UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FIRST MERCHANTS CORPORATION
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(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
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FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 200729, 2008
The annual meeting of the shareholders of First Merchants Corporation (the
"Corporation") will be
held at the Horizon Convention Center, 401 South High Street, Muncie, Indiana
47305, on Tuesday, April 24, 2007,29, 2008, at 3:30 p.m., Eastern Daylight Time, for the
following purposes:
(1) To elect threefive directors, four to hold office for terms of three years and
one to hold office for a term of one year; in each case, the directors will
hold office until their successors are duly elected and qualified.
(2) To act on a proposal to approve the First Merchants Corporation Equity
Compensation Plan for Non-Employee Directors.
(3) To ratify the appointment of the firm of BKD, LLP as the independent
auditor for 2007.
(3)2008.
(4) To transact such other business as may properly come before the meeting.
Only those shareholders of record at the close of business on February 16, 200715, 2008
shall be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
Cynthia G. Holaday
Secretary
Muncie, Indiana
March 15, 200719, 2008
YOUR VOTE IS IMPORTANT!
YOU ARE URGED TO SUBMIT YOUR PROXY VIA THE TELEPHONE OR INTERNET,
OR TO SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, AS SOON AS POSSIBLE SO THAT YOUR SHARES CAN BE VOTED AT
THE MEETING IN ACCORDANCE WITH YOUR INSTRUCTIONS.
March 15, 200715,2008
March 19, 2008
FIRST MERCHANTS CORPORATION
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 200729, 2008
To the shareholders of First Merchants Corporation:
This proxy statement is furnishedhas been made available to you on the Internet or has been
sent to you via mail or email in connection with the solicitation of the
enclosed proxy by and on behalf of
the Board of Directors (the "Board") of First Merchants Corporation (the "Corporation"("First
Merchants") for useof proxies to be voted at the annual meeting of First Merchants'
shareholders of the Corporation to be held April 24, 2007.29, 2008, for the purposes stated in the
accompanying notice of the meeting. If you received a paper or electronic copy,
the proxy materials also include a proxy card which can be used for voting your
shares. The distribution of these proxy materials is expected to commence on or
about March 19, 2008.
This year we are pleased to take advantage of the new Securities and Exchange
Commission ("SEC") rule that allows companies to furnish their proxy materials
over the Internet. As a result, we are mailing many of our shareholders a Notice
Regarding the Availability of Proxy Materials instead of a paper copy of the
proxy materials. The Notice contains instructions on how to access those
documents over the Internet. The Notice also contains instructions on how
shareholders may receive a paper or electronic copy of the proxy materials,
including a proxy statement, annual report and a proxy card. All shareholders
who do not receive a Notice will receive a paper copy of the proxy materials by
mail. We believe this new rule will allow us to provide our shareholders with
the information they need, while lowering the costs of delivery and reducing the
environmental impact of our annual meeting.
VOTING
Each share of First Merchants common stock issued and outstanding as of the
close of business on February 15, 2007.
VOTING
Please sign,2008, the record date for the annual meeting,
is entitled to be voted on all items being voted upon at the meeting. As of the
close of business on February 15, 2008, there were 18,036,739 shares outstanding
and returnentitled to vote.
You may vote shares held directly in your name as shareholder of record in
person at the annual meeting. Even if you plan to attend the annual meeting, we
recommend that you also vote by proxy card or submit your proxy via the
telephone or Internet as soon as possible,described below so that your vote will
be counted if you later decide not to attend the meeting.
Whether you hold shares can bedirectly as the shareholder of record or through a
broker, trustee or other nominee as the beneficial owner, you may direct how
your shares are voted atwithout attending the meeting in accordance with your instructions. If you planannual meeting. There are three ways
to vote by telephoneproxy:
o By Internet - Shareholders who received a Notice Regarding the Availability
of Proxy Materials may submit proxies over the Internet by following the
instructions on the Notice. Shareholders who received a paper or Internet, you should have your control number, which is imprinted
on yourelectronic
copy of a proxy card available when you callmay submit proxies over the Internet by following the
instructions on the proxy card.
o By Telephone - Shareholders who live in the United States or access the web page.
o To voteCanada may
submit proxies by telephone please callby calling toll-free 1-800-PROXIES
(1-800-776-9437)1-800-690-6903 on a
touch-tone telephone and followfollowing the instructions. o To vote by Internet, please accessShareholders who
received a Notice Regarding the web page "www.voteproxy.com"Availability of Proxy Materials should have
their Notice in hand when calling, and follow the on-screen instructions.
Similar instructions are included on the enclosed proxy card.
Any shareholder givingshareholders who received a paper or
electronic copy of a proxy hascard should have the proxy card in hand when
calling.
Page 1
o By Mail - Shareholders who received a paper or electronic copy of a proxy
card may submit proxies by mail by completing, signing and dating their
proxy card and mailing it in the postage-paid envelope we have provided or
return it to First Merchants Corporation, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
After submitting a proxy, you have the right to revoke it any time before it is
exercised by giving written notice of revocation to the Secretary received prior
to the annual shareholders' meeting, by voting again in writing or via theInternet, telephone or
Internet,mail, or by voting in person at the meeting. TheYour shares
represented by proxies will be voted in
accordance with theyour specific instructions on thegiven when submitting your proxies.
In the absence of specific instructions to the contrary, proxies will be voted
for"for" election to the Board of all nominees listed in Item 1 of the proxy, "for"
the proposal to approve the First Merchants Corporation Equity Compensation Plan
for Non-Employee Directors, and for"for" ratification of the appointment of the
firm of BKD, LLP as the
Corporation'sFirst Merchants' independent auditor for 2007.2008. If any
director nomineedirector-nominee named in this proxy statement shall becomebecomes unable or declines to
serve (an event which the Board does not anticipate), the persons named as
proxies will have discretionary authority to vote for a substitute nominee named
by the Board, if the Board determines to fill such nominee's position.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Voting Securities
Only shareholders of record at the close of business on February 16, 2007 will
be entitled to notice of and to vote at the annual meeting. 18,497,790 shares of
common stock were outstanding and entitled to vote as of February 16, 2007.
Each share of the Corporation'sFirst Merchants common stock is entitled to one vote. Directors
are elected by a plurality of the votes cast by the shares entitled to vote in
the election at a meeting at which a quorum is present. Shareholders do not have
a right to cumulate their votes for directors. The affirmative vote of a
majority of the shares present and voting at the meeting in person or by proxy
is required for approval of all items submitted to the shareholders for their
consideration other than the election of directors. The Secretary will count the
votes and announce the results of the voting at the meeting.
1
Abstentions will be counted
for the purpose of determining whether a quorum is present but for no other
purpose. Broker non-votes will not be counted. Principal HoldersThe Secretary will count the
votes and announce the preliminary results of Securitiesthe voting at the annual meeting.
The final results will be published in First Merchants' quarterly report on Form
10-Q for the second quarter of 2008.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
To the best of our knowledge, the following table shows the only beneficial
owners of more than 5% of the Corporation's outstanding common stock of First Merchants as of
February 16, 2007.15, 2008.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
-------------------------------------------------------------------------------------============================================================================================================
Dimensional Fund Advisors LP 1,543,846(1)...................8.35%1,568,780................................8.70%
1299 Ocean Avenue
Santa Monica, CA 90401(90401)
First Merchants Trust Company, N. A. 1,099,773(2)...................5.95%
200 East Jackson Street
Muncie, IN 47305
(1) Based on a Schedule 13G filing with the Securities and Exchange
Commission (the "SEC"), Dimensional Fund Advisors LP (formerly,
Dimensional Fund Advisors Inc.) ("Dimensional"), an investment
advisor registered under Section 203 of the Investment Advisors Act
of 1940, furnishes investment advice to four investment companies
registered under the Investment Advisors Act of 1940 and serves as
investment manager to certain other commingled group trusts and
separate accounts. These investment companies, trusts and accounts
are the "Funds." In its role as investment advisor or manager,
Dimensional possesses investment and/or voting power over the shares
of the Corporation's common stock owned by the Funds and may be
deemed to be the beneficial owner of these shares under rules of the
SEC. However, all of these shares are owned by the Funds, and
Dimensional disclaims beneficial ownership of such shares for any
other purpose.
(2) First Merchants Trust Company, National Association ("FMTC"), is a
wholly owned subsidiary of the Corporation. It holds shares of the
Corporation's common stock in various fiduciary capacities, in
regular, nominee or street name accounts. Beneficial ownership of
shares so held is disclaimed by the Corporation.(941,100)................................5.22%
200 East Jackson Street
Muncie, IN 47305
Based on a Schedule 13G filing with the SEC, Dimensional Fund Advisors LP
(formerly, Dimensional Fund Advisors Inc.) ("Dimensional"), an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, furnishes investment advice to four investment companies registered
under the Investment Advisors Act of 1940 and serves as investment manager
to certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds." In its role as
investment advisor or manager, Dimensional possesses investment and/or
voting power over the shares of First Merchants common stock owned by the
Funds and may be deemed to be the beneficial owner of these shares under
rules of the SEC. However, all of these shares are owned by the Funds, and
Dimensional disclaims beneficial ownership of such shares for any other
purpose.
Page 2
First Merchants Trust Company, National Association ("FMTC"), is a wholly
owned subsidiary of First Merchants. It holds shares of First Merchants
common stock in various fiduciary capacities, in regular, nominee or street
name accounts. Beneficial ownership of shares so held is disclaimed by
First Merchants. It is FMTC's practice, when holding shares as sole trustee
or sole executor, to vote the shares; but, when it holds shares as
co-trustee or co-executor, FMTC obtains approval from the co-fiduciary
prior to voting.
Security Ownership of Directors and Executive Officers
The following table lists the amount and percent of the Corporation'sFirst Merchants common stock
beneficially owned on February 16, 200715, 2008 by directors (including directors who
are retiring as of the 20072008 annual meeting of shareholders), director
nominees,director-nominees,
the Chief Executive Officer, the Chief Financial Officer, the three other most
highly compensated executive officers, and by the directors and all of the Corporation'sFirst
Merchants' executive officers as a group. Unless otherwise indicated, the
beneficial owner has sole voting and investment power. The information provided
in the table is based on the Corporation'sFirst Merchants' records and information filed with the
SEC and provided to the Corporation.First Merchants.
The number of shares beneficially owned by each person is determined under rules
of the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under those rules, beneficial ownership
includes shares of which a person has the right to acquire beneficial ownership of
on or before April 17, 200715, 2008 (60 days after February 16, 2007)15, 2008) by exercising
stock options ("Vested Options") awarded to participants under the Corporation'sFirst Merchants'
Long-term Equity Incentive Plan. It also includes shares of restricted stock
("Restricted Shares") awarded to participants under that Plan which are still
subject to the restrictions.
2
Amount and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
-------------------------------------------------------------------------------------------------------========================================================================================================
Richard A. Boehning 25,336(1).......................................26,493..............................*
Thomas B. Clark 15,984(2).......................................16,753..............................*
Michael L. Cox 163,862(3).......................................176,025..............................*
Roderick English 2,314(4).......................................3,471..............................*
Jo Ann M. Gora 2,314(5).......................................3,471..............................*
William L. Hoy 10,863..............................*
Barry J. Hudson 456,859(6) ..................................2.45%
Thomas D. McAuliffe 41,868(7).......................................*458,016...............................2.50%
Michael C. Rechin 9,000(8).......................................29,257..............................*
Charles E. Schalliol 4,314(9).......................................*
Robert M. Smitson 24,725(10)......................................7,471..............................*
Terry L. Walker 16,162(11)......................................18,844.............................*
Jean L. Wojtowicz 3,471(12)......................................4,628.............................*
Jami L. Bradshaw 4,707.............................*
Robert R. Connors 26,278(13)......................................31,917.............................*
Mark K. Hardwick 33,786(14)......................................43,353.............................*
David W. Spade 3,944(15) .....................................4,350.............................*
Directors and Executive
Officers as a Group (17(18 persons) 856,413(16) ..................................4.57%
* Percentage beneficially owned is less than 1% of the outstanding
shares.
(1) Includes 10,415 shares held jointly with his spouse, Phyllis
Boehning, 5,586 shares held in trust for family members for which
Mr. Boehning, as trustee, has voting and investment power, and 5,785
shares that he has the right to acquire by exercising Vested
Options.
(2) Includes 11,338 shares that he has the right to acquire by
exercising Vested Options.
(3) Includes 44,290 shares held jointly with his spouse, Sharon Cox,
3,400 Restricted Shares, and 108,439 shares that he has the right to
acquire by exercising Vested Options.
(4) Includes 2,314 shares that he has the right to acquire by exercising
Vested Options.
(5) Includes 2,314 shares that she has the right to acquire by
exercising Vested Options.
(6) Includes 327,756 shares owned by Mutual Security, Inc., 10,024
shares held jointly with his spouse, Elizabeth Hudson, 43,521 shares
held by his spouse, 13,626 shares held by his spouse as custodian
for his children, and 14,164 shares that he has the right to acquire
by exercising Vested Options.
(7) Includes 14,870 shares held jointly with his spouse, Andrea
McAuliffe, 8,398 shares that he and his spouse hold as joint
custodians for his children, 1,900 Restricted Shares, and 16,700
shares that he has the right to acquire by exercising Vested
Options.
(8) Includes 6,334 Restricted Shares.
(9) Includes 2,314 shares that he has the right to acquire by exercising
Vested Options.
3
(10) Includes 5,859 shares held by his spouse, Marilyn Smitson, and
11,338 shares that he has the right to acquire by exercising Vested
Options.
(11) Includes 10,611 shares held jointly with his spouse, Cheryl L.
Walker, and 551 shares held by his spouse.
(12) Includes 3,471 shares that she has the right to acquire by
exercising Vested Options.
(13) Includes 722 shares held jointly with his spouse, Ann Connors, 3,000
Restricted Shares, and 22,556 shares that he has the right to
acquire by exercising Vested Options.
(14) Includes 4,400 Restricted Shares, and 28,666 shares that he has the
right to acquire by exercising Vested Options.
(15) Includes 2,400 Restricted Shares.
(16) Includes 26,300 Restricted Shares, and 250,456 shares that the
Corporation's867,240............................4.74%
* Percentage beneficially owned is less than 1% of the outstanding shares.
Includes 10,415 shares held jointly with his spouse, Phyllis Boehning,
5,586 shares held in trust for family members for which Mr. Boehning, as
trustee, has voting and investment power, and 6,942 shares that he has the
right to acquire by exercising Vested Options.
Includes 11,454 shares that he has the right to acquire by exercising
Vested Options.
Page 3
Includes 52,754 shares held jointly with his spouse, Sharon Cox, and
115,521 shares that he has the right to acquire by exercising Vested
Options.
Includes 3,471 shares that he has the right to acquire by exercising Vested
Options.
Includes 3,471 shares that she has the right to acquire by exercising
Vested Options.
Includes 917 shares that he holds as custodian for his daughter.
Includes 327,756 shares owned by Mutual Security, Inc., 10,024 shares held
jointly with his spouse, Elizabeth Hudson, 43,521 shares held by his
spouse, 13,626 shares held by his spouse as custodian for his children, and
15,321 shares that he has the right to acquire by exercising Vested
Options.
Includes 5,667 Restricted Shares, and 18,000 shares that he has the right
to acquire by exercising Vested Options.
Includes 3,471 shares that he has the right to acquire by exercising Vested
Options.
Includes 10,611 shares held jointly with his spouse, Cheryl L. Walker,
1,076 shares held by his spouse, 1,157 shares that he has the right to
acquire by exercising Vested Options.
Includes 4,628 shares that she has the right to acquire by exercising
Vested Options.
Includes 1,000 Restricted Shares, and 2,220 shares that she has the right
to acquire by exercising Vested Options.
Includes 722 shares held jointly with his spouse, Ann Connors, 3,000
Restricted Shares, and 26,556 shares that he has the right to acquire by
exercising Vested Options.
Includes 401 shares held by his spouse, Catherine Hardwick, 4,400
Restricted Shares, and 34,973 shares that he has the right to acquire by
exercising Vested Options.
Includes 193 shares held jointly with his spouse, Sandra Spade, and 2,400
Restricted Shares.
Includes 23,667 Restricted Shares, and 266,242 shares that First
Merchants' directors and executive officers have the right to acquire by
exercising Vested Options.
INFORMATION REGARDING DIRECTORS
VOTING ITEM 1 - ELECTION OF DIRECTORS
ThreeFirst Merchants' Bylaws allow the Board to fix the number of directors by
resolution. The number of directors is currently fixed at eleven. The Board is
divided into three classes serving staggered three-year terms or until their
successors are elected and qualified. Directors for each class are elected at
the annual meeting of shareholders held in the year in which the term for their
class expires; except that directors filling vacancies caused by resignation,
death or other incapacity, or an increase in the number of directors, are
elected by majority vote of the Board until the next annual meeting of
shareholders.
Five directors will be elected at the annual meeting. The five persons named belowwho have
been nominated for election to the Board withare all currently members of the Board.
The four Class II directors are completing three-year terms and have been
nominated to serve three-year terms expiring as of the 20102011 annual meeting of
shareholders. AllWilliam L. Hoy was elected by the Board on October 23, 2007 to
fill a vacancy in Class III caused by an increase in the number of directors. He
has been nominated to serve a one-year term expiring as of the nominees2009 annual
meeting of shareholders. There are currently members of the Board.
Director
Name and Age Present Occupation Since
- ------------ ------------------ -----
Class I (Terms expire 2010):
Michael L. Cox(1) President of the Corporation since 1998, and its Chief 1984
age 62 Executive Officer since 1999. Mr. Cox has also served as
Chairman of the Board of Directors of First Merchants Bank,
National Association, a wholly owned subsidiary of the
Corporation, since 2005.
Charles E. Schalliol Director, Indiana State Office of Management and Budget, since 2004
age 59 2005. Mr. Schalliol was President and Chief Executive Officer
of BioCrossroads, an economic development organization focused
on life sciences companies, from 2003 to 2005. He was
Executive Director, Corporate Finance, Eli Lilly and Company,
a pharmaceuticals company, from 1996 to 2003 and Founder and
Managing Director of Lilly Venture Funds from 1999 to 2003.
Terry L. Walker Chairman of the Board of Directors, President and Chief 2006
age 60 Executive Officer, Muncie Power Products, Inc., a manufacturer
and distributor of power take-offs and hydraulic components
for the truck equipment industry, since 2005. Mr. Walker was
Muncie Power's President and Chief Operating Officer from 2000
to 2005.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF EACH NOMINEE
FOR DIRECTOR NAMED ABOVE.no family relationships among First
Merchants' executive officers and directors.
Page 4
Continuing Directors
The following persons will continuehave been nominated for election to serve as directors:the Board:
Name and Age Present Occupation Director
- ------------ ------------------ Since
-----
Class II (Terms expire 2008)2011):
Thomas B. Clark Retired Chairman of the Board of Directors, President and 1989
age 6162 Chief Executive Officer, Jarden Corporation, a provider of
niche consumer products for the home.
Roderick English President and Chief Executive Officer, The James Monroe 2005
age 5556 Group, LLC, a provider of business management and consulting
services, since 2006. Mr. English was Senior Vice President
of Human Resources and Communications, Remy International, Inc. (formerly,
Delco Remy International, Inc.), a manufacturer of
electrical and powertrain products for autos, trucks and
other vehicles from 1994 to 2006.
Jo Ann M. Gora President, Ball State University, since 2004. Dr. Gora 2004
age 6162 served as Chancellor of the University of Massachusetts at
Boston from 2001 to 2004. She was Provost and Vice
President for Academic Affairs at Old Dominion University
from 1992 to 2001.
Jean L. Wojtowicz President and Chief Executive Officer, Cambridge Capital 2004
age 4950 Management Corp., a manager of non-traditional sources of
financing, since 1983. Ms. Wojtowicz is also a director of
Vectren Corporation and until December 2006, was a trustee of Windrose Medical
Properties Trust;Trust, which are both are listed on the New York
Stock Exchange.
Class III (Term expires 2009):
William L. Hoy Chief Executive Officer of The Columbus Sign Company, a 2007
age 59 custom sign and graphic fabricator, since 1990, and Vice
President and Treasurer of Innocom Corporation, an
environmental graphic design and custom display company,
since 1992.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF EACH NOMINEE
FOR DIRECTOR NAMED ABOVE.
The First Merchants directors whose terms are not expiring as of the 2008 annual
meeting of shareholders are listed below. They will continue to serve as
directors for the remainder of their terms or until otherwise provided in First
Merchants' Bylaws. Information regarding each of the continuing directors is
provided below.
Page 5
Continuing Directors
The following persons will continue to serve as directors:
Director
Name and Age Present Occupation Since
Class I (Terms expire 2009)2010):
Richard A. BoehningMichael L. Cox Retired President and Chief Executive Officer of First 1984
age 63 Merchants. Mr. Cox is a nonemployee consultant to First
Merchants, under the agreement described on page 24 of this
proxy statement, under "Termination of Employment and Change
of Control Arrangements."
