SCHEDULE 14A
(RULE 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material pursuant to Rule 14a-12
FIRST MID-ILLINOIS BANCSHARES, INC.
(Name of Registrant as Specified in its Charter)
FIRST MID-ILLINOIS BANCSHARES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: (5) Total fee paid:
|_| Fee paid previously with preliminary materials.
Checkbox if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
April 11, 2003
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of First Mid-Illinois
Bancshares, Inc., I cordially invite you to attend the Annual Meeting of
Stockholders of First Mid-Illinois Bancshares, Inc. to be held at 4:00 p.m. on
May 28, 2003, in the lobby of First Mid-Illinois Bank & Trust, 1515 Charleston
Avenue, Mattoon, Illinois.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement discuss the business to be conducted at the meeting. We have also
enclosed a copy of the Company's 2002 Report to the Owners and its Annual Report
on Form 10-K for the recently completed fiscal year. At the meeting, we will
report on Company operations and the outlook for the year ahead. Directors and
officers of the Company, as well as a representative of KPMG LLP, the Company's
independent auditors, will be present to respond to any appropriate questions
stockholders may have.
I encourage you to attend the meeting in person. Whether or not you plan to
attend the meeting, please act promptly to vote your shares. You may vote your
shares by completing, signing and dating the enclosed proxy card and returning
it in the accompanying postage paid envelope provided. You also may vote your
shares by telephone or through the Internet by following the instructions set
forth on the proxy card. If you attend the meeting, you may vote your shares in
person, even if you have previously submitted a proxy in writing, by telephone
or through the Internet. This will ensure that your shares are represented at
the meeting. If you have any questions concerning these matters, please contact
me at (217) 258-0415 or Christie Burich, Manager of Shareholder Services, at
(217) 258-0493. We look forward with pleasure to seeing and visiting with you at
the meeting.
Very truly yours,
FIRST MID-ILLINOIS BANCSHARES, INC.
/s/ William S. Rowland
William S. Rowland
Chairman And Chief Executive Officer
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1515 Charleston Avenue o P.O. Box 499 o Mattoon, IL 61938 o Phone:(217) 258-0493
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 2003
FIRST MID-ILLINOIS BANCSHARES, INC.
1515 CHARLESTON AVENUE, P.O. BOX 499
MATTOON, ILLINOIS 61938
(217) 258-0493
NOTICE IS HEREBY GIVEN, that the Annual Meeting of Stockholders of First
Mid-Illinois Bancshares, Inc. will be held in the lobby of First Mid-Illinois
Bank & Trust, 1515 Charleston Avenue, Mattoon, Illinois, on Wednesday, May 28,
2003 at 4:00 p.m. local time.
The meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Company; and
2. Such other matters as may properly come before the meeting or any
adjournments thereof.
The Board of Directors has fixed the close of business on April 1, 2003 as the
record date for the determination of the stockholders entitled to vote at the
meeting and any adjournments thereof.
You are requested to act promptly to vote your shares by completing, signing and
returning the enclosed proxy card in the enclosed return envelope or by
telephone or through the Internet by following the instructions set forth on the
proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William S. Rowland
William S. Rowland
Chairman and Chief Executive Officer
Mattoon, Illinois
April 11, 2003
PROXY STATEMENT
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GENERAL INFORMATION
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First Mid-Illinois Bancshares, Inc. to be
voted at the Annual Meeting of Stockholders to be held in the lobby of First
Mid-Illinois Bank & Trust, 1515 Charleston Avenue, Mattoon, Illinois, on
Wednesday, May 28, 2003 at 4:00 p.m. local time. The Board of Directors would
like to have all stockholders represented at the meeting. Please complete, sign
and return your proxy card in the enclosed return envelope, telephone the
toll-free number listed on your proxy card, or use the Internet site listed on
your proxy card.
The accompanying Notice of Annual Meeting, this Proxy Statement and the
proxy card are first being mailed to stockholders on or about April 11, 2003.
The Company's Annual Report on Form 10-K for the recently completed fiscal year,
which includes the consolidated financial statements of the Company, is also
enclosed.
The Company is a diversified financial services company which serves the
financial needs of central Illinois. The Company directly or indirectly owns all
the outstanding capital stock of First Mid-Illinois Bank & Trust, N.A., a
national banking association (the "Bank"), with offices in Mattoon, Charleston,
Effingham, Altamont, Neoga, Sullivan, Arcola, Taylorville, Tuscola, Monticello,
Deland, Urbana, Decatur, Highland, Pocahontas, Champaign, and Maryville,
Illinois; Mid-Illinois Data Services, Inc., a data processing company ("Data
Services"); and The Checkley Agency, Inc., an insurance agency ("Checkley").
Only holders of record of the Company's Common Stock at the close of
business on April 1, 2003 (the "Record Date") will be entitled to vote at the
annual meeting or any adjournments or postponements of such meeting. On the
Record Date, the Company had 3,162,383 shares of Common Stock issued and
outstanding. In the election of directors, and for any other matters to be voted
upon at the annual meeting, each issued and outstanding share of Common Stock is
entitled to one vote.
