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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes [x] No [ ]
As of April 30,2003, there were 17,516,464 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.........................................5
Consolidated Condensed Statements of Cash Flows..............6
Notes to Consolidated Condensed Financial Statements.........8
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
Item 4. Controls and Procedures.....................................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...................................................................29
Certifications Pursuant to Section 302 of
The Sarbanes-Oxley Act of 2002.............................................30
Exhibit Index................................................................32
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)
March 31, December 31,
2003 2002
---------- -----------
(Unaudited)
ASSETS:
Cash and due from banks.................................................... $ 81,789 $ 87,638
Federal funds sold......................................................... 54,925 31,400
----------- -----------
Cash and cash equivalents................................................ 136,714 119,038
Interest-bearing deposits.................................................. 5,170 3,568
Investment securities available for sale................................... 324,976 332,925
Investment Securities held to maturity..................................... 8,716 9,137
Mortgage loans held for sale............................................... 13,558 21,545
Loans, net of allowance for loan losses of $29,733 and $22,417............. 2,261,445 1,981,960
Premises and equipment..................................................... 38,861 38,645
Federal Reserve and Federal Home Loan Bank Stock........................... 13,912 11,409
Interest receivable........................................................ 16,789 17,346
Goodwill................................................................... 114,308 87,640
Core deposit intangibles................................................... 26,918 19,577
Cash surrender value of life insurance..................................... 14,567 14,309
Other assets............................................................... 23,088 21,588
----------- -----------
Total assets........................................................... $2,999,022 $ 2,678,687
=========== ===========
LIABILITIES:
Deposits:
Noninterest-bearing...................................................... $ 289,835 $ 272,128
Interest-bearing......................................................... 1,996,836 1,764,560
----------- -----------
Total deposits......................................................... 2,286,671 2,036,688
Borrowings................................................................. 388,821 356,927
Interest payable........................................................... 5,694 6,019
Other liabilities.......................................................... 28,212 17,924
----------- -----------
Total liabilities...................................................... 2,709,398 2,417,558
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 - 17,507,662 and 16,322,748 shares................ 2,188 2,040
Additional paid-in capital................................................. 143,615 116,503
Retained earnings.......................................................... 139,743 138,110
Accumulated other comprehensive income .................................... 4,078 4,476
----------- -----------
Total stockholders' equity............................................. 289,624 261,129
----------- -----------
Total liabilities and stockholders' equity............................. $2,999,022 $ 2,678,687
=========== ===========
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
March 31,
2003 2002
Interest Income:
Loans receivable
Taxable ................................................... $ 35,173 $ 24,266
Tax exempt ................................................ 165 108
Investment securities
Taxable ................................................... 1,679 1,903
Tax exempt ................................................ 1,631 987
Federal funds sold .......................................... 113 181
Deposits with financial institutions ........................ 22 22
Federal Reserve and Federal Home Loan Bank stock ............ 198 124
-------- --------
Total interest income ..................................... 38,981 27,591
-------- --------
Interest expense:
Deposits .................................................... 8,884 8,228
Borrowings .................................................. 4,087 1,985
-------- --------
Total interest expense .................................... 12,971 10,213
-------- --------
Net Interest Income ........................................... 26,010 17,378
Provision for loan losses ..................................... 4,601 1,192
-------- --------
Net Interest Income After Provision for Loan Losses ........... 21,409 16,186
-------- --------
Other Income:
Net realized gains on sales of available-for-sale securities. 371 118
Other income ................................................ 7,915 5,046
-------- --------
Total other income ............................................ 8,286 5,164
Total other expenses .......................................... 21,441 13,000
-------- --------
Income before income tax ...................................... 8,254 8,350
Income tax expense ............................................ 2,596 2,871
-------- --------
Net Income .................................................... $ 5,658 $ 5,479
======== ========
Per share:
Basic ..................................................... .34 .41
Diluted ................................................... .34 .41
Dividends ................................................. .23 .22
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
March 31,
2003 2002
Net Income ............................................................ $ 5,658 $ 5,479
Other comprehensive loss, net of tax:
Unrealized losses on securities available for sale:
Unrealized holding losses arising during the period, net of
income tax benefit of $117 and $815............................ (175) (1,223)
Less: Reclassification adjustment for gains included
in net income, net of income tax expense of $(148) and $(46)..... 223 72
------- -------
(398) (1,295)
------- -------
Comprehensive income .................................................. $ 5,260 $ 4,184
======= =======
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
2003 2002
--------- ---------
Balances, January 1 ............................................ $ 261,129 $ 179,128
Net income ..................................................... 5,658 5,479
Cash dividends ................................................. (4,024) (2,939)
Other comprehensive loss, net of tax............................ (398) (1,295)
Stock issued under dividend reinvestment and stock purchase plan 279 234
Stock options exercised ........................................ 25 87
Stock Redeemed ................................................. (54)
Issuance of stock in acquisitions............................... 26,839 2,444
Cash paid in lieu of fractional shares.......................... 116
--------- ---------
Balances, March 31.............................................. $ 289,624 $ 183,084
========= =========
See notes to consolidated condensed financial statements
Page 5
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
------------------------------------
2003 2002
---------------- ----------------
Cash Flows From Operating Activities:
Net income........................................................................ $ 5,658 $ 5,479
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses....................................................... 4,601 1,192
Depreciation and amortization................................................... 1,084 775
Mortgage loans originated for sale.............................................. (58,705) (4,988)
Proceeds from sales of mortgage loans........................................... 66,692 5,132
Change in interest receivable................................................... 1,419 668
Change in interest payable...................................................... (681) 133
Other adjustments............................................................... 5,895 (130)
---------------- ----------------
Net cash provided by operating activities..................................... 25,963 8,261
---------------- ----------------
Cash Flows From Investing Activities:
Net change in interest-bearing deposits........................................... (1,602) 53
Purchases of
Securities available for sale................................................... (65,037) (21,630)
Proceeds from maturities of
Securities available for sale................................................... 56,845 34,110
Securities held to maturity..................................................... 425 1,527
Proceeds from sales of
Securities available for sale................................................... 25,779 5,547
Net change in loans............................................................... 14,616 (5,670)
Other adjustments................................................................. (69) (1,514)
Net cash received (paid) in acquisition........................................... (7,793) 1,228
---------------- ----------------
Net cash provided by investing activities....................................... 23,164 13,651
---------------- ----------------
(continued)
Page 6
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31
------------------------------------
2003 2002
---------------- ----------------
Cash Flows From Financing Activities:
Net change in
Demand and savings deposits........................................... (20,515) (26,069)
Certificates of deposit and other time deposits....................... (1,039) (21,496)
Borrowings............................................................ (6,294) (9,450)
Cash dividends.......................................................... (4,024) (2,939)
Stock issued under dividend reinvestment and stock purchase plan........ 280 234
Stock options exercised................................................. 25 87
Stock repurchased....................................................... (54)
Cash paid in lieu of fractional shares.................................. 116
---------------- ----------------
Net cash used by financing activities................................. (31,451) (59,687)
---------------- ----------------
Net Change in Cash and Cash Equivalents................................... 17,676 (37,775)
Cash and Cash Equivalents, January 1...................................... 119,038 103,028
---------------- ----------------
Cash and Cash Equivalents, March 31....................................... $ 136,714 $ 65,253
================ ================
See notes to consolidated condensed financial statements.