Charles E. Schalliol Of counsel, Bennett, BoehningBaker & Clary,Daniels LLP law firm, since 2001. Prior2007. Mr. 2004
age 60 Schalliol was Director, Indiana State Office of Management
and Budget, from 2005 to 2002
age 69 2001, Mr. Boehning was2007, President and Chief Executive
Officer of BioCrossroads, an economic development
organization focused on life sciences companies, from 2003
to 2005, Executive Director, Corporate Finance, Eli Lilly
and Company, a partner in that law firm.
Barry J. Hudsonpharmaceuticals company, from 1996 to 2003,
and Founder and Managing Director of Lilly Venture Funds
from 1999 to 2003.
Terry L. Walker Chairman of the Board of Directors, President and Chief 2006
age 61 Executive Officer, Muncie Power Products, Inc., a
manufacturer and distributor of power take-offs and
hydraulic components for the truck equipment industry, since
2005. Mr. Walker was Muncie Power's President and Chief
Operating Officer from 2000 to 2005.
Class III (Terms expire 2009):
Barry J. Hudson Retired Chairman of the Board of Directors, President and 1999
age 68 Chief Executive Officer of First National Bank of 1999
age 67 Portland,
a wholly owned subsidiary of the Corporation,
since 1982. Mr. HudsonFirst Merchants that was
merged with First Merchants Bank, National Association,
another wholly owned subsidiary of First Merchants, in 2007.
Michael C. Rechin President and Chief Executive Officer of First National from 1982 to 2000,Merchants 2005
age 49 since 2007, and he was its President from
1982 to 1998.
Michael C. Rechin(2) Executive Vice President and Chief
Operating Officer of theFirst Merchants from 2005 age 48 Corporation since 2005.to 2007. Mr.
Rechin was Executive Vice President of National City Bank of
Indiana from 1995 to 20052005.
Under an Agreement between Mr. Cox and was responsible for its commercial banking operations in
Indiana.the Board, which is described on
page 24 of this proxy statement under "Termination of Employment and Change
of Control Arrangements," Mr. Cox will continue to serve as a director
until the 2009 annual meeting of shareholders.
(1) Mr. CoxPage 6
Retiring Director
Richard A. Boehning will retire as the President and Chief Executive Officera director of the CorporationFirst Merchants on April 24, 2007,29,
2008, the date of the 2007 annual
meeting of shareholders. Under an Agreement between Mr. Cox and the
Board, which is described on page 23 under "Termination of
Employment and Change of Control Arrangements," he has been
nominated for election to an additional term as a director.
5
(2) Mr. Rechin will become the President and Chief Executive Officer of
the Corporation on April 24, 2007, the date of the 2007 annual
meeting of shareholders.
Retiring Directors
Robert M. Smitson and Thomas D. McAuliffe will retire as directors of the
Corporation on April 24, 2007, the date of the 20072008 annual meeting of shareholders.
Meetings of the Board
The Board held 65 meetings during 2006.2007. All of the directors attended at least
75% of the total number of meetings of the Board and the committees on which
they served.
Directors' Attendance at Annual Meeting of Shareholders
The Corporation'sFirst Merchants' directors are encouraged to attend the annual meeting of
shareholders. At the 20062007 annual meeting, all 1312 directors were in attendance.
Board Independence
The Board has determined that each of the Corporation'sFirst Merchants' directors and
director-nominees is an "independent director," as defined in the listing
standards of the Nasdaq Stock Market, Inc. ("NASDAQ"), except for the
Corporation'sMichael L.
Cox, First Merchants' former President and CEO, Michael L. Cox, the Corporation's Executive
ViceC. Rechin, First
Merchants' current President and COO, Michael C. Rechin,CEO, and Barry J. Hudson, the former Chairman
of the Board of Directors, President and CEO of First National Bank of Portland,
Barry J. Hudson.a wholly owned subsidiary of First Merchants that was merged with First
Merchants Bank, National Association, another wholly owned subsidiary of First
Merchants, in 2007.
All of the members of the Nominating and Governance Committee, the Compensation
and Human Resources Committee, and the Audit Committee are "independent
directors," as defined in the NASDAQ listing standards.
Communications with the Board
Shareholders may communicate with the Board by e-mail at bod@firstmerchants.com.
All such e-mails will be automatically forwarded to the Chairman of the
Nominating and Governance Committee, Thomas B. Clark, who will arrange for such
communications to be relayed to the other directors.
COMMITTEES OF THE BOARD
Standing Committees/Committee Charters
The Board's standing committees are the Audit Committee, the Nominating and
Governance Committee, and the Compensation and Human Resources Committee. Each
has a charter, which is included among the documents under the "Corporate
Governance Disclosures" link on the Corporation'sFirst Merchants' website,
www.firstmerchants.com. The following information is provided regarding the
composition, functions and number of meetings held by these committees in 2006:2007:
Audit Committee
The Audit Committee is composed of directors Jean L. Wojtowicz (Chairman),
Thomas B. Clark, Jo Ann M. Gora Robert M. Smitson and Terry L. Walker. The Committee met 59 times
during 2006.2007. Its responsibilities include overseeing the
Corporation'sFirst Merchants' accounting
and financial reporting principles and policies and its internal accounting and
disclosure controls and procedures, overseeing and evaluating the effectiveness
of the Corporation'sFirst Merchants' internal audit function, reviewing the Corporation'sFirst Merchants'
procedures to ensure that quarterly and annual financial statements are accurate
and complete, including reviewing 6
the certifications of these financial
statements by the Corporation'sFirst Merchants' Chief Executive Officer and its Chief Financial
Officer, recommending the appointment of the external auditor for approval by
the Board and ratification by the shareholders, approving the external auditor's
compensation and evaluating its independence, reviewing and approving the annual
audit plans of the internal and external auditors, reviewing and discussing with
Page 7
management and the external auditor the Corporation'sFirst Merchants' audited financial
statements and, based on this review, making a recommendation to the Board on
inclusion of these financial statements in the Corporation'sFirst Merchants' annual report on
Form 10-K. In accordance with Section 407 of the Sarbanes-Oxley Act, the CorporationFirst
Merchants has identified Ms. Wojtowicz and Mr. Clark as "Audit Committee
financial experts." They are both "independent," as that term is used in the
NASDAQ listing standards.
Audit Committee Report Concerning Audited Financial Statements
The Audit Committee has reviewed and discussed the audited financial statements
of the CorporationFirst Merchants for 20062007 with the Corporation'sFirst Merchants' management, and it has
discussed with BKD, LLP, the Corporation'sFirst Merchants' independent auditor for 2006,2007, the
matters required to be discussed by the Statement on Auditing Standards No.61,No. 61,
as amended (AICPA, Professional Standards, Vol. 1.AU1. AU Section 380), as adopted
by the Public Company Accounting Oversight Board ("PCAOB") in Rule 3200T. The
Committee has also received the written disclosures and the letter from BKD, LLP
required by Independence Standards Board Standard No. 1 (Independent Discussions
with Audit Committees), as adopted by the PCAOB in Rule 3600T, and has discussed
with BKD, LLP its independence. Based on these reviews and discussions, the
Audit Committee recommended to the Board that the audited financial statements
of the CorporationFirst Merchants be included in the Corporation'sFirst Merchants' Annual Report on Form 10-K
for the 20062007 fiscal year for filing with the SEC.
The above report is submitted by:
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE
Jean L. Wojtowicz, Chairman
Thomas B. Clark
Jo Ann M. Gora
Robert M. Smitson
Terry L. Walker
Nominating and Governance Committee
The Nominating and Governance Committee is composed of directors Thomas B. Clark
(Chairman), Richard A. Boehning, Robert M. SmitsonCharles E. Schalliol and Jean L. Wojtowicz. The
Committee met 25 times during 2006.2007. It is charged with ensuring the continued
effectiveness and independence of the Board. The Committee is responsible for
reviewing the credentials of persons suggested as prospective directors,
nominating persons to serve as directors and as officers of the Board, including
the slate of directors to be elected each year at the annual meeting of
shareholders, making recommendations concerning the size and composition of the
Board, as well as criteria for Board membership, making recommendations
concerning the Board's committee structure and makeup, providing for continuing
education of the directors and self-assessment of the Board's effectiveness, and
overseeing the Corporation'sFirst Merchants' Code of Business Conduct and its Code of Ethics for
Senior Financial Officers of the Corporation.First Merchants. The Code of Business Conduct and
the Code of Ethics for Senior Financial Officers are included among the
documents under the "Corporate Governance Disclosures" link on the Corporation'sFirst Merchants'
website, www.firstmerchants.com.
In nominating persons to serve as directors, the Nominating and Governance
Committee considers the person's ethical character, reputation, relevant
expertise and experience, accomplishments, leadership skills, demonstrated
business judgment, contribution to Board diversity, "independence" (as defined
in the NASDAQ listing standards) if a non-employee director, residency in the
Corporation'sFirst
Merchants' market area, ability and willingness to devote sufficient time
7
to
director responsibilities, and willingness to maintain a meaningful ownership
interest in the CorporationFirst Merchants and assist the CorporationFirst Merchants in developing new
business. For incumbent directors whose terms are expiring, the Committee also
considers the quality of their prior service to the Corporation,First Merchants, including the
nature and extent of their participation in the Corporation'sFirst Merchants' governance and
their contributions of management and financial expertise and experience to the
Board and the Corporation.First Merchants. For new director candidates, the Committee also
considers whether their skills are complementary to those of existing Board
members and whether they will fulfill the Board's needs for management,
Page 8
financial, technological or other expertise. The Nominating and Governance
Committee considers candidates coming to its attention through current Board
members, search firms, shareholders and other persons.
Article IV, Section 9, of the Corporation'sFirst Merchants' Bylaws, describes the process by
which a shareholder may suggest a candidate for consideration by the Committee
as a director nominee. Under this process, a suggestion by a shareholder of a
director nominee must include: (a) the name, address and number of the
Corporation'sFirst
Merchants shares owned by the shareholder; (b) the name, address, age and
principal occupation of the suggested nominee; and (c) such other information
concerning the suggested nominee as the shareholder may wish to submit or the
Committee may reasonably request. A suggestion for a director nominee submitted
by a shareholder must be in writing and delivered or mailed to the Secretary,
First Merchants Corporation, 200 East Jackson Street, Muncie, Indiana 47305.
Suggestions for nominees from shareholders are evaluated in the same manner as
other nominees. There are no nominees for election to the Board at the 20072008
annual meeting of shareholders other than directors standing for re-election.
Compensation and Human Resources Committee
The Compensation and Human Resources Committee is composed of directors Charles
E. Schalliol (Chairman), Thomas B. Clark and Roderick English and Robert M.
Smitson.English. The Committee met
2 times during 2006.2007. The Committee is responsible for establishing the Corporation'sFirst
Merchants' general compensation philosophy, overseeing the development and
implementation of policies and programs to carry out this compensation
philosophy, and evaluating the effectiveness of these policies and programs, in
consultation with senior management. The Committee makes recommendations to the
Board concerning the compensation to be paid to the
Corporation'sFirst Merchants' non-employee
directors; and it administers the Corporation'sFirst Merchants' non-equity incentive compensation
program (the First Merchants Corporation Senior Management Incentive
Compensation Program), the nonqualifiednon-qualified deferred compensation plans (the First
Merchants Corporation Supplemental Executive Retirement Plan, and the First
Merchants Corporation Defined Contribution Supplemental Executive Retirement
Plan, and the First Merchants Corporation Directors' Deferred Compensation
Plan), and the equity-based compensation plan (the First Merchants Corporation
Long-term Equity Incentive Plan). The Long-term Equity Incentive Plan was
submitted to and approved by the Corporation'sFirst Merchants' shareholders in 1999.
The Committee reviews the performance of, and approves the compensation and
benefits to be paid to, the executive officers and senior management employees
of the CorporationFirst Merchants and the chief executive officers and regional presidents of
its subsidiaries. The Committee's charter permits the Committee to delegate its
authority to review the performance of, and approve the compensation and
benefits to be paid to, other employees of the CorporationFirst Merchants and its subsidiaries
to the Corporation'sFirst Merchants' President and Chief Executive Officer and the chief
executive officers of the Corporation'sFirst Merchants' subsidiaries, as appropriate, and the
Committee has done so. The Committee has also delegated the day-to-day
responsibilities for administering the Corporation'sFirst Merchants' non-equity incentive,
deferred compensation, and equity-based programs to Mr. Coxthe President and CEO,
Michael C. Rechin, and the Senior Vice President and Director of Human
Resources, Kimberly J. Ellington. The Committee is authorized to directly engage
counsel and consultants, including compensation consultants, to assist it in
carrying out its responsibilities.
Mr. CoxRechin and Ms. Ellington provide information to the Committee and make
recommendations from time to time, as requested by the Committee, concerning
existing and proposed compensation policies and programs for executives and
other employees of the CorporationFirst Merchants and its subsidiaries. As the President and
Chief Executive Officer,CEO, Mr. CoxRechin also makes recommendations to the Committee concerning the
performance, compensation and benefits of the Corporation'sFirst Merchants' executive officers
(other than himself) and its senior management employees, as well as the chief
executive officers and regional presidents of the
Corporation'sFirst Merchants' subsidiaries.
8
In 2005, the Committee engaged Watson Wyatt & Company to conduct a competitive
market assessment of the compensation of the Corporation'sFirst Merchants' executive officers and
to review the Corporation'sFirst Merchants' Long-term Equity Incentive Plan to identify the need
for design changes, if any. At the Committee's request, Watson Wyatt provided
information, which included contemporary data on the extent peer companies have
utilized long-term equity incentive programs and their mix of restricted stock
and stock options, as well as information on accounting and tax considerations.
Following completion of the study, based in part on Watson Wyatt's
Page 9
recommendation, the Committee changed the Corporation'sFirst Merchants' equity-based compensation
program, beginning in 2006, from one utilizing only stock options to one
utilizing a mix of stock options and restricted stock awards for senior managers
and only restricted stock awards for other participating employees. The
Committee's actions were all consistent with the provisions of the Long-term
Equity Incentive Plan.
In 2006, the Committee engaged Mercer Human Resource Consulting to provide
information regarding the prevalence information forof executive retirement benefits among
companies in general industry and the banking industry, to analyze the benefit
levels and adequacy of financing of the existing Supplemental Executive Retirement Plan,
a defined benefit nonqualifiednon-qualified deferred compensation plan presently covering Mr.
Cox and payingthat pays retirement
benefits to two otherthree retired executives of the
Corporation,First Merchants, and to make plan design
recommendations for a new defined contribution supplemental executive retirement
plan. Based on Mercer's recommendations, the Committee made additional
provisions for financing the
existing Supplemental Executive Retirement Plan and adopted
amendments to the plan necessary for compliance with Internal Revenue Code
Section 409A; and the Committee established a new Defined Contribution
Supplemental Executive Retirement Plan, initially covering only the Executive Vice President and Chief
Operating Officer, Michael C.Mr. Rechin.
Compensation and Human Resources Committee Interlocks and Insider Participation
No member of the Compensation and Human Resources Committee - Charles E.
Schalliol, Thomas B. Clark or Roderick English or Robert M. Smitson - was an officer or employee of
the CorporationFirst Merchants or any of its subsidiaries during 2006.2007. None of these members
has ever been an officer or employee of the CorporationFirst Merchants or any of its
subsidiaries. No member of the Compensation and Human Resources Committee or
executive officer of the CorporationFirst Merchants had a relationship during 20062007 requiring
disclosure in this proxy statement under SEC regulations.
Compensation and Human Resources Committee Report
The Compensation and Human Resources Committee has reviewed and discussed with
management the Compensation Discussion and Analysis set forth immediately
following this report, under "Compensation of Executive Officers." Based on this
review and discussion, the Committee recommended to the Board that the
Compensation Discussion and Analysis be included in the Corporation'sFirst Merchants' annual
report on Form 10-K for the fiscal year ended December 31, 20062007 and in this
proxy statement.
The above report is submitted by:
FIRST MERCHANTS CORPORATION COMPENSATION AND HUMAN RESOURCES COMMITTEE
Charles E. Schalliol (Chairman)
Thomas B. Clark
Roderick English
Robert M. Smitson
9
COMPENSATION OF EXECUTIVE OFFICERS
Compensation Discussion and Analysis
The Corporation'sCompensation and Human Resources Committee is responsible for the design,
implementation and evaluation of First Merchants' compensation programs and
policies, aided by the company's executive officers and senior management and
with the support of outside consultants as the Committee deems necessary or
helpful. These programs and policies are intended to providegive all employees,
including executive officers and other senior management employees, incentives
to employees, and to senior management in particular, to achieve the Corporation'sFirst Merchants' current and long-term strategic goals. Thegoals - the ultimate
objective of the
Corporation's strategic goals, and thus of these compensation programs, isbeing to obtain a superior return on shareholders' investment.
The Corporation's
compensation programs and policies are determined, implemented and evaluated by
the Compensation and Human Resources Committee, in consultation with senior
management and with the assistanceconsist of outside consultants as the Committee deems
necessary.
The compensation programs for the Corporation's "Named Executive Officers" (the
President and Chief Executive Officer, Michael L. Cox, the Executive Vice
President and Chief Financial Officer, Mark K. Hardwick, the Executive Vice
President and Chief Operating Officer, Michael C. Rechin, the Senior Vice
President and Chief Information Officer, Robert R. Connors, and the Senior Vice
President and Chief Credit Officer, David W. Spade) and other senior managers
contain four principal components: (1) salary, (2)
non-equity incentive pay, (3) equity-based compensation, consisting ofincluding both
restricted stock awards and stock options, and (4) retirement benefits. The
compensation programs incentivize the
Named Executive Officerssalary and other senior managers to achieve the Corporation's
current and shorter-term goals by paying themnon-equity incentive pay components, comprised entirely of current
cash compensation, (salary
and non-equity incentive pay) that providesprovide an immediate or near-term reward to executive
officers and senior managers for exceptional performance; whereas longer-term performance is rewarded through- thereby advancing
shorter-term goals. The equity-based compensation and retirement benefits.benefits
components provide incentives for achieving longer-term goals. The equity-based compensation
directly alignsrestricted
Page 10
stock awards and stock options both align the Named Executive Officers'executive officers' and other senior
managers' financial interests directly with those of the shareholders by
correlating the amount of the compensation received with the price (and increase in
price) of the Corporation'sFirst Merchants stock. The equity-based compensation and retirement
programs areplans include vesting provisions, which also designed to encouragepromote retention of senior
management employees.
Each ofFor 2007, First Merchants' "Named Executive Officers" ("NEOs") and their titles
were:
o Michael L. Cox, the President and Chief Executive Officer until his
retirement on April 24, 2007;
o Michael C. Rechin, the President and Chief Executive Officer since April
24, 2007; prior to that, the Executive Vice President and Chief Operating
Officer;
o Mark K. Hardwick, the Executive Vice President and Chief Financial Officer;
o Robert R. Connors, the Senior Vice President and Chief Information Officer;
o David W. Spade, the Senior Vice President and Chief Credit Officer; and
o Jami L. Bradshaw, the Senior Vice President and Chief Accounting Officer.
The four principal components of the Corporation'sFirst Merchants' compensation programs, isand how
the NEOs are compensated under them, are described below:
Salaries. The Named Executive Officers'NEOs' salaries are determined annually by the Compensation and
Human Resources Committee. The Committee determines these salaries subjectively,
based on the executive's responsibilities and the Committee's review of the
executive's individual performance and contributions to the Corporation'sFirst Merchants'
performance, especially its long-term and short-term financial performance.
Other factors that the Committee takes into account include the executive's
experience, the salaries paid to executives holding similar positions with the Corporation'sFirst
Merchants' competitors in the financial services industry, inflation rates and
budgetary considerations. The Committee relies heavily on the recommendations of
the Chief Executive OfficerCEO in setting the salaries of the Named Executive OfficersNEOs other than the Chief Executive Officer.CEO. The Committee
has the sole responsibility for establishing the Chief Executive
Officer'sCEO's salary.
For 2006 and prior years, employeeAnnual salary determinations were madeadjustments are usually determined in December,
and they took effect at the beginning of the following year. However, as
recommended by senior management and approved by the Committee, commencing in
2007 these determinations are delayed until the Corporation'sFebruary, after First
Merchants' audited financial statements for the preceding fiscal year arehave been
issued, (generally in late January
or early February), and the resulting salary adjustments are not effective untilas of the first
payroll in March. The Committee believes that, by waiting until the financial
statements are issued, salary adjustments for the Named Executive
OfficersNEOs and other employees can
be more accurately and effectively tied to their success in meeting financial
targets and other strategic goals for the previous
year.full year just ended. It also allows
the CorporationFirst Merchants to communicate decisions concerning salary adjustments to the
Named Executive OfficersNEOs and other senior management employees close toat the same time they are informed of
incentive plan payments and equity-based awards, thus ensuring a clear and
consistent message regarding performance and underlining the Corporation'sFirst Merchants'
emphasis on growing a performance-based culture.