You may revoke your proxy at any time before it is voted. Unless so
revoked, the shares represented by such proxies will be voted at the annual
meeting and all adjournments thereof. You may revoke your proxy at any time
before it is voted by delivering written notice of revocation to the Secretary
of the Company at 1515 Charleston Avenue, P.O. Box 499, Mattoon, Illinois 61938,
by executing and delivering a subsequently dated proxy, by voting by telephone
or through the Internet on a later date, or by attending the annual meeting and
voting in person. Proxies solicited by the Board of Directors of the Company
will be voted in accordance with the directions given therein. Where no
instructions are indicated, proxies will be voted in accordance with the
recommendations of the Board of Directors with respect to the proposal described
herein.
A quorum of stockholders is necessary to take action at the annual meeting.
The presence, in person or by proxy, of the holders of a majority of the shares
of Common Stock of the Company entitled to vote at the meeting will constitute a
quorum. Votes cast by proxy or in person at the meeting will be tabulated by the
inspector of election appointed for the meeting and will be counted as present
for purposes of determining whether a quorum is present. The inspector of
election will treat broker non-votes as present and entitled to vote for
purposes of determining whether a quorum is present. "Broker non-votes" refers
to a broker or other nominee holding shares for a beneficial owner not voting on
a particular proposal because the broker or other nominee does not have
discretionary voting power regarding that item and has not received instructions
from the beneficial owner.
The expenses of solicitation, including the cost of printing and mailing,
will be paid by the Company. Proxies are being solicited principally by mail, by
telephone, and by e-mail. In addition, directors, officers and regular employees
of the Company may solicit proxies personally, by telephone, by fax or by
special letter. The Company may also reimburse brokers, nominees and other
fiduciaries for their reasonable expenses in forwarding proxy materials to
beneficial owners.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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The following table sets forth, as of March 1, 2003, the number of shares
of Common Stock beneficially owned by each person known by the Company to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock (who are not also directors), each director nominee of the Company, each
director, the "named executive officers" (as defined below) and all director
nominees, directors and executive officers of the Company as a group.
Name and Address Amount and Nature of Percent of Common
of Beneficial Owner Beneficial Ownership(1) Stock Outstanding
Principal Stockholders
Margaret Lumpkin Keon 186,347 (2) 5.8%
c/o Keon Enterprises
16 Miller Avenue, Suite 203
Mill Valley, California 94941
Mary Lumpkin Sparks 220,009 (3) 6.9%
2438 Campbell Road, N.W.
Albuquerque, New Mexico 87104
David R. Hodgman 166,659 (4) 5.2%
c/o Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Director Nominees, Directors and Named Executive
Officers:
Charles A. Adams 239,166 (5) 7.4%(19)
Kenneth R. Diepholz 24,739 (6) * %(19)
Steven L. Grissom 186,427 (7) 5.8%(19)
Richard Anthony Lumpkin 323,058 (8) 10.1%(19)
Daniel E. Marvin, Jr. 71,739 (9) 2.2%(19)
Gary W. Melvin 117,547(10) 3.7%(19)
Sara Jane Preston 6,491(11) * %(19)
William S. Rowland 39,218(12) 1.2%(19)
Ray Anthony Sparks 114,307(13) 3.6%(19)
John W. Hedges 4,912(14) * %(19)
Robert J. Swift, Jr. 2,030(15) * %(19)
Stanley E. Gilliland 24,420(16) * %(19)
Michael L. Taylor 1,940(17) * %(19)
All directors and executive 1,185,446(18) 36.1%(20)
officers as a group (15 persons)
(1) Unless otherwise indicated, the nature of beneficial ownership for shares
shown in this column is sole voting and investment power. The information
contained in this column is based upon information furnished to the Company
by the persons named above.
(2) The above amount includes 118,154 shares held under the Margaret L. Keon
Trust, established under Article 5 of the Mary G. Lumpkin Trust dated
January 31, 1984, of which trust Ms. Keon is trustee and beneficiary. The
above amount also includes 68,193 shares held by SKL Investment Group, of
which Ms. Keon is a voting member.
(3) The above amount includes 32,937 shares held in trust for the benefit of
Richard Anthony Lumpkin's adult son for which Mrs. Sparks serves as trustee
and of which shares Mrs. Sparks disclaims beneficial ownership. The above
amount also includes 72,000 shares owned by Pinon Tree Holding Company,
LLC, of which Mrs. Sparks disclaims beneficial ownership of 71,280 shares.
The above amount also includes 68,193 shares held by SKL Investment Group,
of which Mrs. Sparks is a voting member.
(4) The above amount includes 83,329.5 shares held by the Richard Anthony
Lumpkin 1990 Personal Income Trust for the benefit of Benjamin Iverson
Lumpkin dated April 20, 1990, and 83,329.5 shares held by the Richard
Anthony Lumpkin 1990 Personal Income Trust for the benefit of Elizabeth
Arabella Lumpkin dated April 20, 1990. Mr. Hodgman, who serves as
co-trustee of the aforementioned trusts, disclaims beneficial ownership of
the foregoing 166,659 shares held by these trusts.
(5) The above amount includes 164,080 shares of Common Stock held by a
corporation which Mr. Adams is deemed to control. The above amount also
includes 3,367 shares held by Mr. Adams' spouse, over which shares Mr.
Adams has no voting and investment power, and options to purchase 1,000
shares of Common Stock. The above amount does not include 2,648 shares held
by adult children of Mr. Adams.
