation is authorized to issue shares of more than one
class, every certificate shall state the kind and class of shares represented
thereby, and the relative rights, interests, preferences and restrictions of
such class, or a summary thereof; provided, that such statement may be omitted
from the certificate if it shall be set forth upon the face or back of the
certificate that such statement, in full, will be furnished by the Corporation
to any shareholder upon written request and without charge.
Section 6. Facsimile Signatures. If a certificate is
countersigned by the written signature of a transfer agent other than the
Corporation or its employee, the signatures of the officers of the Corporation
may be facsimiles. If a certificate is countersigned by the written signature of
a registrar other than the Corporation or its employee, the signatures of the
transfer agent and the officers of the Corporation may be facsimiles. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of its issue.
Section 7. Transfer of Shares. The shares of capital stock of
the Corporation shall be transferable only on the books of the Corporation upon
surrender of the certificate or certificates representing the same, properly
endorsed by the registered holder or by his duly authorized attorney or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 8. Cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases provided
for in Section 10 of this Article III.
Section 9. Transfer Agent and Registrar. The Board of Directors
may appoint a transfer agent and a registrar for each class of capital stock of
the Corporation and may require all certificates representing such shares to
bear the signature of such transfer agent and registrar. Shareholders shall be
responsible for notifying the Corporation or transfer agent and registrar for
the class of stock held by such shareholder in writing of any changes in their
addresses from time to time, and failure so to do shall relieve the Corporation,
its shareholders, Directors, officers, transfer agent and registrar of liability
for failure to direct notices, dividends, or other documents or property to an
address other than the one appearing upon the records of the transfer agent and
registrar of the Corporation.
Section 10. Lost, Stolen or Destroyed Certificates. The
Corporation may cause a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Corporation may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum and in such form as it may direct to indemnify against any claim that
may be made against the Corporation with respect to the certificates alleged to
have been lost, stolen or destroyed or the issuance of such new certificate. The
Corporation, in its discretion, may authorize the issuance of such new
certificates without any bond when in its judgment it is proper to do so.
Section 11. Registered Shareholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of such shares to receive dividends, to vote as such owner, to hold
liable for calls and assessments, and to treat as owner in all other respects,
and shall not be bound to recognize any equitable or other claims to or interest
in such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Indiana.
Section 12. Options to Officers and Employees. The issuance,
including the consideration, of rights or options to Directors, officers or
employees of the Corporation, and not to the shareholders generally, to purchase
from the Corporation shares of its capital stock shall be approved by the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon or shall be authorized by and consistent with a plan approved by such a
vote of the shareholders.
ARTICLE IV
Meetings of Shareholders
Section 1. Place of Meeting. Meetings of shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may from time to time be designated by the Board of Directors, or as may be
specified in the notices or waivers of notice of such meetings.
Page 33
Section 2. Annual Meeting. The annual meeting of shareholders
for the election of Directors, and for the transaction of such other business as
may properly come before the meeting, shall be held on the third Tuesday in
April of each year, if such day is not a holiday, and if a holiday, then on the
first following day that is not a holiday, or in lieu of such day may be held on
such other day as the Board of Directors may set by resolution, but not later
than the end of the fifth month following the close of the fiscal year of the
Corporation. Failure to hold the annual meeting at the designated time shall not
work any forfeiture or a dissolution of the Corporation, and shall not affect
otherwise valid corporate acts.
Section 3. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Articles of Incorporation, may be called by the Board of
Directors or the President and shall be called by the President or Secretary at
the request in writing of a majority of the Board of Directors, or at the
request in writing of shareholders holding of record not less than one-fourth
(1/4) of all the shares outstanding and entitled by the Articles of
Incorporation to vote on the business for which the meeting is being called.
Section 4. Notice of Meetings. A written or printed notice,
stating the place, day and hour of the meeting, and in case of a special
meeting, or when required by any other provision of the Act, or of the Articles
of Incorporation, as now or hereafter amended, or these Bylaws, the purpose or
purposes for which the meeting is called, shall be delivered or mailed by the
Secretary, or by the officers or persons calling the meeting, to each
shareholder of record entitled by the Articles of Incorporation, as now or
hereafter amended, and by the Act to vote at such meeting, at such address as
appears upon the records of the Corporation, at least ten (10) days before the
date of the meeting. Notice of any such meeting may be waived in writing by any
shareholder, if the waiver sets forth in reasonable detail the purpose or
purposes for which the meeting is called, and the time and place thereof.
Attendance at any meeting in person, or by proxy, shall constitute a waiver of
notice of such meeting. Each shareholder, who has in the manner above provided
waived notice of a shareholders' meeting, or who personally attends a
shareholders' meeting, or is represented thereat by a proxy authorized to appear
by an instrument of proxy, shall be conclusively presumed to have been given due
notice of such meeting. Notice of any adjourned meeting of shareholders shall
not be required to be given if the time and place thereof are announced at the
meeting at which the adjournment is taken except as may be expressly required by
law.