Mr. Cox's base2007 salary, for 2006 was $355,000, a 3.4% increase overpayable until his 2005
salary. Since he will be retiringretirement on April 24, 2007, hiswas
$111,962 - based on an annual salary of $355,000. Mr. Rechin's 2007 salary of
$309,423 was not adjusted
in 2007. Mr. Rechin didn't assume his position with the Corporation until
late-November 2005; therefore, his beginning basebased on an annual salary of $275,000 was not
10
adjusted for 2006. He will become the President and Chief Executive Officer onuntil April 24, 2007, at which time his basewhen he
was promoted from Executive Vice President and COO to President and CEO.
Thereafter, it was based on an annual salary will increase toof $325,000, in recognition of his
additional responsibilities. In 2008, Mr. Hardwick's base salary for
2006 was $190,000, an 11.8% increase over his 2005 salary; his baseRechin's salary was increased by an additional 10%to
$350,000, a 7.7% increase from $325,000, in recognition of his performance since
becoming CEO. Mr. Hardwick's salary for 2007 was $209,000; and it was increased
to $209,000.$250,000 in 2008, a 19.6% increase. Mr. Hardwick's larger increases wereincrease was based
in part on his exceptional performance and worth to the
CorporationFirst Merchants and were in part
market-based, resulting from a reviewon surveys of salaries paid to executives holdingwith similar positionsresponsibilities at other
companies. Mr. Connors' salary for 2007 was $192,200; it was increased to
$199,900 in 2008, a 4.0% increase. Mr. Spade's salary was $175,000 in 2007; it
was increased to $180,700 in 2008, a 3.3% increase. Mr. Connors' and Mr. Spade's
increases were in line with the Corporation's competitors
in the financial industry. Mr. Connors' base salary for 2006 was $182,200, a
3.4% increase over his 2005 salary; his basemerit increases given to most other senior
management employees. Ms. Bradshaw's 2007 salary was increased by an
additional 5.5% infrom $110,201 to
$125,000 on July 24, 2007, to $192,200. His larger increase in 2007 was in
recognition of his excellent performance during 2006. Mr. Spade was the
Executive Vice President and Chief Lending Officer of First Merchants Bank,
National Association ("First Merchants Bank"), a wholly owned subsidiary of the
Corporation, with a base salary of $160,000, during the first 11 months of 2006.
Hewhen she was promoted to Senior Vice President and
Chief Credit OfficerAccounting Officer. In 2008, she received a further increase in salary to
$145,000, a 16.0% increase, based on the CEO's recommendation and the
Committee's consideration of her performance and surveys of the Corporation as of December 1, 2006, and his base salary was increasedcompensation
paid to $175,000 on account of this promotion but was not further adjusted for 2007.executives with similar responsibilities at other companies that compete
with First Merchants.
Page 11
Non-equity incentive pay. Non-equity incentive compensation is available to the
Named Executive OfficersNEOs and other senior managers through the Senior Management Incentive
Compensation Program. Under the program, the Named Executive OfficersNEOs and other participating senior
management employees are eligible to receive additional cash compensation,
determined as a percentage of their base salaries, as incentive pay by meeting
individual goals that are generally closely related to the Corporation'sFirst Merchants' financial success.
Under the program, at the beginning of the year, each participant isparticipants are given goals,
consisting of a target or targets, and in some cases, personal objectives, which
upon being met, entitles the executive to receive a payout following the end of
the year of 100% of a pre-determined percentage of the executive's base salary. The
schedules containing the targets also include thresholds below which no payout
is made, as well as maximum payouts.payouts that may be higher than the target bonuses.
For 2006,2007, upon meeting a threshold, the executiveparticipants became entitled to 30% of the
pre-determined percentage of basetheir salary, and the maximum payout, depending on
the executive's pre-established goals, was 170% - 200% of this percentage. The
amounts earned under the program for a fiscal year are determined and paid out
after the Corporation'sFirst Merchants' audited financial statements for the applicable year have
been issued, (generallyusually in late
January or early February).
Two changes were madeFebruary, contemporaneously with the determination of
salaries and equity compensation for the following year.
The target bonuses payable to Messrs. Cox, Rechin and Hardwick for 2007 under
the Senior Management Incentive Compensation Program in
2006, both applicable to the incentive payments made to participants in early
2007 for the 2006 fiscal year. One eliminated the former provision that
mitigated the impact of wide swings in incentive plan payouts from year to year
by basing 60% of each year's payment on the participant's performance under the
program for the current year and 40% of the payment on the participant's
performance under the program for the previous year. The other eliminated the
former provision that was intended to encourage executive retention by paying
2/3 of the incentive pay earned each year in cash and the other 1/3 in deferred
stock units two years later, based on the price of the Corporation's stock on
the payment date plus accrued dividends. The first change is intended to tie the
incentive pay more directly and more immediately to performance in both good and
bad years. The second change is related to the Corporation's implementation in
2006 of its new practice of awarding restricted stock to participants in the
program that will be forfeited if the employee leaves within three years of the
award. It is anticipated that these awards will be superior to deferred stock
units as a retention tool for senior managers. The effect of these two changes
will be to combine all incentive compensation earned into a one-year cash
payout, which will allow for a greater focus on growth goals, better motivate
high performers, and further strengthen the Corporation's pay-for-performance
culture.
For 2006, Messrs. Cox and Rechin were eligible to receive45%, 45% and 40%,
respectively, of their base salaries, as incentive pay by meeting their
individual goals. For both of them, 40% of their incentive pay was dependentin each case based entirely on improvinggrowth from the
Corporation's operating earnings per share above a pre-established
percentage, 30% was dependent on improving dilutedprevious year in First Merchants' GAAP earnings per share above
a pre-established percentage, and 30% was dependent on obtaining a return on
equity above a pre-established percentage. The improvements in the Corporation's
operating earningsshare. Earnings per share and diluted GAAP earnings per share for 2006 failed
to exceed the thresholds. The Corporation's return on equity did
11
exceedin
2007 grew more than the threshold percentage that made them eligible for
bonuses, but was less thannot as much as the target.target percentage. As a result, Messrs. Cox's,
Rechin's and Rechin'sHardwick's incentive pay for 20062007 was 1.35%determined on the basis of
22.5%, 22.5%, and 1.20%20%, respectively, of their base salaries. Mr. Cox's bonus was
pro-rated to 31.2% of his full-year amount, since he retired on April 24, 2007.
For 2006,2007, Messrs. HardwickConnors and ConnorsSpade were each eligible to receive 35% andtarget bonuses
of 30%, respectively, of their base salaries as incentive pay by meeting
their individual goals.under the Senior Management Incentive Compensation
Program, while Ms. Bradshaw's target bonus was based on 25% of her salary until
she was promoted to Senior Vice President and Chief Accounting Officer on July
24, 2007, when the target bonus was increased to 30% of her salary. For both of them,all
three, 70% of their incentive pay was
dependentdepended on improving the Corporation'simprovement in First
Merchants' operating earnings per share above a pre-established percentage, and
30% was dependentbased on achieving pre-established personal objectives that were established by
the Chief Executive Officer. As
noted above, the improvement in the Corporation's operatingCEO. Operating earnings per share did grow more than the threshold
percentage, thus making them eligible for 2006 failed to exceedbonuses; however earnings didn't grow
as much as the threshold; however, Messrs. Hardwicktarget percentage. Mr. Connors and ConnorsMs. Bradshaw achieved all of
their personal objectives, and Mr. Spade achieved part of his personal
objectives. As a result,Based on these results, Messrs. Hardwick'sConnors' and Connors'Spade's and Ms.
Bradshaw's incentive pay for 20062007 was 10.50%19.5%, 17.3% and 9.00%16.6%, respectively, of
their base salaries.
For 2006, Mr. Spade was eligible to receive 20% of his base
salary as incentive pay by meeting his individual goals. 60% of his incentive
pay was dependent on improving the operating earnings of First Merchants Bank
for 2006 above a pre-established percentage, and 40% was dependent on achieving
pre-established personal objectives that were established by the Bank's Chief
Executive Officer. First Merchants Bank's operating earnings did not improve for
2006; however, Mr. Spade achieved all of his personal objectives. As a result,
Mr. Spade's incentive pay for 2006 was 8.00% of his base salary.
As noted above, untilUntil 2006, the Senior Management Incentive Compensation Program provided for
payment of 2/3 of the incentive pay earned each year in cash and the other 1/3
in deferred stock units two years later, based on the price of the
Corporation'sFirst Merchants'
stock on the December 31 preceding the payment date, plus accrued dividends.
Under this provision, threefour of the Named Executive OfficersNEOs - Messrs. Cox, Hardwick, Connors and
ConnorsSpade - received payments in early 2007,2008, in the amounts of $16,741, $9,122,$20,149, $10,892,
$11,049 and $9,145,$937, respectively, that were based on deferred stock units they earned for the 2004
fiscal year under the program prior to its amendment. Messrs. Rechin and
Spade
weren't employees of the Corporation in 2004 and were thus not eligible for such
payments. Additional payments will be made in early 2008 to Named Executive
Officers based on deferred stock unitsdividends they earned for the 2005 fiscal year underthat became vested at the program prior to its amendment.
Theend of
2007. Mr. Rechin and Ms. Bradshaw were not participants in the Senior Management
Incentive Compensation Program was amendedin 2005 and thus did not receive payments based
on deferred stock units earned for 2007 to
provide that the incentive pay which the Corporation's President and Chief
Executive Officer and its Executive Vice Presidents can earn under the program
will be entirely dependent on improving diluted GAAP earnings per share above a
pre-established percentage. If diluted GAAP earnings per share increase by the
pre-established target percentage, the President and Chief Executive Officer
will earn an additional 45% of base salary, and Executive Vice Presidents will
earn an additional 40% of base salary. The other Named Executive Officers'
incentive pay for 2007 will be based 70% on improving operating earnings per
share above a pre-established percentage and 30% on achieving pre-established
personal objectives. If operating earnings per share increase by the
pre-established target percentage and they achieve all of their personal
objectives, these Named Executive Officers will earn an additional 30% of base
salary.2005 fiscal year.
Equity-based compensation. Equity-based compensation is made available to the
Named Executive OfficersNEOs and other plan participants under the Long-term Equity Incentive Plan. The
Compensation and Human Resources Committee approves stock option and restricted
stock awards under the plan at a meeting that is usually held each year in
early
February.February, at the same time salary adjustments and non-equity incentive payments
are approved. In making thesestock option and restricted stock awards, the Committee
relies heavily on the recommendations of the Chief Executive OfficerCEO except for the awards to the
Chief Executive Officer.CEO.
Until 2006, stock option grants were the only equity-based compensation awarded
under the Long-term Equity Incentive Plan. In 2005, the Compensation and Human
Resources Committee engaged Watson Wyatt & Company to undertake a comprehensive
study of the plan and to make recommendations concerning its design and
administration. At the Committee's request, Watson Wyatt provided information,
which included contemporary data on the extent peer companies have utilized
long-term equity incentive programs and their mix of restricted stock and stock
Page 12
options, as well as information on accounting and tax considerations. Following
completion of the study, based in part on Watson Wyatt's recommendation, the
Committee changed the Corporation'sFirst Merchants' equity-based compensation program, beginning
in 2006, from one utilizing only stock options to one utilizing only restricted
stock awards for most plan participants and a mix of stock options and
12
restricted stock awards for senior managers and only restricted stock awards for
other participating employees.managers. This change in the program was
within the Committee's discretion under the provisions of the plan. After consulting with Watson WyattThe CEO and the Chief Executive Officer,
the Committee concluded that, the interests of the Corporation and its shareholders
will be best served if, for the Named Executive OfficersNEOs and other senior managers, stock
option grants should continue to be a significant component of the
Corporation'sFirst Merchants'
equity-based compensation program. ThatThis conclusion was based on the rationale
that the financial incentive provided by stock options depends entirely on
increasing the price of the Corporation'sFirst Merchants shares, thus furthering the program's
purpose of aligning senior management's financial interests with those of the Corporation'sFirst
Merchants' shareholders.
13
The stock options granted to the Named Executive OfficersNEOs and other senior managers under the
Long-term Equity Incentive Plan are incentive stock options up to the statutory
limit;limit, and the rest are nonqualified options. The stock options
vest and are exercisable 2 years after the date they are granted or, if earlier,
on the date the grantee's employment terminates on account of retirement, death
or disability. The restricted stock awarded under
thisthe plan vests - giving the awardee complete ownership rights - if the awardee
is still employed by the
Corporation 3First Merchants three years after the award oris made;
however, the awardee's rights in the stock vest immediately and the restrictions
are removed if the awardee's employment terminates in less than 3three years on
account of retirement, death or disability. The restricted stock partially vests
if the awardee's employment is involuntarily terminated without "cause,"cause." determined byUnder
this circumstance, the vested portion is based on a fraction, the numerator of
which is the number of full years that have elapsed between the date of the
award and the date of termination and the denominator of which is 3.three.
Notwithstanding the restrictions on the stock, the awardee is entitled to vote
the shares and to receive the dividends thereon.
The awards made to the Named Executive OfficersMr. Cox did not receive an award under the Long-term Equity Incentive Plan in
either 2007 or 2008 year because he retired on February 10, 2006 andApril 24, 2007. The awards made
to the other NEOs under the plan on February 8, 2007 and February 27, 2008,
respectively, were as follows: the 2006 award to Mr. Cox was 12,000 stock options and 3,400 shares of
restricted stock; however, since he will retire on April 24, 2007, he did not
receive a 2007 award; the 2006 award to Mr. Rechin was 8,000 stock options and
2,000 shares of restricted stock and the 2007 award was- 12,000 stock options and 3,000
shares of restricted stock the substantial increase in 2007, due to his
becoming President and Chief Executive Officer on April 24, 2007; the 2006 award
to15,000 stock options and 4,000 shares of
restricted stock in 2008; Mr. Hardwick was 7,000- 8,000 stock options and 2,400 shares of
restricted stock in 2007, and 8,000 stock options and 2,700 shares of restricted
stock in 2008; Mr. Connors - 4,500 stock options and 1,600 shares of restricted
stock in 2007, and 3,000 stock options and 2,000 shares of restricted stock and
the 2007 award was 8,000 stock options and 2,400 shares of restricted stock; the
2006 award to Mr. Connors was 4,000 stock options and 1,400 shares of restricted
stock and the 2007 award was 4,500 stock options and 1,600 shares of restricted
stock; and the 2006 award toin
2008; Mr. Spade was 1,400 shares of restricted stock and
the 2007 award was- 4,000 stock options and 1,000 shares of restricted stock.stock in
2007, and 4,000 stock options and 1,000 shares of restricted stock in 2008; Ms.
Bradshaw - 2,000 options and 600 shares of restricted stock in 2007, and 1,500
stock options and 1,500 shares of restricted stock in 2008. The exercise price
for the stock options was the closing price on the date the options were granted
by the Compensation and Human Resources Committee. This
price was $25.14 per share on February 10, 2006 andCommittee; that is, $26.31 per share on
February 8, 2007.2007 and $28.25 per share on February 27, 2008.
Although not required to be shown in the Summary Compensation Table, the First
Merchants Corporation Employee Stock Purchase Plan is a form of equity-based
compensation that is equally available to all employees of the CorporationFirst Merchants and
its participating subsidiaries who have been employed six months or more. Under
this plan, employees (including the Named Executive Officers)NEOs) may elect, prior to the offering
period (July 1 to June 30), to purchase shares of the
Corporation'sFirst Merchants' stock at a
price equal to 85% of the lesser of the market price of the stock at the
beginning of the offering period and the market price at the end of the period.
The plan provides an attractive vehicle for employees to acquire the Corporation'sFirst Merchants
stock, which further aligns their financial interests with those of other
shareholders. For the offering period ending June 30, 2006,2007, the following Named Executive OfficersNEOs
participated in this plan: Mr. Cox,Rechin, who purchased 1,059322 shares, Mr. Spade who
purchased 193 shares, and Mr. Connors,Ms. Bradshaw, who purchased 264258 shares. The purchase
price for shares under the plan was $20.66$20.43 per share.
Retirement benefits. The Corporation has long maintainedFirst Merchants maintains a qualified defined benefit
pension plan, the First Merchants Corporation Retirement Pension Plan, which it
"froze" as of March 1, 2005, meaning that, with some exceptions, employees no
longer accrued benefits under the plan. However, participants who were at least
age 55 with 10 or more years of credited service on the date the plan was frozen
were "grandfathered;" that is, they continued to accrue benefits under the plan
after that date. Employees who were not participating in the plan on March 1,
2005 were not eligible to participate. The plan pays benefits at retirement to
participating employees of the CorporationFirst Merchants and its participating subsidiaries.
The benefits payable under this plan, at
normal retirement age (age 65), computed as a straight-life annuity
although other forms of actuarially-equivalent benefits are available under the
plan, are based on the following formula: 1.6% of average final compensation (in
general, the participant's highest 60 consecutive months' W-2 compensation, less
Page 13
incentive pay) plus .5% of average final compensation in excess of Social
Security covered compensation, both times years of service to a maximum of 25
years. Although benefits are integrated with Social Security, they are not
subject to any deduction for Social Security or other offset amounts. The
Corporation "froze" this plan, effective March 1, 2005, for participants other
than those who were at least age 55 with 10 or more years of credited service,
meaning that these participants no longer accrued benefits under the plan after
that date and employees who were not participating in the plan as of that date
were not eligible to participate. The benefits payable under the plan at age 65 to the participants whose benefits
were frozen are determined under the formula
14
described above, based on their
average final compensation as of March 1, 2005, times a fraction, the numerator
of which is the participant's years of credited service as of March 1, 2005, and
the denominator of which is the participant's years of credited service
projected to age 65.
The participantsOf the NEOs, Mr. Cox was the only one who were at
leastwas "grandfathered" due to having
attained age 55 withand 10 or more years of credited service at the time the plan was
frozen were "grandfathered;" that is, their benefits continueas of March 1, 2005, so
he continued to accrue benefits under the plan until their retirement.
Ofhis retirement on April 24,
2007. Upon retiring, Mr. Cox began receiving an annual benefit under the Named Executive Officers,plan
that is the equivalent of a straight-life annuity of $47,234. Since he elected
payment in the form of a joint and 100% survivor annuity, his annual benefit
under the plan is actually $40,149. Messrs. Rechin and Spade were never
participantsdid not participate
in the First Merchants Corporation Retirement Pension Plan, because
they first became employees of the Corporation after March 1, 2005.Plan. The benefits
accruing to Messrs. Hardwick and Connors were among the participants whose benefitsand Ms. Bradshaw were frozen as of
March 1, 2005, because they had not attained age 55 with 10 or more years of
credited service as of March 1, 2005.that date. Assuming their employment continues to age 65,
Mr.Messrs. Hardwick's and Connor's and Ms. Bradshaw's annual benefitbenefits under the
plan, payable as a straight-life annuity, would be approximately $8,594, $7,895,
and Mr.
Connor's annual benefit would be approximately $7,895.$2,712, respectively.
Mr. Cox was
"grandfathered;" because he had attained age 55 with 10 or more years of
credited service as of March 1, 2005, so he has continued to accrue benefits
underis also the plan. He has elected to retire early, at age 62, on April 24, 2007.
His early retirement benefit underonly NEO who participates in the plan will be an annual benefit of
approximately $47,158, payable in substantially equal monthly amounts.
The First Merchants Corporation
Supplemental Executive Retirement Plan, a defined benefit, nonqualifiednon-qualified "excess
benefit" plan that provides additional retirement benefits to designated
executives whose benefits under the First Merchants Corporation Retirement
Pension Plan are restricted due to the limit under Internal Revenue Code Section
401(a)(17) on the amount of compensation that can be considered for purposes of
calculating pension benefits under a qualified plan. Thisplan (for 2007, the last year Mr.
Cox accrued benefits under this plan, this amount was $220,000 for 2006,$225,000). The plan was
closed to new participants when the First Merchants Corporation Retirement
Pension Plan was frozen. Mr. Cox and it is $225,000 for 2007.two other previously retired First
Merchants executives presently receive benefits under the plan. The benefit payable under this plan is
calculated using the First Merchants Corporation Retirement Pension Plan formula
described two paragraphs above, without applying the Section 401(a)(17) limit
andbut including non-equity incentive pay in determining average final
compensation, and then subtracting the benefit whichthat is payable to the executive under
the Retirement Pension Plan. Mr. Cox is the
only Named Executive Officer who has been designated as a participant in this
plan. Following his retirement on April 24, 2007, he will be eligible to receivebegan receiving an annual early retirement benefit of
approximately $56,734$52,431 under the plan,
which the Corporation expects to begin paying in substantially equal monthly
amounts in January 2008, with the first payment to include a retroactive amount
for the last 8 months of 2007. Since the First Merchants Corporation Supplemental Executive Retirement
Pension Plan has been frozen, no other executives will be designated as
participantsin January 2008, payable in the form of a fifteen-year certain annuity. Mr.
Cox also received a lump sum payment of $34,954 in January 2008, representing
benefits payable under this plan.
The Corporationthe plan for the period following his retirement in 2007
that were deferred to 2008.