(6) The above amount reflects the disposition by Mr. Diepholz to the Company of
27,452 shares on March 6, 2003 in a privately negotiated transaction in
accordance with the Company's share repurchase program. The above amount
also includes options to purchase 5,750 shares of Common Stock.
(7) The above amount includes 17,018 shares held by Mr. Grissom. The above
amount also includes 83,329.5 shares held by the Richard Anthony Lumpkin
1990 Personal Income Trust for the benefit of Benjamin Iverson Lumpkin
dated April 20, 1990, and 83,329.5 shares held by the Richard Anthony
Lumpkin 1990 Personal Income Trust for the benefit of Elizabeth Arabella
Lumpkin dated April 20, 1990. Mr. Grissom, who serves as co-trustee of the
aforementioned trusts, disclaims beneficial ownership of the foregoing
166,659 shares held by these trusts. The above amount also includes options
to purchase 2,750 shares of Common Stock.
(8) The above amount includes 62,685 shares held by The Lumpkin Family
Foundation, of which Mr. Lumpkin serves as a director, and of which shares
beneficial ownership is disclaimed. The above amount also includes 68,193
shares held by SKL Investment Group, of which Mr. Lumpkin is a voting
member. The above amount also includes options to purchase 5,750 shares of
Common Stock.
(9) The above amount includes 6,490 shares held by Mr. Marvin's spouse, over
which shares Mr. Marvin has no voting or investment power and of which Mr.
Marvin disclaims beneficial ownership, and 1,402 shares held by Mr.
Marvin's grandchildren, over which Mr. Marvin has shared voting and
investment power. The above amount also includes options to purchase 22,250
shares of Common Stock.
(10) The above amount includes options to purchase 5,750 shares of Common Stock.
(11) The above amount includes options to purchase 2,750 shares of Common Stock.
(12) The above amount includes options to purchase 22,315 shares of Common
Stock.
(13) The above amount includes 35,857 shares held by Sparks Investment Group,
LP, over which Mr. Sparks shares voting and investment power. The above
amount also includes 3,731 shares held by Mr. Sparks' spouse, over which
shares Mr. Sparks has no voting and investment power, and options to
purchase 1,000 shares of Common Stock.
(14) The above amount includes options to purchase 3,937 shares of Common Stock.
(15) The above amount includes options to purchase 1,125 shares of Common Stock.
(16) The above amount includes options to purchase 8,812 shares of Common Stock.
(17) The above amount includes options to purchase 1,687 shares of Common Stock.
(18) Includes an aggregate of 86,377 shares obtainable upon the exercise of
options.
(19) Percentage is calculated on a partially diluted basis, assuming only the
exercise of stock options by such individual which are exercisable within
60 days.
(20) Percentage is calculated on a fully diluted basis, assuming the exercise of
all stock options which are exercisable within 60 days by individuals
included in the above table.
* Less than 1%.
As of March 1, 2003, the Bank acted as sole or co-fiduciary with respect to
trusts and other fiduciary accounts which own or hold 119,535 shares or 3.74% of
the outstanding Common Stock of the Company, over which the Bank has sole voting
and investment power with respect to 104,450 shares or 3.27% of the outstanding
Common Stock and shared voting and investment power with respect to 15,085
shares or .47% of the outstanding Common Stock.
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PROPOSAL I - ELECTION OF DIRECTORS
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The directors of the Company are divided into three classes having
staggered terms of three years. At the annual meeting, the stockholders will be
entitled to elect three Class II directors for a term expiring in 2006. The
number of directors is nine, comprised of three directors in each of Class I,
Class II, and Class III.
For this year's annual stockholders meeting, the Board of Directors has
nominated for election as Class II directors Richard Anthony Lumpkin, Sara Jane
Preston, and William S. Rowland. Messrs. Lumpkin and Rowland have served as
directors of the Company since 1982 and 1991, respectively. Ms. Preston has
served as director of the Company since 2000. The three individuals receiving
the highest number of votes cast will be elected as directors of the Company and
will serve as Class II directors for three year terms expiring in 2006. Broker
non-votes, because they are not considered votes cast, will not be counted in
the vote totals. The Company has no knowledge that any of the nominees will
refuse or be unable to serve, but if any of the nominees becomes unavailable for
election, the holders of the proxies reserve the right to substitute another
person of their choice as a nominee when voting at the meeting.
The following table sets forth as to each nominee and director continuing
in office, his or her name, age, principal occupation and the year he or she
first became a director of the Company. Unless otherwise indicated, the
principal occupation listed for each person below has been his or her occupation
for the past five years.
Age at Year First Year
April Became Term
Name 1, 2003 Principal Occupation Director Expires
---- ------- -------------------- -------- -------
DIRECTOR NOMINEES
Richard Anthony Lumpkin 68 Director of the Bank (since 1966) and of 1982 2003
the Company; Chairman of the Board of
Consolidated Communications, Inc. (since
2003); Director of Ameren Corporation
(since 1995); Vice Chairman, McLeod USA
Inc. (until 2002); Chairman, President, and
CEO, Illinois Consolidated Telephone
Company (until 2002); in 1997, Illinois
Consolidated Telephone Company merged with
McLeod USA; in January 2002, McLeod USA
filed a prenegotiated plan of
reorganization through a Chapter 11
petition filed in the U.S. Bankruptcy Court
for the District of Delaware in order to
complete a recapitalization; in April 2002,
this plan of reorganization became
effective and McLeod USA emerged from
Chapter 11 protection; in December 2002, a
corporation led by Mr. Lumpkin
(Consolidated Communications, Inc.)
completed its acquisition of Illinois
Consolidated Telephone Company and other
operating entities from McLeod USA in
connection with the recapitalization and
then changed its name to Consolidated
Communications, Inc.; Director of Illuminet
Holdings, Inc. (until 2001).