Section 5. Addresses of Shareholders. The address of any
shareholder appearing upon the records of the Corporation shall be deemed to be
the latest address of such shareholder appearing on the records maintained by
the Corporation or its transfer agent for the class of stock held by such
shareholder.
Section 6. Voting at Meetings.
(a) Quorum. The holders of record of a majority of the issued and
outstanding stock of the Corporation entitled to vote at such meeting, present
in person or by proxy, shall constitute a quorum at all meetings of shareholders
for the transaction of business, except where otherwise provided by law, the
Articles of Incorporation or these Bylaws. In the absence of a quorum, any
officer entitled to preside at, or act as secretary of, such meeting shall have
the power to adjourn the meeting from time to time until a quorum shall be
constituted. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the original
meeting, but only those shareholders entitled to vote at the original meeting
shall be entitled to vote at any adjournment or adjournments thereof unless a
new record date is fixed by the Board of Directors for the adjourned meeting.
(b) Voting Rights. Except as otherwise provided by law or by
the provisions of the Articles of Incorporation, every shareholder shall have
the right at every shareholders' meeting to one vote for each share of stock
having voting power, registered in his name on the books of the Corporation on
the date for the determination of shareholders entitled to vote, on all matters
coming before the meeting including the election of directors. At any meeting of
shareholders, every shareholder having the right to vote shall be entitled to
vote in person, or by proxy executed in writing by the shareholder or a duly
authorized attorney in fact and bearing a date not more than eleven (11) months
prior to its execution, unless a longer time is expressly provided therein.
(c) Required Vote. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the Act
or of the Articles of Incorporation or by these Bylaws, a greater vote is
required, in which case such express provision shall govern and control the
decision of such question.
Page 34
Section 7. Voting List. The Corporation or its transfer agent
shall make, at least five (5) days before each election of directors, a complete
list of the shareholders entitled by the Articles of Incorporation, as now or
hereafter amended, to vote at such election, arranged in alphabetical order,
with the address and number of shares so entitled to vote held by each, which
list shall be on file at the principal office of the Corporation and subject to
inspection by any shareholder. Such list shall be produced and kept open at the
time and place of election and subject to the inspection of any shareholder
during the holding of such election. The original stock register or transfer
book, or a duplicate thereof kept in the State of Indiana, shall be the only
evidence as to who are the shareholders entitled to examine such list or the
stock ledger or transfer book or to vote at any meeting of the shareholders.
Section 8. Fixing of Record Date to Determine Shareholders
Entitled to Vote. The Board of Directors may prescribe a period not exceeding
fifty (50) days prior to meetings of the shareholders, during which no transfer
of stock on the books of the Corporation may be made; or, in lieu of prohibiting
the transfer of stock may fix a day and hour not more than fifty (50) days prior
to the holding of any meeting of shareholders as the time as of which
shareholders entitled to notice of, and to vote at, such meeting shall be
determined, and all persons who are holders of record of voting stock at such
time, and no others, shall be entitled to notice of, and to vote at, such
meeting. In the absence of such a determination, such date shall be ten (10)
days prior to the date of such meeting.
Section 9. Nominations for Director. Nominations for election
to the Board of Directors may be made by the Board of Directors or by an
shareholder of any outstanding class of capital stock of the Corporation
entitled to vote for the election of directors. Nominations, other than those
made by or on behalf of the existing management of the Corporation, shall be
made in writing and shall be delivered or mailed to the President of the
Corporation not less than ten (10) days nor more than fifty (50) days prior to
any meeting of shareholders called for the election of Directors. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Corporation that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Corporation owned by the
notifying shareholder. Nominations not made in accordance herewith may, in his
discretion, be disregarded by the chairman of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast for each such
nominee.
ARTICLE V
Board of Directors
Section 1. Election, Number and Term of Office. The number of
Directors of the Corporation to be elected by the holders of the shares of stock
entitled by the Articles of Incorporation to elect Directors shall be sixteen
(16) unless changed by amendment of this Section by a two-thirds (2/3) vote of
the Board of Directors.
The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms except as
provided in the third paragraph of this Section. One class shall be elected at
each annual meeting of the shareholders, by the holders of the shares of stock
entitled by the Articles of Incorporation to elect Directors. Unless the number
of Directors is changed by amendment of this Section, Classes I and II shall
each have five (5) Directors, and Class III shall have six (6) Directors. No
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director.
No person shall serve as a Director subsequent to the annual meeting
of shareholders following the end of the calendar year in which such person
attains the age of seventy (70) years. The term of a Director shall expire as of
the annual meeting following which the Director is no longer eligible to serve
under the provisions of this paragraph, even if fewer than three (3) years have
elapsed since the commencement of the Director=s term.
Except in the case of earlier resignation, removal or death, all
Directors shall hold office until their respective successors are chosen and
qualified.
The provisions of this Section of the Bylaws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Section 2. Vacancies. Any vacancy occurring in the Board
of Directors caused by resignation, death or other incapacity, or an increase in
the number of Directors, shall be filled by a majority vote of the remaining
members of the Board of Directors, until the next annual meeting of the
shareholders, or at the discretion of the Board of Directors, such vacancy may
be filled by a vote of the shareholders at a special meeting called for that
purpose.