Page 7
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,
2002 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.
The Corporation makes its Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, available on its website at www.firstmerchants.com without
charge, as soon as reasonably practicable after such reports are electronically
filed with, or furnished to, the Securities and Exchange Commission.
Additionally, upon request the Corporation will also provide without charge, a
copy of its Form 10-Q to any shareholder by mail. Requests should be sent to Mr.
Brian Edwards, Shareholder Relations Officer, First Merchants Corporation, P.O.
Box 792, Muncie, IN 47308-0792.
NOTE 2. Accounting Matters
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 will change current
practice in the accounting for and disclosure of guarantees. Guarantees meeting
the characteristics described in FIN 45 are required to be initially recorded at
fair value, which is different from the general current practice of recording a
liability only when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, Accounting for Contingencies. FIN 45 also
requires a guarantor to make new disclosures for virtually all guarantees even
if the likelihood of the guarantor's having to make payments under the guarantee
is remote.
In general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying asset, liability or an equity security of the
guaranteed party such as financial standby letters of credit.
Disclosure requirements of FIN 45 are effective for financial statements
of interim or annual periods ending after December 31, 2002. The initial
recognition and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The guarantor's previous accounting for guarantees
issued prior to the date of FIN 45 initial applications should not be revised or
restated to reflect the provisions of FIN 45.
The Corporation adopted FIN 45 on January 1, 2003. The adoption of FIN 45
does not currently have a material impact on the Corporation's consolidated
financial statements.
Page 8
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 2. Accounting Matters (continued)
ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS
SFAS No. 147 became effective October 1, 2002. This standard requires any
intangible assets previously recorded under SFAS No. 72 to be included in the
scope of SFAS No.s 141 and 142. This standard has no immediate impact on the
financial position and results of operations of the Corporation, as the
Corporation did not have any recorded unidentified intangible assets or goodwill
that had continued to be amortized.
ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE-AN AMENDMENT
OF FASB STATEMENT NO. 123
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148.
SFAS No. 148 amends FASB Statement No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123") and provides alternative methods for accounting for a
change by registrants to the fair value method of accounting for stock-based
compensation. Additionally, SFAS No. 148 amends the disclosure requirements of
SFAS 123 to require disclosure in the significant accounting policy footnote of
both annual and interim financial statements of the method of accounting for
stock-based compensation and the related pro-forma disclosures when the
intrinsic value method continues to be used. The statement is effective for
fiscal years ending after December 15, 2002. Adoption of this statement did not
have a material effect on the Corporation's financial position or results of
operations.
NOTE 3. Business Combinations
On March 1, 2003, the Corporation acquired 100% of the outstanding stock of CNBC
Bancorp, the holding company of Commerce National Bank ("Commerce National"),
CNBC Retirement Services, Inc. ("CRS, Inc.") and CNBC Statutory Trust I (the
"Trust"). Commerce National is a national chartered bank located in Columbus,
Ohio. CNBC Bancorp was merged into the Corporation, and Commerce National
maintained its national charter as a wholly-owned subsidiary of the Corporation.
CRS, Inc. and the Trust are also maintained as wholly-owned subsidiaries of the
Corporation. The Corporation issued approximately 1,166,897 shares of its common
stock and approximately $24,562,000 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 $51,401,000, including goodwill of $25,963,000
none of which is deductible for tax purposes. Additionally, core deposit
intangibles totaling $8,171,000 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 March 1, 2003.
The purchase accounting adjustments will be amortized over the life of the
respective asset or liability. Commerce National's results of operations are
included in the Corporation's consolidated income statement beginning March 1,
2003. The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
Investments....................... $ 12,500
Loans............................. 298,702
Premises and equipment............ 1,293
Core deposit intangibles.......... 8,171
Goodwill.......................... 25,963
Other............................. 20,789
--------
Total assets acquired.......... 367,418
--------
Deposits.......................... 271,537
Other............................. 44,480
--------
Total liabilities acquired..... 316,017
--------
Net assets acquired............ $ 51,401
========
Page 9
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 3. Business Combinations (continued)
The following proforma disclosures, including the effect of the purchase
accounting adjustments, depict the results of operations as though the CNBC
Bancorp merger had taken place at the beginning of each period.
Three Months Ended
March 31,
2003 2002
----------- -----------
Net Interest Income:........................ $ 27,624 $ 19,759
Net Income:................................. 1,777 5,985
Per share - combined:
Basic Net Income.......................... .10 .41
Diluted Net Income........................ .10 .41
Effective January 1, 2003, the Corporation formed Merchants Trust Company,
National Association ("MTC"), a wholly-owned subsidiary of the Corporation,
through a capital contribution totaling approximately $2,038,000. On January 1,
2003, MTC purchased the trust operations of First Merchants Bank, N.A., First
National Bank and Lafayette Bank and Trust Company for a fair value acquisition
price of $20,687,000. MTC unites the trust and asset management services of all
affiliate banks of the Corporation. All intercompany transactions related to
this purchase by MTC have been eliminated in the consolidated condensed
financial statements of the Corporation.
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 March 31, 2003
U.S. Treasury ........................ $ 125 $ 125
Federal agencies...................... 31,957 $ 431 $ 30 32,358
State and municipal .................. 135,503 5,764 69 141,198
Mortgage-backed securities ........... 111,045 2,096 68 113,073
Other asset-backed securities......... 8,451 41 8,492
Corporate obligations................. 11,062 426 10 11,478
Marketable equity securities.......... 18,275 82 105 18,252
-------- -------- -------- --------
Total available for sale ......... 316,418 8,840 282 324,976
Held to maturity at March 31, 2003
State and municipal................... 8,609 261 8,870
Mortgage-backed securities............ 107 107
-------- -------- -------- --------
Total held to maturity ........... 8,716 261 8,977
-------- -------- -------- --------
Total investment securities ...... $325,134 $ 9,101 $ 282 $333,953
======== ======== ======== ========
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale at December 31, 2002
U.S. Treasury ....................... $ 125 $ 125
Federal agencies .................... 27,630 $ 814 $ 8 28,436
State and municipal ................. 135,715 5,787 178 141,324
Mortgage-backed securities .......... 117,724 2,448 54 120,118
Other asset-backed securities ....... 1,000 1,000
Corporate obligations ............... 12,101 465 12,566
Marketable equity securities ........ 29,452 20 116 29,356
-------- -------- -------- --------
Total available for sale ......... 323,747 9,534 356 332,925
-------- -------- -------- --------
Held to maturity at December 31, 2002
State and municipal ................. 9,013 448 9,461
Mortgage-backed securities .......... 124 124
-------- -------- -------- --------
Total held to maturity ........... 9,137 448 9,585
-------- -------- -------- --------
Total investment securities ...... $332,884 $ 9,982 $ 356 $342,510
======== ======== ======== ========
Page 11
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 5. Loans and Allowance For Loan Losses
March 31, December 31,
2003 2002
---- ----
Loans:
Commercial and industrial loans .............................................. $ 461,743 $ 406,644
Agricultural production financing and other loans to farmers ................. 83,321 85,059
Real estate loans:
Construction ............................................................... 132,110 133,896
Commercial and farmland .................................................... 515,695 401,561
Residential ................................................................ 848,629 746,349
Individuals' loans for household and other personal expenditures ............. 201,543 206,083
Tax-exempt loans ............................................................. 9,488 12,615
Other loans .................................................................. 38,649 12,170
----------- -----------
2,291,178 2,004,377
Allowance for loan losses..................................................... (29,733) (22,417)
----------- -----------
Total Loans............................................................... $ 2,261,445 $ 1,981,960
=========== ===========
Three Months Ended
March 31
2003 2002
----------- -----------
Allowance for loan losses:
Balances, January 1 .......................................................... $ 22,417 $ 15,141
Allowance acquired in acquisition............................................. 3,727 6,902
Provision for losses ......................................................... 4,601 7,174
Recoveries on loans .......................................................... 496 1,313
Loans charged off ............................................................ (1,508) (8,113)
----------- -----------
Balances, March 31 ........................................................... $ 29,733 $ 22,417
=========== ===========
Information on nonaccruing, contractually
past due 90 days or more other than
nonaccruing and restructured loans is March 31, December 31,
summarized below: 2003 2002
================================================================================
As of:
Non-accrual loans................................ $ 19,747 $ 14,134
Loans contractually past due 90 days
or more other than nonaccruing................. 3,552 6,676
Restructured loans............................... 2,194 2,508
-------- --------
Total........................................ $ 25,493 $ 23,318
======== ========
Page 12
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands, except per share amounts)
(Unaudited)
NOTE 6. Net Income Per Share
Three Months Ended March 31,
2003 2002
------------------------------------------- --------------------------------------------
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................. $ 5,658 16,728,957 $ .34 $ 5,479 13,417,284 $ .41
========== ==========
Effect of dilutive stock options........ 104,979 114,589
---------- ------------ ---------- ------------
Diluted net income per share:
Net income available to
common stockholders
and assumed conversions............. 5,658 16,833,936 $ .34 5,479 13,531,873 $ .41
========== ============ ========== ========== ============ ==========
Options to purchase 227,843 and 76,909 shares for the three months ended March
31, 2003 and 2002 were not included in the earnings per share calculation
because the exercise price exceeded the average market price.