Sara Jane Preston 62 Director of the Bank (since 1999) and of 2000 2003
the Company (since 2000); Director of
Checkley (since 2002); retired President
and CEO of Charleston National Bank and the
southern Illinois lending operations of its
successor organizations (Boatmen's National
Bank, NationsBank and BankAmerica).
William S. Rowland 56 Chairman, President, Chief Executive 1991 2003
Officer and Director of the Company;
Executive Vice President (1997-1999),
Treasurer and Chief Financial Officer
(1989-1999) of the Company; Director of
Data Services (since 1989); Director (since
1999), Chairman (since 1999), and Executive
Vice President (1989-1999) of the Bank;
Director of Checkley (since 2002).
DIRECTORS CONTINUING IN OFFICE
Charles A. Adams 61 Director of the Bank (since 1989) and of 1984 2004
the Company; Director of Data Services
(since 1987); Director of Checkley (since
2002); President, Howell Paving, Inc.
Daniel E. Marvin, Jr. 64 President Emeritus, Eastern Illinois 1982 2004
University (since 2002); Chairman,
President, Chief Executive Officer
(1983-1999) and Director of the Company;
Director (since 1980), Chairman
(1983-1999), and President and Chief
Executive Officer (1983-1997) of the Bank;
Director of Data Services (1987-1992).
Ray Anthony Sparks 46 Director of the Bank (since 1997) and of 1994 2004
the Company; Director of Data Services
(since 1996); Director of Checkley (since
2002); former President of Elasco Agency
Sales, Inc. and Electrical Laboratories and
Sales Corporation; private investor, Sparks
Investment Group, LP.
Kenneth R. Diepholz 64 Director of the Bank (since 1984) and of 1990 2005
the Company; President, Ken Diepholz
Chevrolet, Inc. (until 2000) and Vice
President, Ken Diepholz Chevrolet, Inc.
(since 2000); President, D-Co Coin Laundry;
President, Augusta Lakes; Owner, Diepholz
Rentals.
Steven L. Grissom 50 Director of the Bank and the Company (since 2000 2005
2000); Treasurer and Secretary of
Consolidated Communications, Inc. (since
2003); Assistant Secretary of Illinois
Consolidated Telephone Company (since
2003); Administrative Officer of SKL
Investment Group, LLC (since 1997);
Treasurer of Illinois Consolidated
Telephone Company (until 2002).
Gary W. Melvin 54 Director of the Bank (since 1984) and of 1990 2005
the Company; Director of Data Services
(since 1987); President and Co-Owner, Rural
King Stores.
The Board of Directors recommends a vote "FOR" the election of Directors
Lumpkin, Preston and Rowland for a term of three years.
Age at
April 1,
Name 2003 Principal Occupation
NAMED EXECUTIVE OFFICERS
John W. Hedges 55 President of the Bank (since 1999) and Executive
Vice President of the Company (since 1999); former
Senior Vice President, National City Bank (until
1999).
Robert J. Swift, Jr. 51 Executive Vice President of the Bank (since 2000)
and Vice President of the Company (since 2000);
former Senior Vice President, Central Trust Bank
(until 2000).
Stanley E. Gilliland 58 Executive Vice President-Loans of the Bank (since
1994) and Vice President of the Company (since 1984).
Michael L. Taylor 34 Executive Vice President and Chief Financial Officer
of the Bank (since 2000) and Vice President and
Chief Financial Officer of the Company (since 2000);
Vice President of AMCORE Bank (until 2000).
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
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The Board of Directors of the Company has established an audit committee
and a compensation committee. These committees are composed entirely of outside
directors. The Board has also created other company-wide committees composed of
officers of the Company and its subsidiaries. The Company does not maintain any
standing nominating committee. The full Board acts on all matters relating to
the nomination of individuals for election as directors.
Members of the audit committee are Messrs. Adams, Diepholz, Grissom,
Marvin, Melvin, and Sparks, and Ms. Preston. The audit committee reports to the
Board of Directors and has the responsibility for reviewing and approving
internal control procedures, accounting practices and reporting activities of
the Company's subsidiaries. The committee also has the responsibility for
establishing and maintaining communications between the Board and the
independent auditors and regulatory agencies. The audit committee reviews with
the independent auditors the scope of their examinations, with particular
emphasis on the areas to which either the audit committee or the auditors
believe special attention should be directed. It also reviews the examination
reports of regulatory agencies and reports to the full Board regarding matters
discussed therein. Finally, it oversees the establishment and maintenance of
effective controls over the business operations of the Company's subsidiaries.
The audit committee met five times in 2002.
The members of the compensation committee are Messrs. Adams, Diepholz,
Grissom, Lumpkin, Marvin, Melvin, and Sparks, and Ms. Preston. The compensation
committee reports to the Board of Directors and has responsibility for all
matters related to compensation of executive officers of the Company, including
review and approval of base salaries, conducting a review of salaries of
executive officers compared to other financial services companies in the region,
fringe benefits, including modification of the retirement plan, and incentive
compensation. The compensation committee met two times in 2002.