Page 35
Section 3. Annual Meeting of Directors. The Board of
Directors shall meet each year immediately after the annual meeting of the
shareholders, at the place where such meeting of the shareholders has been held
either within or without the State of Indiana, for the purpose of organization,
election of officers, and consideration of any other business that may properly
come before the meeting. No notice of any kind to either old or new members of
the Board of Directors for such annual meeting shall be necessary.
Section 4. Regular Meetings. Regular meetings of the Board
of Directors shall be held at such times and places, either within or without
the State of Indiana, as may be fixed by the Directors. Such regular meetings of
the Board of Directors may be held without notice or upon such notice as may be
fixed by the Directors.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or by not
less than a majority of the members of the Board of Directors. Notice of the
time and place, either within or without the State of Indiana, of a special
meeting shall be served upon or telephoned to each Director at least twenty-four
(24) hours, or mailed, telegraphed or cabled to each Director at his usual place
of business or residence at least forty-eight (48) hours, prior to the time of
the meeting. Directors, in lieu of such notice, may sign a written waiver of
notice either before the time of the meeting, at the meeting or after the
meeting. Attendance by a Director in person at any special meeting shall
constitute a waiver of notice.
Section 6. Quorum. A majority of the actual number of Directors
elected and qualified, from time to time, shall be necessary to constitute a
quorum for the transaction of any business except the filling of vacancies, and
the act of a majority of the Directors present at the meeting, at which a quorum
is present, shall be the act of the Board of Directors, unless the act of a
greater number is required by the Act, by the Articles of Incorporation, or by
these Bylaws. A Director, who is present at a meeting of the Board of Directors,
at which action on any corporate matter is taken, shall be conclusively presumed
to have assented to the action taken, unless (a) his dissent shall be
affirmatively stated by him at and before the adjournment of such meeting (in
which event the fact of such dissent shall be entered by the secretary of the
meeting in the minutes of the meeting), or (b) he shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. The right of dissent provided for by either clause
(a) or cause (b) of the immediately preceding sentence shall not be available,
in respect of any matter acted upon at any meeting, to a Director who voted at
the meeting in favor of such matter and did not change his vote prior to the
time that the result of the vote on such matter was announced by the chairman of
such meeting.
A member of the Board of Directors may participate in a meeting of
the Board by means of a conference telephone or similar communications equipment
by which all Directors participating in the meeting can communicate with each
other, and participation by these means constitutes presence in person at the
meeting.
Section 7. Consent Action by Directors. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if prior to such action a
written consent to such action is signed by all members of the Board of
Directors or such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board of Directors or committee.
Section 8. Removal. Any or all members of the Board of Directors
may be removed, with or without cause, at a meeting of the shareholders called
expressly for that purpose by the affirmative vote of the holders of not less
than two-thirds (2/3) of the outstanding shares of capital stock then entitled
to vote on the election of Directors, except that if the Board of Directors, by
an affirmative vote of at least two-thirds (2/3) of the entire Board of
Directors, recommends removal of a Director to the shareholders, such removal
may be effected by the affirmative vote of the holders of not less than a
majority of the outstanding shares of capital stock then entitled to vote on the
election of Directors at a meeting of shareholders called expressly for that
purpose.
The provisions in this Section of the Bylaws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Section 9. Dividends. The Board of Directors shall have power,
subject to any restrictions contained in the Act or in the Articles of
Incorporation and out of funds legally available therefor, to declare and pay
dividends upon the outstanding capital stock of the Corporation as and when they
deem expedient. Before declaring any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time in their absolute discretion deem proper for
working capital, or as a reserve or reserves to meet contingencies or for such
other purposes as the Board of Directors may determine, and the Board of
Directors may in their absolute discretion modify or abolish any such reserve in
the manner in which it was created.
Page 36
Section 10. Fixing of Record Date to Determine Shareholders
Entitled to Receive Corporate Benefits. The Board of Directors may fix a day and
hour not exceeding fifty (50) days preceding the date fixed for payment of any
dividend or for the delivery of evidence of rights, or for the distribution of
other corporate benefits, or for a determination of shareholders for any other
purpose, as a record time for the determination of the shareholders entitled to
receive any such dividend, rights or distribution, and in such case only
shareholders of record at the time so fixed shall be entitled to receive such
dividend, rights or distribution. If no record date is fixed for the
determination of shareholders entitled to receive payment of a dividend, the end
of the day on which the resolution of the Board of Directors declaring such
dividend is adopted shall be the record date for such determination.
Section 11. Interest of Directors in Contracts. Any contract
or other transaction between the Corporation or any corporation in which this
Corporation owns a majority of the capital stock shall be valid and binding,
notwithstanding that the Directors or officers of this Corporation are identical
or that some or all of the Directors or officers, or both, are also directors or
officers of such other corporation.