NOTE 7. Borrowings
CUMULATIVE TRUST PREFERRED SECURITIES
In April 2002, the Corporation and FMC 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"). In April 2002, and pursuant to the
Underwriting Agreement, the Trust issued 2,127,500 8.75% Cumulative Trust
Preferred Securities (liquidation amount $25 per Preferred Security) (the
"Preferred Securities") with an aggregate liquidation value of $53,187,500. 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 Preferred Securities are recorded as borrowings in the
Corporation's consolidated March 31, 2003, balance sheet and treated as Tier 1
Capital for regulatory capital purposes. The Debentures will mature and the
Preferred Securities must be redeemed on June 30, 2032. The Trust has the option
of shortening the maturity date to a date not earlier than June 30, 2007,
requiring prior approval of the Board of Governors of the Federal Reserve
System.
Page 13
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands, except per share amounts)
(Unaudited)
NOTE 7. Borrowings continued
OBLIGATED MANDATORY REDEEMABLE CAPITAL SECURITIES
As part of the March 1, 2003, acquisition of CNBC Bancorp ("CNBC"), referenced
in Note 3 to the consolidated condensed financial statements, the Corporation
assumed $4.0 million of 10.20% fixed rate obligated mandatory redeemable capital
securities issued in February 2001 through a subsidiary trust of CNBC as part of
a pooled offering. The Corporation may redeem them, in whole or in part, at its
option commencing February 22, 2011, at a redemption price of 105.10% of the
outstanding principal amount and, thereafter, at a premium which declines
annually. On or after February 22, 2021, the securities may be redeemed at face
value with prior approval of the Board of Governors of the Federal Reserve
System. The securities are recorded as borrowings in the Corporation's
consolidated March 31, 2003, balance sheet and treated as Tier 1 Capital for
regulatory capital purposes.
SUBORDINATED DEBENTURES, REVOLVING CREDIT LINES AND TERM LOANS
On March 31, 2003, other borrowed funds included $47,594,000 which represents
the outstanding balance of a Loan and Subordinated Debenture Loan Agreement
entered into with LaSalle Bank, N.A. on March 25, 2003. The Agreement includes
three credit facilities:
* The Term Loan of $5,000,000 matures on March 25, 2010. Interest is
calculated at a floating rate equal to the lender's prime rate or
LIBOR plus 1.50%. The Term Loan is secured by 100% of the common
stock of First Merchants Bank, National Association, Muncie, Indiana
and 100% of the common stock of Lafayette Bank and Trust Company,
Lafayette, Indiana. The Agreement contains several restrictive
covenants, including the maintenance of various capital adequacy
levels, asset quality and profitability ratios, and certain
restrictions on dividends and other indebtedness.
* The Revolving Loan had a balance of $17,594,000 at March 31, 2003.
Interest is payable monthly based on LIBOR plus 1%. Principal and
interest are due on or before March 23, 2004. The total principal
amount outstanding at any one time may not exceed $20,000,000.
* The Subordinated Debt of $25,000,000 matures on March 25, 2010.
Interest is calculated at a floating rate equal to, at the
Corporation's option, either the lender's prime rate or LIBOR plus
2.50%. The Agreement is secured by 100% of the common stock of First
Merchants Bank, National Association, Muncie, Indiana and 100% of the
common stock of Lafayette Bank and Trust Company, Lafayette, Indiana.
The Agreement contains several restrictive covenants, including the
maintenance of various capital adequacy levels, asset quality and
profitability ratios, and certain restrictions on dividends and other
indebtedness. The Subordinated Debentures are recorded as borrowings
in the Corporation's consolidated March 31, 2003, balance sheet and
treated as Tier 2 capital for regulatory capital purposes.
Page 14
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 8. Stock Based Compensation
Stock options are granted for a fixed number of shares to employees. The
Corporation's stock option plans are accounted for in accordance with Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees, and related interpretations. APB No. 25 requires compensation expense
for stock options to be recognized only if the market price of the underlying
stock exceeds the exercise price on the date of the grant. Accordingly, the
Corporation recognized compensation expense of $10,000 for the three months
ended March 31, 2003 and 2002, related to specific grants in which the market
price exceeded the exercise price. For all remaining grants, no stock-based
employee compensation cost is reflected in net income, as options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the grant date.
The following table illustrates the effect on net income and earnings per share
if the Corporation has applied the fair value provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
Three Months Ended
March 31,
2003 2002
-------------------------
Net income, as reported ..................................... $ 5,658 $ 5,479
Add: Total stock-based employee compensation
cost included in reported net income, net
of income taxes........................................... 6 6
Less: Total stock-based employee compensation
cost determined under the fair value based
method, net of income taxes .............................. (250) (172)
---------- ----------
Pro forma net income ........................................ $ 5,414 $ 5,313
========== ==========
Earnings per share:
Basic - as reported ...................................... $ .34 $ .41
Basic - pro forma ........................................ $ .32 $ .40
Diluted - as reported .................................... $ .34 $ .41
Diluted - pro forma ...................................... $ .32 $ .39
Options to purchase 227,843 and 76,909 shares for the three months ended March
31, 2003 and 2002 were not included in the earnings per share calculation
because the exercise price exceeded the average market price.
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.