A total of 14 regularly scheduled and special meetings were held by the
Board of Directors of the Company during 2002. During 2002, all directors
attended at least 75 percent of the meetings of the Board and the committees on
which they served, except for Mr. Lumpkin with respect to meetings of the Board.
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
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The members of the audit committee of the Company during the fiscal year
ended December 31, 2002 were Messrs. Sparks (Chairman), Adams, Diepholz,
Grissom, Marvin, and Melvin, and Ms. Preston. Mr. Marvin was appointed to the
audit committee on July 1, 2002.
The audit committee acts pursuant to a written charter that was adopted by
the Board of Directors on January 23, 2001. The charter was reviewed and
reassessed for adequacy and adopted with no changes to the original language by
the Audit Committee on each of January 22, 2002 and January 28, 2003. The audit
committee will continue to review and reassess the charter from time to time but
not less than annually.
The audit committee reviewed and discussed with management the Company's
audited financial statements as of and for fiscal year ended December 31, 2002.
The audit committee also discussed with the independent auditors, KPMG LLP,
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
The audit committee received the written disclosures and the letter from
KPMG LLP required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as amended, and discussed with KPMG LLP the
independence of that firm.
Based on the review and discussion referred to above, the audit committee
recommended to the Board of Directors that the financial statements referred to
above be included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002.
In addition, the audit committee considered whether the provision of
services by KPMG LLP not related to the audit of the financial statements
referred to above and to the reviews of the interim financial statements
included in the Company's Forms 10-Q for the quarters ended March 31, 2002, June
30, 2002, and September 30, 2002 were compatible with maintaining the
independence of KPMG LLP.
This audit committee report is submitted by the audit committee of the
Board of Directors:
Ray Anthony Sparks, Chairman
Charles A. Adams
Kenneth R. Diepholz
Steven L. Grissom
Daniel E. Marvin, Jr.
Gary W. Melvin
Sara Jane Preston
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FEES OF INDEPENDENT AUDITORS
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Audit Fees. The aggregate fees billed for professional services rendered by
KPMG LLP for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2002 and the review of the financial statements
included in the Company's Quarterly Reports on Form 10-Q for said fiscal year
were $99,050.
Financial Information Systems Design and Implementation Fees. No
professional services were rendered or fees billed by KPMG LLP for financial
information systems design and implementation for the fiscal year ended December
31, 2002.
All Other Fees. The aggregate fees billed for professional services
rendered by KPMG LLP other than audit fees and financial information systems
design and implementation fees for the fiscal year ended December 31, 2002 were
$18,350, consisting of $14,350 for audit-related services (namely, employee
benefit plan audit, registration statement review, and statements and consent
issuances), and $4,000 for tax compliance services.
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EXECUTIVE COMPENSATION
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Summary Compensation Information. The following table summarizes
compensation for services to the Company and the Company's subsidiaries for the
years ended December 31, 2002, 2001 and 2000 paid to or earned by any person
serving as the Chief Executive Officer of the Company, and the four other most
highly compensated executive officers of the Company whose salary and bonus
exceeded $100,000, for the year ended December 31, 2002. These individuals are
sometimes herein referred to as the "named executive officers."
Securities
Name and Annual Underlying All Other
Principal Position Year Compensation(1) Options(#) Compensation
Salary(2) Bonus
William S. Rowland, Chairman, 2002 $ 187,000 $ 74,800 8,000 $21,606(3)
President and Chief Executive Officer 2001 $ 170,000 $ 48,136 9,000 $18,878(3)
of the Company 2000 $ 155,000 $ 46,330 3,750 $15,552(3)
John W. Hedges, Executive Vice 2002 $ 130,000 $ 40,950 3,250 $10,257(4)
President of the Company 2001 $ 122,000 $ 29,573 2,250 $ 9,101(4)
2000 $ 116,200 $ 29,686 2,250 $ 7,279(4)
Robert J. Swift, Jr., Vice President 2002 $ 126,500 $ 23,719 2,250 $ 9,013(4)
of the Company 2001 $ 122,100 $ 23,866 2,250 $ 8,087(4)
2000 $ 40,235 $ 12,675 0 $ N/A
Stanley E. Gilliland, 2002 $ 113,500 $ 23,409 2,250 $ 8,215(4)
Vice President of the Company 2001 $ 109,000 $ 22,277 2,250 $ 7,877(4)
2000 $ 106,000 $ 22,724 2,250 $ 7,723(4)
Michael L. Taylor, Vice President and 2002 $ 94,000 $ 22,443 2,250 $ 6,987(4)
Chief Financial Officer of the Company 2001 $ 89,000 $ 21,634 2,250 $ 6,638(4)
2000 $ 85,000 $ 17,638 2,250 $ 6,158(4)
(1) None of the named executive officers received any perquisites or other
personal benefits, securities, or property in an amount exceeding 10% of
his salary and bonus during 2002, 2001, and 2000.
(2) Includes deferred amounts.
(3) Represents the Company's contributions to its retirement plan for 2002,
2001, and 2000 of $15,708, $12,980 and $9,654, respectively, and an annual
premium payment for an insurance policy purchased to fund a supplemental
retirement and death benefit for Mr. Rowland in the amount of $5,898 for
each year.
(4) Represents the Company's contributions to its retirement plan for each
given year.