Any contract or other transaction between the Corporation and one
or more of its Directors or members or employees, or between the Corporation and
any firm of which one or more of its Directors are members or employees or in
which they are interested, or between the Corporation and any corporation or
association of which one or more of its Directors are stockholders, members,
directors, officers, or employees or in which they are interested, shall be
valid for all purposes, notwithstanding the presence of such Director or
Directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and notwithstanding his
or their participation in such action, if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of Directors shall
authorize, approve and ratify such contract or transaction by a vote of a
majority of the Directors present, such interested Director or Directors to be
counted in determining whether a quorum is present, but not to be counted in
calculating the majority of such quorum necessary to carry such vote. This
Section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
Section 12. Committees. The Board of Directors may, by
resolution adopted by a majority of the actual number of Directors elected and
qualified, from time to time, designate from among its members an executive
committee and one or more other committees.
During the intervals between meetings of the Board of Directors, any
executive committee so appointed, unless expressly provided otherwise by law or
these Bylaws, shall have and may exercise all the authority of the Board of
Directors, including, but not limited to, the authority to issue and sell or
approve any contract to issue or sell, securities or shares of the Corporation
or designate the terms of a series or class of securities or shares of the
Corporation. The terms which may be affixed by the executive committee include,
but are not limited to, the price, dividend rate, and provisions of redemption,
a sinking fund, conversion, voting, or preferential rights or other features of
securities or class or series of a class of shares. Such committee may have full
power to adopt a final resolution which sets forth these terms and to authorize
a statement of such terms to be filed with the Secretary of State. However, such
executive committee shall not have the authority to declare dividends or
distributions, amend the Articles of Incorporation or the Bylaws, approve a plan
of merger or consolidation, even if such plan does not require shareholder
approval, reduce earned or capital surplus, authorize or approve the
reacquisition of shares unless pursuant to a general formula or method specified
by the Board of Directors, or recommend to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof.
The Board of Directors may, in its discretion, constitute and
appoint other committees, in addition to an executive committee, to assist in
the management and control of the affairs of the Corporation, with
responsibilities and powers appropriate to the nature of the several committees
and as provided by the Board of Directors in the resolution of appointment or in
subsequent resolutions and directives. Such committees may include, but are not
limited to, an audit committee and a compensation and human resources committee.
No member of any committee appointed by the Board of Directors shall
continue to be a member thereof after he ceases to be a Director of the
Corporation. However, where deemed in the best interests of the Corporation, to
facilitate communication and utilize special expertise, directors of the
Corporation's affiliated banks and corporations may be appointed to serve on
such committees, as Aaffiliate representatives. Such affiliate representatives
may attend and participate fully in meetings of such committees, but they shall
not be entitled to vote on any matter presented to the meeting nor shall they be
counted for the purpose of determining whether a quorum exists. The calling and
holding of meetings of any such committee and its method of procedure shall be
determined by the Board of Directors. To the extent permitted by law, a member
of the Board of Directors, and any affiliate representative, serving on any such
committee shall not be liable for any action taken by such committee if he has
acted in good faith and in a manner he reasonably believes is in the best
interests of the Corporation. A member of a committee may participate in a
meeting of the committee by means of a conference telephone or similar
communications equipment by which all members participating in the meeting can
Page 37
communicate with each other, and participation by these means constitutes
presence in person at the meeting.
ARTICLE VI
Officers
Section 1. Principal Officers. The principal officers of the
Corporation shall be a Chairman of the Board, Vice Chairman of the Board, a
President, one (1) or more Vice Presidents, a Treasurer and a Secretary. The
Corporation may also have, at the discretion of the Board of Directors, such
other subordinate officers as may be appointed in accordance with the provisions
of these Bylaws. Any two (2) or more offices may be held by the same person,
except the duties of President and Secretary shall not be performed by the same
person. No person shall be eligible for the office of Chairman of the Board,
Vice Chairman of the Board, or President who is not a Director of the
Corporation.
Section 2. Election and Term of Office. The principal officers
of the Corporation shall be chosen annually by the Board of Directors at the
annual meeting thereof. Each such officer shall hold office until his successor
shall have been duly chosen and qualified, or until his death, or until he shall
resign, or shall have been removed in the manner hereinafter provided.
Section 3. Removal. Any principal officer may be removed,
either with or without cause, at any time, by resolution adopted at any meeting
of the Board of Directors by a majority of the actual number of Directors
elected and qualified from time to time.
Section 4. Subordinate Officers. In addition to the principal
officers enumerated in Section 1 of this Article VI, the Corporation may have
one or more Assistant Treasurers, one or more Assistant Secretaries and such
other officers, agents and employees as the Board of Directors may deem
necessary, each of whom shall hold office for such period, may be removed with
or without cause, have such authority, and perform such duties as the President,
or the Board of Directors may from time to time determine. The Board of
Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
Section 5. Resignations. Any officer may resign at any time by
giving written notice to the Chairman of the Board of Directors, or to the
President, or to the Secretary. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. Any vacancy in any office for any cause
may be filled for the unexpired portion of the term in the manner prescribed in
these Bylaws for election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board,
who shall be chosen from among the Directors, shall preside at all meetings of
shareholders and at all meetings of the Board of Directors. He shall perform
such other duties and have such other powers as, from time to time, may be
assigned to him by the Board of Directors.