Page 16
FIRST MERCHANTS CORPORATION
FORM 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations continued
- ------------------------
CRITICAL ACCOUNTING POLICIES
Certain policies are important to the portrayal of the Corporation's
financial condition, since they require management to make difficult, complex or
subjective judgements, some of which relate to matters that are inherently
uncertain. Management believes that its critical accounting policies are those
that involve the determination of the allowance for loan losses ("ALL").
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 and is based on ongoing, quarterly
assessments of the probable losses inherent in the loan portfolio. The ALL is
increased by the provision for loan losses, which is charged against current
operating results. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance. The Corporation's methodology
for assessing the appropriateness of the ALL consists of three key elements -
the determination of the appropriate reserves for specifically identified loans,
historical losses, and environmental or qualitative factors.
Specific allowances are established in those instances where management
has identified significant conditions or circumstances related to a credit that
management believes indicate the probability that a loss may be incurred. The
loans that are reviewed for specific allowances are generally those internally
classified as substandard, doubtful or loss, including nonaccrual loans, loans
in the process of foreclosure and certain loans past due 90 days or more and
still accruing interest. Additionally, management also specifically reviews any
other loan with a significant loss exposure.
The Corporation's five-year average historical loss experience is used to
estimate an appropriate allowance for those loans not individually reviewed. The
historical loss experience is determined for each type of loan in the portfolio.
There are certain inherent risks in the Corporation's loan portfolio;
accordingly, the Corporation includes certain environmental or qualitative
factors in its determination of the adequacy of the allowance for loan losses.
These factors include national and local economic conditions that could have an
impact of the credit quality of the loan portfolio, lending policies and
procedures, portfolio size and composition, delinquency and non-performing loan
trends, lending management and staff, loan review systems and procedures,
concentration of credit, among other factors. The evaluation of the inherent
loss with respect to these factors is subject to a higher degree of uncertainty
because they are not identified with specific credits.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2003, was
$5,658,000, compared to $5,479,000 in the same period of 2002. Diluted earnings
per share were $.34, a decrease of $.07 from the $.41 reported for the first
quarter 2002. Net income increased as a result of the April 1, 2002 acquisition
of Lafayette, which contributed net income of $2.8 million for the first three
months of 2003. This increase was offset by an additional provision for loan
losses of $2.8 million in response to declining collateral values of a
commercial borrower.
Annualized returns on average assets and average stockholders' equity
for three months ended March 31, 2003 were .83 percent and 8.29 percent,
respectively, compared with 1.25 percent and 12.14 percent for the same period
of 2002.
The declines in return in equity and return on assets are primarily due
to increased provision for loan losses, which is discussed in the "ASSET
QUALITY/PROVISION FOR LOAN LOSSES" section of Management's Discussion &
Analysis of Financial Condition and Results of Operations.
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 7.9
percent at year-end 2002 and 7.8 percent at March 31, 2003. At March 31, 2003,
the Corporation had a Tier I risk-based capital ratio of 9.11 percent
and total risk-based capital ratio of 11.50 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 are not specifically identified.
(See Critical Accounting Policies)
At March 31, 2003, non-performing loans totaled $ 25,493,000, an
increase during the quarter of $2,175,000, as noted in the table on the
following page. This increase was primarily due to two loans totaling
$3,496,000, related to declining collateral values of a single borrower, being
placed on non-accrual status. Other non-accrual loans increased by $2,117,000,
while loans 90 days past due other than non-accrual loans decreased by
$3,124,000.
At March 31, 2003, impaired loans totaled $55,546,000, an increase of
$11,195,000 from December 31, 2002. The increase was primarily attributable to
the impairment of three loans totaling $8,496,000 related to declining
collateral values of a single commercial borrower. At March 31, 2003, an
allowance for losses was not deemed necessary for impaired loans totaling
$36,687,000, but an allowance of $9,029,000 was recorded for the remaining
balance of impaired loans of $18,859,000 and is included in the Corporation's
allowance for loan losses. The average balance of impaired loans for the first
three months of 2003 was $58,278,000.
At December 31, 2002, impaired loans totaled $44,351,000. An allowance
for losses was not deemed necessary for impaired loans totaling $27,450,000, but
an allowance of $7,299,000 was recorded for the remaining balance of impaired
loans of $16,901,000 and is included in the Corporation's allowance for loan
losses. The average balance of impaired loans for 2002 was $49,663,000.
At March 31, 2003, the allowance for loan losses was $29,733,000, an
increase of $7,316,000 from year end 2002. As a percent of loans, the allowance
was 1.29 percent at March 31, 2003 compared with 1.11 percent at December 31,
2002.
Page 18
FIRST MERCHANTS CORPORATION
FORM 10-Q
The provision for loan losses for the first three months of 2003 was
$4,601,000, an increase of $3,409,000 from $1,192,000 for the same period in
2002. The Corporation's adequacy of the allowance for loan losses reflects
increased non-performing loans, increased specific reserves and increased
impaired loans, resulting in increased provision expense. Of the $3.4 million
increase, approximately $425,000 is attributable to the provision for loan
losses for Lafayette Bank and Trust Company ("Lafayette") subsequent to its
acquisition, $2.8 million is due to declining collateral values of a single
commercial borrower, with the remaining based on the regular ongoing evaluation
of the loan portfolios of the Corporation's bank subsidiaries. Current
non-performing and impaired loan balances indicate that some decline in loan
asset quality has occurred, which management believes is a result of current
economic conditions.
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) March 31, December 31,
2003 2002
================================================================================
Non-accrual loans .............................. $19,747 $14,134
Loans contractually
past due 90 days or more
other than non-accruing ..................... 3,552 6,676
Restructured loans ............................. 2,194 2,508
------- -------
Total non-performing loans .................. $25,493 $23,318
======= =======
Three Months Ended
March 31,
------------------
2003 2002
---- ----
(Dollars in Thousands)
Balance at beginning of period ......................... $22,417 $15,141
------- -------
Chargeoffs ............................................. 1,508 1,586
Recoveries ............................................. 496 381
------- -------
Net chargeoffs ......................................... 1,012 1,205
Provision for loan losses .............................. 4,601 1,192
Allowance acquired in acquisition....................... 3,727
------- -------
Balance at end of period ............................... $29,733 $15,128
======= =======
Ratio of net chargeoffs during the period to average loans
outstanding during the period (1)....................... .19 .35
(1) First three months annualized
Page 19
FIRST MERCHANTS CORPORATION
FORM 10-Q
LIQUIDITY
Liquidity management is the process by which the Corporation ensures that
adequate liquid funds are available for the Corporation and its subsidiaries.
These funds are necessary in order for the Corporation and its subsidiaries to
meet financial commitments on a timely basis. These commitments include
withdrawals by depositors, funding credit obligations to borrowers, paying
dividends to shareholders, paying operating expenses, funding capital
expenditures, and maintaining deposit reserve requirements. Liquidity is
monitored and closely managed by the asset/liability committees at each
subsidiary and by the Corporation's asset/liability committee.