The following table sets forth information regarding individual grants of
stock options made in 2002 to the named executive officers.
Number of Percent of Potential Realizable Value
Securities Total Options Exercise at Assumed
Underlying Granted to Price Expir- Annual Rates of Stock Price
Options Employees in Per ation Appreciation for
Name Granted (#)(1) Fiscal Year Share Date Option Term
---- ----------- ----------- ----- ---- ---------------------------
5% 10%
-- ---
William S. Rowland 8,000 23% $ 27.25 12/16/12 $137,120 $347,440
John W. Hedges 3,250 9% $ 27.25 12/16/12 $ 55,705 $141,148
Robert J. Swift, Jr. 2,250 6% $ 27.25 12/16/12 $ 38,565 $ 97,718
Stanley E. Gilliland 2,250 6% $ 27.25 12/16/12 $ 38,565 $ 97,718
Michael L. Taylor 2,250 6% $ 27.25 12/16/12 $ 38,565 $ 97,718
(1) The options become exercisable with respect to 25% of the shares covered
thereby beginning on January 1, 2004 and on each of the three anniversaries
of this date.
The following table sets forth information regarding the year-end values of
unexercised stock options held by the named executive officers.
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options at Fiscal Options at
Name Exercise (#) Realized Year-End (#)Fiscal Year-End(1)
Exercisable Unexercisable Exercisable Unexercisable
William S. Rowland -- -- 16,312 24,688 $113,906 $ 69,219
John W. Hedges -- -- 2,062 8,688 $ 10,594 $ 26,531
Robert J. Swift, Jr. 562.5 $3,274(2) -- 6,187 $ -- $ 20,531
Stanley E. Gilliland -- -- 6,937 7,313 $ 2,469 $ 24,906
Michael L. Taylor -- -- 563 6,187 $ 4,594 $ 20,531
(1) This amount represents the difference between the market value of one share
of the Company's Common Stock on December 31, 2002 ($27.00) and the option
exercise price times the total number of shares subject to exercisable or
unexercisable options.
(2) This amount represents the difference between the market value of one share
of the Company's Common Stock on January 3, 2002 ($24.65), and the option
exercise price ($18.83) times the number of shares subject to the options
(562.5).
Employment Agreements. In January 2002, the Company entered into a new
employment agreement with William S. Rowland. The employment agreement generally
provides for an initial base salary, which may be increased but not decreased,
and a bonus of up to 40% of base salary for 2002 and 50% for 2003, as well as
other benefits under the agreement. The agreement has an initial term of three
years, which may be extended upon mutual agreement. In the event of termination
of Mr. Rowland's employment by the Company without cause, the Company will be
obligated to pay an amount equal to one year's salary. Under certain
circumstances, if Mr. Rowland's employment discontinues following a change in
control of the Company, the successor to the Company is obligated, among other
things, to pay an amount equal to two years' base salary. The employment
agreement includes a covenant which limits the ability of Mr. Rowland to compete
with the Bank for a period of two years following the termination of his
employment. In October 2002, the Company entered into a similar agreement with
John W. Hedges, which provides for a bonus of up to 35% of base salary, and a
payment in an amount equal to one year's base salary if employment discontinues
following a change in control of the Company.
In August 2000, the Company entered into a similar agreement with Robert J.
Swift, Jr., which provides for a bonus of up to 25% of base salary and a payment
in an amount equal to one year's base salary if employment discontinues
following a change in control of the Company. In May 2001, the Company entered
into a similar agreement with Stanley E. Gilliland, which provides for a bonus
of up to 25% of base salary and a payment in an amount equal to one year's base
salary if employment discontinues following a change in control of the Company.
In May 2001, the Company entered into a similar agreement with Michael L.
Taylor, which provides for a bonus of up to 25% of base salary and a payment in
an amount equal to one year's base salary if employment discontinues following a
change in control of the Company.
Compensation Committee Interlocks and Insider Participation. The members of
the compensation committee of the Board of Directors of the Company for the
fiscal year ended December 31, 2002 were Messrs. Diepholz (Chairman), Adams,
Grissom, Lumpkin, Marvin, Melvin, and Sparks, and Ms. Preston. During the fiscal
year ended December 31, 2002, no member of the compensation committee was an
officer or employee or a former officer of the Company or its subsidiaries,
other than Mr. Marvin, the former Chairman, President and Chief Executive
Officer of the Company. Also, during the fiscal year ended December 31, 2002,
Mr. Rowland served as a member of the compensation committee and as director,
and Mr. Grissom served as Treasurer, of Coles Together, a not-for-profit
economic development organization, and Mr. Hedges served as a member of the
compensation committee and as director, and Mr. Grissom served as President, of
Mattoon Area Industrial Development Corporation, a not-for-profit industrial
development corporation. See "Certain Relationships and Related Transactions."
Compensation Committee Report. It is the compensation committee's
responsibility to evaluate the performance of management, review total
management compensation levels and consider management succession and other
related matters. The committee reviews and approves in detail all aspects of
compensation for the senior management of the Company.
Compensation for senior management generally includes base salary, annual
performance-based incentives and long-term stock incentives. The Committee uses
a "peer group" of financial institutions, including Illinois banks, public
banking companies in the general area and commercial banks in the Midwest region
in assessing competitive compensation trends and pay levels.