Section 8. Vice Chairman of the Board. The Vice Chairman of the
Board, who shall be chosen from among the Directors, shall act in the absence of
the Chairman of the Board. He shall perform such other duties and have such
other powers as, from time to time, may be assigned to him by the Board of
Directors.
Section 9. President. The President, who shall be chosen
from among the Directors, shall be the chief executive officer of the
Corporation and as such shall have general supervision of the affairs of the
Corporation, subject to the control of the Board of Directors. He shall be an ex
officio member of all standing committees. In the absence or disability of the
Chairman of the Board and Vice Chairman of the Board, the President shall
preside at all meetings of shareholders and at all meetings of the Board of
Directors. Subject to the control and direction of the Board of Directors, the
President may enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation. In general, he shall perform all
duties and have all powers incident to the office of President, as herein
defined, and all such other duties and powers as, from time to time, may be
assigned to him by the Board of Directors.
Section 10. Vice Presidents. The Vice Presidents in the order
of their seniority, unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the President and Executive Vice
President, perform the duties and exercise the powers of the President. They
shall perform such other duties and have such other powers as the President or
the Board of Directors may from time to time assign.
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Section 11. Treasurer. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation
and shall deposit all such funds in the name of the Corporation in such banks or
other depositories as shall be selected by the Board of Directors. He shall upon
request exhibit at all reasonable times his books of account and records to any
of the Directors of the Corporation during business hours at the office of the
Corporation where such books and records shall be kept; shall render upon
request by the Board of Directors a statement of the condition of the finances
of the Corporation at any meeting of the Board of Directors or at the annual
meeting of the shareholders; shall receive, and give receipt for, moneys due and
payable to the Corporation from any source whatsoever; and in general, shall
perform all duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the President or the Board of
Directors. The Treasurer shall give such bond, if any, for the faithful
discharge of his duties as the Board of Directors may require.
Section 12. Secretary. The Secretary shall keep or cause to be
kept in the books provided for that purpose the minutes of the meetings of the
shareholders and of the Board of Directors; shall duly give and serve all
notices required to be given in accordance with the provisions of these Bylaws
and by the Act; shall be custodian of the records and of the seal of the
Corporation and see that the seal is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these Bylaws; and, in general, shall perform
all duties incident to the office of Secretary and such other duties as may,
from time to time, be assigned to him by the President or the Board of
Directors.
Section 13. Salaries. The salaries of the principal officers
shall be fixed from time to time by the Board of Directors, and the salaries of
any subordinate officers may be fixed by the President.
Section 14. Voting Corporation's Securities. Unless otherwise
ordered by the Board of Directors, the Chairman of the Board, the President and
Secretary, and each of them, are appointed attorneys and agents of the
Corporation, and shall have full power and authority in the name and on behalf
of the Corporation, to attend, to act, and to vote all stock or other securities
entitled to be voted at any meetings of security holders of corporations, or
associations in which the Corporation may hold securities, in person or by
proxy, as a stockholder or otherwise, and at such meetings shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities, and which as the owner thereof the Corporation might have possessed
and exercised, if present, or to consent in writing to any action by any such
other corporation or association. The Board of Directors by resolution from time
to time may confer like powers upon any other person or persons.
ARTICLE VII
Indemnification
Section 1. Indemnification of Directors, Officers, Employees
(i) by reason of his being or having been a Director, officer,
employee, or agent of this Corporation or such other
corporation or arising out of his status as such or
(ii) by reason of any past or future action taken or not taken by
him in any such capacity, whether or not he continues to be
such at the time such liability or expense is incurred.
The terms Aliability@ and Aexpense@ shall include, but shall not be limited to,
attorneys' fees and disbursements, amounts of judgments, fines or penalties, and
amounts paid in settlement by or on behalf of a Director, officer, employee, or
agent, but shall not in any event include any liability or expenses on account
of profits realized by him in the purchase or sale of securities of the
Corporation in violation of the law. The termination of any claim, action, suit
or proceeding, by judgment, settlement (whether with or without court approval)
or conviction or upon a plea of guilty or of nolo contendere, or its equivalent,
shall not create a presumption that a Director, officer, employee, or agent did
not meet the standards of conduct set forth in this paragraph.
Any such Director, officer, employee, or agent who has been wholly
successful with respect to any such claim, action, suit or proceeding shall be
entitled to indemnification as a matter of right. Except as provided in the
preceding sentence, any indemnification hereunder shall be made only if
(i) the Board of Directors acting by a quorum consisting of
Directors who are not parties to or who have been wholly
successful with respect to such claim, action, suit or
proceeding shall find that the Director, officer, employee,
or agent has met the standards of conduct set forth in the
preceding paragraph; or
(ii) independent legal counsel shall deliver to the Corporation
their written opinion that such Director, officer,
employee, or agent has met such standards of conduct.