The liquidity of the Corporation is dependent upon the receipt of
dividends from its bank subsidiaries, which are subject to certain regulatory
limitations and access to other funding sources. Liquidity of the Corporation's
bank subsidiaries is derived primarily from core deposit growth, principal
payments received on loans, the sale and maturity of investment securities, net
cash provided by operating activities, and access to other funding sources. The
most stable source of liability-funded liquidity for both the long-term and
short-term is deposit growth and retention in the core deposit base. In
addition, the Corporation utilizes advances from the Federal Home Loan Bank
("FHLB") and a revolving line of credit with LaSalle Bank, N.A. as a funding
source. At March 31, 2003, total borrowings from the FHLB were $213,583,000. The
Corporation's bank subsidiaries have pledged certain mortgage loans and certain
investments to the FHLB. The total available remaining borrowing capacity from
the FHLB at March 31, 2003, was $245,430,000. At March 31, 2003, the revolving
line of credit had a balance of $17,594,000 and a remaining borrowing capacity
of $2,406,000. The principal source of asset-funded liquidity is investment
securities classified as available-for-sale, the market values of which totaled
$324,976,000 at March 31, 2003, a decrease of $7,948,000 or 2.4% over December
31, 2002. Securities classified as held-to-maturity that are maturing within a
short period of time can also be a source of liquidity. Securities classified as
held-to-maturity and that are maturing in one year or less totaled $1,941,461 at
March 31, 2003. In addition, other types of assets-such as cash and due from
banks, federal funds sold and securities purchased under agreements to resell,
and loans and interest-bearing deposits with other banks maturing within one
year-are sources of liquidity.
In the normal course of business, the Corporation is a party to a number
of other off-balance sheet activities that contain credit, market and
operational risk that are not reflected in whole or in part in the Corporation's
consolidated financial statements. Such activities include: traditional
off-balance sheet credit-related financial instruments, commitments under
operating leases and long-term debt.
The Corporation provides customers with off-balance sheet credit support
through loan commitments and standby letters of credit. Summarized
credit-related financial instruments at March 31, 2003 are as follows:
At March 31,
(Dollars in thousands) 2003
================================================================================
Amounts of commitments:
Loan commitments to extend credit ............................... $ 414,986
Standby letters of credit ....................................... 22,080
----------
$ 437,066
==========
Since many of the commitments are expected to expire unused or be only
partially used, the total amount of unused commitments in the preceding table
does not necessarily represent future cash requirements.
In addition to owned banking facilities, the Corporation has entered into a
number of long-term leasing arrangements to support the ongoing activities of
the Corporation. The required payments under such commitments and long-term debt
at March 31, 2003 are as follows:
2003 2004 2005 2006 2007 2008 Total
(Dollars in thousands) remaining and after
=======================================================================================================
Operating leases ......... $ 726 $ 795 $ 533 $ 567 $ 345 $ 324 $ 3,290
Trust preferred securities 57,188 57,188
Long-term debt ........... 80,675 49,823 19,482 22,639 11,736 147,278 331,633
-------- -------- -------- -------- -------- -------- --------
Total .................... $ 81,401 $ 50,618 $ 20,015 $ 23,206 $ 12,081 $204,790 $392,111
======== ======== ======== ======== ======== ======== ========
Page 20
FIRST MERCHANTS CORPORATION
FORM 10-Q
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 March 31, 2003, remained adequate to meet the
Corporation's primary goal of achieving optimum interest margins while avoiding
undue interest rate risk.
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.
Page 21
FIRST MERCHANTS CORPORATION
FORM 10-Q
The comparative rising and falling scenarios for the period ended March 31,
2004 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 March 31, 2004 are as follows:
Driver Rates RISING FALLING
================================================================================
Prime 200 Basis Points (50)Basis Points
Federal Funds 200 (50)
One-Year T-Bill 200 (15)
Two-Year T-Bill 200 (48)
Interest Checking 100 -
MMIA Savings 100 -
Money Market Index 100 (25)
CD's 200 (50)
FHLB Advances 200 (50)
Results for the base, rising and falling interest rate scenarios are listed
below, based upon the Corporation's rate sensitive assets at March 31, 2003. 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) $ 118,007 $ 126,539 $111,272
Variance from base $ 8,531 $ (6,735)
Percent of change from base 7.23% (5.71)%
The comparative rising and falling scenarios for the period ended December 31,
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 scenario. 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 December 31, 2003 are as follows:
Driver Rates RISING FALLING
================================================================================
Prime 200 Basis Points (50) Basis Points
Federal Funds 200 (50)
One-Year T-Bill 200 (20)
Two-Year T-Bill 200 (59)
Interest Checking 100 --
MMIA Savings 100 --
First Flex 100 (25)
CD's 200 (53)
FHLB Advances 200 (66)
Results for the base, rising and falling interest rate scenarios are listed
below, based upon the Corporation's rate sensitive assets at December 31, 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) $105,138 $113,855 $ 98,793
Variance from base $ 8,717 $ (6,345)
Percent of change from base 8.29% (6.03)%
Page 22
FIRST MERCHANTS CORPORATION
FORM 10-Q
EARNING ASSETS
The following table presents the earning asset mix as of March 31,
2003, and December 31, 2002. At March 31, 2003, earning assets increased by
$298.2 million from year end 2002. This increase was primarily due to the
addition of $334.1 million in earnings assets related to the acquisition of CNBC
Bancorp.
Excluding increases due to the acquisition of CNBC Bancorp, loans
declined by $22.9 and mortgage loans held for sale declined by $7.9 million
from December 31, 2002 to March 31, 2003. Residiential loans decreased by $13.0
million, commercial and industrial loans decreased by $18.1 million while
other loans increased by $15.9 million.
- ----------------------------------------------------------------------------------------------------
EARNING ASSETS
(Dollars in Millions) March 31, December 31,
2003 2002
- ----------------------------------------------------------------------------------------------------
Federal funds sold and interest-bearing deposits $ 60.1 $ 35.0
Securities available for sale .................. 325.0 332.9
Securities held to maturity .................... 8.7 9.1
Mortgage loans held for sale ................... 13.6 21.5
Loans .......................................... 2,291.2 2,004.4
Federal Reserve and Federal Home Loan Bank stock 13.9 11.4
---------- ----------
Total ..................... $ 2,712.5 $ 2,414.3
========== ==========
- --------------------------------------------------------------------------------
DEPOSITS AND BORROWINGS
The following table presents the level of deposits and borrowed funds
(Federal funds purchased (FFP), repurchase agreements, U.S. Treasury demand
notes, Federal Home Loan Bank advances, trust preferred securities and other
borrowed funds)at March 31, 2003 and December 31, 2002.
- --------------------------------------------------------------------------------
(Dollars in Millions) March 31, December 31,
2003 2002
---------- ------------
Deposits ........................................ $ 2,286.7 $ 2,036.7
Securities sold under repurchase agreements...... 69.2 89.6
FFP and U.S. Treasury demand notes...............
Federal Home Loan Bank advances ................. 213.6 184.7
Trust preferred securities....................... 57.1 53.2
Subordinated debentures, revolving credit lines
and term loans................................ 47.6 19.3
Other borrowed funds ............................ 1.3 10.2
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 and the Subordinated
Debenture of $25,000,000 is classified as Tier II 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 headings "LIQUIDITY" and
"INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK".
Page 23
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 months ended March 31, 2003 and 2002.
Annualized net interest income (FTE) for the three months ended March
31, 2003 increased by $36,036,000, or 50.1 percent over the same period in 2002,
due to an increase in average earning assets of over $828 million. For the same
period interest income and interest expense, as a percent of average earning
assets, decreased 40 basis points, 39 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 March 31,
2003 6.49% 2.11% 4.38% $2,464,319 $108,136
2002 6.89% 2.50% 4.39% $1,635,783 $ 72,870
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.