First Merchants also maintains the First Merchants Corporation Retirement and
Income Savings Plan, an Internal Revenue Code Section 401(k) qualified defined
contribution plan under which participating employees of the CorporationFirst Merchants and its
subsidiaries can make pre-tax contributions to the plan, up to statutory limits
and limits set forth in the plan, that are currently matched by the
participant's employer at the rate of 50% of the participant's pre-tax
contributions underto the plan, to a maximum of 6% of compensation (defined as W-2
compensation plus certain voluntary pre-tax contributions, up to the Internal
Revenue Code Section 401(a)(17) maximum, noted above)which was $225,000 in 2007 and is
$230,000 in 2008). Thus, the maximum matching employer contribution under the
plan is generally 3% of pay (less if the participant's compensation exceeds
$225,000)$230,000). The CorporationFirst Merchants made matching contributions for 20062007 under the plan
for Messrs.NEOs Rechin, Hardwick, Connors, Spade and SpadeBradshaw in the amounts of $6,600, $6,600, $6,433,$6,750,
$6,750, $6,615, $5,700 and $5,028,$3,827, respectively. For the participants who were
"grandfathered" when the First Merchants Corporation Retirement Pension Plan was
frozen, including Mr. Cox, the matching employer contribution under the First
Merchants Corporation Retirement and Income Savings Plan is less. First
Merchants matches only 25% of their pre-tax contributions under the plan, to a
maximum of 5% of compensation. The CorporationFor 2007, First Merchants made a matching
contribution for
2006 under the plan for Mr. Cox in the amount of $2,750. The employer$1,913. First Merchants
also makes contributions under the plan on behalf of participants in the plan based on their
years of service, currently from 2% to 7% of compensation (2%in five-year
increments (i.e., 2% for 0-4 years of service, 3% for 5-9 years of service, 4%
for 10-14 years of service, 5% for 15-19 years of service, 6% for 20-24 years of
service, and 7% for 25 or more years of service). The "grandfathered"
participants, including Mr. Cox, are not eligible for these service-weighted
contributions. For 2006,2007, the other NEOs received service-weighted contribution forcontributions
as follows: Mr. Rechin, 2% of compensation, or $4,500; Mr. Hardwick, was4% of
Page 14
compensation, or $9,000; Mr. Connors, 3% of compensation, or $6,694; and the
service-weighted contributions for Messrs. Rechin, Connors and$6,615; Mr. Spade, were
2% of compensation, or $7,672, $4,289,$3,800; and $3,352, respectively.
15
Ms. Bradshaw, 3% of compensation, or $3,827.
Finally, the employerFirst Merchants is making "transition contributions" under the plan
equal to 3% of compensation for the years 2005 through 2009, for employees who
were participants in the First Merchants Corporation Retirement Pension Plan
when it was frozen and who had attained age 45 with 10 or more years of credited
service as of March 1, 2005 (other than the "grandfathered" participants). None
of the Named Executive OfficersNEOs is eligible for a transition contribution under the plan. Employee
pre-tax contributions under the plan are always fully vested, while matching,
service-weighted and transition contributions vest 20% after each year of
serviceservice.
In 2006, the Compensation and Human Resources Committee engaged Mercer Human
Resource Consulting to make plan design recommendations for a new defined
contribution supplemental employee executive retirement plan, in view of the
fact that the primary retirement plan for all of the executive officers other
than Mr. Cox is now a Section 401(k) defined contribution plan rather than a
defined benefit plan. Based on Mercer's recommendations, the Committee
established the First Merchants Corporation Defined Contribution Supplemental
Executive Retirement Plan, effective as of January 1, 2006. Like the existing
defined benefit Supplemental Executive Retirement Plan covering Mr. Cox, the
Defined Contribution Supplemental Executive Retirement Plan is a nonqualified plan that
is intended to
provide additional retirement benefits to designated executives whose benefits
under the Corporation'sFirst Merchants' qualified retirement plan - in this case the First
Merchants Corporation Retirement and Income Savings Plan - are restricted due to
the limit under Internal Revenue Code Section 401(a)(17) on the amount of
compensation that can be considered for purposes of calculating pension benefits
under a qualified plan.plan ($225,000 in 2007 and is $230,000 in 2008). The Committee
has designated Mr. Rechin as the sole initial participant in the Defined
Contribution Supplemental Executive Retirement Plan, effective as of January 1,
2006. Based on Mercer's recommendation, the Committee established the employer
contribution for Mr. Rechin under the plan at 12% of his annual compensation,
including his base salary and his non-equity incentive pay. Mercer calculated
that, if Mr. Rechin continues to be employed by the CorporationFirst Merchants until his normal
retirement age, this contribution will provide an income replacement ratio of
approximately 35%, based on a 7% return on the plan's investments. Mercer
determined, based on its review of retirement benefits paid to executives
holding similar positions at peer companies in the banking industry, that this
income replacement ratio would be competitive with the industry. Mr. Rechin's
benefit under the plan is subject to a 5 year "cliff" vesting provision. He is
not permitted to make employee contributions under the plan. The Corporation's 2006First Merchants'
contribution for 2007 to this plan foron behalf of Mr. Rechin was $33,396.$50,856.
Termination of Employment and Change of Control Arrangements. InAlthough, in
general, the
CorporationFirst Merchants does not have employment agreements with the Named
Executive Officers or any of its other employees, who are all deemed to be "at
will" employees. However, on January 23, 2007, the Board approved an agreement between
the Corporation and Mr. Cox concerning his retirement as the President and Chief
Executive Officer of the Corporation on April 24, 2007, the date of the 2007
annual meeting of shareholders, and his provision of consulting services to the
Corporation for a period of 2 years thereafter. The material terms of this
agreement are described on page 23 of this proxy statement, under "Termination
of Employment and Change of Control Arrangements."
The Corporation hasemployees, it does have "double trigger" change of control agreements with
certain of its key executives, including alleach of the Named Executive Officers except Mr. Spade. The
BoardNEOs. First Merchants
believes that change of control agreements are in the best interests of the CorporationFirst
Merchants and its shareholders, because they encourage key executives to remain
with the CorporationFirst Merchants and continue to act in the Corporation'sFirst Merchants' and shareholders'
interests in the event of a proposed acquisition or other change of control
situation in which they might otherwise be influenced by the uncertainties of
their own circumstances. The Board also believes thatA "double trigger" agreements are in the Corporation's best interests, so eachchange of control agreement is one
provides thatunder which severance benefits will beare payable only if bothif: (1) a change of control
occursoccurs; and (2) the executive's employment is terminated or constructively
terminated following the change of control (under First Merchants' agreements,
this termination must occur within 24 months afterfollowing the change of control.control for
the agreement to apply). No benefits will beare payable under the agreements in the
event of the executive's voluntary retirement, death or disability, or if the
executive's employment is terminated for cause. More
information regarding theThe definitions of "change of
control" and "constructive termination,"termination" as used in these agreements can be foundare
contained on pages 23-24page 23 of this proxy statement, under "Termination of Employment
and Change of Control Arrangements." The lump sum
16
severance benefit paymentsPayments under the change of control
agreements are based on a multiple of the sum of the executive's annual base
salary at the time of receiving notice of termination and the executive's
largest annual non-equity incentive payment under the Senior Management
Incentive Compensation Program during the two years preceding the date of
termination. This multiple is 2.99 for Messrs. Cox, Rechin and Hardwick, and 2.001.50 for
Mr. Connors. The agreements
also provide that the Corporation will: pay any excise tax imposed on the
executive under Section 4999 of the Internal Revenue Code on an "excess
parachute payment;" provide outplacement servicesMessrs. Connors and pay reasonable legal feesSpade and expenses incurred by the executive as a result of the termination; continue
life, disability, accident and health insurance coverage until the earlier of 2
years following the date of termination or the executive's 65th birthday; and
cancel the executive's outstanding stock options and, in lieu thereof, pay the
executive a lump sum amount equal to the bargain element value of these options,
if any.Ms. Bradshaw. The aggregate of the benefitslump sum
severance benefit amounts that would have been payable to key executives under
all of the Corporation'sFirst Merchants' existing change of control agreements, if both of the
triggering events had occurred on December 31, 2006, is only a
little more2007, totals less than 1%two
percent of the Corporation'sFirst Merchants' market capitalization - not enough, in
the Board's opinion, to discourage any offer to purchase the Corporation's
shares. This percentage will be even less after Mr. Cox's retirement on April
24, 2007, since he will no longer be covered by acapitalization. The change of control
agreement.
The change of controlPage 15
agreements were not entered into in response to any effort to acquire control of
the Corporation,First Merchants, and the Board is not aware of any such effort. A changeBecause they
represent such a small percentage of controlFirst Merchants' market capitalization, the
Board does not believe that the existence of these agreements would also resultdiscourage
any such effort.
The only other existing agreement or arrangement providing for payment(s) at,
following, or in vesting of:connection with the non-vested stock
options and restricted stock awards under the Corporation's Long-term Equity
Incentive Plan; the non-vested deferred stock units under the Corporation's
Senior Management Incentive Compensation Program; the non-vested retirement
benefits under the Corporation's nonqualified Defined Contribution Supplemental
Executive Retirement Plan. Additional information concerning the affect these
provisions for accelerated vesting in the eventtermination of a changeNEO's or other senior
manager's employment is the agreement that the Board approved on January 23,
2007, concerning Mr. Cox's retirement as the President and CEO of control would
haveFirst
Merchants on the Named Executive Officers can be foundApril 24, 2007. The details of that agreement are set forth in more
detail on pages 24-25page 24 of this proxy statement, under "Termination of Employment and
Change of Control Arrangements."
Summary Compensation Table
The following table provides information concerning all of the plan and non-plan
compensation paid to the Named Executive OfficersNEOs for 2006.2006 and 2007.
Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------------------------------------------- ----- ---------- ---------- ---------- ---------- --------------- ------------ ------------ ----------
Change in
pension
value and
nonqualifiednon-qualified
Non-equity deferred
Stock Option incentive plan compensation All other
Name and Principal Positionposition Year Salary(1) Bonus(2) Awards(3) awards(3) compensation(4) earnings(5)Salary Bonus awards awards plan earnings compensationTotal
compensation
- -------------------------------------------------------------------------------------------------------------------------------------------------- ----- ---------- ---------- ---------- ---------- --------------- ------------ ------------ ----------
Michael L. Cox
2006 $ 361,887 $ 0 $ 25,268 $ 32,766 $ 4,793 $ 205,052
President and Chief 2006 $361,887 $ 0 $25,268 $32,766 $4,793 $205,052 $27,918 $657,684
Executive Officer - ----------------------------------------------------------------------------------------------------------------------2007 111,962 0 60,208 40,621 24,947 210,608 12,740 461,086
Michael C. Rechin
Executive Vice President 2006 280,288 100,100 14,864 21,844 3,300 0 51,788 472,184
and Chief Operating 2007 309,423 0 57,833 83,434 69,620 0 69,270 589,580
Officer
Mark K. Hardwick
Executive Vice President 2006 193,699 0 14,864 19,113 19,950 2,495 Executive15,434 265,555
and Chief Financial 2007 206,077 0 35,527 44,558 41,800 1,555 20,182 349,699
Officer
Robert R. Connors
Senior Vice President and Chief Financial Officer
- ----------------------------------------------------------------------------------------------------------------------
Michael C. Rechin 2006 280,288 100,100 14,864 21,844 3,300 0
Executive Vice President
and Chief Operating
Officer
- ----------------------------------------------------------------------------------------------------------------------
Robert R. Connors 2006 185,704 0 10,405 10,922 16,398 4,695 12,310 240,434
Chief Information Officer 2007 190,662 0 24,243 25,256 37,479 3,689 16,374 297,703
David W. Spade
Senior Vice President and
Chief Information Officer
- ----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------
All other
Name and Principal Position compensation(6) Total
- -----------------------------------------------------------
Michael L. Cox $ 27,918 $ 657,684
President and Chief
Executive Officer
- -----------------------------------------------------------
Mark K. Hardwick 15,434 265,555
Executive Vice President
and Chief Financial Officer
- -----------------------------------------------------------
Michael C. Rechin 51,788 472,184
Executive Vice President
and Chief Operating
Officer
- -----------------------------------------------------------
Robert R. Connors 12,310 240,434
Senior Vice President and
Chief Information Officer
- -----------------------------------------------------------
17
- ----------------------------------------------------------------------------------------------------------------------
Change in
pension value
and
nonqualified
Non-equity deferred
Stock Option incentive plan compensation
Name and Principal Position Year Salary(1) Bonus(2) Awards(3) awards(3) compensation(4) earnings(5)
- ----------------------------------------------------------------------------------------------------------------------
David W. Spade 2006 164,327 0 10,405 0 12,800 0 10,568 198,100
Chief Credit Officer 2007 175,000 0 19,547 11,513 30,188 0 12,392 248,640
Jami L. Bradshaw
Senior Vice President and 2006 100,385 0 2,973 0 6,765 1,026 5,675 116,824
Chief CreditAccounting Officer 2007 119,878 0 8,044 5,757 20,760 684 8,958 164,081
- ----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------
All---------------------------- ----- ---------- ---------- ---------- ---------- --------------- ------------ ------------ ----------
The amounts shown in the Salary column for 2006 are the aggregate of the
executive's base salary, service award and Christmas gift. For Mr. Cox,
these were $355,000, $60 and $6,827, respectively; for Mr. Rechin, these
were $275,000, $0 and $5,288, respectively; for Mr. Hardwick, these were
$190,000, $45 and $3,654, respectively; for Mr. Connors, these were
$182,200, $0 and $3,504, respectively; for Mr. Spade, these were $161,250,
$0 and $3,077, respectively; and for Ms. Bradshaw, these were $98,458, $0
and $1,927, respectively. The service awards and Christmas gifts were
discontinued for 2007.
First Merchants paid Mr. Rechin a signing bonus of $100,000 when he was
hired in November 2005, to offset a bonus that he would have received from
his previous employer had he not left its employment. This signing bonus
was paid to Mr. Rechin in early 2006. The other Name and Principal Position compensation(6) Total
- -----------------------------------------------------------
David W. Spade 10,568 198,100
Senior Vice President
and Chief Credit Officer
- -----------------------------------------------------------
(1) The amounts shown in the Salary column are the aggregate of the
executive's base salary, service award and Christmas gift. For Mr.
Cox, these were $355,000, $60 and $6,827, respectively; for Mr.
Hardwick, these were $190,000, $45 and 3,654, respectively; for Mr.
Rechin, these were $275,000, $0 and $5,288, respectively; for Mr.
Connors, these were $182,200, $0 and 3,504, respectively; and for
Mr. Spade, these were $$161,250, $0 and $3,077, respectively.
(2) The Corporation agreed to pay Mr. Rechin a signing bonus of $100,000
when he was employed as the Corporation's Executive Vice President
and Chief Operating Officer in November 2005, to offset a bonus that
would have been payable to Mr. Rechin by his previous employer had
he not taken this new position. This signing bonus was paid to Mr.
Rechin early in 2006. The other $100 was paid to Mr. Rechin under a
customer referral program. No bonus was paid to any other Named
Executive Officer during 2006 except as part of a non-equity
incentive plan.
(3) A discussion of the assumptions used in calculating these values is
contained in Note 16 to the 2006 audited financial statements, on
page 42 of the Corporation's Annual Report.
(4)$100 was paid to Mr. Rechin
under a customer referral program. No bonuses were paid to any of the other
NEOs during 2006 or 2007 except as part of a non-equity incentive plan.
Page 16
A discussion of the assumptions used in calculating these values is
contained in Note 60 to the 2007 audited financial statements, on page 60
of First Merchants' Annual Report.
The amounts shown in the Non-equity Incentive Plan Compensation column are
payments for 2006 performance under the First Merchants Corporation Senior Management Incentive
Compensation Program for 2006 and 2007 performance that were paid in
February 2007 and February 2008, respectively.
The amounts shown in the Change in Pension Value and Nonqualified Deferred
Compensation Earnings column for Messrs. Hardwick and Connors and Ms.
Bradshaw are the changes in the actuarial present value of their frozen
benefits under the First Merchants Corporation Retirement Pension Plan for
2006 and 2007. For Mr. Cox, the amount shown for 2006 is the sum of the
increase in the actuarial present value of his benefits under the First
Merchants Corporation Retirement Pension Plan ($78,517) and the increase in
the actuarial present value of his benefits under the First Merchants
Corporation Supplemental Executive Retirement Plan ($126,535). The amount
shown for 2007 is the sum of the increase in the actuarial present value of
Mr. Cox's benefits under the First Merchants Corporation Retirement Pension
Plan ($91,162) and the increase in the actuarial present value of his
benefits under the First Merchants Corporation Supplemental Executive
Retirement Plan ($119,446). Mr. Cox began receiving monthly benefits under
the First Merchants Corporation Retirement Pension Plan in May 2007 and
under the First Merchants Corporation Supplemental Executive Retirement
Plan in January 2008. Messrs. Rechin and Spade have not participated in any
defined benefit plan or other actuarial pension plan maintained by First
Merchants. No NEO received above-market or preferential earnings on
deferred compensation during 2006 or 2007.
First Merchants made matching contributions to the First Merchants
Corporation Retirement and Income Savings Plan for the benefit of the NEOs
in the following amounts for 2006 and 2007, respectively: Mr. Cox - $2,750
and $1,913; Mr. Rechin - $6,600 and $6,750; Mr. Hardwick - $6,600 and
$6,750; Mr. Connors - $6,433 and $6,615; Mr. Spade - $5,028 and $5,700; and
Ms. Bradshaw - $2,954 and $3,827. First Merchants made service-weighted
employer contributions to the First Merchants Corporation Retirement and
Income Savings Plan for the benefit of the NEOs in the following amounts
for 2006 and 2007, respectively: Mr. Cox - $0 and $0; Mr. Rechin - $4,400
and $4,500; Mr. Hardwick - $6,694 and $9,000; Mr. Connors - $4,289 and
$6,615; Mr. Spade - $3,352 and $3,800; and Ms. Bradshaw - $1,969 and
$3,827. First Merchants also made contributions to the First Merchants
Corporation Defined Contribution Supplemental Executive Retirement Plan in
2006 and 2007 for the benefit of Mr. Rechin in the amounts of $33,396 and
$50,896, respectively. During 2006, Mr. Cox was the only NEO whose
compensation included perquisites in the aggregate amount of $10,000 or
more. The aggregate amount of his perquisites and other personal benefits
for 2006 totaled $21,740, including personal use of a company-owned car,
payment of country club dues, automobile insurance premiums and medical and
travel expenses. During 2007, none of the NEOs received perquisites in the
aggregate amount of $10,000 or more. Mr. Cox received a retirement gift
from First Merchants upon his retirement in April 2007, which had a value
of $9,797. The other amounts shown in the All Other Compensation column
include the dollar value of life insurance premiums and dividends on
restricted stock awards paid to or for the benefit of each of the NEOs
during 2006 and 2007.
First Merchants
Corporation Senior Management Incentive Compensation Program that
were made in February 2007.
(5) The amounts shown in the Change in Pension Value and Nonqualified
Deferred Compensation Earnings column for Messrs. Hardwick and
Connors are the changes in the actuarial present value of their
frozen benefits under the First Merchants Corporation Retirement
Pension Plan, and for Mr. Cox, the change in the actuarial present
value of his benefits under the First Merchants Corporation
Retirement Pension Plan ($78,517) and the First Merchants
Corporation Supplemental Executive Retirement Plan ($126,535) during
2006. Messrs. Rechin and Spade were never participants in a defined
benefit or other actuarial pension plan maintained by the
Corporation. No Named Executive Officer received above-market or
preferential earnings on deferred compensation.
(6) The Corporation made matching and service-weighted employer
contributions to the First Merchants Corporation Retirement and
Income Savings Plan for the benefit of the Named Executive Officers
in the following aggregate amounts for 2006: Mr. Cox - $2,750
($2,750 and $0); Mr. Hardwick - $13,294 ($6,600 and $6,694); Mr.
Rechin - $14,272 ($6,600 and $7,672); Mr. Connors - $10,722 ($6,433
and $4,289); and Mr. Spade - $8,380 ($5,028 and $3,352). The
Corporation also made a contribution to the First Merchants
Corporation Defined Contribution Supplemental Executive Retirement
Plan in the amount of $33,396 for the benefit of Mr. Rechin. Mr. Cox
was the only Named Executive Officer whose compensation included
perquisites in the aggregate amount of $10,000 or more. The
aggregate amount of his perquisites and other personal benefits,
which included personal use of a Corporate-owned automobile, payment
of country club dues, automobile insurance premiums, medical and
travel expenses, totaled $21,740. The other amounts shown in the All
Other Compensation column include the dollar value of life insurance
premiums and dividends on restricted stock awards paid to or for the
benefit of each of the Named Executive Officers during 2006.
The Corporation does not have employment agreements with any of the Named
Executive Officers.NEOs.
Grants of Plan-based Awards Table
The following table provides information concerning all of the grants of
plan-based awards made to the Named Executive OfficersNEOs for 2006,2007, which included non-equity incentive
pay and awards of restricted stock and stock options.