Page 39
If several claims, issues or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though he is
not entitled as to other matters.
The Corporation may advance expenses to or, where appropriate,
may at its expense undertake the defense of any such Director, officer,
employee, or agent upon receipt of an undertaking by or on behalf of such person
to repay such expenses if it should ultimately be determined that he is not
entitled to indemnification hereunder.
The provisions of this Section shall be applicable to claims,
actions, suits or proceedings made or commenced after the adoption hereof,
whether arising from acts or omissions to act during, before or after the
adoption hereof.
The rights of indemnification provided hereunder shall be in
addition to any rights to which any person concerned may otherwise be entitled
by contract or as a matter of law and shall inure to the benefit of the heirs,
executors and administrators of any such person.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation against any liability asserted against
him and incurred by him in any capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Section or otherwise.
ARTICLE VIII
Amendments
Except as expressly provided herein or in the Articles of
Incorporation, the Board of Directors may make, alter, amend or repeal these
Bylaws by an affirmative vote of a majority of the actual number of Directors
elected and qualified.
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FIRST MERCHANTS CORPORATION
Exhibit 10
CHANGE OF CONTROL AGREEMENT
This Agreement is made and entered into as of May 14, 2002, by and
between First Merchants Corporation, an Indiana corporation (hereinafter
referred to as "Corporation"), with its principal office located at 200 East
Jackson Street, Muncie, Indiana, and Mark K. Hardwick (hereinafter referred to
as 'Executive'), of Muncie, Indiana.
WHEREAS, the Corporation considers the continuance of proficient
and experienced management to be essential to protecting and enhancing the best
interests of the Corporation and its shareholders; and
WHEREAS, the Corporation desires to assure the continued services
of the Executive on behalf of the Corporation; and
WHEREAS, the Corporation recognizes that if faced with a
proposal for a Change of Control, as hereinafter defined, the Executive will
have a significant role in helping the Board of Directors assess the options and
advising the Board of Directors on what is in the best interests of the
Corporation and its shareholders; and it is necessary for the Executive to be
able to provide this advice and counsel without being influenced by the
uncertainties of the Executive's own situation; and
WHEREAS, the Corporation desires to provide fair and reasonable
benefits to the Executive on the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained and the continued employment of the Executive by
the Corporation as its Senior Vice President and Chief Financial Officer, the
Corporation and the Executive, each intending to be legally bound, covenant and
agree as follows:
1. Term of Agreement.
This Agreement shall continue in effect through December 31, 2003;
provided, however, that commencing on December 31, 2003 and each December 31
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than October 31, 2003 or October 31
immediately preceding any December 31 thereafter, the Corporation shall have
given the Executive notice that it does not wish to extend this Agreement; and
provided further, that if a Change of Control of the Corporation, as defined in
Section 2, shall have occurred during the original or extended term of this
Agreement, this Agreement shall continue in effect for a period of not less than
twenty-four (24) months beyond the month in which such Change of Control
occurred.
2. Definitions.
For purposes of this Agreement, the following definitions shall apply:
A. Cause: "Cause" shall mean:
(1) professional incompetence;
(2) willful misconduct;
(3) personal dishonesty;
(4) breach of fiduciary duty involving personal
profit;
(5) intentional failure to perform stated
duties;
(6) willful violation of any law, rule or
regulation (other than traffic violations
or similar offenses) or final cease and
desist orders; and
(7) any intentional material breach of any
term, condition or covenant of this
Agreement.
Page 41
(B) Change of Control: "Change of Control" shall mean:
(1) any person (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange
Act of 1934 ["Exchange Act"]), other than
the Corporation, is or becomes the
Beneficial Owner (as defined in Rule 13d-3
under the Exchange Act) directly or
indirectly of securities of the
Corporation representing twenty-five percent
(25%) or more of the combined voting
power of the Corporation=s then outstanding
securities;
(2) persons constituting a majority of the Board
of Directors of the Corporation were not
directors of the Corporation for at
least the twenty-four (24)
preceding months;
(3) the stockholders of the Corporation approve
a merger or consolidation of the Corporation
with any other corporation, other than
(a) a merger or consolidation which would
result in the voting securities of the
Corporation outstanding immediately prior
thereto continuing to represent (either
by remaining outstanding or by being
converted into voting securities of the
surviving entity) more than fifty percent
(50%) of the combined voting power of the
voting securities of the Corporation
or such surviving entity outstanding
immediately after such a merger or
consolidation, or (b) a merger or
consolidation effected to implement a
recapitalization of the Corporation (or
similar transaction) in which no person
acquires fifty percent (50%) or more of
the combined voting power of the
Corporation's then outstanding securities;
or
(4) the stockholders of the Corporation approve
a plan of complete liquidation of the
Corporation or an agreement for the sale or
disposition by the Corporation of all or
substantially all of the Corporation's
assets.