Base Salaries. Base salaries for executive officers are reviewed annually
and may be adjusted, when appropriate, to reflect competitive practices, changes
in roles and responsibilities, and individual performance.
Annual Incentive Compensation. Annual incentive amounts are payable
contingent upon the performance of the Company, as well as the individual
contribution of each officer. As a result, a portion of each executive officer's
annual compensation is based upon the officer's performance, the performance of
the operating unit for which the officer has primary responsibility, and the
performance of the Company as a whole. The formulas for measuring performance
and awarding bonuses objectively link financial and individual performance with
bonus amounts.
Long Term Stock Incentive Compensation. Stock incentive awards are made
under the stockholder-approved First Mid-Illinois Bancshares, Inc. 1997 Stock
Incentive Plan (the "Plan"). The Plan is intended to provide a means whereby
executive officers may sustain a sense of proprietorship and personal
involvement in the continued success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interest of the Company and its stockholders.
Chief Executive Officer Compensation. The compensation package for Mr.
Rowland was determined in the same manner as for all other executive officers,
except for Mr. Rowland's annual incentive compensation as described below. In
December 2001, the compensation committee reviewed Mr. Rowland's base salary by
evaluating the responsibilities of his position and his experience and
performance. In addition, the compensation committee reviewed the comparison to
base salaries for chief executive officers at peer group companies, and
determined to increase Mr. Rowland's 2002 base salary from $170,000 in 2001 to
$187,000 for 2002. Mr. Rowland's 2002 annual incentive compensation was based
100% on the Company's total performance without reference to any particular
operating unit of the Company or personal objectives. The Company's total
performance was measured by comparing the financial results of the Company to
the 2002 net income goal established by the compensation committee in December
2001. The compensation committee established $7,800,000 as the superior level of
net income in 2002 necessary for Mr. Rowland to receive a payout of 100% of his
annual incentive compensation. Since net income in 2002 was $8,034,000, Mr.
Rowland received this 100% payout, amounting to 40% of his base salary. Finally,
in 2002, Mr. Rowland was awarded 8,000 stock options under the Plan.
The 2002 net income of $8,034,000 represented a $1,518,000 or 23.3%
improvement from 2001's level. Also, the Company's market share increased and
various other improvements were made in the Company's operating and
administrative functions. Accordingly, Messrs. Rowland, Hedges, Swift,
Gilliland, and Taylor were awarded incentive bonuses of $74,800, $40,950,
$23,719, $23,409, and $22,443, respectively.
The relationships between the base salaries and incentive compensation of
Messrs. Rowland, Hedges, Swift, Gilliland, and Taylor for 2002, 2001, and 2000
were as follows:
Incentive Compensation as a Percentage of Base Salary
2002 2001 2000
---- ---- ----
William S. Rowland 40% 28% 30%
John W. Hedges 32% 24% 26%
Robert J. Swift, Jr. 19% 20% --
Stanley E. Gilliland 21% 20% 21%
Michael L. Taylor 24% 24% 21%
This compensation committee report is submitted by the compensation
committee of the Board of Directors:
Kenneth R. Diepholz, Chairman
Charles A. Adams
Steven L. Grissom
Richard Anthony Lumpkin
Daniel E. Marvin, Jr.
Gary W. Melvin
Sara Jane Preston
Ray Anthony Sparks
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COMMON STOCK PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The following Common Stock price performance graph compares the cumulative
total stockholder return on a $100 investment in the Company's Common Stock to
the cumulative total return of the S&P 500 Index and the Nasdaq Bank Stock Index
for the period from December 31, 1997 through December 31, 2002. The amounts
shown assume the reinvestment of dividends.
Cumulative Total Return
---------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
First Mid-Illinois
Bancshares, Inc. 100.00 111.91 114.87 96.78 121.51 143.65
S & P 500 100.00 128.58 155.64 141.46 124.65 97.10
NASDAQ Bank 100.00 99.36 95.51 108.95 117.97 120.61
[OBJECT OMITTED]
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DIRECTORS' COMPENSATION
--------------------------------------------------------------------------------
Directors of the Company received a $2,500 quarterly retainer for serving
on the Board of Directors in 2002. Directors who are not employees of the
Company also were granted in 2002 options to purchase 1,000 shares of the
Company's Common Stock at an exercise price of $27.25 per share. Such options
have terms of ten years and became exercisable on their date of grant.
Additionally, the Company provides retirement pension benefits to non-employee
directors who have attained the age of 70 and who have served as a director for
a minimum of ten years upon retirement. The pension is equal to 75% of the
compensation received by the director from the Company in the year before
retirement. Directors who are not employees of the Company also receive health
insurance.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------
Directors and officers of the Company and its subsidiaries and their
associates were customers of and had transactions with the Company and its
subsidiaries during 2002. Additional transactions may be expected to take place
in the future. All outstanding loans, commitments to loan, transactions in
repurchase agreements and certificates of deposit and depository relationships,
in the opinion of management, were made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time or comparable transactions with other persons and did not
involve more than the normal risk of collectibility or present other unfavorable
features. Specific 2002 transactions are described below.
Mr. Grissom served as director of the Company and was the beneficial owner
of more than five percent of the Company's Common Stock. In addition, Mr.