- ------------------------------------------------------------------------------------------------------------------------------
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 first quarter of 2003 exceeded the same quarter in
the prior year by $3,122,000, or 60.4 percent.
Five major areas account for most of the increase:
1. Service charges on deposit accounts increased $1,138,000 or 92.5
percent due to increased number of accounts, price adjustments and
approximately $948,000 of additional service charge income related to
the April 1, 2002 acquisition of Lafayette.
2. Revenues from fiduciary activities increased $328,000 or 24.0 percent
due primarily to additional fees received related to the acquisition of
Lafayette.
3. Other customer fees increased $184,000 or 20.4% due primarily to
additional fees related to the acquisition of Lafayette.
4. Net realized gains on sales of available for sale securities totaled
$371,000 in the first quarter of 2003, compared to $118,000 for the
same period in 2002.
5. Gains on sale of mortgage loans included in other income increased by
$651,000 due to increased mortgage volume. In addition, decreasing
mortgage loan rates caused an increase in refinancing volume, which
facilitated an increase in loan sales activity.
Page 24
FIRST MERCHANTS CORPORATION
FORM 10-Q
OTHER EXPENSES
Total other expenses represent non-interest operating expenses of the
Corporation. Total other expense during the first quarter of 2003 exceeded the
same period of the prior year by $8,441,000, or 64.9 percent.
Six major areas account for most of the increase:
1. Salaries and benefit expense grew $4,504,000 or 61.9 percent, due to
normal salary increases, staff additions and additional salary cost
related to the April 1, 2002 acquisition of Lafayette and the March 1,
2003 acquisition of Commerce National Bank.
2. Net occupancy expenses increased by $357,000 or 48.6%, primarily
related to the acquisitions of Lafayette and Commerce National Bank.
3. Equipment expense increased by $768,000 or 71.4%, primarily related to
the acquisitions of Lafayette and Commerce National Bank.
4. Core deposit intangible amortization increased by $590,000, due to
utilization of the purchase method of accounting for the Corporation
related to the acquisitions of Lafayette and Commerce National.
5. The Corporation accrued $360,000 in anticipation of a settlement from
a claim made against First Merchants Corporation, which is presently
being negotiated.
6. Prepayment penalties for early prepayment of FHLB advances increased by
$340,000 for the first quarter of 2003 over the same period in 2002.
INCOME TAXES
Income tax expense, for the three months ended March 31, 2003, decreased
by $275,000 over the same period in 2002. The effective tax rate was 31.5 and
34.4 percent for the 2003 and 2002 periods. The 2.9 percent decrease is
primarily a result of increases in tax exempt interest income and reduced state
taxes, resulting from the effect of state income apportionment.
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 headings "LIQUIDITY" and "INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET
RISK".
Item 4. Controls and Procedures
- -------------------------------------------------------------------
Within the 90 days prior to the filing date of this report, the Corporation
carried out an evaluation, under the supervision and with the participation of
the Corporation's management, including the Corporation's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of it's disclosure controls and procedures. Based upon that
evaluation, the Corporation's Chief Executive Officer and Chief Financial
Officer concluded that the Corporation's disclosure controls and procedures are
effective. Disclosure controls and procedures are controls and procedures that
are designed to ensure that information required to be disclosed in Corporation
reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
There have been no significant changes in the Corporation's internal controls or
in other factors that could significantly affect internal controls subsequent to
the date the Corporation carried out this evaluation.
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. On March 5, 2003, the Corporation issued a total of 5,071
unregistered shares of its common stock pursuant to Agreements
of Merger dated December 28, 2001, between the Corporation and
Delaware County Abstract Company, Inc. ("DCA")and the Corporation
and Beebe & Smith Title Insurance Company, Inc. ("B & S"). The
Corporation issued the unregistered shares to the sole shareholder
of DCA and sole shareholder of B & S, at a value of $23.77 per
share as additional consideration in exchange for all common stock
of both DCA and B & S. The issuance by the Corporation of its
shares of common stock were not registered under the Securities Act
of 1933, as amended ("Securities Act"). The shares were issued
pursuant to the exemption contemplated in Section 4 (2) of the
Securities Act, for transactions not involving a public offering.
d. None
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
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 33
Corporation, as most
recently amended on
February 11, 2003.
10a First Merchants Corporation 47
Change of Control Agreement
with Michael L. Cox dated
February 11, 2003.
10b First Merchants Corporation 54
Change of Control Agreement
with Roger M. Arwood dated
February 11, 2003.
10c First Merchants Corporation 61
Change of Control Agreement
with Larry R. Helms dated
February 11, 2003.
10d First Merchants Corporation 68
1994 Stock Option Plan, as
most recently amended on
February 11, 2003.
99.1 Certifications Pursuant to 72
18 U.S.C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act
of 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 February 25, 2003, was filed on
February 25, 2003 under report item number 9, concerning the
Corporation's mailing of its 2002 Annual Report to Shareholders to
its shareholders of record on February 13, 2003.
Under report item number 9, the following exhibit was included in
this Form 8-K.
(c) Exhibits.
(99) 2002 Annual Report to Shareholders (Furnished
pursuant to Regulation FD)
A report on Form 8-K, dated March 1, 2003, was filed on March 3,
2003 under report item number 5, announcing that the Corporation
had acquired all of the assets of CNBC Bancorp through the merger
of CNBC Bancorp with and into the Corporation. CNBC Bancorp's
principal asset was the shares of common stock of its wholly-owned
subsidiary, Commerce National Bank.
Under report item number 7, the following financial statements of
CNBC Bancorp and exhibits were included in this Form 8-K.
Exhibits
(2.1) Agreement of Reorganization and Merger by and
between First Merchants Corporation and CNBC Bancorp
dated August 28, 2002 (the "Merger Agreement").
(Incorporated by reference to Exhibit 2 to First
Merchants Corporation's Current Report on Form 8-K
filed August 28, 2002.)
(2.2) Undertaking by First Merchants Corporation to
furnish supplementally the Disclosure Letters
referenced in the Merger Agreement.
(99) Press release dated March 3, 2003.
Page 28
FIRST MERCHANTS CORPORATION
FORM 10-Q
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 05/15/2003 by /s/ Michael L. Cox
--------------------------- -------------------------------------
Michael L. Cox
President and Chief Executive Officer
Date 05/15/2003 by /s/ Mark K. Hardwick
--------------------------- -------------------------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Page 29
FIRST MERCHANTS CORPORATION
FORM 10-Q
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Michael L. Cox, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Merchants
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
by: /s/ Michael L. Cox
----------------------
Michael L. Cox
President and Chief Executive Officer
Page 30
CERTIFICATION
- -------------
I, Mark K. Hardwick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Merchants
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
by: /s/ Mark K. Hardwick
--------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Page 31
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 33
Corporation, as most
recently amended on
February 11, 2003.
10a First Merchants Corporation 47
Change of Control Agreement
with Michael L. Cox dated
February 11, 2003.
10b First Merchants Corporation 54
Change of Control Agreement
with Roger M. Arwood dated
February 11, 2003.
10c First Merchants Corporation 61
Change of Control Agreement
with Larry R. Helms dated
February 11, 2003.
10d First Merchants Corporation 68
1994 Stock Option Plan, as
most recently amended on
February 11, 2003.