(C) Date of Termination: "Date of Termination" shall
mean the date stated in the Notice of Termination
(as hereinafter defined) or thirty (30) days from
the date of delivery of such notice, as hereinafter
defined, whichever comes first.
(D) Disability: "Disability" shall mean the definition
of such term as used in the disability policy
then in effect for the Corporation, and a
determination of full disability by the Corporation;
provided that in the event there is no disability
insurance then in force, "disability" shall mean
incapacity due to physical or mental illness which
will have caused the Executive to have been unable
to perform his duties with the Corporation on a
full time basis for one hundred eighty (180)
consecutive calendar days.
(E) Notice of Termination: "Notice of Termination"
shall mean a written notice, communicated to
the other parties hereto, which shall
indicate the specific termination provisions of
this Agreement relied upon and set forth in
reasonable detail the facts and circumstances
claimed to provide a basis for termination of the
Executive=s employment under the provisions so
indicated.
(F) Retirement: "Retirement" shall mean termination of
employment by the Executive in accordance with the
Corporation=s normal retirement policy generally
applicable to its salaried employees in effect at the
time of a Change of Control.
Page 42
3. Termination.
(A) General. If any of the events described in Section 2
constituting a Change in Control of the Corporation
shall have occurred, the Executive shall be
entitled to the benefits described in Section 4
upon the subsequent termination of the Executive's
employment during the term of this Agreement,
unless such termination is (a) because of the death
or Disability of the Executive, (b) by the
Corporation for Cause, or (c) by the Executive
other than on account of Constructive Termination
(as hereinafter defined).
(B) If, following a Change of Control, the Executive's
employment shall be terminated for Cause, the
Corporation shall pay him his salary through the
Date of Termination at the rate in effect on the
date of the Notice of Termination, and the
Corporation shall have no further obligations
under this Agreement. If, following a Change of
Control, the Executive=s employment shall be
terminated as a result of death or Disability,
compensation to the Executive shall be made
pursuant to the Corporation's then existing
policies on death or Disability, and the
Corporation shall have no further obligations under
this Agreement. If, following a Change of Control,
the Executive's employment is terminated by and at
the request of the Executive as a result of
Retirement, compensation to the Executive shall be
made pursuant to the Corporation's normal retirement
policy generally applicable to its salaried
employees at the time of the Change of Control, and
the Corporation shall have no further obligations
under this Agreement.
(C) Constructive Termination. The Executive shall be
entitled to terminate his employment upon the
occurrence of Constructive Termination. For
purposes of this Agreement, "Constructive
Termination" shall mean, without the Executive's
express written consent, the occurrence, after a
Change of Control of the Corporation, of any of the
following circumstances:
(1) the assignment to the Executive of any
duties inconsistent (unless in the
nature of a promotion) with the position in
the Corporation that the Executive held
immediately prior to the Change of Control
of the Corporation, or a significant
adverse reduction or alteration in the
nature or status of the Executive's
position, duties or responsibilities or
the conditions of the Executive's
employment from those in effect immediately
prior to such Change of Control;
(2) a reduction in the Executive's annual base
salary, as in effect immediately prior to
the Change of Control of the Corporation
or as the same may be adjusted from time
to time, except for across-the-board
salary reductions similarly affecting all
management personnel of the Corporation;
(3) the Corporation requires the Executive to
be relocated anywhere other than its
offices in Muncie, Indiana;
(4) the taking of any action to deprive the
Executive of any material fringe benefit
enjoyed by him at the time of the Change of
Control, or the failure to provide him
with the number of paid vacation days to
which he is entitled on the basis of years
of service with the Corporation and in
accordance with the Corporation's normal
vacation policy in effect at the time of
the Change of Control;
Page 43
(5) the failure to continue to provide the
Executive with benefits substantially
similar to those enjoyed by the Executive
under any of the Corporation's life
insurance, medical, health and accident,
or disability plans in which the
Executive was participating at the time
of the Change of Control of the
Corporation, or the taking of any action
which would directly or indirectly
materially reduce any of such benefits; or
(6) the failure of the Corporation to continue
this Agreement in effect, or to obtain a
satisfactory agreement from any successor
to assume and agree to perform this
Agreement, as contemplated in Section 5
hereof.