18Page 17
Grants of Plan-Based Awards for 20062007 Fiscal Year
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated future payouts under
Non-equity incentive plan awards(1)
---------------------------------------------------------------------------------------------------------------------------------------------------
All other All other
option stockoption Exercise
awards; awards; Number of Exercise or base Grant date
Number Number of securities base price of fair value
Estimated future payouts of shares securities option of stock
Name Grant sharesunder Non-equity incentive of stock underlying awards and option
awards stock and
Name Date Threshold Target Maximum stockplan awards or units options (per share) option awards
- ------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------ ---------- ---------- ---------- ------------
Threshold Target Maximum
- ------------------- ------- -------- ---------- ---------- ---------- ---------- ---------- ------------
Michael L. Cox
-- $$0 $52,083 $104,166
-- 0 $ 159,750 $ 319,500146,250 292,500
Michael C. Rechin 2/10/06 3,400 $ 25,2688/07 3,000 $26.31 $78,930
2/10/068/07 12,000 $ 25.14 32,766
- ------------------------------------------------------------------------------------------------------------------------------------64,541
-- 0 83,600 167,200
Mark K. Hardwick 2/8/07 2,400 26.31 63,144
2/8/07 8,000 51,633
-- 0 66,500 113,050
2/10/06 2,000 14,864
2/10/06 7,000 25.14 19,113
- ------------------------------------------------------------------------------------------------------------------------------------
Michael C. Rechin -- 0 110,000 220,000
2/10/06 2,000 14,864
2/10/06 8,000 25.14 21,844
- ------------------------------------------------------------------------------------------------------------------------------------57,660 98,022
Robert R. Connors 2/8/07 1,600 26.31 42,096
2/8/07 4,500 29,043
-- 0 54,660 92,922
2/10/06 1,400 10,405
2/10/06 4,000 25.14 10,922
- ------------------------------------------------------------------------------------------------------------------------------------52,500 89,250
David W. Spade 2/8/07 1,000 26.31 26,310
2/8/07 4,000 25,816
-- 0 32,000 51,20037,500 63,750
Jami L. Bradshaw 2/10/06 1,400 10,4058/07 600 26.31 15,786
2/8/07 2,000 15,256
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The amounts shown in the Estimated Future Payouts under
Non-equity Incentive Plan Awards column are the range of
payouts for targeted performance under the First Merchants
Corporation Senior Management Incentive Compensation Program
for 2006,------------------- ------- -------- ---------- ---------- ---------- ---------- ---------- ------------
The amounts shown in the Estimated Future Payouts under Non-equity
Incentive Plan Awards column are the range of payouts for targeted
performance under the First Merchants Corporation Senior Management
Incentive Compensation Program for 2007, as described in the Section
entitled "Non-equity Incentive Pay" in the Compensation Discussion and
Analysis. The payments made in February 2008 for 2007 for 2006 performance under the
Program are shown in the Non-equity Incentive Plan Compensation column of
the Summary Compensation Table on page 16 of this proxy statement.
The compensation programs under which the grants in the above Grants of
Plan-basedPlan-Based Awards Table were made are generally described in the Compensation
Discussion and Analysis, on pages 11-13,12-13 of this proxy statement, and include the
Senior Management Incentive Compensation Program, a non-equity incentive plan,
and the Long-term Equity Incentive Plan, which provides for stock option grants
and restricted stock awards. The following is a summary of material factors that
will assist in an understanding of the information disclosed in the Grants of
Plan-basedPlan-Based Awards Table.
Under the Senior Management Incentive Compensation Program, each of the Named
Executive OfficersNEOs was
given goals at the beginning of 2006,2007, consisting of a target or targets, and in
some cases, personal objectives, which upon being met, entitled the executive to
receive a payout following the end of the year of 100% of a pre-determined
percentage of the executive's base salary. The schedules containing the targets
also included thresholds, at which the executive became entitled to 30% of the
pre-determined percentage and below which no payout would be made, as well as
maximum payouts equal to 200% of the pre-determined percentage.percentage, or in some
cases, 170%. The amounts earned under the program for 20062007 were paid out in
February 2007.2008.
Under the Long-term Equity Incentive Plan, awards of stock options and
restricted stock were granted to each of the Named Executive OfficersNEOs in February 20062007, except that
no awards were made to Mr. Spade, who was not awarded stock optionsCox because he retired in April 2007. This was not a senior managerin
accordance with the terms of the Corporation atretirement agreement between the time.Board and Mr.
Cox, which is described in more detail on page 24 of this proxy statement, under
"Termination of Employment and Change of Control Arrangements." In general,most cases,
the number of stock options awarded to each executive was 3 - 4approximately 3-4
Page 18
times the number of shares of restricted stock awarded to the executive. The
aggregate number of equity awards to each executive was roughly commensurate
with the executive's position and level of responsibilities. The exercise price
for the stock options was the closing price on the date the options were
granted, February 10, 2006.8, 2007. The stock options will vest and become exercisable
2two years after the date they were granted or, if earlier, on the date the
19
executive's employment terminates on account of retirement, death or disability.
The restricted stock will vest, giving the executive complete ownership rights,
if the executive is still employed by the Corporation 3First Merchants three years after the date
of the award orof the executive's employment terminates in less than 3three years
on account of retirement, death or disability. The restricted stock will
partially vest if the executive's employment is involuntarily terminated without
"cause," the number that will vest to bebeing a fraction of the shares awarded, the
numerator of which is the number of full years that have elapsed between the
date of the award and the date of termination and the denominator of which is
3.three. Notwithstanding the restrictions on the stock, the executive will beis entitled
to vote the shares and to receive the dividends thereon. The normal dividend
rate applies to the restricted shares; the rate is not preferential.
Outstanding Equity Awards at Fiscal Year-end Table
The following table provides information concerning unexercised stock options,
restricted stock awards that have not vested, and equity incentive plan awards
for each of the Named Executive OfficersNEOs outstanding as of the end of the
Corporation's 2006First Merchants' 2007 fiscal
year.
Outstanding Equity Awards at Fiscal Year-End 2006
- ------------------------------------------------------------------------------------------------------------------2007
------------------ ---------------------------------------------------- -------------------------
Name Option Awards Stock Awards
---------------------------------------------------------------------------------------------
Number of Number of
securities securities
underlying underlying Number of Market value
unexercised unexercised shares or units of shares or
options options(1) Option of stock that units of stock
exercise Option have not that have not
Name (Exercisable) (Unexercisable) price expiration date vested(2) vested
- ------------------------------------------------------------------------------------------------------------------------------------- ------------- -------------- ------------ ---------- ------------ ------------
Number of Number of Option Option Number of Market
securities securities exercise expiration shares or value of
underlying underlying price date units of shares or
unexercised unexercised stock that units of
options options have not stock that
vested have not
(Exercisable) (Unexercisable) vested
------------------ ------------- -------------- ------------ ---------- ------------ ------------
Michael L. Cox 3,400 $ 92,446
851 23,136
6,078 $ 18.07 7/31/07
5,729 24.80 7/$24.80 07/31/08
11,575 19.65 7/07/29/09
11,573 18.28 7/1/07/01/10
11,576 19.73 7/1/07/01/11
13,781 26.93 7/1/07/01/12
13,127 23.46 7/1/07/01/13
15,000 25.60 7/1/07/01/14
20,000 26.70 9/1/09/01/15
12,000 25.14 2/02/10/16
- ------------------------------------------------------------------------------------------------------------------
Mark K. Hardwick 2,000 54,380
460 12,506
694 19.65 7/29/09
578 18.28 7/1/10
1,736 19.73 7/1/11
4,409 26.93 7/1/12
5,249 23.46 7/1/13
6,000 25.60 7/1/14
10,000 26.70 9/1/15
7,000 25.14 2/10/16
- ------------------------------------------------------------------------------------------------------------------1,157 24.03 07/01/17
Michael C. Rechin 3,334 90,6515,667 $123,767
10,000 25.90 11/21/15
8,000 25.14 2/02/10/16
- ------------------------------------------------------------------------------------------------------------------12,000 26.31 02/08/17
Mark K. Hardwick 4,400 96,096
694 19.65 07/29/09
578 18.28 07/01/10
1,736 19.73 07/01/11
4,409 26.93 07/01/12
5,249 23.46 07/01/13
6,000 25.60 07/01/14
10,000 26.70 09/01/15
7,000 25.14 02/10/16
8,000 26.31 02/08/17
Robert R. Connors 1,400 38,066
467 12,6873,000 65,520
3,307 25.33 8/08/26/12
5,249 23.46 7/1/07/01/13
6,000 25.60 7/1/07/01/14
8,000 26.70 9/1/09/01/15
4,000 25.14 2/02/10/16
- ------------------------------------------------------------------------------------------------------------------4,500 26.31 02/08/17
David W. Spade 1,400 38,066
- ------------------------------------------------------------------------------------------------------------------
20
(1) Options were granted to Messrs. Cox, Hardwick, Rechin and Connors to
purchase 12,000, 7,000, 8,000 and 4,000 shares, respectively, of the
Corporation's stock under the Long-term Equity Incentive Plan on
February 10, 2006, which will vest on February 10, 2008. In
addition, Mr. Rechin was granted an option to purchase 10,000 shares
of the Corporation's stock under the Long-term Equity Incentive Plan
on November 21, 2005, which will vest on November 21, 2007.2,400 $52,416
4,000 $26.31 02/08/17
Jami L. Bradshaw 1,000 21,840
420 23.46 07/01/13
800 25.60 07/01/14
1,000 26.70 09/01/15
2,000 26.31 02/08/17
------------------ ------------- -------------- ------------ ---------- ------------ ------------
Page 19
Options were granted to Messrs. Rechin, Hardwick, Connors, Spade and Ms.
Bradshaw to purchase 12,000, 8,000, 4,500, 4,000 and 2,000 shares,
respectively, of First Merchants common stock under the Long-term Equity
Incentive Plan on February 8, 2007, which will vest on February 8, 2009.
All of these options will also vest on the date the executive's employment
terminates on account of retirement, death or disability, if earlier
than the normal vesting dates.
(2) Messrs. Cox, Hardwick, Rechin, Connors and Spade were awarded 3,400,
2,000, 2,000, 1,400 and 1,400 restricted shares, respectively, of
the Corporation's stock under the Long-term Equity Incentive Plan on
February 10, 2006, which will vest on February 10, 2009. In
addition, Mr. Rechin was awarded 2,000 restricted shares of the
Corporation's stock under the plan on December 22, 2005, of which
666 shares vested on December 22, 2006, 667 shares will vest on
December 22, 2007, and 667 shares will vest on December 22, 2008.
Messrs. Cox, Hardwick and Connors earned 851, 460 and 467 deferred
stock units, respectively, under the Corporation's Senior Management
Incentive Compensation Program for the 2005 fiscal year. These units
will vest at the end of the 2007 fiscal year and will result in
payments of cash, not shares of stock, to these executive officers
early in 2008 in amounts equal to the December 31, 2007 fair market
value of an equivalent number of shares of the Corporation's stock,
plus dividends that would have accrued on an equivalent number of
shares during 2006 and 2007. All of these restricted stock awards
and deferred stock units will also vest on the date the executive's employment
terminates on account of retirement, death or disability, if earlier than
the normal vesting dates. As a non-employee director, Cox was granted an
option to purchase 1,157 shares of First Merchants common stock under the
Long-term Equity Incentive Plan on July 1, 2007, which vested on January 1,
2008.
Messrs. Rechin, Hardwick, Connors and Spade and Ms. Bradshaw were awarded
2,000, 2,000, 1,400, 1,400 and 400 restricted shares, respectively, under
First Merchants' Long-term Equity Incentive Plan on February 10, 2006.
These shares will vest on February 10, 2009. Messrs. Rechin, Hardwick,
Connors and Spade and Ms. Bradshaw were also awarded 3,000, 2,400, 1,600,
1,000 and 600 restricted shares, respectively, under the Long-term Equity
Incentive Plan on February 8, 2007. These shares will vest on February 8,
2010. In addition, Mr. Rechin was awarded 2,000 restricted shares under the
Long-term Equity Incentive Plan on December 22, 2005, of which 666 shares
vested on December 22, 2006, 667 shares vested on December 22, 2007, and
667 shares will vest on December 22, 2008.
Option Exercises and Stock Vested Table
The following table provides information concerning each exercise of stock
options and each vesting of stock, including restricted stock and restricted
stock units, during the Corporation's 2006First Merchants' 2007 fiscal year for each of the Named
Executive Officers.NEOs.
Option Exercises and Stock Vested During Fiscal Year 2006
- -----------------------------------------------------------------------------------------------------------2007
----------------------- ---------------------------- ---------------------------
Option awards Stock awards
---------------------------------------------------------------------------------Name
---------------------------- ---------------------------
Number of shares Value realized on Number of Value
shares or Value realized Name acquired on exercise exercise unitsshares realized
acquired on on vesting(1)
vesting(1)
- -----------------------------------------------------------------------------------------------------------exercise acquired on on
exercise vesting vesting
----------------------- --------------- ------------ -------------- ------------
Michael L. Cox 5,209 $ 50,163 577 $ 16,741
- -----------------------------------------------------------------------------------------------------------6,078 $18,903 4,251 $101,749
Michael C. Rechin 0 0 667 15,294
Mark K. Hardwick 0 0 314 9,122
- -----------------------------------------------------------------------------------------------------------
Michael C. Rechin 0 0 666 17,915
- -----------------------------------------------------------------------------------------------------------460 10,892
Robert R. Connors 0 0 315 9,145
- -----------------------------------------------------------------------------------------------------------467 11,049
David W. Spade 0 0 40 937
Jami L. Bradshaw 0 0 - -----------------------------------------------------------------------------------------------------------0 0
----------------------- --------------- ------------ -------------- ------------
Page 20
All of the amounts shown in the Number of Shares or Units Acquired on
Vesting column for Messrs. Hardwick, Connors and Spade, and 851 of the
shares shown for Mr. Cox, are deferred stock units they earned under the
Senior Management Incentive Compensation Program for the 2005 fiscal year
which vested at the end of the 2007 fiscal year. The amounts shown in the
Value Realized on Vesting column, with respect to these deferred stock
units, were paid in cash to these executives in February 2008, in
accordance with the program's provisions. These payments to Messrs. Cox,
Hardwick, Connors and Spade included dividends that would have been payable
on an equivalent number of shares of First Merchants stock during 2006 and
2007, in the amounts of $1,566, $846, $859 and $73, respectively. The
amount shown in the Number of Shares or Units Acquired on Vesting column
for Mr. Rechin is the portion of the restricted stock award made to him on
December 22, 2005 under the First Merchants' Long-term Equity Incentive
Plan which vested on December 22, 2007. This award is further described in
footnote 2 to the Outstanding Equity Awards at Fiscal Year-End 2007 Table
on page 20 of this proxy statement. The amount shown in the Value Realized
on Vesting column for Mr. Rechin was determined by multiplying the number
of shares that vested (667) times the closing price of First Merchants
stock on December 22, 2007 ($22.93).
(1) The amounts shown in the Number of Shares or Units Acquired on
Vesting column for Messrs. Cox, Hardwick and Connors are deferred
stock units they earned under the Senior Management Incentive
Compensation Program for the 2004 fiscal year which vested at the
end of the 2006 fiscal year. The amounts shown in the Value Realized
on Vesting column were paid in cash to these executives in February
2007, in accordance with the program's provisions. These payments to
Messrs. Cox, Hardwick and Connors included dividends that would have
been payable on an equivalent number of shares of the Corporation's
stock during 2005 and 2006, in the amounts of $1,061, $578 and $580,
respectively. The amount shown in the Number of Shares or Units
Acquired on Vesting column for Mr. Rechin is the portion of the
restricted stock award made to him on December 22, 2005 under the
Long-term Equity Incentive Plan which vested on December 22, 2006.
This award is further described in footnote 2 to the Outstanding
Equity Awards at Fiscal Year-End 2006 Table on page 20 of this proxy
statement. The amount shown in the Value Realized on Vesting column
for Mr. Rechin was determined by multiplying the number of shares
that vested (666) times the closing price of the Corporation's stock
on December 22, 2006 ($26.90).
21
Pension Benefits Table
The First Merchants Corporation Retirement Pension Plan (the "Pension Plan") is
a qualified defined benefit pension plan that pays monthly retirement benefits
to eligible employees. The benefits, computed as a straight-life annuity
although other forms of actuarially-equivalent benefits are available under the
plan, are based on the following formula: 1.6% of average final compensation (in
general, the participant's highest 60 consecutive months' W-2 compensation, less
incentive pay) plus .5% of average final compensation in excess of Social
Security covered compensation, both times years of service to a maximum of 25
years. The plan was frozen, effective March 1, 2005, for participants who had
not yet attained age 55 and been credited with 10 or more years of service as of
that date, meaning that their accrued benefits were vested and they no longer
accrued benefits under the plan, and employees who were not participating in the
plan as of that date were not eligible to participate. The benefits payable
under the plan at age 65 to the participants whose benefits were frozen are
determined under the above formula, based on their average final compensation as
of March 1, 2005, times a fraction, the numerator of which is the participant's
years of service as of March 1, 2005, and the denominator of which is the
participant's years of service projected to age 65. The participants who were at
least age 55 with 10 or more years of service at the time the plan was frozen
continued to accrue benefits under the plan until their retirement.
The First Merchants Corporation Supplemental Executive Retirement Plan (the
"SERP"), a defined benefit, nonqualified "excess benefit" plan, provides
additional retirement benefits to designated executives whose benefits under the
Pension Plan are restricted due to the limit under Internal Revenue Code Section
401(a)(17) on the amount of compensation that can be considered for purposes of
calculating pension benefits under a qualified plan. This amount was $220,000
for 2006 and it is $225,000 for 2007.2007 (there are no executives accruing benefits under
this plan after 2007). The benefit payable under this plan is calculated using
the Pension Plan formula described in the preceding paragraph, without applying
the Section 401(a)(17) limit and including non-equity incentive pay in
determining average final compensation, and then subtracting the benefit which
is payable to the executive under the Pension Plan. The SERP is unfunded and
subject to forfeiture in the event of bankruptcy. The Corporation has
established a "rabbi" trust, with the First Merchants Trust Company, National
Association, a wholly-owned subsidiary of the Corporation, as the trustee. The
Corporation makes annual contributions to the trust to help pay the
Corporation's liabilities under the SERP, with which the trustee pays premiums
on corporate-owned life insurance that is intended to help pay these
liabilities.
The following table shows benefits accrued to the Named Executive OfficersNEOs under the Retirement
Pension Plan and the Supplemental Executive Retirement Plan as of December 31,
2006.2007. The assumptions used in calculating the present value of a Named Executive Officer'sNEO's
accumulated benefit are the same as those used for financial reporting purposes
with respect to the Corporation's 20062007 audited financial statements, assuming
that the executive retires at age 65, the normal retirement age under the plan.
A discussion of these assumptions is contained in Note 17 to the 20062007 audited
financial statements, on page 4663 of the Corporation's Annual Report.
Page 21
Accrued Pension Benefits at Fiscal Year-End 2006
- -----------------------------------------------------------------------------------------------------------------
Number of years Present value of
credited service as of accumulated benefit as Payments during
Name Plan name 12/31/06(4) of 12/31/06 fiscal year 2006
- -----------------------------------------------------------------------------------------------------------------2007
------------------------- ------------ -------------- ----------------- ----------------
Name Plan name Number of Present value Payments
years of accumulated during fiscal
credited benefit as of year 2007
service as 12/31/07
of
12/31/07
------------------------- ------------ -------------- ----------------- ----------------
Michael L. Cox(1)Cox 11.90 $593,851 $26,766
Pension
Plan
11.50 $ 502,689 $SERP 11.90 714,427 0
SERP 11.50 594,981 0
- -----------------------------------------------------------------------------------------------------------------
Mark K. Hardwick(2) Pension Plan 8.32 24,671 0
- -----------------------------------------------------------------------------------------------------------------
Michael C. Rechin(3)Rechin N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------Mark K. Hardwick Pension 7.32 26,226 0
Plan
Robert R. Connors(2)Connors Pension Plan 3.50 63,4272.50 67,117 0
- -----------------------------------------------------------------------------------------------------------------Plan
David W. Spade(3)Spade N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
22
(1) Mr. Cox is the only Named Executive Officer who had attained age 55
and been credited with more than 10 years of service when the
Pension Plan was frozen, so he is the only one of them who has
continued to accrue benefits under the plan after that date. He is
also the only Named Executive Officer who has been designated as a
participant in the SERP. Mr. Cox has met the eligibility
requirements for early retirement - attainment of age 55 and 10 or
more years of service - and he has elected early retirement on April
24, 2007. His monthly benefits will commence in May 2007 under the
Pension Plan and in January 2008 under the SERP. His normal
retirement benefits accrued under both plans will be reduced 5/24%
for each month by which his early retirement date precedes his
normal retirement date.
(2) Neither Mr. Hardwick nor Mr. Connors had attained age 55 or been
credited with more than 10 years of service when the Pension Plan
was frozen, so their benefits under the plan were frozen.
(3) Messrs. Rechin and Spade were never participants in the Pension
Plan.
(4) The Named Executive Officers'Jami L. Bradshaw Pension 1.17 12,032 0
Plan
------------------------- ------------ -------------- ----------------- ----------------
Mr. Cox is the only NEO who had attained age 55 and been credited with more
than 10 years of service when the Pension Plan was frozen, so he is the
only NEO who continued to accrue benefits under the plan after that date
until his retirement on April 24, 2007. He is also the only NEO who was
designated as a participant in the defined benefit SERP. Payment of Mr.