99.1 Certifications Pursuant to 72
18 U.S.C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
Page 32
FIRST MERCHANTS CORPORATION
FORM 10-Q
EXHIBIT 3(ii)
BYLAWS OF
FIRST MERCHANTS CORPORATION
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 "First Merchants
Corporation" and about the lower periphery thereof the word "Muncie, Indiana".
In the center of the seal shall appear the word "Seal".
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.
Page 33
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.
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.
Page 34
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.
Page 35
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.
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.
Page 36
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.
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.
Page 37
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 fifteen (15) 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, 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, Class I shall have five (5) directors, Class II shall have four
(4) 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.
Page 38
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.
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.
Page 39
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.
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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.
Page 41
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 "affiliate 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
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.
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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.
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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.
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.
Page 44
ARTICLE VII
Indemnification
Section 1. Indemnification of Directors, Officers, Employees and
Agents. Every person who is or was a Director, officer, employee or agent of
this Corporation or of any other corporation for which he is or was serving in
any capacity at the request of this Corporation shall be indemnified by this
Corporation against any and all liability and expense that may be incurred by
him in connection with or resulting from or arising out of any claim, action,
suit or proceeding, provided that such person is wholly successful with respect
thereto or acted in good faith in what he reasonably believed to be in or not
opposed to the best interest of this Corporation or such other corporation, as
the case may be, and, in addition, in any criminal action or proceeding in which
he had no reasonable cause to believe that his conduct was unlawful. As used
herein, "claim, action, suit or proceeding" shall include any claim, action,
suit or proceeding (whether brought by or in the right of this Corporation or
such other corporation or otherwise), civil, criminal, administrative or
investigative, whether actual or threatened or in connection with an appeal
relating thereto, in which a Director, officer, employee or agent of this
Corporation may become involved, as a party or otherwise,
(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 "liability" and "expense" 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
Page 45
(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.
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.
Page 46
FIRST MERCHANTS CORPORATION
FORM 10-Q
EXHIBIT 10a
CHANGE OF CONTROL AGREEMENT
This Agreement is made and entered into as of February 11, 2003, 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 Michael L. Cox (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 President and Chief Executive 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
(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 47
(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 48
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;
Page 49
(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;
(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 and ninety-nine hundredths
(2.99) 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;
Page 50
(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;
(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 publi
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.
Page 51
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.
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.
Page 52
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 has caused this Agreement to be
executed by its duly authorized officer, 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, Michael L. Cox
Chairman of the Board
Page 53
FIRST MERCHANTS CORPORATION
FORM 10-Q
EXHIBIT 10b
CHANGE OF CONTROL AGREEMENT
This Agreement is made and entered into as of February 11, 2003, 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 Roger M. Arwood (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 Executive Vice President and Chief Operating 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 54
(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 55
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;
Page 56
(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;
(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 and ninety-nine hundredths
(2.99) 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;
Page 57
(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;
(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.
Page 58
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.
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.
Page 59
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 has caused this Agreement to be
executed by its duly authorized officer, and the Executive has hereunder
subscribed his name, as of the day and year first above written.
"CORPORATION" "EXECUTIVE"
FIRST MERCHANTS CORPORATION
By ______________________________ By ______________________________
Michael L. Cox, Roger M. Arwood
President and Chief Executive Officer
Page 60
FIRST MERCHANTS CORPORATION
FORM 10-Q
EXHIBIT 10c
CHANGE OF CONTROL AGREEMENT
This Agreement is made and entered into as of February 11, 2003, 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 Larry R. Helms (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 Corporate Counsel, 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 61
(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 62
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;
Page 63
(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;
(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;
Page 64
(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;
(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.
Page 65
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.
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.
Page 66
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 has caused this Agreement to be
executed by its duly authorized officer, and the Executive has hereunder
subscribed his name, as of the day and year first above written.
"CORPORATION" "EXECUTIVE"
FIRST MERCHANTS CORPORATION
By ______________________________ By ______________________________
Michael L. Cox, Larry R. Helms
President and Chief Executive Officer
Page 67
FIRST MERCHANTS CORPORATION
FORM 10-Q
EXHIBIT 10d
FIRST MERCHANTS CORPORATION
1994 STOCK OPTION PLAN
I. PURPOSE
The purposes of the First Merchants Corporation 1994 Stock Option
Plan (the "Plan") are to promote the long-term success of First Merchants
Corporation (the "Company") and its subsidiaries, and to attract, retain, and
motivate key employees and directors while creating a long-term mutuality of
interest with shareholders.
II. ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Committee"), consisting of three or more non-employee members of the Board of
Directors of the Company (the "Board"), all of whom shall be "disinterested
persons" as such term is defined in the rules of the Securities and Exchange
Commission, as amended from time to time. The Committee shall have full
authority to establish regulations for the administration of the Plan and to
make any other determination it deems necessary to administer the Plan, except
as expressly provided in the Plan.
III. ELIGIBILITY FOR AWARD
Non-employee directors of the Company who are serving as directors on
the date of grant shall automatically receive options under the Plan, as
provided in Section IV. In addition, the Committee shall designate key employees
(not non-employee directors) of the Company or any subsidiary of the Company to
receive options under the Plan.
IV. ALLOTMENT OF SHARES
Shares of common stock of the Company to be issued under the Plan shall
be made available, at the discretion of the Board, either from authorized but
unissued shares or from issued shares reacquired by the Company. The aggregate
number of shares of common stock that may be issued under the Plan shall not
exceed 210,000 shares. Where options are for any reason canceled, or expire or
terminate unexercised, the shares covered by such options shall again be
available for grant of options within the limits provided by the preceding
sentence. Options may be allotted to eligible employees (not non-employee
directors) at such times and in such amounts as the Committee, in its sole
discretion, may determine, provided, however, that in the case of options which
are intended to be incentive stock options ("Incentive Stock Options") within
the meaning of Section 422 of tile Internal Revenue Code of 1986 (the "Code"):
(i) the option holder, at the time the option is granted, shall
not own common stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company,
and
(ii) the aggregate Fair Market Value (determined at the time the
option is granted) of the stock with respect to which the
options are exercisable for the first time by an individual
during any calendar year (under all such plans of the Company
and any parent or subsidiary corporations) shall not exceed
$100,000.
Options to purchase 400 shares of common stock, which shall be
options that do not qualify as Incentive Stock Options ("Non-Qualified Stock
Options"), shall automatically be granted to all non-employee directors of the
Company each July 1 during the term of the Plan. However, if at any time
insufficient shares remain available for allotment to non-employee directors in
accordance with the preceding sentence, the number of options allotted to each
such director shall be reduced proportionally.
Page 68
V. GRANTING OF OPTIONS
All options granted under the Plan shall be in such form as the
Committee may from time to time approve. The Committee shall determine in each
case whether the options are Incentive Stock Options or Non-Qualified Stock
Options; provided, however, options granted to non-employee directors must be
Non-Qualified Stock Options. All options granted under the Plan shall be subject
to the following terms and conditions:
(a) Option Price. The option price per share with respect to
each option granted to a non-employee director shall be equal to 100% of the
Fair Market Value of the common stock at the date the option is granted. The
Committee shall determine the option price per share with respect to each option
granted to an eligible employee; provided, however, the option price shall not
be less than 100% of the Fair Market Value of the common stock at the date the
option is granted.