4. Compensation Upon Termination.
Following a Change of Control, if his employment by the Corporation
shall be terminated by the Executive on account of Constructive Termination or
by the Corporation other than for Cause, death, Disability, or Retirement (by
and at the request of the Executive), then the Executive shall be entitled to
the benefits provided below:
(A) No later than the fifth day following the Date of
Termination, the Corporation shall pay to the
Executive his full base salary through the Date of
Termination, at the rate in effect at the time
Notice of Termination is given, plus all other
amounts to which the Executive is entitled under any
incentive, bonus or other compensation plan of the
Corporation in effect at the time such payments are
due;
(B) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of
Termination, no later than the fifth day following
the Date of Termination, the Corporation shall pay
to the Executive a lump sum severance payment,
in cash, equal to two (2.00) times the sum of (a) the
Executive's annual base salary rate as in effect on
the date of the Notice of Termination, and (b) the
largest bonus received by the Executive during the
two (2) years immediately preceding the Date of
Termination under the Corporation's Management
Incentive Plan covering the Executive;
(C) During the period beginning with the Executive's
Date of Termination and continuing until the
earlier of (a) the second anniversary of such Date
of Termination, or (b) Executive's sixty-fifth
(65th) birthday, the Corporation shall arrange to
provide the Executive with life, disability,
accident and health insurance benefits substantially
similar to those which the Executive was receiving
immediately prior to the Notice of Termination and
shall pay the same percentage of the cost of such
benefits as the Corporation was paying on the
Executive's behalf on the date of such Notice;
(D) In lieu of shares of common stock of the Corporation
("Corporation Shares") issuable upon the exercise
of outstanding options ("Options"), if any, granted
to the Executive under any Corporation stock option
plan (which Options shall be cancelled upon the
making of the payment referred to below), the
Executive shall receive an amount in cash equal to
the product of (a) the excess of the higher of
the closing price of Corporation Shares as reported
on the NASDAQ National Market System, the
American Stock Exchange or the New York Stock
Exchange, wherever listed, on or nearest the Date
of Termination or the highest per share price for
Corporation Shares actually paid in connection
with any Change of Control of the Corporation, over
the per share exercise price of each Option held by
the Executive (whether or not then fully
exercisable), times (b) the number of Corporation
Shares covered by each such Option;
Page 44
(E) If the payments or benefits, if any, received or
to be received by the Executive (whether under
this Agreement or under any other plan,
arrangement, or agreement between the Executive
and the Corporation), in connection with
termination or Constructive Termination of the
Executive's employment following a Change of Control,
constitute an "excess parachute payment" within
the meaning of '280G of the Internal Revenue Code
("Code"), the Corporation shall pay to the
Executive, no later than the fifth day following the
Date of Termination, an additional amount (as
determined by the Corporation's independent public
accountants) equal to the excise tax, if any,
imposed on the "excess parachute payment" under
'4999 of the Code; provided, however, if the amount
of such excise tax is finally determined to be
more or less than the amount paid to the Executive
hereunder, the Corporation (or the Executive if
the finally determined amount is less than the
original amount paid) shall pay the difference
between the amount originally paid and the finally
determined amount to the other party no later than
the fifth day following the date such final
determination is made;
(F) The Corporation shall pay to the Executive all
reasonable legal fees and expenses incurred by the
Executive as a result of such termination (including
all such fees and expenses, if any, incurred in
contesting or disputing any such termination or
in seeking to obtain or enforce any right or benefit
provided by this Agreement), unless the
decision-maker in any proceeding, contest, or
dispute arising hereunder makes a formal finding
that the Executive did not have a reasonable basis
for instituting such proceeding, contest, or dispute;
(G) The Corporation shall provide the Executive with
individual out-placement services in accordance
with the general custom and practice generally
accorded to an executive of the Executive's position.
5. Successors; Binding Agreement.
(A) The Corporation shall require any successor (whether
direct or indirect, by purchase,
merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of
the Corporation to expressly assume and agree to
perform this Agreement in the same manner and to
the same extent that the Corporation would be
required to perform it if no such succession had
taken place. Failure of the Corporation to
obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the
Executive to compensation from the Corporation in
the same amount and on the same terms to which the
Executive would be entitled hereunder if the
Executive terminates his employment on account of
Constructive Termination following a Change of
Control of the Corporation, except that for the
purposes of implementing the foregoing, the date
on which any such succession becomes effective shall
be deemed the Date of Termination. As used in this
Agreement, "the Corporation" shall mean the
Corporation and any successor to its business and/or
assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law or
otherwise.
(B) This Agreement shall inure to the benefit of and be
enforceable by the Executive and his personal or
legal representatives, executors, administrators,
successors, heirs, distributees, devisees and
legatees. If the Executive should die while any
amount would still be payable to the Executive
hereunder had the Executive continued to live, all
such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this
Agreement to the devisee, legatee or other designee
or, if there is no such designee, to his estate.
Page 45
6. Miscellaneous.
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer as may be specifically designated by the
Corporation. No waiver by either party hereto at the time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Indiana without regard to its conflicts of law
principles. All references to a section of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such section. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Corporation under
Section 4 shall survive the expiration of the term of this Agreement.
7. Validity.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
8. Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
9. Arbitration.
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration, conducted before a
panel of three (3) arbitrators in Muncie, Indiana in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator=s award in any court having jurisdiction; provided, however,
that the Executive shall be entitled to seek specific performance of his right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
10. Entire Agreement.
This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled.
IN WITNESS WHEREOF, the Corporation and the Bank have caused this
Agreement to be executed by their duly authorized officers, and the Executive
has hereunder subscribed his name, as of the day and year first above written.
"CORPORATION" "EXECUTIVE"
FIRST MERCHANTS CORPORATION
By ______________________________ By ______________________________
Stefan S. Anderson, Mark K. Hardwick
Chairman of the Board
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