Cox's benefit under the Pension Plan commenced in May 2007, in an annual
amount equal to a straight life annuity of $47,234; however, since he
elected payment in the form of a joint and 100% survivor annuity, his
actual annual benefit is $40,149. Payment of Mr. Cox's benefit under the
SERP commenced in January 2008, payable as a 15-year certain life annuity
in the annual amount of $52,431.
Messrs. Rechin and Spade were not participants in the Pension Plan.
Messrs. Hardwick and Connors and Ms. Bradshaw had not attained age 55 or
been credited with more than 10 years of service when the Pension Plan was
frozen, so their benefits under the plan were frozen.
The NEOs' years of credited service under the Pension Plan and the SERP
were one fewer than their number of actual years of service with the
Corporation.
Nonqualified Deferred Compensation Table
In 2006, the CorporationFirst Merchants established the First Merchants Corporation Defined
Contribution Supplemental Executive Retirement Plan (the "Defined Contribution
SERP"), a nonqualified plan that is intended to provide additional retirement
benefits to designated executives whose benefits under the Corporation's
qualified Internal Revenue Code Section 401(k) defined contribution plan - the
First Merchants Corporation Retirement and Income Savings Plan (the "Section
401(k) Plan") - are restricted due to the limit under Internal Revenue Code
Section 401(a)(17) on the amount of compensation that can be considered for
purposes of calculating pension benefits under a qualified plan. The Corporation
annually credits a percentage of the participant's compensation (base salary
plus non-equity incentive pay) for the plan year, as determined by the
Compensation and Human Resources Committee, to a deferred benefit account
established for the participant under the plan. No amount is credited to the
participant's account under the Defined Contribution SERP unless the participant
has made sufficient contributions to the Section 401(k) Plan for the year to
entitle the participant to the maximum matching employer contributions under the
Section 401(k) Plan. Participants are not permitted to make contributions to
their accounts under the Defined Contribution SERP. Participants' interests vest
under the plan upon the earliest of death, disability, involuntary termination
except for cause, a change of control of the Corporation, or 5 years of
participation in the plan. Their account balances, including amounts credited to
the accounts, adjusted for investment gain or loss, are payable in 36 monthly
installments following death, disability or separation from service (the initial
payments are delayed 6 months and made retroactively if made on account of
separation from service). The SERP is unfunded and subject to forfeiture in the
Page 22
event of bankruptcy. The Corporation has established a "rabbi" trust, with the
First Merchants Trust Company, National Association, a wholly-owned subsidiary
of the Corporation, as the trustee. The Corporation makes annual contributions
to the trust to help pay the Corporation's liabilities under the Defined
Contribution SERP. While participants may request that these contributions be
invested in accordance with investment options made available by the
Corporation, the Corporation is under no obligation to comply with such
requests. The accounts' actual investment returns may differ from the returns on
the investments requested by the participants. Participants may request changes
in the investment options daily, by submitting written investment allocation
requests to the trustee.
The following table shows the dollar amounts of contributions, earnings,
withdrawals, distributions and the aggregate balances of the Named Executive
Officers'NEOs' deferred
benefit accounts under the Defined Contribution SERP as of December 31, 2006.
23
2007.
Nonqualified Deferred Compensation in 2006
- ------------------------------------------------------------------------------------------------------------------------2007
----------------------- ---------------- --------------- ------------ -------------- -------------------
Name Executive Corporation's Aggregate Aggregate contributions in contributions in earnings in withdrawals/ Aggregate balance at
Namecontributions contributions earnings withdrawals/ fiscal year-end
in fiscal year 2006in fiscal in fiscal distributions 2007
2007 year 2006 fiscal2007 year 2006 distributions fiscal year-end 2006
- ------------------------------------------------------------------------------------------------------------------------2007
----------------------- ---------------- --------------- ------------ -------------- -------------------
----------------------- ---------------- --------------- ------------ -------------- -------------------
Michael L. Cox $0 $ 0 $ 0 $0 $ 0
$Michael C. Rechin 0 $50,856 1,699 0 - ------------------------------------------------------------------------------------------------------------------------35,095
Mark K. Hardwick 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Michael C. Rechin(1) 0 33,396 0 0 33,396
- ------------------------------------------------------------------------------------------------------------------------
Robert R. Connors 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
David W. Spade 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
(1) Mr. Rechin is the only Named Executive Officer who has been
designated as a participant in the Defined Contribution SERP. Since
the Corporation's contribution to the plan was made at the end of
the plan year, his deferred benefit account did not experience any
gain or loss during 2006. The Corporation credited 12 % of Mr.
Rechin's compensation (base salary plus non-equity incentive pay) to
his account for 2006.Jami L. Bradshaw 0 0 0 0 0
----------------------- ---------------- --------------- ------------ -------------- -------------------
Mr. Rechin is the only NEO who has been designated as a participant in the
Defined Contribution SERP. The Corporation credited 12 % of Mr. Rechin's
compensation (base salary plus non-equity incentive pay) to his account for
2007. This amount is also reported as compensation to Mr. Rechin in the
Summary Compensation Table on page 16 of this proxy statement, in the
column headed "All Other Compensation."
Termination of Employment and Change of Control Arrangements
Other than the change of control agreements described below, the only contract,
agreement, plan or arrangement that provides for payment(s) to a Named Executive
Officer at, following, or in connection with any termination, is an agreement
concerning Mr. Cox's retirement as the President and Chief Executive Officer of
the Corporation which the Board approved on January 23, 2007. Under the terms of
this agreement, Mr. Cox will retire as the President and Chief Executive Officer
of the Corporation on April 24, 2007. He will provide services to the
Corporation as a nonemployee consultant for a period of two years thereafter,
until the earlier of April 24, 2009 or the date of the 2009 annual meeting of
shareholders. Mr. Cox will report directly to Mr. Rechin and will perform
services as requested by Mr. Rechin. These services are expected to include,
among other things, advice and assistance with matters relating to mergers,
acquisitions and other business expansion initiatives. Mr. Cox will also
continue to represent the Corporation as an officer and director of the Indiana
Bankers Association, which he currently serves as Chairman of the Board of
Directors, and as a director of the Indiana State Chamber of Commerce. These
services are not expected to occupy more than 50% of Mr. Cox's time. He will be
paid $175,000 in the first year and $100,000 in the second year for these
services, in substantially equal monthly installments. The agreement also
provides that the Nominating and Governance Committee will nominate Mr. Cox to
serve as a director of the Corporation for one additional three-year term,
subject to the vote of the shareholders, commencing as of the 2007 annual
meeting of shareholders and that he will submit his written resignation as
director in January 2009, effective as of the 2009 annual meeting of
shareholders. The agreement also provides that Mr. Cox will resign from the
boards of directors of all of the Corporation's subsidiaries and affiliates on
which he is currently serving, effective as of the date of his retirement.
The CorporationFirst Merchants has change of control agreements with Messrs.each of the NEOs, except
for Mr. Cox, Rechin,
Hardwick and Connors, but not with Mr. Spade.whose change of control agreement terminated when he retired on
April 24, 2007. These are "double trigger" change of control agreements, in that
they provide for the payment of severance benefits to the executives only in the
event of both a change of control of the CorporationFirst Merchants and a termination or
constructive termination of the executive's employment of the executive within 24 months
after the change of control. However,control (but no payment will be made if the termination was
for cause, because of the executive's death, disability or voluntary retirement,
or by the executive other than on account of constructive termination.termination). In
general, a "change of control" means an acquisition by any person of 25% or more
of the Corporation'sFirst Merchants' voting shares, a change in the makeup of a majority of the
Board over a 24-month period, a merger of the CorporationFirst Merchants in which the
shareholders before the merger own 50% or less of the Corporation'sFirst Merchants' voting shares
after the merger, or approval by the Corporation'sFirst Merchants' shareholders of a plan of
complete liquidation of the CorporationFirst Merchants or an agreement to sell or dispose of
substantially 24
all of the Corporation'sFirst Merchants' assets. A "constructive termination"
means, generally, a significant reduction in duties, compensation or benefits or
a relocation of the executive's office outside of the area described in the
agreement, unless agreed to by the executive.
The change of control agreements were not entered
into in response to any effort to acquire control of the Corporation, and the
Board is not aware of any such effort.
Upon the occurrence of the two triggering events, a covered executive willwould be
entitled, in addition to base salary and incentive compensation accrued through
the date of termination, to payment from the Corporation,First Merchants, or its successor in
the event of a purchase, merger or consolidation, of a lump sum severance
benefit in an amount determined by multiplying the sum of (1) the executive's
annual base salary as in effect on the date the executive receives notice of
termination, and (2) the executive's largest bonus under the Corporation'sFirst Merchants' Senior
Page 23
Management Incentive Compensation Program during the 2 years preceding the date
of termination, by 299% in the cases of Michael L. Cox, Michael C.Messrs. Rechin and Mark K. Hardwick, and 200%150% in
the casecases of Robert R. Connors. The
Corporation willMessrs. Connors and Spade and Ms. Bradshaw. First Merchants would
also pay any excise tax imposed on the executive under Section 4999 of the
Internal Revenue Code on an "excess parachute payment." In addition, the
executive's outstanding stock options willwould be cancelled; and, in lieu thereof,
the executive willwould receive a lump sum amount equal to the bargain element value
of these options, if any. The executive willwould also be entitled to outplacement
services, reasonable legal fees and expenses incurred as a result of the
termination, and life, disability, accident and health insurance coverage until
the earlier of 2two years following the date of termination or the executive's
65th birthday. The insurance coverage willwould be similar to what the executive was
receiving immediately prior to the notice of termination, and the
Corporation willFirst Merchants
would pay the same percentage of the cost of such coverage as it was paying on
the executive's behalf on the date of such notice.
The following table shows the lump sum severance benefit amounts that would have
been payable to the Named Executive OfficersNEOs if both of the triggering events under the change of
control agreements had occurred on December 31, 2006,2007, as well as the bargain
element values of their outstanding stock options on that date, the estimated
values of their life, disability, accident and health insurance coverages for
2two years following that date, and the estimated amounts of the excise tax that
would have been imposed under Section 4999 of the Internal Revenue Code on the
lump sum severance payments.
Change of Control Agreements
- -------------------------------------------------------------------------------------------------------------------------------------------------- ---------- ----------------- --------------------- --------------------- ----------------
Name Multiplier Severance Bargain Element Estimated Values of Bargain Element Insurance Estimated
Excise
SeveranceBenefit Amount Values of Insurance Coverages Excise Tax
Outstanding CoveragesStock for 2 Taxyears Under
Name Multiplier Benefit Amount Stock Options years IRC ss.4999
- ------------------------------------------------------------------------------------------------------------------------------Options
-------------------- ---------- ----------------- --------------------- --------------------- ----------------
Michael L. CoxC. Rechin 299% $1,179,980 $ 1,259,899 $ 456,668 $ 28,988 $ 262,023
- ------------------------------------------------------------------------------------------------------------------------------0 $20,012 $175,912
Mark K. Hardwick 299% 675,372 72,849 36,031 113,694
- ------------------------------------------------------------------------------------------------------------------------------
Michael C. Rechin 299% 832,117 29,300 38,319 0
- ------------------------------------------------------------------------------------------------------------------------------749,892 7,241 18,669 115,529
Robert R. Connors 200% 437,192 47,390 35,931150% 344,519 0 - ------------------------------------------------------------------------------------------------------------------------------18,562 0
David W. Spade N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------150% 307,781 0 14,328 0
Jami L. Bradshaw 150% 218,641 0 13,408 0
-------------------- ---------- ----------------- --------------------- --------------------- ----------------
In the event of aThe change of control (as defined above), all non-vested stock
optionsagreements were not entered into in response to any effort
to acquire control of First Merchants, and restricted stock awards under the Corporation's Long-term Equity
Incentive PlanBoard is not aware of any such
effort.
The only other contract, agreement, plan or arrangement, whether written or
unwritten, that provides for payment(s) to a NEO at, following, or in connection
with any termination, including, without limitation, resignation, severance,
retirement or a constructive termination of a NEO, or a change in control of
First Merchants or a change in a NEO's responsibilities, is an agreement
concerning Mr. Cox's retirement as the President and CEO of First Merchants
which the Board approved on January 23, 2007.
Under the terms of the agreement, Mr. Cox retired as the President and CEO of
First Merchants on April 24, 2007. He has provided services to First Merchants
as a nonemployee consultant since his retirement, and he will vest. The Named Executive Officers' non-vested stock options
and restricted stock awardscontinue to do so
until the earlier of April 24, 2009 or the date of the 2009 annual meeting of
shareholders. In his capacity as of December 31, 2006 are shown in the
"Outstanding Equity Awards at Fiscal Year-End 2006" table on page 19 of this
proxy statement. They include the options granted to Messrs. Cox, Rechin,
Hardwick and Connors on February 10, 2006 for 12,000, 8,000, 7,000 and 4,000
shares, respectively; the options granteda consultant, he reports directly to Mr. Rechin
on November 21, 2005 for
10,000 shares;and performs services as requested by Mr. Rechin. These services generally
include, among other things, advice and assistance with matters relating to
mergers, acquisitions and other business expansion initiatives. Mr. Cox has also
continued to represent First Merchants as the restricted stock awarded to Messrs. Cox, Rechin, Hardwick,
Connors and Spade on February 10, 2006 for 3,400, 2,000, 2,000, 1,400 and 1,400
shares, respectively; and,Immediate Past Chairman of the
2,000 sharesBoard of restricted stock awarded toDirectors of the Indiana Bankers Association, and as a director of the
Indiana State Chamber of Commerce. These services generally do not occupy more
than 50% of Mr. Rechin on December 22, 2005, the 1,334 shares that still have restrictions.
25
In the event of a change of control, the non-vested deferred stock units that
Messrs. Cox, Hardwick and Connors earned for the 2005 fiscal year under the
Corporation's Senior Management Incentive Compensation Program (851, 460 and 467
units, respectively, shown as stock awardsCox's time. He is being paid $175,000 in the "Outstanding Equity Awards at
Fiscal Year-End 2006" table on page 19 of this proxy statement) will vest upon
the involuntary termination of their employment, except for cause.
Finally,first year and
$100,000 in the event of a change of control, Mr. Rechin's non-vested benefit
undersecond year for these services, in substantially equal monthly
installments. Under the Corporation's nonqualified Defined Contribution Supplemental Executive
Retirement Plan (described in the narrative preceding the "Nonqualified Deferred
Compensation" table on page 22 of this proxy statement) will vest. The
Corporation's nonqualified defined benefit Supplemental Executive Retirement
Plan (described in the narrative preceding the "Pension Benefits" table on page
21 of this proxy statement), which coversagreement, Mr. Cox does not containwas nominated and elected to serve as
a similar
provision acceleratingdirector of First Merchants for one additional three-year term, commencing as
of the vesting2007 annual meeting of shareholders. The agreement provides that he will
submit his written resignation as director in January 2009, effective as of the
Page 24
2009 annual meeting of shareholders. Under the agreement, Mr. Cox also resigned
as a director of all of First Merchants' subsidiaries and affiliates on which he
was then serving, effective as of the date of his benefit in the event of a change of
control.
Compensation of Directorsretirement.
COMPENSATION OF DIRECTORS
The directors of the CorporationFirst Merchants who are employees of the CorporationFirst Merchants or one of
its subsidiaries do not receive separate compensation for their services as
directors. During 2006, these employee-directorsThis included two of the Named
Executive Officers, Mr. Cox and Mr.Michael C. Rechin and Thomas D. McAuliffe.
TheMcAuliffe during all of
2007 and Michael L. Cox until his retirement on April 24, 2007. Mr. Cox was also
not separately compensated for his services as a director following his
retirement; however, First Merchants did pay him for his consulting services
during that portion of 2007 under the Agreement between Mr. Cox and the Board
described on page 24 under "Termination of Employment and Change of Control
Agreements."
In general, for their services in 2007, the non-employee directors received
annual retainers of $15,000, plus $3,000 for each Board committee on which thea
director served and an additional $2,000 if
the director chaired thefor chairing a committee (an additional $5,000($5,000 for chairing the
Audit Committee
Chair, Jean L. Wojtowicz); except that: (a)Committee). The exceptions were the Chairman and Vice Chairman of the
Board, who received annual retainers of $50,000 and $35,000, respectively, but
no compensation for committee service. Robert M. Smitson served as the Chairman
of the Board Robert M.
Smitson, received an annual retainer of $50,000 with no retainer for committee
service; and (b) the annual retainer ofuntil his retirement on April 24, 2007, after which the Vice
Chairman, of the Board, Charles E. Schalliol, became Chairman and the office of Vice Chairman
was increasedleft vacant. Mr. Smitson's and Mr. Schalliol's retainers were pro-rated
based on the portions of 2007 each held those offices. William L. Hoy was
elected by the Board as a director on October 23, 2007 to $35,000fill a vacancy caused
by an increase in October 2006, with nothe number of directors. His retainer was pro-rated based on
his service for Committee service. Under the provisionsremainder of 2007.
Effective August 1, 2007, First Merchants established the 2007 Directors'
Deferred Compensation Plan, an unfunded deferred compensation arrangement under
which the non-employee directors of First Merchants and the non-employee
directors of certain affiliates of First Merchants may elect to defer until a
future date all or a portion of the Corporation'sfees payable to them for their services as
directors. An account is maintained for each participant in the Plan, to which
deferred fees and interest are credited quarterly, at an interest rate equal to
the greater of the Fed Funds Rate or the five-year Treasury Interest Rate as of
the first business day of the quarter, but not to exceed 120% of the Applicable
Long Term Federal Rate for monthly compounding. First Merchants has established
a "rabbi trust," to which it contributes to provide itself with a source of
funds to assist in meeting its liabilities under the Plan; however, First
Merchants' obligations under the Plan remain an unsecured, unfunded promise to
pay benefits to the participants in accordance with the Plan's provisions.
In accordance with the Long-term Equity Incentive Plan, options were granted to each of the non-employee
directorsdirector who was serving in that capacity on July 1, 20062007 was granted an option
on that date to purchase 1,157 shares of the Corporation'sFirst Merchants common stock. Each option
was for 1,157 sharesstock at an
option price of $24.31$24.03 per share, the market price on the date of the grants.that date.
The following table contains information concerning the compensation paid to
the
Corporation'sFirst Merchants' directors, other than the Named Executive OfficersMessrs. Rechin and Mr. McAuliffe, for their
services as directors for 2006. James F. Ault2007. Messrs. Smitson and Robert T.
Jeffares retiredHoy were not serving as
directors on April 13, 2006, the date of the 2006 annual
meeting of shareholders;July 1, 2007 and Terry L. Walker became a director on July 25, 2006.
Therefore, their retainers for 2006 were prorated. Messrs. Ault, Jeffares and
Walkerthus were not eligible for grants ofstock options to purchase shares of the
Corporation's common stock under the
Long-term Equity Incentive Plan in 2006
because they were not serving as directors of the Corporation on July 1, 2006.Plan.
Page 25
Director Compensation for 20062007 Fiscal Year
- ----------------------------------------------------------------------------------------------------------------- --------------- -------------- ------------------- ------------------
Fees earned or Option All Other Total
Name or paid in awards Compensation
cash
awards(1) Total
- ----------------------------------------------------------------------------------------------------------------- --------------- -------------- ------------------- ------------------
James F. Ault $ 8,286 $ 0 $ 8,286
- ------------------------------------------------------------------------------------
Richard A. Boehning(2) 23,000 7,700 30,700
- ------------------------------------------------------------------------------------Boehning $23,000 $2,347 0 $25,347
Thomas B. Clark 26,000 7,700 33,700
- ------------------------------------------------------------------------------------2,347 0 28,347
Michael L. Cox 0 2,347 116,668 119,015
Roderick English 18,000 7,700 25,700
- ------------------------------------------------------------------------------------2,347 0 20,347
Jo Ann M. Gora 18,000 7,700 25,700
- ------------------------------------------------------------------------------------2,347 0 20,347
William L. Hoy 2,836 0 0 2,836
Barry J. Hudson(2) 18,000 7,700 25,700
- ------------------------------------------------------------------------------------
Robert T. Jeffares 5,143Hudson 51,000 2,347 0 5143
- ------------------------------------------------------------------------------------53,347
Charles E. Schalliol 25,500 7,700 33,200
- ------------------------------------------------------------------------------------$46,250 $2,347 0 $48,597
Robert M. Smitson 50,000 7,700 57,700
- ------------------------------------------------------------------------------------15,833 0 0 15,833
Terry L. Walker 8,250 18,000 2,347 0 8,250
- ------------------------------------------------------------------------------------20,347
Jean L. Wojtowicz 24,750 7,700 32,45026,000 2,347 0 28,347
----------------------------- --------------- -------------- ------------------- ------------------
The dollar amounts shown for option awards represent the dollar amounts of
those awards recognized for financial statement reporting purposes for 2007
in accordance with FAS 123R. A discussion of the assumptions used in
calculating these values is contained in Note 16 to the 2007 audited
financial statements, on page 60 of First Merchants' Annual Report.