(b) Period of Option. Unless a shorter period is fixed by the
Committee or another provision of this Plan, each option may be exercised
during a period of ten years from the date the option was granted.
(c) Payment. The option price shall be payable in cash, by tender
to the Company of shares of Company stock owned by the option holder, or by any
combination thereof. No shares shall be issued until full payment has been made.
A holder of an option shall have none of the rights of a shareholder until the
shares are issued.
(d) Exercise of Options. The shares covered by an option may be
purchased on such installments and on such exercise dates as the Committee may
determine, provided, however, that no option shall become exercisable until at
least six months after grant unless disability of the option holder occurs
before the expiration of the six-month period. Any shares not purchased on the
applicable exercise date may be purchased thereafter at any time prior to the
final expiration of the option. In no event shall any option be exercisable
after the expiration of ten years from the date upon which the option was
granted. Each option shall become exercisable according to terms set by the
Committee at the time of grant, except as specified in Section VI (Acceleration
of Exercisability on Change of Control). The Committee may direct that an option
become exercisable in installments, which need not be annual installments, over
a period which may be less than the term of the option. At such time as an
installment shall become exercisable, it may be exercised at any time thereafter
in whole or in part until the expiration or termination of the option. The
Committee may, in its sole discretion, prescribe shorter or longer time periods
and additional requirements with respect to exercise of an option.
(e) Nontransferability of Options. An option granted under the
Plan may not be transferred except by will or the laws of descent and
distribution and, during the lifetime of the employee or director to whom
granted, may be exercised only by such employee or director, or his or her
guardian or legal representative.
(f) Termination of Employment. Upon the termination of an
option holder's employment (for any reason other than retirement, disability,
death or termination for deliberate, willful or gross misconduct), option
privileges shall be limited to the shares which were immediately purchasable at
the date of such termination and such option privileges shall expire unless
exercised before the date of such termination. If an option holder's employment
is terminated for deliberate, willful or gross misconduct, as determined by the
Board, all rights under the option shall expire upon receipt of the notice of
such termination.
(g) Retirement or Disability of an Option Holder. In the event of
an option holder's disability (within the meaning of Section 22(e)(3) of the
Code) or retirement as an employee or director, option privileges shall apply to
those shares immediately purchasable at the date of separation from service. The
Committee, in its sole discretion, may provide that any options outstanding but
not yet exercisable upon the separation of the option holder may become
exercisable in accordance with a schedule determined by the Committee; provided,
however, that in the event of retirement no options shall become exercisable
until at least six months after grant. Option privileges under Incentive Stock
Options may be exercised as such only during the three months following the
option holder's date of separation, but in no event later than the date on which
the option terminates. During the remainder of the exercise period, if any, the
option may be exercised as a Non-Qualified Stock Option.
Page 69
(h) Death of Option Holder. Upon the death of an option holder,
option privileges shall apply to those shares which were immediately purchasable
at the time of death. Option privileges shall expire unless exercised by legal
representatives or beneficiaries within one year after the date of the
employee's or director's death, but no later than the date on which the option
terminates.
VI. ACCELERATION OF EXERCISABILITY ON CHANGE OF CONTROL
Upon a Change of Control of the Company, all options theretofore
granted and not previously exercisable shall become fully exercisable to the
same extent and in the same manner as if they had become exercisable by passage
of time in accordance with the provisions of the Plan relating to periods of
exercisability and to termination of employment.
A "Change of Control" shall be deemed to have occurred if:
(i) any individual, entity or firm becomes the beneficial owner
of 40% or more of the outstanding common stock of the
Company, provided, however, that such an event shall not
constitute a Change of Control if such shareholder has
entered into an agreement with the Company, approved by the
Board, which materially restricts the right of such
shareholder to direct or influence the management or policies
of the Company; or
(ii) in any solicitation of proxies from the security holders of
the Company, proxies are solicited by or on behalf of a
person or entity other than the Board and, upon the
conclusion of such solicitation, nominees of such person or
entity are elected to one-half or more of the then available
positions on the entire Board.
The merger or consolidation of the Company with any other entity
shall not, as such, be regarded as a Change of Control for the purposes of this
Plan. The effect of such a merger or consolidation shall be determined by the
provisions of this Section.
VII. FAIR MARKET VALUE
"Fair Market Value" shall mean the value of a share of common stock on
a particular date, determined as follows: (i) if the common stock is not listed
on such date on any national securities exchange, the average between the
highest "bid" and lowest "offered" quotations of a share on such date (or, if
none, on the most recent date on which there were bid and offered quotations of
a share), as reported by the National Association of Securities Dealers
Automated Quotation System, or other similar service selected by the Committee;
(ii) if the common stock is neither listed on such date on a national securities
exchange nor traded in the over-the-counter market, the fair market value of a
share on such date as determined in good faith by the Committee; or (iii) if the
common stock is listed on such! date on one or more national securities
exchanges, the last reported sale price of a share on such date as recorded on
the composite tape system, or, if such system does not cover the common stock,
the last reported sale price of a share on such date on the principal national
securities exchange on which the common stock is listed or, if no sale of common
stock took place on such date, the last reported sale price of a share on the
most recent day on which a sale of a share took place as recorded by such system
or on such exchange, as the case may be.
VIII. ADJUSTMENT IN THE EVENT OF RECAPITALIZATION
In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights offering,
or any other change in the corporate structure of the Company, the Committee
shall make such adjustments, if any, as are appropriate in the number and kind
of shares authorized by the Plan, in the number and kind of shares covered by
the options granted and in the option price.
Page 70
IX. AMENDMENTS AND DISCONTINUANCE
The Board may discontinue the Plan at any time and may from time to
time amend or revise the terms of the Plan as permitted by applicable statutes,
except that it may not revoke or alter, in a manner unfavorable to the holders,
any options then outstanding, or amend the Plan without shareholder approval so
as to materially: (i) increase the benefits accruing to participants under the
Plan; (ii) increase the number of securities which may be issued under the Plan;
(iii) modify the requirements as to eligibility for participation in the Plan;
or (iv) increase the cost of the Plan to the Company. In addition, Plan
provisions relating to non-employee directors may not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974 (ERISA), or the rules thereunder.
X. COMPLIANCE WITH RULE 16b-3
With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934 (the "1934 Act"), transactions under the Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under
the 1934 Act. To the extent any provisions of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, if permitted by
law and deemed advisable by the Committee.
XI. EFFECTIVE DATE AND TERM OF THE PLAN
The 1994 Stock Option Plan shall become effective on July 1, 1994,
subject to prior approval of the shareholders. No option shall be granted
pursuant to this Plan after June 30.1999. However, options theretofore granted
may extend beyond that date in accordance with their terms and the provisions of
the Plan.
Page 71
Exhibit 99.1
CERTIFICATIONS 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 10-Q for the period ending March 31, 2003 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 05/15/2003 by /s/ Michael L. Cox
--------------------------- -------------------------------------
Michael L. Cox
President and Chief Executive Officer
A signed copy of this written statement required by Section 906 has been
provided to First Merchants Corporation and will be retained by First Merchants
Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.
In connection with the quarterly report of First Merchants Corporation (the
"Corporation") on Form 10-Q for the period ending March 31, 2003 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 05/15/2003 by /s/ Mark K. Hardwick
--------------------------- -------------------------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
A signed copy of this written statement required by Section 906 has been
provided to First Merchants Corporation and will be retained by First Merchants
Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.
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