Grissom, through his beneficial ownership in the equity holders of MACC, LLC and
Effingham Hi-Tech Partners, was the beneficial owner of more than ten percent of
the equity of each of these entities. Mr. Grissom also was the beneficial owner
of more than ten percent of the capital stock of Agracel, Inc. Ms. Margaret
Lumpkin Keon, a beneficial owner of more than five percent of the Company's
Common Stock and the sister of director Lumpkin, through her beneficial
ownership in an equity holder of MACC and Effingham Hi-Tech, was the beneficial
owner of more than ten percent of the equity of each of these entities. Mrs.
Mary L. Sparks, a beneficial owner of more than five percent of the Company's
Common Stock and the sister of director Lumpkin, through her beneficial
ownership in the equity holders of MACC and Effingham Hi-Tech, was the
beneficial owner of more than ten percent of the equity of each of these
entities. Mrs. Sparks also was the beneficial owner of more than ten percent of
the capital stock of Agracel. MACC, Effingham High-Tech and Agracel had
outstanding loans with the Bank. The highest outstanding aggregate balances and
the December 31, 2002 aggregate balances and interest rates of this indebtedness
for MACC was $1,083,940 and $1,016,862 at 7.49 percent; for Effingham High-Tech
was $3,499,352 and $3,283,224 at 5.375 percent; and for Agracel was $4,815,969
and $4,332,306 at interest rates ranging between 4.25 and 5.75 percent.
Each of Ms. Keon and Mrs. Sparks sold 100,000 shares of their Common Stock
to the Company for $2,750,000.
Mr. Lumpkin, who served as a director of the Company and was the beneficial
owner of more than five percent of the Company's Common Stock, had an
outstanding home mortgage loan with the Bank. The highest outstanding balance of
this loan was $76,901 and the December 31, 2002 balance was $72,322 at an
interest rate of 7 percent.
Messrs. Diepholz, Melvin, Sparks, and Adams, who each served as director of
the Company, had outstanding loans with the Bank. In the case of Mr. Diepholz,
these loans included loans to Mr. Diepholz's sons, Robert D. Diepholz, Kenneth
R. Diepholz, Jr., and Ronald Diepholz. The highest outstanding aggregate
balances and the December 31, 2002 aggregate balances and interest rates of this
indebtedness was $13,418,511 and $11,391,331 at interest rates ranging between
4.25 and 9.50 percent for Mr. Diepholz; $1,978,813 and $1,760,291 at an interest
rate of 4.25 percent for Mr. Melvin; $2,480,171 and $2,480,171 at an interest
rate of 4.25 percent for Mr. Sparks; and $2,700,000 and $2,559,980 at an
interest rate of 4.25 percent for Mr. Adams.
--------------------------------------------------------------------------------
NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS OF DIRECTORS
--------------------------------------------------------------------------------
Any stockholder wishing to nominate an individual for election as a
director must comply with certain provisions in the Company's Certificate of
Incorporation. The Company's Certificate of Incorporation establishes an advance
notice procedure with regard to the nomination, other than by or at the
direction of the Board of Directors of the Company, of candidates for election
as directors. Generally, such notice must be delivered to or mailed to and
received by the Secretary of the Company not fewer than 14 days nor more than 60
days before any meeting at which directors are to be elected. The stockholder
must also comply with certain other provisions set forth in the Company's
Certificate of Incorporation relating to the nomination of an individual for
election as a director. For a copy of the Company's Certificate of
Incorporation, which includes the provisions relating to the nomination of an
individual for election as a director, an interested stockholder should contact
the Secretary of the Company at 1515 Charleston Avenue, P.O. Box 499, Mattoon,
Illinois 61938.
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INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
The Board of Directors has selected KPMG LLP, independent certified public
accountants, to serve as the independent auditors of the Company and its
subsidiaries for the fiscal year ending December 31, 2003. KPMG LLP has served
as the Company's independent auditors since 1992. A representative from KPMG LLP
is expected to be present at the annual meeting, will have the opportunity to
make a statement and will be available to respond to appropriate questions.
--------------------------------------------------------------------------------
INCLUSION OF STOCKHOLDER PROPOSALS IN PROXY MATERIALS
--------------------------------------------------------------------------------
In order to be eligible for inclusion in the Company's proxy materials for
next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's main office at 1515
Charleston Avenue, P.O. Box 499, Mattoon, Illinois 61938, no later than December
12, 2003. Any such proposal shall be subject to the requirements of the proxy
rules adopted under the Securities Exchange Act of 1934.
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OTHER MATTERS
--------------------------------------------------------------------------------
The Board of Directors of the Company does not intend to present any other
matters for action at the annual meeting, and the Board has not been informed
that other persons intend to present any other matters for action at the annual
meeting. However, if any other matters should properly come before the annual
meeting, the persons named in the accompanying proxy intend to vote thereon,
pursuant to the proxy, in accordance with the recommendation of the Board of
Directors of the Company.
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SECTION 16 - BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
Based solely upon its review of reports on Forms 3, 4 or 5 and any
amendments furnished to the Company under Section 16 of the Securities Exchange
Act of 1934, and written representations from the executive officers and
directors that no other reports were required, the Company believes that all of
these Forms were filed on a timely basis by reporting persons during the fiscal
year ended December 31, 2002, except that Mr. Lumpkin filed one late Form 4
relating to shares of Common Stock that were distributed to his sister, Mrs.
Sparks, from a trust that was terminated and under which trust Mr. Lumpkin had
served as trustee.