As of the end of 2007 fiscal year, the non-employee directors had the
following aggregate number of option awards outstanding: Mr. Boehning -
------------------------------------------------------------------------------------6,942; Mr. Clark - 11,454; Mr. Cox - 103,521; Mr. English - 3,471; Dr. Gora
- 3,471; Mr. Hoy - 0; Mr. Hudson - 15,321; Mr. Schalliol - 3,471; Mr.
Smitson - 10,297; Mr. Walker - 1,157; and Ms. Wojtowicz - 4,628.
Mr. Boehning also received an $11,550 retainer (which was fully deferred
under an unfunded deferred compensation plan) and life insurance coverage
in the amount of $6,000 for his services as a director of Lafayette Bank
and Trust Company, National Association, a wholly owned subsidiary of First
Merchants, in 2007. This retainer was pro-rated due to his retirement as a
Lafayette Bank director on July 31, 2007. Mr. Hoy was paid $4,100 for his
services as a director of Commerce National Bank, a wholly owned subsidiary
of First Merchants, in 2007. Mr. Hudson was paid $3,000 in 2007 (of which
he deferred $1,089 under an insurance-funded deferred compensation plan)
for his services as Chairman of the Board of Directors of First National
Bank of Portland, a wholly owned subsidiary of First Merchants, until First
National was merged into First Merchants Bank, National Association,
another wholly owned subsidiary of First Merchants, on April 1, 2007.
Mr. Clark and Mr. Walker deferred payment of $19,500 and $9,000,
respectively, of their fees earned in 2007, under the provisions of the
2007 Directors' Deferred Compensation Plan described on page 25 of this
proxy statement.
In addition to fees earned in 2007 totaling $18,000, Mr. Hudson was paid
$33,000 in 2007 for his services as a non-employee director in 2005 and
2006, for which he had not previously received payment due to an oversight.
Mr. Cox was paid $116,668 in 2007 for his services as a consultant under
the Agreement between Mr. Cox and the Board described on page 24 of this
proxy statement, under "Termination of Employment and Change of Control
Agreements."
VOTING ITEM 2 - PROPOSAL TO APPROVE THE FIRST MERCHANTS CORPORATION EQUITY
COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
First Merchants' shareholders are asked to approve the First Merchants
Corporation Equity Compensation Plan for Non-Employee Directors (the "Plan"). If
approved, the Plan will provide that at least one-half of the compensation
payable to non-employee directors must be in restricted shares of First
Merchants common stock instead of cash. The following background information and
summary of the major features of the Plan are subject to the specific provisions
contained in the full text of the Plan set forth in Appendix A.
Page 26
(1) AsBackground Information
In 2007, the Compensation and Human Resources Committee undertook a review of
First Merchants non-employee director compensation, studying current trends in
director compensation including information regarding other public companies'
fee arrangements compiled by consulting firms and/or disclosed in recently filed
proxy statements. The data showed that non-employee director compensation has
increased significantly within the past few years in recognition of the
endsubstantial increases in time and effort and levels of 2006 fiscal year,personal responsibility
and financial risk demanded of public company directors, underlining the
above directors hadimportance of attracting the following aggregate numbermost qualified candidates. Further, under
prevailing corporate governance best practices, non-employee director
compensation now generally includes an element of option awards outstanding: Mr. Ault -
4,628; Mr. Boehning - 5,785; Mr. Clark - 11,338; Mr. English -
2,314; Dr. Gora - 2,314; Mr. Hudson - 14,164; Mr. Jeffares - 4,628;
Mr. Schalliol - 2,314; Mr. Smitson - 11,338; Mr. Walker - 0;equity-based as well as cash
compensation, in order to further align director pay with company stock
performance. Based on its review, the Committee recommended and Ms.
Wojtowicz - 3,471.
(2) Mr. Boehning is alsothe Board
approved, a restructured non-employee director of Lafayette Bank and Trust Company,
National Association, a wholly-owned subsidiarycompensation program. The first
element of the Corporation,program became effective January 1, 2008. The non-employee
directors' annual retainers were increased to $40,000 ($75,000 for which he received a retainer of $19,800 in 2006 and life
insurance coverage in the amount of $6,000. He deferred the full
amountChairman
of the retainer underBoard) - a level comparable to peer public companies including, in
particular, other financial holding companies. In recognition of their
additional responsibilities, the Audit Committee Chairman receives an unfunded deferred compensation plan
maintained by Lafayette Bankadditional
$10,000 and Trust. Mr. Hudson is alsoother Committee Chairmen an additional $5,000 (except for the
Chairman of the Board, who doesn't receive additional pay for serving as a
Committee Chairman). Directors do not receive additional amounts for serving on
Board Committees or for attending meetings.
The second element of Directorsthe program, if approved by the shareholders at the 2008
annual meeting, will provide for payment of at least one-half of non-employee
director compensation in restricted shares of First National BankMerchants common stock
instead of Portland, a wholly-owned subsidiarycash. Under NASDAQ Marketplace Rules, this provision for payment of
part of the directors' compensation in the form of First Merchants common stock
must be approved by the shareholders before it can be implemented. If the
shareholders do not approve the First Merchants Corporation Equity Compensation
Plan for Non-Employee Directors, the non-employee directors will continue to
receive all of their compensation, as described in the immediately preceding
paragraph, in the form of cash.
Purpose of First Merchants Corporation Equity Compensation Plan for Non-Employee
Directors
The Plan is intended to be beneficial to First Merchants and was paid
$12,000its shareholders,
in 2006that non-employee directors will have a greater personal financial stake in
First Merchants through the payment of a significant portion of their
compensation in First Merchants common stock. This will underscore the
non-employee directors' common interest with shareholders in increasing the
long-term value of First Merchants common stock.
Key Terms
Effective Date April 29, 2008
Participant Any member of the First Merchants Board who is not
an employee of First Merchants or any of its
subsidiaries.
Compensation Any retainer, fee or other payment of any kind to
which a Participant is entitled for services as a
non-employee director of First Merchants, but
excluding any stock option granted under First
Merchants' Long-term Equity Incentive Plan.
Restricted Share A share of First Merchants common stock that is
nontransferable and subject to a substantial risk
of forfeiture.
Shares Authorized 500,000 shares (approximately 2.8% of outstanding
shares) over 10 years, subject to automatic
adjustment in the event of a stock split, stock
dividend, recapitalization or similar event.
Page 27
Payment Date Quarterly in arrears, as of the last business day
of the calendar quarter.
Plan Termination April 29, 2018, unless terminated earlier by the Board.
Compensation Payable in Restricted Shares
All Participants will receive a fraction of their Compensation - not less than
one-half - in Restricted Shares, effective for his servicesCompensation payable for calendar
quarters ending after the Effective Date; i.e., commencing as of the second
quarter of 2008. The Board will determine this fraction from time-to-time and,
in this capacity,the absence of such determination, the fraction will be one-half. Thus, if
the fraction is one-half, a Participant who is entitled to a $40,000 annual
retainer will receive $20,000 in cash and $20,000 in Restricted Shares. The
number of Restricted Shares to be issued each quarter will be determined on the
basis of their fair market value as of the Payment Date; that is, the last
reported sale price of a share of First Merchants stock on that date, or if no
sale took place, the last reported sale price of a share on the most recent day
on which a sale of a share of stock took place as reported by NASDAQ or a
national securities exchange on which First Merchants stock is listed on such
date.
Restrictions on Shares
Restricted Shares issued under the Plan will be nontransferable by the
Participant and subject to a substantial risk of forfeiture until the earliest
of the following dates: (i) the third anniversary of the date the shares were
issued if, as of the date the restrictions are to lapse, the Participant has
continued to serve as a non-employee director from the date as of which the
shares were issued to the date of lapse; (ii) the date of the Participant's
retirement as a member of the Board after he or she has attained age 55; (iii)
the date of the Participant's death; (iv) the date the Participant is determined
to be totally and permanently disabled, as defined in Internal Revenue Code
Section 22(e)(3); or (v) the date of a Change of Control, as defined in the
Long-term Equity Incentive Plan. In the event a Participant's service as a
non-employee director terminates prior to the date the restrictions lapse, the
shares still subject to the restrictions will be forfeited. The Participant will
be deemed to be the beneficial owner of the Restricted Shares issued under the
Plan unless and until they are forfeited. As the beneficial owner, the
Participant will have all rights of beneficial ownership in such shares
including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
Deferral of Compensation Payable in Restricted Shares
A Participant may elect to defer payment of all or part of his or her
Compensation that is payable in Restricted Shares, in accordance with the
provisions of the 2007 Directors' Deferred Compensation Plan described on page
25 of this proxy statement. An account will be established for a Participant who
makes this election, which account: (a) will be credited with deferred $4,356stock
units in lieu of the Restricted Shares otherwise issuable to the Participant;
(b) will be credited with earnings each quarter, based on the deferred stock
unit balance in the account, equal to the dividends that would be payable on an
equivalent number of shares of First Merchants common stock; (c) will not be
deemed to be beneficially owned by the Participant or convey any voting rights
to the Participant until distributed to the Participant; (d) will be distributed
to the Participant on the payment date elected by the Participant in a lump sum
in shares of First Merchants stock.
Amendment and Termination of Plan
The Plan may be amended at any time by resolution of the Board, but no amendment
will be effective without shareholder approval if such shareholder approval is
required by law or by the rules of NASDAQ or any national securities exchange on
which First Merchants stock is listed. Any such amendment must comply with
applicable laws and regulations. The Plan will terminate on April 29, 2018,
which is 10 years from the date of the 2008 annual meeting of shareholders,
unless earlier terminated by resolution of the Board.
Page 28
Benefits Payable to Non-Employee Directors under an insurance-funded deferredPlan
The following table indicates the total compensation plan
maintainedthat is expected to be paid
to First Merchants' non-employee directors in 2008, including the portion of
this compensation that would have been payable under the Plan in Restricted
Shares instead of cash had the Plan been in effect for all of 2008. However,
because shareholder approval is required, the Plan cannot become effective until
the second quarter of 2008. Each director's total compensation is based on the
director's status as a First Merchants director and as a Committee Chairman as
of the date of this proxy statement. Because the number of shares to be issued
under the Plan depends on the fair market value of First Merchants common stock
on the date the shares are earned, the number of shares payable to non-employee
directors is not determinable at this time. For purposes of illustration, the
number of shares set forth in the table below was determined by using the
closing price of First National.Merchants common stock on December 31, 2007, which was
$21.84.
New Plan Benefits
Equity Compensation Plan for Non-Employee Directors
---------------------------- ---------------- ------------------- ---------------- -----------------
Dollar Value Shares of Fees Paid in Total
Name of Restricted Restricted Stock Cash Compensation
Shares
---------------------------- ---------------- ------------------- ---------------- -----------------
Richard A. Boehning $ 7,316 335 $ 7,315 $14,631
Thomas B. Clark 22,500 1,030 22,500 45,000
Roderick English 20,000 916 20,000 40,000
Jo Ann M. Gora 20,000 916 20,000 40,000
William L. Hoy 20,000 916 20,000 40,000
Barry J. Hudson 20,000 916 20,000 40,000
Charles E. Schalliol 37,500 1,719 37,500 75,000
Terry L. Walker 21,687 993 21,687 43,374
Jean L. Wojtowicz 25,000 1,145 25,000 50,000
Executive Officers as a 0 0 0 0
Group
Non-Employee Directors as 194,003 8,886 194,002 388,005
a Group
Non-Executive Officer
Employees as a Group 0 0 0 0
---------------------------- ---------------- ------------------- ---------------- -----------------
Mr. Boehning will retire as a director of First Merchants on April 29,
2008, the date of the 2008 annual meeting of shareholders. He presently
serves as Chairman of the Executive Committee of the Board. Mr. Walker will
become Chairman of the Executive Committee upon Mr. Boehning's retirement.
Shareholder Vote Required to Approve the First Merchants Corporation Equity
Compensation Plan for Non-Employee Directors
The Plan will be approved if it receives the favorable vote of a majority of the
shares present and voting at the annual meeting of shareholders. Abstentions and
broker non-votes will be considered neither a vote "for" nor "against."
Equity Compensation Plan Information
The following table provides information about First Merchants common stock that
may be issued under equity compensation plans, other than the Plan, to employees
or non-employees (such as non-employee directors) of First Merchants as of
December 31, 2007.
Page 29
Equity Compensation Plan Information
- ------------------------------------ --------------------- --------------------- ----------------------------------
Plan Category Number of
securities to be Number of securities remaining
issued upon Weighted average available for future issuance
exercise of exercise price of under
outstanding outstanding equity compensation plans
options, warrants options, warrants (excluding securities reflected
and rights and rights in first column)
- ------------------------------------ --------------------- --------------------- ----------------------------------
1,018.076 $24.37 400,000
Equity compensation plans approved
by shareholders
Equity compensation plans not
approved by shareholders 36,354 22.33
-------- -------
Total 1,054,430 $24.30 400,000
- ------------------------------------ --------------------- --------------------- ----------------------------------
This number does not include shares remaining available for future issuance
under the 1999 Long-term Equity Incentive Plan, which was approved by First
Merchants' shareholders at the 1999 annual meeting. The aggregate number of
shares that are available for grants under that Plan in any calendar year
is equal to the sum of: (a) 1% of the number of First Merchants common
shares outstanding as of the last day of the preceding calendar year; plus
(b) the number of shares that were available for grants, but not granted,
under the Plan in any previous year; but in no event will the number of
shares available for grants in any calendar year exceed 1 1/2% of the
number of First Merchants common shares outstanding as of the last day of
the preceding calendar year. The 1999 Long-term Equity Incentive Plan will
expire in 2009.
The only plan reflected above that was not approved by First Merchants'
shareholders relates to certain First Merchants Corporation Stock Option
Agreements ("Agreements"). These Agreements provided for non-qualified
stock options of First Merchants common stock to be awarded between 1995
and 2002 to each director of First Merchants Bank, National Association
(the "Bank"), who, on the date of the grants: (a) was serving as a director
of the Bank; (b) was not an employee of First Merchants, the Bank, or any
of First Merchants' other affiliated banks or the non-bank subsidiaries;
and (c) was not serving as a director of First Merchants. The exercise
price of the shares was equal to the fair market value of the shares upon
the grant of the option. Options became 100% vested when granted and are
fully exercisable six months after the date of the grant, for a period of
ten years.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE
FIRST MERCHANTS CORPORATION EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS.
IF THE SHAREHOLDERS DO NOT APPROVE THE PLAN, NON-EMPLOYEE DIRECTORS WILL
CONTINUE TO RECEIVE THE FULL AMOUNT OF THEIR COMPENSATION IN CASH.
Non-Employee Director Stock Ownership Guideline
Although not part of the First Merchants Corporation Equity Compensation Plan
for Non-Employee Directors that is being submitted to the shareholders for
approval at the 2008 annual meeting, the restructured non-employee director
compensation program adopted by the Board effective January 1, 2008 also
includes a guideline providing that all directors will be expected to acquire
and hold First Merchants stock equal in value to at least three times their
total annual director compensation while serving on the Board. Directors will be
expected to meet this guideline as soon as reasonably possible, taking into
account the director's relevant financial and other circumstances, but in no
event more than six years after the director is first elected to the Board.
TRANSACTIONS WITH RELATED PERSONS
Certain directors and executive officers of the CorporationFirst Merchants and its subsidiaries
and their associates are customers of, and have had transactions with, the
Corporation'sFirst
Merchants' subsidiary banks from time to time in the ordinary course of
business. Additional transactions may be expected to take place in the ordinary
course of business in the future. All loans and commitments included in such
transactions were made on substantially the same terms, including interest rates
Page 30
and collateral, as those prevailing at the time for comparable loans with
persons not related to the lender and did not involve more than the normal risk
of collectibility or present other unfavorable features.
Richard A. Boehning, a director of First Merchants and Lafayette Bank and Trust
Company, National Association, a wholly owned subsidiary of First Merchants, is
of counsel to the law firm of Bennett, Boehning & Clary LLP, Lafayette, Indiana,
which Lafayette Bank and Trust has retained as legal counsel during 2007 and
will continue to retain as legal counsel in 2008. Charles E. Schalliol, a
director of First Merchants, is of counsel to the law firm of Baker & Daniels
LLP, Indianapolis, Indiana, which First Merchants Bank, National Association, a
wholly owned subsidiary of First Merchants, has retained as legal counsel during
2007 and will continue to retain as legal counsel in 2008. The Board has
determined that these relationships do not prevent Mr. Boehning or Mr. Schalliol
from being "independent directors," as defined in the NASDAQ listing standards.
In accordance with the Corporation'sFirst Merchants' Code of Business Conduct, all transactions
in which the CorporationFirst Merchants is or is to be a participant and the amount involved
exceeds $120,000, and in which a director or executive officer of the
Corporation,First
Merchants, or any member of his or her immediate family, had or will have a
direct or indirect material interest, will be reviewed for potential conflict of
interest and must be approved by the Audit Committee. Under the standards set
forth in the Code of Business Conduct, the Audit Committee will determine
whether the transaction might pose an actual or apparent conflict of interest
and, if so, whether such conflict would prevent the director or executive
officer from complying with his or her obligation never to allow personal
interests to interfere with objectivity in performing responsibilities to the
CorporationFirst
Merchants and never to use or attempt to use a position with the CorporationFirst Merchants to
obtain any improper personal financial or other benefit for the director or
executive officer, his or her family members, or any other person.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation'sFirst
Merchants' directors and executive officers to file reports of ownership and
changes in ownership of the Corporation'sFirst Merchants stock with the SEC. Based on its records
and the written representations of its directors and executive officers, the CorporationFirst
Merchants believes that during 20062007 these persons complied with all Section
16(a) filing requirements; except that: (1) a late Form 4 report was filed on
March 2, 2006May 17, 2007 by director Thomas D. McAuliffeand retired executive officer Michael L. Cox to report
salesthe sale of 4,000
shares and 4,4851,014 shares on February 18, 2006 and FebruaryApril 24, 2006,
respectively;2007; (2) a late Form 4 report was filed
on March 9, 2006June 22, 2007 by director
Thomas B. Clarkexecutive officer Shawn R. Blackburn to report the exercisesale of
633 shares on MarchJune 8, 2007; (3) a late Form 3 report was filed by director Terry
L. Walker on July 27, 2007 to correct a Form 3 report filed on July 26, 2006,
ofwhich had omitted 525 shares owned by Mr. Walker's spouse in an option granted
under the 1999 Long-term Equity Incentive Plan to purchase 1,042 shares;investment
management account; and (3)(4) two late Form 4 reports were filed on JulyDecember 31,
20062007 by director and executive
officer Michael L. Cox and executive officers Robert R. Connors and Kimberly J.
EllingtonRichard A. Boehning, the first to report the purchase of 1,400
shares on June 30, 2006August 6, 2007 and the second to report the sale of 1,0591,400 shares 264 shares
and 185 shares, respectively, under the First Merchants Corporation Employee
Stock Purchase Plan.
27
on
December 17, 2007.
INDEPENDENT AUDITOR
Fees for Professional Services Rendered by BKD, LLP
The following table shows the aggregate fees billed by BKD, LLP for audit and
other services rendered to the CorporationFirst Merchants for 20052006 and 2006.
2005 2006
---- ----
Audit Fees $ 383,400 $ 397,500
Audit-Related Fees 76,292 83,911
Tax Fees 93,320 77,072
All Other Fees 14,230 0
--------- ---------
Total Fees $ 567,242 $ 558,483
========= =========2007.
2006 2007
---- ----
Audit Fees $397,500 $382,500
Audit-Related Fees 83,911 66,923
Tax Fees 77,072 100,801
All Other Fees 0 0
--------------- ---------------
Total Fees $558,483 $550,224
=============== ===============
Page 31
The "Audit Fees" were for professional services rendered for the audits of the
Corporation'sFirst
Merchants' consolidated financial statements and internal control over financial
reporting, reviews of condensed consolidated financial statements included in
the Corporation'sFirst Merchants' Forms 10-Q, and assistance with regulatory filings. The
"Audit-Related Fees" were for professional services rendered for audits of the Corporation'sFirst
Merchants' benefit plans.
The "Tax Fees" were for professional services rendered for preparation of tax
returns and consultation on various tax matters.
The fees for 2005 under "All Other Fees" were for professional investigatory
services rendered by BKD, LLP at the requestAll of the Audit Committee.
All ofservices related to the "Audit-Related Fees," "Tax Fees" and "All
Other Fees" for 20052006 and 20062007 were pre-approved by the Audit Committee in
accordance with the Committee's pre-approval policy described below.
The Audit Committee has considered whether the provision by BKD, LLP of the
services covered by the fees other than the audit fees is compatible with
maintaining BKD, LLP's independence and believes that it is compatible.
Pre-approval Policies and Procedures
The Audit Committee has established a pre-approval policy, under which the
Committee is required to pre-approve all audit and non-audit services performed
by the Corporation'sFirst Merchants' independent auditor, in order to assure that the provision
of such services does not impair the auditor's independence. These services may
include audit services, audit-related services, tax services and other services.
Under this policy, pre-approval is provided for 12 months from the date of
pre-approval unless the Committee specifically provides for a different period.
The policy is detailed as to the particular services or category of services and
fee levels that are pre-approved. Unless a service or type of service to be
provided by the independent auditor has received general pre-approval, it will
require specific pre-approval by the Audit Committee. The Committee must also
approve any proposed services exceeding the pre-approved fee levels. The
independent auditor is required to provide detailed back-up documentation with
respect to each proposed pre-approved service at the time of approval. The Audit
Committee may delegate pre-approval authority to one or more of its members. The
member or members to whom such authority has been delegated must report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. The
Audit Committee does not delegate its responsibilities to pre-approve services
performed by the independent auditor to management.
VOTING ITEM 23 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR FOR 20072008
The Board, subject to ratification by the shareholders, has appointed BKD, LLP
as the Corporation'sFirst Merchants' independent auditor for 2007.2008. If the shareholders do not
ratify the appointment of BKD, the Audit Committee and the Board will reconsider
this appointment. Representatives of the firm are expected to
28
be present at the
annual shareholders' meeting. They will have an opportunity to make a statement,
if they desire to do so, and are expected to be available to respond to
appropriate questions.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF THE FIRM OF BKD, LLP AS THE CORPORATION'SFIRST MERCHANTS' INDEPENDENT AUDITOR FOR
2007.2008.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 20082009 annual meeting of
the shareholders must be received by the Secretary of the CorporationFirst Merchants at the
Corporation'sFirst
Merchants' principal office by November 16, 2007,20, 2008, for inclusion in the
Corporation's 2008First
Merchants' 2009 proxy statement and form of proxy relating to that meeting.
Shareholder proposals, if any, intended to be presented at the 20072008 annual
meeting that were not submitted for inclusion in this proxy statement will be
considered untimely unless they were received by the Secretary of the
CorporationFirst
Merchants at the Corporation'sFirst Merchants' principal office by January 16, 2007.29, 2008. The
Secretary did not receive any such shareholder proposals by that date.
Page 32
OTHER MATTERS
The Corporation is deliveringShareholders who, according to First Merchants' records, share an address may
receive only one Notice Regarding the Availability of Proxy Materials on the
Internet or only one set of proxy materials, including this
proxy statement andunless the annual report, to shareholders who, according to the
Corporation's records, share an address and whom it believes are members of the
same family. A separate proxy card is included for each of these shareholders.have
provided contrary instructions. Any shareholder who received only one Notice
Regarding the Availability of Proxy Materials or one set of proxy materials, and
who wishes to receive a separate Notice or a separate set of proxy materials now
or in the future, may write or call the Corporation'sFirst Merchants' Shareholder Services
Department to request a separate copyNotice or a separate set of theseproxy materials at
First Merchants Corporation, P. O. Box 792, Muncie IN 47308-9915;47308-0792; (800)
262-4261, extension 27278.21522. Similarly, shareholders who share an address and are
members of the same family, and who
have received multiple Notices Regarding the Availability of Proxy Materials or
multiple copies of the proxy materials may write or call the Corporation'sFirst Merchants'
Shareholder Services Department at the same address and telephone number to
request delivery of a single Notice or a single copy of these materials in the
future.
The cost of soliciting proxies will be borne by the Corporation.First Merchants. In addition to
solicitations by mail, proxies may be solicited personally or by telephone or
other electronic means, but no solicitation will be made by specially engaged
employees or paid solicitors.
The Board and management are not aware of any matters to be presented at the
annual meeting of the shareholders other than the election of directors, the
directorsproposal to approve the First Merchants Corporation Equity Compensation Plan for
Non-Employee Directors, and the ratification of the appointment of the
independent public accountants.auditor. However, if any other matters properly come before suchthe
annual meeting or any adjournment thereof, the holders of the proxies are
authorized to vote thereon at their discretion, provided the CorporationFirst Merchants did not
have notice of any such matter on or before January 16, 2007.29, 2008.
By Order of the Board of Directors
Muncie, Indiana Cynthia G. Holaday
March 15, 200719, 2008 Secretary
29Page 33
ANNUAL MEETING OF SHAREHOLDERS OFA-5
APPENDIX A
FIRST MERCHANTS CORPORATION
EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
ESTABLISHMENT AND PURPOSE
Section 1.01. Establishment of Plan. First Merchants Corporation, an
Indiana corporation (the "Company"), hereby establishes the First Merchants
Corporation Equity Compensation Plan for Non-Employee Directors (the "Plan"),
effective as of April 24, 2007
Please date, sign29, 2008 (the "Effective Date"), subject to the approval
of the Plan at the Company's 2008 annual meeting of shareholders by the holders
of a majority of the shares of the Company's common stock present and mail
your proxy cardvoting at
that meeting in person or by proxy.
Section 1.02. Purpose. The purpose of the Plan is to promote the interests
of the Company and its shareholders by more closely aligning the interests of
the Company and its Non-Employee Directors by requiring the payment of at least
one-half (1/2) of the Compensation payable to Non-Employee Directors for their
service in that capacity in Restricted Shares of the Company's common stock. A
"Non-Employee Director" means any member of the board of directors of the
Company (the "Board") who is not an employee of the Company or any of its
Subsidiaries. A "Subsidiary" means a corporation or other form of business
association of which shares (or other ownership interests) having fifty percent
(50%) or more of the voting power are, or in the envelopefuture become, owned or
controlled, directly or indirectly, by the Company.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by the Compensation and Human Resources
Committee of the Board (the "Committee"), which shall serve at the pleasure of
the Board. The Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and to
adopt such rules and regulations for administering the Plan as it may deem
necessary to comply with the requirements of the Plan or any applicable law. All
actions taken and interpretations made in good faith by the Committee, or taken
or made by any other person or persons to whom the Committee has delegated
authority, in the administration of the Plan shall be final and binding upon all
interested persons. All decisions by the Committee shall be made with the
approval of not less than a majority of its members. No member of the Committee
shall be liable for anything done or omitted to be done by him or her or by any
other member of the Committee or the Board in connection with the Plan, except
for his or her own willful misconduct or as expressly provided by statute.
ARTICLE III
PARTICIPATION; NON-EMPLOYEE DIRECTOR COMPENSATION
Section 3.01. Participation. All Non-Employee Directors shall automatically
become participants in the Plan with respect to all Compensation payable to them
for calendar quarters ending after the Effective Date, until the Plan is
terminated in accordance with the provisions of Article VII. "Compensation"
means any retainer, fee or other payment of any kind to which a Non-Employee
Director is entitled for services performed in that capacity, including, without
limitation, any additional amount payable to a Non-Employee Director for
Page A-1
chairing a Board committee, but excluding any "Director Option" granted under
the Company's 1999 Long-Term Equity Incentive Plan (the "1999 Equity Incentive
Plan").
Section 3.02. Non-Employee Director Compensation. The Board shall annually,
or at other times as the Board shall deem appropriate, determine the amount of
Compensation to be payable for services performed by Non-Employee Directors, in
accordance with applicable laws and regulations. Such Compensation shall be paid
quarterly, as of the last business day of each calendar quarter.
Section 3.03. Fraction Payable in Restricted Shares. A fraction of all
Compensation payable to Non-Employee Directors for calendar quarters ending
after the Effective Date, as determined by the Board from time to time, which
fraction shall not be less than one-half (1/2), shall be paid in Restricted
Shares, as defined in Section 3.04. In the absence of such determination, this
fraction shall be one-half (1/2). The number of Restricted Shares to be issued
to each Non-Employee Director shall be determined on the basis of the Fair
Market Value of such Shares as of the date (i.e., the last business day of the
calendar quarter) for which the Compensation is payable. The "Fair Market Value"
of a Restricted Share means the last reported sale price of a share of the
Company's common stock on the relevant date, or if no sale took place, the last
reported sale price of a share on the most recent day on which a sale of a share
of stock took place as reported by NASDAQ or a national securities exchange on
which the Company's stock is listed on such date. The shares shall be issued as
of the last business day of the relevant calendar quarter and shall be credited
to the Non-Employee Director's stock account as soon as possible.
| |
v Please detach along perforated lineadministratively
feasible thereafter, but in no event shall any such payment be made later than
the March 15 of the calendar year next following the calendar year in which such
shares were earned. To the extent Compensation payable in Restricted Shares to a
Non-Employee Director under this Section 3.03 would result in a fractional share
of common stock being issuable to such Non-Employee Director, cash shall be paid
to the Non-Employee Director in lieu of such fractional share.
Section 3.04. Restrictions on Shares. A "Restricted Share" means a share of
the Company's common stock that is nontransferable and mailsubject to a substantial
risk of forfeiture, to the extent provided in this Section 3.04. The shares
issued to a Non-Employee Director in accordance with Section 3.03 may be
registered in the envelope provided. v
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMENDname of a nominee or held in such other manner as the
Committee determines to be appropriate. A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
- --------------------------------------------------------------------------------
1. Electionbook entry stock account will be
established in the Non-Employee Director's name. The Non-Employee Director will
be the beneficial owner of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Michael L. Cox
( ) Charles E. Schalliol
|_| WITHHOLD AUTHORITY ( ) Terry L. Walker
FOR ALL NOMINEES
|_| FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authoritythe shares issued and credited to his or her stock
account and, subject to the restrictions set forth in this Section 3.04, he or
she will have all rights of beneficial ownership in such shares including the
right to vote the shares and receive all dividends and other distributions paid
or made with respect thereto. The Company or its nominee will retain custody of
the shares issued under this Plan until (i) all of the restrictions have lapsed
in accordance with Subsection 3.04(a), and (ii) the Non-Employee Director makes
a specific request in writing to the Company for such shares to be sold,
transferred or delivered; provided, however, at any individual nominee(s), mark
"FOR ALL EXCEPT"time following the lapse of
such restrictions, a Non-Employee Director may request that a stock certificate,
representing all or part of the shares credited to his or her stock account on
which the restrictions have lapsed, be issued and filldelivered to the Non-Employee
Director. None of the shares issued under this Plan may be sold, transferred,
assigned, pledged, encumbered or otherwise alienated or hypothecated, unless and
until, and then only to the extent that, these restrictions have lapsed in
accordance with Subsection 3.04(a).
(a) Lapse of Restrictions. The restrictions set forth in the circle nextfirst paragraph of
Section 3.04 shall lapse on the earliest of the following dates: (i) the
third anniversary of the date as of which the Restricted Shares were issued
if, as of the date the restrictions are to each nominee you
wishlapse, the Non-Employee Director
has continued to withhold,serve in that capacity from the date as shown here: (X)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To changeof which the
address on your account, please checkRestricted Shares were issued to the box at rightdate of lapse; (ii) the date of the
Non-Employee Director's retirement as a member of the Board after he or she
has attained age fifty-five (55); (iii) the date of the Non-Employee
Director's death; (iv) the date the Non-Employee Director is determined to
be totally and indicate your new addresspermanently disabled, as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"), or (v) the date of
a "Change of Control," as defined in the address space above. Please note |_|
that changes1999 Equity Incentive Plan.
(b) Forfeiture of Restricted Shares. In the event a Non-Employee Director's
service as a member of the Board terminates prior to the registered name(s)date the
restrictions on all or part of the accountRestricted Shares issued pursuant to the
Page A-2
Plan have lapsed in accordance with Subsection 3.04(a), all shares still
subject to the restrictions shall be returned to or canceled by the Company
and shall be deemed to have been forfeited by the Non-Employee Director.
Section 3.05. Deferral of Compensation Paid in Restricted Shares. A
Non-Employee Director may elect to defer payment of all or part of his or her
Compensation that is payable in the form of Restricted Shares under the
provisions of this Article III, in accordance with the First Merchants
Corporation 2007 Directors' Deferred Compensation Plan (the "Directors' Deferred
Compensation Plan"), modified as provided in the following sentences of this
Section 3.05. A Non-Employee Director who makes such an election shall be
credited with Deferred Stock Units (which may include fractional shares) equal
to the number of Restricted Shares that the Non-Employee Director would
otherwise receive in accordance with Section 3.03 of this Plan. The Non-Employee
Director shall not be deemed to be the beneficial owner of any shares of the
Company's stock that the Non-Employee Director would have received had the
election not been made, and he or she shall not have the right to vote any such
shares or to receive any dividends or other distributions paid or made with
respect thereto. However, in lieu of the provision for crediting interest to a
Non-Employee Director's Account under Section 3.4 of the Directors' Deferred
Compensation Plan, the portion of the Non-Employee Director's Account under the
Directors' Deferred Compensation Plan that is credited with Deferred Stock Units
shall be credited with earnings each quarter equal to the dividends that would
be payable on an equivalent number of shares of the Company's common stock.
Notwithstanding Section 4.2 of the Directors' Deferred Compensation Plan, the
only permissible form of payment of the portion of the balance in the
Non-Employee Director's Account under the Directors' Deferred Compensation Plan
credited with Deferred Stock Units shall be a distribution of shares of Company
common stock in a single lump sum payment; provided, however, the Non-Employee
Director shall receive cash in lieu of a fractional share. The provisions of
Section 3.04 of this Plan shall supersede the vesting provisions of Section 4.4
of the Directors' Deferred Compensation Plan to the extent they may conflict.
ARTICLE IV
SHARES ISSUABLE UNDER PLAN
Section 4.01. Number of Shares. The shares issuable under the Plan shall be
the Company's authorized but unissued, or reacquired, common stock, or shares
purchased in the open market. The maximum number of shares of common stock that
may be issued under the Plan shall be 500,000, as adjusted pursuant to Section
4.02.
Section 4.02. Adjustment. If the Company shall at any time increase or
decrease the number of its outstanding shares of common stock or change in any
way the rights and privileges of such shares by means of a payment of a stock
dividend or any other distribution upon such shares payable in common stock, or
through a stock split, reverse stock split, subdivision, consolidation,
combination, reclassification, or recapitalization involving common stock, then
the numbers, rights and privileges of the shares issuable under Section 4.01
shall be increased, decreased or changed in like manner.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. No Right to be Elected. Neither the Plan nor any action taken
hereunder shall be construed as giving any Non-Employee Director any right to be
elected or re-elected as a director of the Company.
Section 5.02. Non-Assignment. A participant's rights and interest under the
Plan may not be submitted via this method.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposalassigned or transferred, hypothecated or encumbered, in whole or
in part, either directly or by operation of law or otherwise (except, in the
event of a participant's death, by will or the laws of descent and
distribution), including, without limitation, execution, levy, garnishment,
Page A-3
attachment, pledge, bankruptcy, or in any other manner; and no such right or
interest of any participant in the Plan shall be subject to ratify the appointmentany obligation or
liability of such participant.
Section 5.03. Compliance with Applicable Laws. No shares of the firmCompany's
common stock shall be issued hereunder unless counsel for the Company shall be
satisfied that such issuance will be in compliance with applicable federal,
state, local and foreign securities, securities exchange, and other applicable
laws and regulations.
Section 5.04. Withholding. It shall be a condition to the obligation of |_| |_| |_|
BKD, LLP as the
independent auditor for 2007.
3. In their discretion,Company to issue shares of common stock hereunder that the proxies are authorizedparticipant pay to
vote onthe Company, to the extent required by law and upon its demand, such other
mattersamount as
may properly come beforebe requested by the meeting,Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. A participant
in the Plan may satisfy the withholding obligation, in whole or in part, by
electing to have the Company withhold shares of common stock, otherwise issuable
under the Plan, having a Fair Market Value equal to the amount required to be
withheld. If the amount requested is not paid, the Company shall have no
obligation to issue, and the participant shall have no right to receive, shares
of common stock.
Section 5.05. Unfunded Plan. The Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of shares hereunder.
Section 5.06. Ratification of Actions Taken. By accepting any payment of
Non-Employee Director Compensation hereunder or other benefit under the Plan,
each participant, and each person claiming under or through him or her, shall be
conclusively deemed to have indicated his or her acceptance and ratification of,
and consent to, any action taken under the Plan by the Company, the Board, or
the Committee.
Section 5.07. Registration. The appropriate officers of the Company shall
cause to be filed any registration statement required by the Securities Act of
1933, as amended, and any reports, returns or other information regarding any
shares of common stock issued pursuant to the Plan as may be required by Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any other applicable statute, rule or regulation.
Section 5.08. Governing Law. The interpretation, validity and enforcement
of this Plan shall, to the extent not otherwise governed by the Code or the
securities laws of the United States, be governed by the laws of the State of
Indiana.
Section 5.09. Headings. Headings are given to the sections of this Plan
solely as a convenience to facilitate reference. Such headings, numbering and
paragraphing shall not in any case be deemed in any way material or relevant to
the construction of this Plan or any provisions hereof. The use of the singular
shall also include within its meaning the plural, where appropriate, and vice
versa.
ARTICLE VI
AMENDMENT
The Board may amend the Plan at any time and from time to time, as it deems
advisable; provided, however, that no amendment shall become effective without
shareholder approval if such shareholder approval is required by any applicable
federal or state law, rule or regulation, or by the Corporation
did not have noticerules of NASDAQ or any
national exchange on which the Company's common stock is listed; and provided,
further, that any such amendment shall comply with applicable provisions of Rule
16b-3 under Section 16 of the Exchange Act, as in effect from time to time, the
Code and the rules thereunder as in effect from time to time, and, to the extent
applicable, the Employee Retirement Income Security Act of 1974, as amended, and
the rules thereunder as in effect from time to time. No amendment of the Plan
shall materially and adversely affect any right of any such matter on or before January 16, 2007.
This proxy will be voted as directed, but if not otherwise directed this proxy
will be voted "FOR" items 1 and 2.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by
authorized person.
PROXY
FIRST MERCHANTS CORPORATION
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FIRST MERCHANTS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 2007
The undersigned hereby appoints Charles E. Schalliol and Robert M.
Smitson, and each of them, as proxiesparticipant with power of substitution,respect
to represent
and to vote allany shares of common stock of First Merchants Corporationthe Company theretofore issued without such
participant's written consent.
Page A-4
ARTICLE VII
TERMINATION
This Plan shall terminate upon the earlier of (a) the Board's adoption of a
resolution terminating the Plan, or (b) April 29, 2018, which is ten (10) years
from the undersigned would be entitled to vote atdate the Annual Meeting of Shareholders of
First Merchants Corporation to be held atPlan was initially approved and adopted by the Horizon Convention Center, 401
South High Street, Muncie, Indiana 47305, at 3:30 PM EST on April 24, 2007, and
at any adjournment thereof, with allshareholders of
the powersCompany in accordance with Article VIII. No termination of the undersigned would possess
if personally present. IfPlan shall
materially and adversely affect any of the nominees for electionrights or obligations of any person
without his or her written consent with respect to any shares of common stock of
the Company theretofore earned and issuable under the Plan.
ARTICLE VIII
SHAREHOLDER APPROVAL
The Plan shall be effective as Directorsof the Effective Date, contingent upon
shareholder approval and adoption at the 2008 annual meeting of the shareholders
of the Company. The shareholders shall be deemed to have approved and adopted
the Plan only if it is unable or declines to serve for any reason,approved and adopted at a meeting of the persons listed above haveshareholders
duly held by vote taken in the authority to vote for any substitute nominee namedmanner required by the Board of Directors of
First Merchants Corporation.
(Continued, and to be marked, dated and signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST MERCHANTS CORPORATION
April 24, 2007
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PROXY VOTING INSTRUCTIONS
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MAIL - Date, sign and mail your proxy card in the
envelope provided as soon as possible.
- OR -
TELEPHONE - Call toll-free 1-800-PROXIES ---------------------------
(1-800-776-9437) from any touch-tone telephone and COMPANY NUMBER
follow the instructions. Have your proxy card ---------------------------
available when you call. ACCOUNT NUMBER
- OR - ---------------------------
INTERNET - Access "www.voteproxy.com" and follow ---------------------------
the on-screen instructions. Have your proxy card
available when you access the web page.
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You may enter your voting instructions at 1-800-PROXIES (1-800-776-9437) or
www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or
meeting date.
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| |
v Please detach along perforated line and mail in the envelope provided IF v
you are not voting via telephone or the Internet.
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THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
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1. Election of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Michael L. Cox
( ) Charles E. Schalliol
|_| WITHHOLD AUTHORITY ( ) Terry L. Walker
FOR ALL NOMINEES
|_| FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: (X)
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
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FOR AGAINST ABSTAIN
2. Proposal to ratify the appointmentsecurities laws of the
firmUnited States, the Code, and the laws of |_| |_| |_|
BKD, LLPthe State of Indiana, as the independent auditor for 2007.
3. In their discretion, the proxies are authorized
to vote on such other matters as may properly
come before the meeting, provided the Corporation
did not have notice of any such matter on or
before January 16, 2007.
This proxy will be voted as directed, but if not otherwise directed this proxy
will be voted "FOR" items 1 and 2.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' AND MANAGEMENT'S
RECOMMENDATIONS, JUST SIGN BELOW; NO BOXES NEED TO BE CHECKED.
MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
_________________________________ _______________
Signature of Shareholder _________________________________ Date: _______________
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by
authorized person.applicable.
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